Nordstrom, Inc., reported earnings in the second quarter improved 8.7 percent year over year and nearly doubled Wall Street’s consensus target. The upscale department store chain said it benefited from continued progress on key priorities of Nordstrom Rack improvement, inventory productivity and supply chain optimization. Guidance was maintained for the year.

Earnings in the period ended July 29 reached $137 million, or 84 cents a share, in the quarter against earnings of $126 million, or 77 cents a year ago. On a pro-forma basis, adjusted EPS was 81 cents a year ago. Analysts on average had expected EPS of 44 cents in the latest quarter.

Net sales decreased 8.3 percent to $3.66 billion, about even with analysts’ consensus estimate of $3.65 billion. The 8.3 percent gain in the quarter compared to a decrease of 11.6 percent in the first quarter, reflects sequential improvement in sales at both Nordstrom and Nordstrom Rack.

Gross merchandise value (“GMV”) decreased 8.5 percent. Second-quarter net sales include a 275 basis point negative impact from the wind-down of Canadian operations. Anniversary Sale timing, with one week shifting from the second quarter to the third quarter, had a negative impact of approximately 200 basis points on net sales compared with 2022. Excluding the impacts of the Canadian wind-down and Anniversary Sale timing shift, net sales would have been down approximately 4 percent. During the quarter, Nordstrom banner net sales decreased 10.1 percent and GMV decreased 10.4 percent. Net sales for Nordstrom Rack decreased 4.1 percent.

“We’ve worked hard to improve our operating model, and our solid results reflect the continued progress we made against our top priorities to improve Nordstrom Rack performance, increase inventory productivity and deliver efficiencies through supply chain optimization,” said Erik Nordstrom, chief executive officer of Nordstrom, Inc. “These 2023 priorities improve the way we operate and drive profitability in the near term, and better position us to succeed and deliver value to our shareholders in the long term. 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.”

In the second quarter, active and beauty grew by low-single-digits versus 2022. Kids’ apparel and men’s apparel performed better than average for the quarter.

“Our annual Anniversary Sale was a successful event, especially among our most loyal customers. We were pleased by strong sell-through of new merchandise from the best brands, both in stores and online,” said Pete Nordstrom, president and chief brand officer of Nordstrom, Inc. “In the second quarter, we were also encouraged by sequential improvement in sales trends at both Nordstrom and Rack. We remain focused on managing inventory with greater discipline, improving mix and productivity, and thank our teams for their hard work in bringing it all to life for our customers.”

As previously announced, on August 16, 2023, the board of directors declared a quarterly cash dividend of $0.19 per share, payable on September 13, 2023, to shareholders of record at the close of business on August 29, 2023.

Second Quarter 2023 Summary

  • Total company net sales decreased 8.3 percent, improving sequentially from the first quarter decrease of 11.6 percent, and GMV decreased 8.5 percent compared with the same period in fiscal 2022. The wind-down of Canadian operations had a negative impact on total company net sales of 275 basis points. The second quarter of 2023 included no sales from Canadian operations, compared with a full quarter of sales from Canadian operations in the second quarter of 2022. The timing shift of the Anniversary Sale, with roughly one week falling into the third quarter of 2023 versus one day in 2022, had a negative impact on net sales of approximately 200 basis points compared with the second quarter of 2022.
  • For the Nordstrom banner, net sales decreased 10.1 percent, improving sequentially from the first quarter decrease of 11.4 percent, and GMV decreased 10.4 percent compared with the same period in fiscal 2022. The wind-down of Canadian operations had a negative impact on Nordstrom banner net sales of 400 basis points. The timing shift of the Anniversary Sale had a negative impact on Nordstrom banner net sales of approximately 300 basis points compared with the second quarter of 2022.
  • For the Nordstrom Rack banner, net sales decreased 4.1 percent compared with the same period in fiscal 2022, improving sequentially from the first quarter decrease of 11.9 percent. Eliminating store fulfillment for Nordstrom Rack digital orders during the third quarter of fiscal 2022 negatively impacted second-quarter Rack banner sales by approximately 500 basis points.
  • Digital sales decreased 12.9 percent compared with the same period in fiscal 2022. Collectively, eliminating store fulfillment for Nordstrom Rack digital orders during the third quarter of fiscal 2022 and sunsetting Trunk Club during the second quarter of fiscal 2022 negatively impacted second-quarter digital sales by approximately 500 basis points. The timing shift of the Anniversary Sale had a negative impact on company digital sales of approximately 300 basis points compared with the second quarter of 2022. Digital sales represented 36 percent of total sales during the quarter.
  • Gross profit, as a percentage of net sales, of 35.0 percent decreased 20 basis points compared with the same period in fiscal 2022 primarily due to deleverage on lower sales, partially offset by lower buying and occupancy costs.
  • Ending inventory decreased 17.5 percent compared with the same period in fiscal 2022, versus an 8.3 percent decrease in sales, reflecting continued strong discipline.
  • SG&A expenses, as a percentage of net sales, of 32.8 percent was flat compared with the same period in fiscal 2022 primarily due to improvements in variable costs from supply chain efficiency initiatives and more favorable carrier rates than expected, and a gain on the sale of a real estate asset. These were offset by higher labor costs and deleverage from lower sales.
  • EBIT was $192 million in the second quarter of 2023, compared with $202 million during the same period in fiscal 2022. Adjusted EBIT of $210 million in the second quarter of 2022 excluded costs associated with the wind-down of Trunk Club.
  • Interest expense, net, of $26 million decreased from $34 million during the same period in fiscal 2022 due to higher interest income.
  • Income tax expense was $29 million, or 17.2 percent of pretax earnings, compared with income tax expense of $42 million, or 25.2 percent of pretax earnings, in the same period in fiscal 2022. The decrease in the second quarter of fiscal 2023 was driven by the favorable resolution of certain tax matters.
  • The company ended the second quarter with $1.7 billion in available liquidity, including $885 million in cash and the full $800 million available on its revolving line of credit.

Fiscal Year 2023 Outlook
The company reaffirmed its revenue and adjusted financial outlook for fiscal 2023, which includes a 53rd week:

  • Revenue decline, including retail sales and credit card revenues, of 4.0 to 6.0 percent versus fiscal 2022, including an approximately 250 basis point negative impact from the wind-down of Canadian operations and an approximately 130 basis point positive impact from the 53rd week
  • EBIT margin (including the negative impact of charges related to the wind-down of Canadian operations) of 1.5 to 2.0 percent of sales
  • Adjusted EBIT margin (excluding charges related to the wind-down of Canadian operations) of 3.7 to 4.2 percent of sales.
    Income tax rate of approximately 6 percent, including an approximately 2,100 basis point favorable impact primarily from the one-time Canada charges
  • EPS (including the negative impact of charges related to the wind-down of Canadian operations) of $0.60 to $1.00, excluding the impact of share repurchase activity, if any
  • Adjusted EPS (excluding charges related to the wind-down of Canadian operations) of $1.80 to $2.20, excluding the impact of share repurchase activity, if any.

Photo courtesy Nordstrom