Nordstrom reports lower profit for quarter, says 2008 will be weak

Nordstrom's top executives have a reputation on Wall Street for being overly conservative in their financial predictions. But now their cautious outlook reflects the realities of a difficult retail environment and should be believed, analysts said Monday after the company released its latest financial results.

The Seattle-based retailer said its fourth-quarter profit fell nearly 9 percent from a year ago as sales slowed and excess inventories led to more markdowns.

Nordstrom posted a profit of $212 million, or 92 cents a share, for the three months ended Feb. 2.

Although that topped the 88 cents a share analysts had expected, it was down from the $232 million, or 89 cents a share, recorded a year ago.

Nordstrom said it expects a profit in the current fiscal year of between $2.75 and $2.90 a share, well below the $2.98 Wall Street predicted. What's more, the retailer projected that sales at stores open at least a year — a key measure of performance — will be flat or down as much as 2 percent this year.

"It's like creeping through a cave with a flashlight at this point," said Patricia Edwards, a money manager at Wentworth, Hauser & Violich in Seattle, whose firm manages more than $13 billion in assets, including nearly 700,000 Nordstrom shares. "A lot depends on the economy."

Nordstrom gave its results after the stock markets closed. Wall Street seemed conflicted about the report, first sending shares down, then up in after-hours trading to just above $37.

Earlier Monday, shares rose 98 cents to $36.98. They have traded between $29.04 and $56.72 in the past year.

During a conference call with analysts, President Blake Nordstrom said overall sales of women's apparel have been disappointing, and that California, where the company has nearly a third of its stores, is tough.

Looking ahead, he said the company will focus on its core customer, who in the past has been identified as someone with an annual income of at least $100,000.

Pete Nordstrom, an executive vice president who oversees merchandising, said the company will carefully manage inventory.

Referring to the second half of last fiscal year, he said the company "overbought and had to cancel orders. We did a lot of scrambling and work that really didn't apply itself to selling and getting after the best new products."

"We believe that we have a good opportunity to improve our situation," he added.

Jennifer Black, a Lake Oswego, Ore., retail analyst who advises large institutional investors, said she continues to recommend the stock, citing the "little things" that keep customers returning to Nordstrom stores.

Chief among them, she said, is a generous return policy that "makes people feel safe."

Per-share profit was up year over year because Nordstrom bought back 11 million shares during the quarter.

Lower performance-based bonuses for managers also contributed to the better-than-expected profit report.

"I'm not sure it was the highest-quality quarter I've ever seen from them," Edwards said.

Designer clothes strong

Still, she was encouraged that sales at Nordstrom's newly opened store in Aventura, Fla., reportedly are exceeding expectations, and demand for its designer collections — generally its most expensive items — remains strong.

"That gives me hope that the high-end consumer will continue to hold up," Edwards said.

Dan Geiman, a retail analyst at McAdams Wright Ragen in Seattle, said the financial predictions Nordstrom initially makes "have been below what they ended up achieving" in recent years.

Whether they do better this year than they're now predicting to a large extent depends on if they introduce merchandise that "generates some excitement and captures customers' imagination," Geiman said.

"There haven't been a lot of must-have items."

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com