• Q3 earnings increase 3.6% to $142m 
  • Sales rise 8.9% to $3bn
  • Annual EPS guidance lowered 
Nordstroms third-quarter profit rose 3.6%

Nordstrom's third-quarter profit rose 3.6%

Analysts have praised Nordstrom for a "strong" third-quarter helped by higher sales, but warned the US retailer faces near-term challenges.

Net earnings reached US$142m for the three months to 1 November, compared to $137m in the same period of last year.

Sales increased 8.9% to $3bn from $2.8bn a year ago, while comparable store sales rose 3.9%. Gross margin, however, fell 33 basis points to 35.5%, due to Nordstrom Rack's accelerated store expansion and increased competitive markdowns.

The company now expects annual earnings to reach $3.70-3.75, compared to its earlier guidance of 3.80-3.90. This incorporates the acquisition of Trunk Club, which is expected to reduce earnings per diluted share by 3% in fiscal 2014.

Sales, meanwhile, are forecast to increase 7.5%, which is at the higher end of its 6.5-7.5% previous guidance. 

Gross margin is forecast to decline 50-55 basis points, compared to its earlier expectations for a 40-50 drop.

Stifel analyst Richard Jaffe said Nordstrom delivered a strong quarter but faces near-term challenges. "While Nordstrom is a best-in-class retailer, we believe the stock is expensive at this level given the operating margin pressure and anticipated return on invested capital (ROIC) decline related to the costly Canadian and e-commerce investments and the accelerated Rack expansion," he said.