There’s a lot of gloom in retail right now. One of the few bright spots has been off-price. But for Nordstrom Inc., that part of the business lost some luster during this latest quarter.
Nordstrom JWN, -10.84% reported first-quarter sales of $3.35 billion, up from $3.25 billion last year, and ahead of the $3.34 billion FactSet consensus. Same-store sales were down 0.8%.
Same-store sales at Nordstrom Rack, the company’s off-price business, were down 0.9%, according to Co-President Blake Nordstrom. He said there’s no one thing that he would pinpoint as the cause of the decline, but said the company had expected same-store sales to be flat.
Carter Harrison, a GlobalData Retail analyst, believes the sluggish performance may have something to do with fickle customers amid competition and said Rack is facing tougher year-over-year growth rates.
Other retailers like Macy’s Inc. M, -3.04% are launching their own off-price brands, and companies like TJX Cos. TJX, -2.72% , the parent company to retailers like T. J. Maxx, and Ross Stores Inc. ROST, -2.67% appear to be better currently at attracting customers.
“We still believe that Rack has something unique to offer the market, but it will need to work much harder over the rest of this year to communicate its proposition and to drive customers to stores and online,” Harrison wrote.
It’s possible that better inventory controls at Nordstrom also had an impact on Rack.
“While less than 20% of Rack’s product assortment comes from full line stores, the quality of those products is likely to weaken as Nordstrom cuts back on over-buying,” Harrison said.
Macquarie Research, in a Thursday note, attributed the Rack result to one of three things: “mature locations are comping low- to mid-single-digit negatives, new stores aren’t ramping up productivity, and/or there is some cannibalization occurring as Nordstrom opens Racks in markets where a store already exists.”
Add to that the company has been dragged down by results from Macy’s, J.C. Penney and other retailers.
Macquarie Research rates Nordstrom shares neutral with a price target of $45.
Still, UBS analysts believe Nordstrom had “relative strength” in the quarter, given the results at competitors like Kohl’s Corp. KSS, -1.80% and Macy’s. But they believe the company will have to focus on costs going forward.
“While Nordstrom’s total revenue growth algorithm should remain well-above department store peers for some time, the company is likely going to have to take much more aggressive action to address fixed cost deleverage from persistent negative mid-single digit percent declines in the bricks-and-mortar channel if we’re right that U.S. mall/department store traffic trends are unlikely to improve in the medium term,” UBS’s Michael Binetti wrote in a Friday note.
UBS rates Nordstrom shares buy with a $51 price target.
Nordstrom shares closed about 11% lower on Friday, and are down 14.2% for the year so far. The S&P 500 index SPX, -0.15% is up 6.7% for 2017 to date.