Nordstrom begins the process of closing its stores in Canada with the first day of a sale at the Eaton Centre in Toronto. March 21, 2023.
Steve Russell | Toronto Star | Getty Images
Nordstrom on Thursday surpassed Wall Street’s quarterly sales and earnings expectations, as it showed signs of progress in turning around its lagging business.
Yet despite a sizable beat, the retailer stuck with its previous full-year outlook – signaling caution about the coming months. The company expects revenue to fall 4% to 6% and adjusted earnings per share to range between $1.80 and $2.20 for the fiscal year, excluding the impact of winding down its stores and online business in Canada.
Nordstrom’s results, while better than expected, reflect the company’s challenges. Sales for the upscale department store operator in the fiscal second-quarter still fell below pre-pandemic levels. Nordstrom largely missed out on the stimulus-fueled spending spree during Covid that benefitted other retailers. And Nordstrom Rack, the off-price chain that the retailer wants to fuel its revival, still posted sales declines during the quarter reported Thursday.
CEO Erik Nordstrom said Nordstrom will focus on boosting the Rack’s sales, better managing inventory and making its supply chain more efficient for the rest of the year.
“Looking ahead, we remain confident in our ability to deliver on these priorities, all while keeping the customer at the center of everything we do,” he said in a news release.
Shares fell in extended trading Thursday, after initially rising.
Here’s how Nordstrom did in its fiscal second quarter ended July 29 compared with what analysts were anticipating, based on Refinitiv estimates:
- Earnings per share: 84 cents vs. 44 cents expected
- Revenue: $3.77 billion vs. $3.65 billion expected
Nordstrom’s net income in the quarter rose to $137 million, or 84 cents per share, from $126 million, or 77 cents a share, a year earlier.
Net sales decreased 8.3% compared with a year ago. The company said some of that decrease is due to the wind-down of its business in Canada and a one-week shift in timing for its major annual Anniversary Sale. If those two factors were taken out, net sales would have been down about 4% year over year, the company said.
Total revenue also dropped about 8% compared with $4.10 billion in the prior three-year period.
Net sales for the Nordstrom banner dropped about 10% and net sales for Nordstrom Rack fell by about 4% compared with the year-ago period.
It put up those declines despite comparing against a year-ago period when Nordstrom cut its forecast after seeing a noticeable drop in customer traffic and sales.
Digital sales tumbled by nearly 13% compared with the year-ago period. It blamed the drop in part on the wind-down of Trunk Club, a personal styling service it acquired, ending store fulfillment for Nordstrom Rack’s digital orders and the shifted anniversary sale timing.
CFO Cathy Smith said on a call with investors that sales trends improved each month of the quarter, when excluding the impact of the Anniversary Sale’s timing change. The former Target and Bright Health Group CFO, who joined Nordstrom in May, said that improvement was the most striking at Rack.
Erik Nordstrom said Rack sales have been on “a steady upward trajectory throughout this year.” He said as Nordstrom has added more brands that customers like, trends have improved.
“The overarching strategy is to put more of those dollars into these strategic brands,” he said on the investor call.
Still, customer traffic across both banners, Nordstrom and Nordstrom Rack, has been weaker, he said. But when customers do look at items, Nordstrom is having a higher conversion rate and higher spend per customer, he said.
Though sales fell during the three-month period, Nordstrom saw growth in some categories. Sales of active and beauty merchandise grew by low single-digits, driven by sales of sneakers from New Balance, Nike and On Running, and expanded merchandise from makeup brands like MAC and Clinique at Nordstrom Rack, Chief Brand Officer Pete Nordstrom said on a call with investors.
Kids’ and men’s apparel also performed better than average, he said. The Anniversary Sale also helped draw the company’s most loyal shoppers to Nordstrom’s website and stores, he said.
On the other hand, designer merchandise — typically associated with higher price points — remained under pressure, he said. Nordstrom has reduced its inventory in that category to match lower demand, he said.
Inventory, an area of weakness for Nordstrom in the previous year, was in better shape. As of the end of the quarter, inventory was down 17.5% compared with the same period in 2022.
Shares of Nordstrom are up about 4% so far this year, but trail behind the approximately 14% gains of the S&P 500. The company’s stock closed at $16.82 on Thursday, bringing its market value to $2.72 billion.