Shrinking Sales and Merchandise Misfires: Why Nordstrom, Kohl’s & JCPenney Had a Rocky Q1
America’s department stores continue to face challenging times.
Several of the nation’s major chains reported disappointing first-quarter earnings this week, as sales failed to measure up to expectations and shoppers continued to drift toward online and direct-to-consumer competitors. Issues with merchandise assortment, a cool and rainy start to the spring season and marketing misfires hurt results further, though many of the segment’s problems are more systemic than executives’ promises to course-correct in the coming months might suggest.
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On an call with investors and analysts on Tuesday, Nordstrom’s co-president Erik Nordstrom said the department store lost sales by taking its loyalty program — the recently launched Nordy Club — all-digital, eliminating the paper rewards notes that some of its almost 12 million active members rely on. The rollout also diverted dollars from its digital marketing efforts, cutting online sales growth for the quarter to 7%, down from 16% for the full year prior.
The Seattle-based company cut its annual sales forecast to unchanged to down 2% from its previous estimate of a 1% to 2% increase. It reported net income of $37 million and adjusted earnings of 23 cents per share, far short of the 43 cents per share forecast by analysts. Full-price sales dropped 5.1% year-over-year, while Nordstrom Rack declined 0.6%, even as off-price competitors like T.J. Maxx continued to see strong results.
The chain’s woes were shared by Kohl’s, which saw same-store sales decline for the first time in two years. The Menomonee Falls, Wisconsin-based retailer reported first-quarter adjusted earnings of 61 cents a share on sales of $4.09 billion, compared with Wall Street’s forecast of earnings per share of 68 cents on revenue of $3.94 billion.
It, too, cut its profit guidance for fiscal 2020, saying it now expects adjusted earnings per share of between $5.15 to $5.45, down from an earlier estimate of $5.80 to $6.15.
CEO Michelle Gass insisted the issues — unfavorable weather, below-average home and footwear sales and marketing efforts that didn’t land with customers — were “temporary,” though she said the company likely won’t return to growth until the second half of the year.
With less cash to invest in traffic-driving programs and a shrinking network of stores, it’s perhaps unsurprising that beleaguered J.C. Penney didn’t fare any better than its peers. Same-store sales plunged 5.5% for the first quarter, pushing the retailer to a loss of $154 million, or 47 cents per share. Analysts had forecast a loss of 38 cents a share.
The company recently exited the home appliance and furniture business, which had suffered from weak sales, and previously announced plans to shut down 18 locations this year.
All three companies are gearing up for major rollouts in the coming months: Nordstrom will open its midtown Manhattan flagship in October, at last giving it a physical presence in its biggest market for online sales. (Its men’s store opened its doors across the street last spring.)
Kohl’s will take its partnership with Amazon nationwide in July, offering customers the opportunity to return their Amazon purchases in all of its 1,150 stores (and, it hopes, giving them a reason to linger and shop). A pilot version of the program has been in place in Los Angeles and Chicago for 18 months, and, said Gass, “Our testing has shown that we are driving engagement with our existing customers and attracting new and younger customers. This gives us great confidence in rolling it out nationwide in time for our significant back-to-school launch, which begins in July.”
Finally, J.C. Penney’s new CEO, Jill Soltau, who joined the company in October, is expected to unveil a turnaround plan to put the retailer back on track toward profitability. On Tuesday’s earning’s call, she said the plan wasn’t ready for “prime time” but a slew of C-suite hires in recent months show some momentum.
One recent success story it could look to? Macy’s. Although the chain is facing the same headwinds as its peers, it has so far been the segment’s one modest bright spot this quarter, posting a first quarter profit that beat Wall Street’s expectations and its sixth consecutive quarter of same-store sales growth. Macy’s has invested in its mobile app and in updating its top-performing stores, including adding experiential shop-in-shops through its acquisition of the concept boutique Story. It grew online sales by double digits in the first quarter, driven by acceleration in mobile shopping. For fiscal 2019, it expects adjusted earnings per share to fall within a range of $3.05 to $3.25, and same-store sales to be flat to up 1%.
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