Department Stores in the Rearview: Nordstrom’s Q4 Earnings Highlight Sector Struggles

The department store sector faced a mixed bag of results in Q4 2024, with Nordstrom (NYSE:JWN) eking out margin gains while peers like Macy’s (NYSE:M) and Kohl’s (NYSE:KSS) grappled with structural challenges. Despite a modest beat in earnings, the broader narrative remains one of declining relevance as consumers shift toward e-commerce and off-price retailers. Let’s dissect the numbers and what they mean for investors.

Nordstrom: A Silver Lining in a Gray Cloud

Nordstrom reported Q4 net earnings of $0.97 per share, slightly below adjusted expectations but still a win given the sector’s woes. Revenue dipped 2.2% to $4.32 billion, yet comparable sales rose 4.7%, driven by strong performance in women’s apparel and active wear. A standout was the 37.3% gross margin, up 290 basis points year-over-year, reflecting better inventory management and shrink control.

CEO Erik Nordstrom emphasized customer satisfaction and agility during the holiday season, though the stock closed flat at $24.26 post-earnings. The company also announced a modest dividend increase but faces uncertainty after CFO Cathy Smith’s departure.

Peers Lag as the Sector Falters

Macy’s, the sector’s former giant, reported a 4.4% revenue decline to $8.01 billion, with Q4 same-store sales flat. While adjusted EPS beat estimates, full-year 2025 guidance was a disappointment: revenue is expected to drop 7.9%, and EPS to fall 13.5%. Analysts criticized its lackluster capital allocation and reliance on revaluation gains, dubbing it a “value trap” trading at just 5.2x forward P/E.

Kohl’s delivered the worst results, with revenue plummeting 9.4% to $5.4 billion. Its stock collapsed 37.5% post-earnings as investors soured on its lack of a turnaround plan. Same-store sales trends remained negative, and free cash flow margins languished at 1.4%, underscoring poor liquidity management.

Even Dillard’s (NYSE:DDS), which beat estimates with strong EPS and EBITDA performance, saw its stock drop 20.2% as broader sector pessimism dominated.

Nordstrom (JWN), Macy’s (M), Kohl’s (KSS) stock price performance since Q4 earnings release

The Bigger Picture: Why the Sector Struggles

Department stores are caught in a perfect storm: declining mall traffic, aggressive competition from off-price retailers like TJX Companies, and the relentless rise of e-commerce. Nordstrom’s 38% digital sales contribution hints at adaptation, but peers lag behind.

The Fed’s 2024 rate cuts briefly buoyed stocks, but 2025 brings new risks: potential tariffs, tax reforms, and recession fears. Analysts now project the sector’s revenue to fall 7.1% in 2025, with margins under pressure.

Investment Takeaways: Proceed with Caution

While Nordstrom’s margin improvements and brand strength offer modest optimism, valuation remains a hurdle. The stock trades at 10.5x forward P/E—cheap, but not enough to offset long-term risks.

Macy’s and Kohl’s, however, are high-risk bets. Macy’s 5.2x P/E may tempt value investors, but its ROIC of just 0.4% suggests capital mismanagement. Kohl’s, trading near $7.53, has no clear path to recovery.

Dillard’s’ strong Q4 metrics are overshadowed by its inability to sustain growth. Analysts now see the sector as a “value trap,” where low prices mask structural decline.

Conclusion: The Department Store’s Dimming Future

Nordstrom’s Q4 results show it can still navigate turbulent waters, but the broader sector’s challenges are existential. With department stores’ combined stock value down 17.1% post-earnings and 2025 guidance bleak, investors are better served seeking growth in tech or e-commerce giants.

The data paints a stark reality:
- Nordstrom’s gross margin improved to 37.3%, but inventory rose 11.4%, hinting at overstock risks.
- Macy’s and Kohl’s face compounded declines in sales and margins, with no clear catalyst for reversal.
- The sector’s 2025 revenue forecast of -7.1% underscores a path of contraction.

For now, Nordstrom remains the least-worst bet, but even it isn’t immune to the retail apocalypse. Investors should avoid the sector unless they’re prepared to bet on a retail revival that may never come.