Retail

Nordstrom, JCPenney See Continued Revenue Struggles

Nordstrom, JCP Continue Revenue Struggles

The department store sector is in the middle of another tough week, as Nordstrom filed disappointing earnings on Tuesday (Aug. 25) and JCPenney investors look to make sense out of the company’s recent July revenue update.

For Nordstrom, its second-quarter earnings report shows the company is still catching up to the digital shift. There was the expected sales decline from pandemic-related store closures – however, the retailer didn’t capture anywhere near the eCommerce sales momentum that other retailers have seen in Q2.

By the numbers, net sales decreased 53 percent from the quarter ending Aug. 1 compared to 2019, which reflected store closures for approximately 50 percent of the quarter due to the pandemic. The company estimated that it lost an additional 10 percent in sales by moving its annual anniversary sale – which is currently still in progress – from the second to the third quarter.

By its own admission, Nordstrom was in a defensive position for much of the quarter, with CEO Erik Nordstrom saying that the company was focused on “protecting and enhancing liquidity,” which executives said they achieved.

Total company digital sales decreased 5 percent during the quarter compared to 2019, but the company reported that eCommerce has increased 20 percent on a year-to-date basis. It pointed to potential new growth online, noting a 50 percent growth in new digital customers year to date. According to Erik Nordstrom, the company has seen success with the digital component of its anniversary sale, as those customers have created 20 million wish lists so far.

“There are plenty of categories that we've been able to adjust our investment, and we're seeing great signals from customers and can adjust into that so there is some effect on our inventory,” Nordstrom said on the call. “We’ve seen it in our digital businesses, certainly, and as inventory flow improves, and it is improving the last couple of weeks, it gives us confidence going forward. That coupled with the investments we've made in digital, not only in our site but also the digital connections to our physical assets – we're leaning into this digital-first, and we're getting a lot of very clear signals about what's relevant and meaningful to our customers in this moment.”

While Nordstrom was confident about the future of the online business, the drop in sales for Q2 was far away from what other retailers (albeit not in exactly the same category) have reported. Kohl’s reported a 58 percent bounce in eCommerce, while Target and Walmart both reported digital increases in the triple digits.

JCPenney is in far worse shape financially than Nordstrom, but the company still has enough market value to seek a buyer after it declared bankruptcy in May. JCP is trading at .30 this week but still maintains a market cap of $100 million, according to The Motley Fool. The stock newsletter also reports that investors are trying to make sense of some positive cost-cutting moves by JCP management that have at least temporarily improved its bottom line. Still, last week investors asked the bankruptcy court to appoint an official shareholders committee, which could turn up the heat to finalize a sale.

“Even JCPenney's leaders don't think revenue growth is feasible,” says The Motley Fool. “JCPenney generated annual revenue of over $17 billion less than a decade ago. By fiscal 2019, that figure had fallen to around $11 billion. Management's long-range forecast calls for revenue of around $9 billion in fiscal 2024. Nevertheless, it projects substantial growth in earnings before interest, taxes, depreciation and amortization driven by massive cuts to marketing spending, store labor and overhead, with virtually no incremental investment in IT. Considering how competitive the retail environment is, cost cuts of this magnitude would almost certainly cause revenue to plunge at a much faster pace.”

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