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Earnings Fall 34 Percent in 4th Quarter; $15 Million Charge For Back Pay

February 26, 1990

SEATTLE (AP) _ Fashion retailer Nordstrom Inc. said Monday its fourth quarter earnings dropped 34 percent from a year earlier because of higher merchandise markdowns and a $15 million provision for estimated back pay claims.

Separately, the Nordstrom workers union leader called the back wage provision inadequate and said the union planned to file a class-action lawsuit against the clothing store chain.

Nordstrom acknowledged the threat of that suit and said it believed it also may face a class-action shareholder suit.

For the three-month period ended Jan. 31, Nordstrom’s profits fell to $31.4 million or 39 cents a share, from $47.5 million or 58 cents a share, a year earlier. Revenue rose 12 percent to $857.5 million in the quarter from $765.1 million.

In addition to the charge for back wage payments, Nordstrom attributed the drop in fourth-quarter net income to higher merchandise markdowns. Industry analysts have said the company had to respond to aggressive price-cutting by its competitors during the Christmas season.

For the year, Nordstrom’s profit fell 7 percent to $114.9 million, or $1.41 a share, from $123.3 million, or $1.51 a share, in the previous year. Sales totaled $2.7 billion, up nearly 15 percent from $2.3 billion in the previous year.

Nordstrom, which has built a reputation for good customer service, has been accused of allegedly pressuring employees to sometimes perform work without compensation.

Following a labor union complaint, the Washington state Department of Labor and Industry ruled earlier this month that Nordstrom had a pattern of making sales clerks work during off-hours without compensation and ordered the company to pay them for two years’ worth of uncompensated hours.

Nordstrom said Monday it had responded to the ruling by adopting additional record-keeping procedures to ensure employee work properly was recorded and paid. It also said it had instituted a claims procedure for reimbursing back pay.

The $15 million reserve for back wage claims represented the company’s present estimate of claims for Washington state, said spokesman John Goesling.

Joe Peterson, president of United Food & Commercial Workers Union Local 1001, said the back wage fund is ″wholly inadequate. It won’t even cover claims of employees in Washington state, let alone claims in Alaska, Utah, Oregon, California and Virginia.″

Nordstrom has 60 stores in Washington, Oregon, California, Alaska, Virginia and Utah. It plans 16 more, including moving into Illinois, New Jersey, Maryland, Minnesota, Indiana, Connecticut, Massachusetts and New York.

Peterson said the union estimates Nordstrom could be liable for up to $40 million in claims in Washington and for more than $200 million in back pay and penalties in California. The union has not yet studied possible claims in the other states, he said.

Peterson also said the claims procedure was an attempt by the company to bargain directly with workers instead of the union over claims.

Last week, the National Labor Relations Board complained that Nordstrom had been improperly bargaining directly with employees over back wages, rather than going through the union.

Peterson said the UFCW could file its lawsuit this week, unless the company showed a willingness to negotiate a settlement with the union.

Nordstrom said it expects a class-action lawsuit to be filed on behalf of certain shareholders. Such a suit, if filed, would allege the company should have disclosed that unpaid work and overtime claims by employees adversely would affect the price of Nordstrom stock, the company said.

Nordstrom stock has fallen from a Sept. 1 high of $41.75 a share to $29.25 a share at Monday’s close.