Nordstrom, Gap Stock Plunge After Lackluster Results

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People walk past the Gap flagship Oxford Street store on July 02, 2021 in London, England.

Rob Pinney/Getty Images

Retailers Nordstrom and Gap both saw their quarterly results hurt and their shares prices hit by supply-chain disruptions even as more customers return to their physical stores.

On Tuesday after the market closed, department store chain Nordstrom (JWN) reported third-quarter earnings that fell short of analysts’ expectations, sending the stock down 23% in after-hour trading.

The firm posted total revenue of $3.64 billion during the three months ended Oct. 30, beating the $3.5 billion expectation from analysts polled by FactSet. Sales were up 18% from the same period last year, but still slightly below the prepandemic levels in 2019.  

Despite the stronger-than-expected sales, higher labor costs have cut into Nordstrom’s profits, according to the firm. Earnings were only 39 cents per share, missing the expected 57 cents by a large margin. The company reiterated its full-year outlook, expecting total revenue to rise more than 35% from fiscal 2020.

Nordstrom said it has been pulling some orders forward to mitigate the supply-chain bottlenecks and prepare for the holiday season. Its inventory level in the third quarter was 13% higher than the same period in 2019. The company needs to profitably grow market share and move faster to capitalize on its strengths in customer service and merchandise mix, CEO Erik Nordstrom said in a statement.

Nordstrom isn’t the only retailer suffering. Apparel brand Gap (GAP) saw its shares tumble 17% in Tuesday’s extended trading after the company failed to meet expectations for its third-quarter results and slashed full-year outlook. 

Gap’s revenue fell to $3.94 billion from $3.99 billion in the year-ago quarter, missing the $4.43 billion analysts had been looking for. The firm reported a net loss of $152 million, or 40 cents a share, for the quarter. Adjusted for debt-restructuring costs and other charges, earnings were 27 cents a share, still short of the 50 cents expected. 

Gap management also revised its full-year outlook lower. It now expects 2021 revenue to grow 20% from last year——a significant drawback from its previous outlook of a 30% increase. Guidance for adjusted full-year earnings was also cut to a range of $1.25 to $1.40 per share from the prior estimate of $2.10 to $2.25. 

Acute supply-chain challenges have affected Gap’s ability to fully meet the strong customer demand, said CEO Sonia Syngal in a press release. The company’s efforts to mitigate such impact, such as using airfreight to transport goods, has added expenses and further squeezed profits.

Nordstrom and Gap’s struggle came in contrast to rivals like Macy’s (M) and Kohl’s (KSS), which have been more successful in passing the higher costs to customers and managing inventory in the face of supply challenges. Both companies reported better-than-expected third-quarter earnings last week and boosted their outlook for the remainder of the year.

Write to Evie Liu at evie.liu@barrons.com

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