Dive Brief:

• Nordstrom Thursday beat expectations for the second consecutive quarter, boosted by its anniversary sale and off-price Rack business but undermined by a $197 million write-down on its Trunk Club online concierge service.

• Nordstrom reported a Q3 net loss of $10 million; adjusted earnings increased to $0.84 per share, trouncing analyst expectations of $0.51, while revenue grew 7.2% from a year earlier to $3.54 billion, ahead of the $3.48 billion projected by Wall Street. Nordstrom credited its progress to improved inventory management.

• Nordstrom same-store sales rose 2.4% in Q3, and e-commerce sales saw healthy increases: Nordstrom.com sales grew 20.1% , while Nordstromrack.com/HauteLook sales rose 23.2%. Women's apparel and men's apparel outperformed all other merchandise categories across U.S. full-line stores and Nordstrom.com, which executives credited to "strength in denim and collaborations with new and emerging limited distribution brands."

Dive Insight:

Nordstrom pleased investors with its second straight quarter of good news, what Neil Saunders, CEO of retail research agency and consulting firm Conlumino, called a reversal of “the gloomy sales trends of the first part of the year.”

The retailer’s quarterly $10 million net loss can be squarely pinned on Trunk Club. Acquired two years ago from Bonobos co-founder Brian Spaly, who has remained as CEO, Trunk Club is not yet profitable, and the $197 million non-cash goodwill impairment represents more than half of the $350 million Nordstrom paid to purchase it. 

Earlier this year, Nordstrom was already working to stanch the bleeding at Trunk Club, instituting a $25 at-home try-on fee and shortening its return window — policies that are in stark contrast to Nordstrom signatures like no-minimum free shipping and returns, and no time limits on returns or exchanges. In a conference call Thursday, co-president Blake W. Nordstrom told analysts the retailer remains committed to the Trunk Club effort as part of its customer strategy. 

In the meantime, Nordstrom Rack, which unlike many department store off-price efforts was founded more than 40 years ago, continues to buoy the company. “This underscores the importance of this part of the business to the overall health of the company – something, in our view, that puts Nordstrom as a whole in a much better position compared to its department store rivals,” Saunders wrote in a note emailed to Retail Dive.

But Nordstrom still faces plenty of headwinds. Its results were boosted in part because the retailer shifted the timing of its anniversary sale to take place in the third quarter rather than in the prior one. “When both quarters are combined, Nordstrom’s underlying comparable growth of 0.4% looks more subdued — although it is still an improvement on the first quarter” by Conlumino’s measure, Saunders said. Moreover, the Rack division is undermining full-line sales, and the strength of its e-commerce efforts suggests that Nordstrom may need to scale back its plans for stores even further, Saunders added.

“In our view this dynamic raises some questions over the scale and scope of future store expansion, especially in the full price part of the business,” he wrote. “Nordstrom has partly recognized this with a lower capital expenditure plan and a slight reduction in the number of Rack stores it intends to open. However, our view is that further adjustments may be needed.”

In its conference call with analysts Thursday, executives made it sound like that could be the plan. “I don't think it's any secret out there that there's been some declines and depending on a lot of reports that you look at, mall traffic is down anywhere 4% to 5% based on a bunch of different reports that we see,” EVP James Nordstrom said. “And that's pretty consistent with how our trends have been. And so what are we doing about that? Well, we are investing a lot in our e-commerce experience and you see the results there. We're pretty happy with the growth we're starting to see there and it's the paying off of some investments we've been making over the last couple years.”