Nordstrom shares soar 10% on earnings beat, as e-commerce sales rise

  • Nordstrom earnings and sales for the second quarter top analysts' expectations, sending shares soaring.
  • The department store chain also raises its earnings outlook for the full year.
  • Nordstrom reports strong sales growth online, along with robust traffic at Nordstrom Rack.

Nordstrom on Thursday reported earnings and sales for the second quarter that topped analysts' expectations and also raised its outlook for the full year, citing momentum in its online business and robust traffic at Nordstrom Rack.

Its shares soared more than 13 percent in after-hours trading on the news.

Nordstrom's earnings followed mixed results from rivals Macy's and J.C. Penney, which both saw their stocks tumble earlier in the week on investors' concerns about margin pressure and excess inventory building up. But in the case of Nordstrom, the retailer has managed to mitigate some of these pressures by keeping a slimmer real estate footprint and testing new concepts, like stores that don't sell any merchandise.

Nordstrom said its strong performance during the quarter "was driven primarily by higher sales volume, a lower effective tax rate and the impact of the new revenue recognition standard" as it related to the timing of the department store chain's annual anniversary sales event.

Net income for the quarter ended August 4 was $162 million, or 95 cents a share, compared with $110 million, or 65 cents a share, a year ago. That was ahead of the 84 cents per share that analysts were expecting, according to a poll by Thomson Reuters.

Revenue climbed 7.1 percent to $4.07 billion from a year ago, ahead of an expected $3.96 billion in sales.

Sales at those stores open for at least 12 months were up 4 percent overall, far surpassing the increase of 0.8 percent that analysts had forecast. That consisted of same-store sales growth of 4.1 percent at Nordstrom's full-price locations, and an increase of 4 percent at Nordstrom Rack.

Looking to the full year, Nordstrom now expects to earn between $3.50 and $3.65 per share, up from a prior targeted range of between $3.35 and $3.55 a share. The company said same-store sales could rise as much as 2 percent in fiscal 2018, compared with a prior targeted range of between 0.5 and 1.5 percent growth. Revenue is forecast to be as much as $15.5 billion, compared with a previous target of as much as $15.4 billion.

The department store chain earlier this year called off its plans to take the company private after a price couldn't be agreed upon. It wanted to move out of the public market in order to avoid the challenge that department store owners face today: making the investments needed to compete against the likes of Amazon and Walmart, while continuing to keep shareholders happy. And this is no easy task, as more shopping heads online and mall traffic dwindles.

Nordstrom has been testing new concepts to keep its stores and assortment of inventory fresh. It has partnered with e-commerce brands like Allbirds and Casper for pop-up shops within Nordstrom stores. It's also planning to grow a concept known as Nordstrom Local, which is centered around experiences like manicures and pedicures, on-site tailoring, and helping speed online orders.

Meanwhile, Nordstrom's online business continues to boom. The company reported e-commerce sales growth of 23 percent during the second quarter, compared with growth of 20 percent a year ago. Nordstrom said digital sales now represent 34 percent of total sales, compared with 29 percent the same time last year.

With stronger consumer confidence and a record low unemployment rate in the U.S., shoppers are opening up their wallets more and are expected to do so this holiday season. That should bode well for companies like Nordstrom, and Walmart has been another beneficiary of this trend, also reporting strong second-quarter earnings and raising its full-year outlook Thursday morning.

"I think ... given the fact that our inventories [are] in relatively good shape and we're in a position where we can react, I think we feel like we're in a good position for the fourth quarter," Nordstrom co-president Pete Nordstrom said on a call with analysts investors Thursday afternoon.

Nordstrom shares have climbed roughly 17 percent over the past 12 months, bringing the company's market cap to about $8.7 billion.