Nordstrom dives 29% as higher labor costs and low inventory at Nordstrom Rack lead to quarterly earnings miss

• Nordstrom stock fell sharply Wednesday after third-quarter earnings fell short of Wall Street's view.
• Earnings of $0.39 a share were well below the $0.57 a share anticipated by analysts.

Nordstrom stock tumbled Wednesday after third-quarter earnings missed expectations as the upscale retailer struggled with rising labor costs and soft inventory levels at its Nordstrom Rack unit.

Late Tuesday, the company posted earnings of $0.39 a share, less than the $0.57 cents a share analysts polled by FactSet had anticipated. Revenue of $3.64 billion, however, was ahead of Wall Street's $3.54 billion projection.

The stock slid as much as 29% to $22.70 in heavy volume of more than 9.5 million shares. Nordstrom's stock this year through Tuesday had been up modestly, by 2.3%.

Nordstrom said it's on track to reach the financial targets it made earlier this year. However, "when we look across the landscape, we need to deliver more," and increase market share while delivering greater profitability, CEO Erik Nordstrom said during the company's earnings call late Tuesday.

The company said selling, general and administrative expenses as a percentage of net sales increased 230 basis points from a year earlier to 34% primarily because of labor cost pressure, partially offset by leverage on higher sales.

Sales at Nordstrom Rack, which offers merchandise at discounted prices, rose to $1.19 billion from a year but were 8% below pre-pandemic levels seen in the third quarter of 2019. Nordstrom Rack was "challenged" by low inventory in premium brands and key categories such as women's apparel and shoes, the company said Tuesday.

Nordstrom reaffirmed its fiscal 2021 outlook for revenue, including retail sales and credit card revenues, to increase by more than 35% compared with fiscal 2020. While Nordstrom backed its view, rival retailer Macy's last week raised its yearly outlook.

Jefferies downgraded Nordstrom to a hold rating from buy and knocked down its price target to $30 from $48. "Both the costs to transform to 50% digital & weak retail execution are delaying value realization," wrote equity analyst Stephanie Wissink in a note published Wednesday.