Nordstrom posted rising 2Q sales and profitDepartment stores were almost given up for dead in the last decade, but they look very much alive this fall -- and ready to cut each other down.

The big mall anchors were the first retailers to report second-quarter earnings this week, and their outlook was mixed. The consumer recovery refuses to materialize, so the merchants will be fighting each other to get a bigger slice of a pie that won't grow fast enough.

"It's going to be very brutal," said Ken Stumphauzer, a senior research analyst Sterne Agee. Overall, the department stores are projecting sales increases, but also a conservative consumer outlook, he said.

Nordstrom Growing, But Cautious

The only retailer who really worked that conservative outlook into its sales projections for the year was Nordstrom (JWN), Stumphauzer said. Nordstrom posted its fourth-straight quarter of sales and earnings growth, with a 38.6% increase in profit and 8.4% in same-store sales, but held to its guidance of $2.50 to $2.65 in earnings per share for the year.

"There are economic factors that remind us to be cautious," said Chief Financial Officer Mike Koppel.

If shoppers won't spend more, then growth will have to come from taking market share from rivals, and in this environment that means promotions to draw shoppers in.

"We expect this fall to be very promotional and we are locked and loaded," said Macy's (M) CFO Karen Hoguet. The parent of Bloomingdales posted earnings of 35 cents a share in the second quarter, up from 2 cents a year ago, thanks to much-improved sales. The retailer boosted its sales growth forecast to a range of 4% to 4.2% for the year, much better than the 1% to 2% it previously expected, and it raised the earnings forecast to $1.85 to $1.90 per share for the full year.

Rivals Say They're Ready to Take on Macy's

But most of Macy's rivals say they're locked and loaded, too. Kohl's (KSS) plans to open 21 new stores in the next month and expects to be driving business aggressively in September and October, said CEO Kevin Mansell. The company has a good cash position to step in where other retailers fall in order to pick up market share, he noted.

"We're strong in a weak environment, and that's a positive," he said.

Mansell noted that his stores have seen strong increases in sales -- 4.6% in the second quarter -- that helped Kohl's post earnings of 84 cents a share, up 12% from a year earlier.

But he acknowledged the sales growth has come from increased traffic driven by higher marketing spending. And plans for increased marketing spending were one of the reasons Kohl's took down the upper range of its earnings guidance to $3.57 to $3.70 per share for the year, from $3.57 to $3.75 in May.

JC Penney Launches Two Product Lines

Mike Ullman, CEO of JC Penney Co. (JCP), said his stores aren't adding more promotions than what they already had planned, including two large product launches in September, a Liz Claiborne line and MNG by Mango, an exclusive line from the Spanish "fast fashion" retailer. Inventory levels are 7% above last year's level because the company planned for sales increases in fall and also took early delivery of private-label merchandise to avoid any disruption of its new brand launches.

Penney's, which posted earnings of 6 cents a share in the quarter, compared to break-even last year, plans to chase market share growth this fall. But it dropped its guidance to between $1.40 and $1.50 per share for the year, down from $1.64, citing the economy.

"We're a little bit more concerned about the consumer environment than we were at the beginning of the year," Ullman acknowledged. Retailers have little pricing power right now and product costs are rising, he said.

Rising Material and Labor Costs in China

It's going to be a tough fall for all retailers, said Sterne Agee's Stumphauzer. Merchants are facing "massive inflationary pressure" from rising materials prices and labor costs in China, he said. Low prices have been driving profitability for the last 25 years, so the retailers' mantra that a little inflation isn't a bad thing could be wrong in this environment, he said.

It will come down to how tightly department stores manage the flow of goods, and if they can set themselves apart from rivals with their merchandise, said Stumphauzer. Kohl's and Nordstrom have managed well throughout the downturn, and Macy's is beginning to see the benefit of paying more attention to its smaller stores, thanks to its revamped management structure, he said.

"There's a few guys you can point out that are taking market share: Kohl's, Nordstrom and Macy's," Stumphauzer said. "JC Penney is in an unenviable position."

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Hey department stores how about getting more American made products and make it easier for my family to shop.

August 14 2010 at 6:05 PM Report abuse rate up rate down Reply


August 14 2010 at 2:13 PM Report abuse -1 rate up rate down Reply

No customers service and inferior fabrics marked at higher prices. All made in China. It doesn't even matter which store you patronize. Many designer label clothes are made in China.The greed of these companies is just unmatched from anytime in history.

August 14 2010 at 1:45 PM Report abuse +4 rate up rate down Reply

PLEASE isn't anything made in America anymore? I really am tired of shoddy workmanship from China. Buttons fall of, seams not quite right, Twisted material in the legs of pants. The list goes on. Put some Americans to work. I would gladly pay a little more for better workmanship. Clothes should be able to be washed and not fall apart and fade. I don't like paying for disposable clothes.

August 14 2010 at 1:14 PM Report abuse +4 rate up rate down Reply

I hope the stores read this ; If I pick up another piece of clothing from the shelf or rack an it`s made in a forein country insded of the good ole USA, It`s going right back!!!

August 14 2010 at 12:16 PM Report abuse +3 rate up rate down Reply

Well--if China's prices are rising, why not order things made in the good ol' USA?
I'm so sick of seeing everything "Made In China" This outsourcing of jobs to other countries and then giving the companies who do it a tax break is just ridiculous. I don't care what excuses the government gives, it still doesn't make sense EXCEPT that the government is in the big corporations pockets.

August 14 2010 at 11:56 AM Report abuse +4 rate up rate down Reply

Buy American ONLY -- and then POST IT Only post Made in USA/America products.
For instance Pair of green shorts $5.00 at TJ MAx in Bethlehem PA. By ILGW Union Let everyone know what and where you found the Made in USA product so we too can buy American ONLY

August 14 2010 at 11:45 AM Report abuse +4 rate up rate down Reply

to the billioniares who talk about donating millions to charity heres one how about donating some millions to social security so are older citizens and our younger people can look forward to having something in the coming years thats what bill gates and his other rich cronies should do help america should be the billioniares motto.

August 14 2010 at 11:40 AM Report abuse +2 rate up rate down Reply

all must remember companys that make all the products that we buy and use will not sell there products to any indiviual you must go to a store to get what you need the store is your choice.

August 14 2010 at 11:30 AM Report abuse rate up rate down Reply

Wow....imagine that. Chinese labor prices are going up....who did not know that would eventually happen as well as other factors that will raise the prices of companies to manufacture goods overseas?!

Even with all the kiddies and babies working their is a work shortage....beat them more and productivity will increase!

August 14 2010 at 11:27 AM Report abuse +2 rate up rate down Reply
1 reply to tcomes8226's comment


August 14 2010 at 11:43 AM Report abuse rate up rate down Reply