Nordstrom (JWN) earnings Q2 2023

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 benefited other retailers.

What’s more, 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 the retailer will focus on boosting the Rack’s sales, on improving inventory management and making its supply chain more efficient through year-end. 

“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 over 4% in extended trading Thursday, after initially rising.

Here’s how Nordstrom did in the 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 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 period. Net sales for the Nordstrom banner dropped about 10% and net sales for Nordstrom Rack fell by about 4%. 

The declines occurred despite year-earlier comparisons 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. The company 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.

Finance chief 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 chief financial officer, 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 from 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. 

On the call, Erik Nordstrom also acknowledged the problem of theft at some of the company’s stores. An analyst asked about the problem of shrink, a term used to describe losses from goods that cannot be sold because of damage, theft or another cause, and cited a video of a Nordstrom store during a recent smash-and-grab robbery.

The retailer’s CEO said what happened at that store is “disturbing to all of us” and said losses from theft are “at historical highs.” But, he added, theft is factored into the company’s guidance and is not higher than expected.

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.

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