Nordstrom profit drop looms

Nordstrom cut its forecast for third-quarter profit Thursday, citing disappointing sales and bulging inventory.

The news pushed the stock of the Seattle upscale retailer down $3.64, or 7.5 percent, to $44.97 — the biggest decline in almost 10 months.

Nordstrom wasn't the only retailer reporting disappointing news Thursday. Target, J.C. Penney and Limited Brands also cut their earnings outlooks.

Wal-Mart Stores was almost alone in raising its third-quarter profit projection, but that was because of expense-cutting, not robust sales.

Nordstrom will earn 50 to 53 cents a share in the third quarter, the retailer said in a statement. Its previous projection had been 61 cents to 64 cents.

The retailer also cut its forecast for third-quarter same-store sales — sales at stores open a year or more, a key gauge of a retailer's health. It projected a gain of 2 to 4 percent, in contrast to the earlier forecast of 4 to 5 percent.

Nordstrom will reports results Nov. 19.

The retailer, whose sales usually beat Wall Street estimates, said Thursday its comparable-store sales rose 3.2 percent in the five weeks ended Oct. 6, less than the 4.9 percent analysts expected.

The chain is taking "additional markdowns," Nordstrom said in a prerecorded call. It had increased inventories as part of its strategy to offer more designer goods at about a quarter of its 100 stores.

"We are taking immediate action to bring inventory levels in line, which will negatively impact merchandise margins for the remainder of the year," company President Blake Nordstrom said in the statement.

The question for all big U.S. retailers is "who has too much inventory," said John Morris, managing director of Wachovia Securities, "and how does that impact holiday sales?"

The inventory problem, he said, has forced some retailers to try to cut holiday orders. It may be too late.

"The discounting is starting to spread," Morris said.

He estimated that discounting was up 5 percent in September compared with a year ago at the apparel chains he tracks.

Muggy, hot weather across much of the nation discouraged shoppers from buying fall apparel, but the stores' sales reports also showed that consumers continue to be weighed down by higher energy prices, a slumping housing market and tightening credit.

"There is this growing anxiety out there," said Frank Badillo, vice president and senior retail economist at Retail Forward, a retail consulting company.

"And it's not just focused on the low-income households. I think you are starting to see it creep into the upmarket households," Badillo said.

Wal-Mart sales rise

Wal-Mart on Thursday reported a 1.4 percent increase in same-store sales, slightly below the 1.8 percent estimate from analysts surveyed by Thomson Financial.

The company said apparel and home furnishings remain weak, and that company research shows customers remain concerned about their finances, particularly the cost of living.

But the discounter raised its profit outlook to a range of 66 to 69 cents from its previous 62 to 65 cents due to cost cutting.

Target said same-store sales increased a slim 1.2 percent, dragged down by weak apparel sales. Analysts had expected a 2.2 percent rise.

Target said it believes its full-year earnings per share will be below $3.60 versus a previous expectation of earning "slightly more or slightly less."

Macy's posted a 2.7 percent drop in same-store sales, worse than the 1 percent projection.

Meanwhile, Penney suffered a 4.6 percent drop in same-store sales, below analysts' forecasts for a 0.1 percent decline.

The company slashed its third-quarter forecast to $1.00 to $1.04 a share, compared with the previous guidance of $1.28.

Limited Brands had a 4 percent drop in same-store sales; the forecast had been for a 1.5 percent slide.

The clothing retailer lowered its third-quarter earnings guidance, saying it may not earn a profit.

Clothing retailer Coldwater Creek said Thursday after the markets closed that its second-half sales and profit will be lower than previously forecast because of fewer customers. The news pushed its stock down $1.71, or 15.7 percent, to $9.16.

The Sandpoint, Idaho, company said it expects second-half sales as high as $630 million and a loss as high as 12 cents, compared with its previous forecast of $735 million in sales and a profit of 34 cents.

Wednesday, Issaquah-based Costco reported same-store sales at its warehouse outlets were up 6 percent in September from a year earlier, and its shares hit an all-time record.

Costco shares kept climbing Thursday, rising 11 cents to another new high of $69.24.

Also Wednesday, Everett-based teen action-sports retailer Zumiez reported same-store sales up 12 percent in September.

Its stock soared $3.23, or 6.8 percent, to a record $50.63 Thursday.

Information from Bloomberg News, The Associated Press and Seattle Times staff is included in this report.