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Nordstrom, JCPenney Disappoint In Q2, But For Different Reasons

Nordstrom, JCPenney Disappoint In Q2, But For Different Reasons

Although Macy’s successfully maintained its holiday season momentum in Q1, fellow department stores JCPenney and Nordstrom weren’t as fortunate in their earnings results.

Same-store sales at Nordstrom rose 0.6% in Q1, below estimates of 1.1%, while JCPenney same-store sales rose 0.2%, well short of analysts' forecasts for roughly 2% growth. JCPenney saw total revenue dip 4.3% to $2.58 billion, but narrowed its net losses from $187 million to $78 million. The most unfortunate result for JCPenney is its expectations for the year: 2018 guidance initially ranged between earnings of $0.05 and $0.25 per share, but the retailer has cut the outlook range down to a loss of $0.07 to a gain of $0.13 per share.

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Nordstrom’s Q1 miss on same-store sales was enough to overshadow better-than-expected revenue and earnings for the first quarter. It didn’t help that its Nordstrom Rack off-price business also disappointed in same-store sales, generating only 0.4% growth. Traditionally, Nordstrom has seen better gains from its off-price stores, so the shift in consumer demand is a bit of a surprise.

However, digital sales were up 18% year-over-year at Nordstrom, and digitally-enabled sales were up 29%.

The results from both companies disappointed investors, with Nordstrom stock dipping more than 10% and JCPenney dropping more than 15% since their respective earnings reports. But both tell different stories of disappointment.

JCPenney has been in worse shape than its contemporaries for years and has tried to crawl back to profitability via store closings, job cuts and the introduction of Sephora beauty boutiques in stores. The retailer still has more than $4.1 billion total debt, a huge problem that is unlikely to go away any time soon.

Nordstrom has been in a far better position than other department stores, avoiding the store closings that JCPenney, Macy’s and Sears have struggled with over the past two years and floating closest to consistently positive sales numbers. But the retailer is fresh off an internal struggle for its future, in which members of the founding family sought to buy the entirety of the company’s shares and take it private. A committee called off the talks after being unable to reach a buyout agreement, leading the company to remain largely in the hands of shareholders.

Both retailers’ Q1 results post significant but different questions that each will have to handle, before they can quell any shareholder concerns about the future direction of their businesses.

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