Nordstrom, Inc. significantly reduced its EPS guidance for the year due to a decline in customer traffic beginning in late June, mainly at Nordstrom Rack, and expectations that promotions would be required to clear elevated inventories in the second half.

The retailer reported second-quarter net earnings of $126 million and earnings per diluted share of 77 cents for the quarter ended July 30, 2022. Excluding costs associated with the wind-down of Trunk Club, the company reported adjusted earnings per share of 81 cents, just ahead of Wall Street’s consensus estimate of 80 cents.

For the second quarter, net sales increased 12.0 percent versus the same period in fiscal 2021, to $3,99 billion, ahead of Wall Street’s consensus estimate of $3.96 billion.

Sales exceeded pre-pandemic sales levels, and gross merchandise value (GMV) increased 12.2 percent. Anniversary Sale timing, with one week shifting from the third quarter to the second quarter, had a positive impact of approximately 200 basis points on net sales compared with 2021. During the quarter, Nordstrom banner net sales increased 14.7 percent and GMV increased 14.9 percent. Net sales for Nordstrom Rack increased 6.3 percent.

“We delivered solid results in the second quarter, with topline growth, increased profitability, and continued progress in our strategic initiatives,” said Erik Nordstrom, CEO, Nordstrom, Inc. “While our quarterly results were consistent with our previous outlook, customer traffic and demand decelerated significantly beginning in late June, predominantly at Nordstrom Rack. We are adjusting our plans and taking action to navigate this dynamic in the short term, including aligning inventory and expenses to recent trends, and we remain confident in our ability to deliver on our long-term strategic and financial goals.”

In the second quarter, men’s apparel had the strongest growth versus 2021, and shoes, women’s apparel and beauty also had double-digit growth, as customers updated their wardrobes and returned to occasions. Total Anniversary event sales increased 5 percent, including one day of the event that fell in the third quarter.

“We elevated the customer experience and increased engagement during this year’s Anniversary Sale, and we’re proud of our team’s execution and dedication to customers,” said Pete Nordstrom, president and chief brand officer, Nordstrom, Inc. “As we look to the second half of the year, we are aggressively right-sizing our inventory while investing in supply chain and merchandising capabilities that will benefit us in 2023 and beyond.”

As previously announced on August 17, 2022, the board of directors declared a quarterly cash dividend of $0.19 per share to be paid to shareholders of record at the close of business on August 30, 2022, payable on September 14, 2022. During the second quarter, the company repurchased 1.5 million shares of its common stock for $35 million under its $500 million share repurchase program, which was previously announced as authorized by the board of directors on May 18, 2022. A total capacity of $465 million remains available under this share repurchase authorization.

Second Quarter 2022 Summary

  • Total company net sales increased 12.0 percent and GMV increased 12.2 percent compared with the same period in fiscal 2021. The timing shift of the Anniversary Sale, with one day falling into the third quarter of 2022 versus roughly one week in 2021, had a positive impact on net sales of approximately 200 basis points compared with the second quarter of 2021.
  • For the Nordstrom banner, net sales increased 14.7 percent, improving sequentially from the first quarter versus pre-pandemic sales levels, and GMV increased 14.9 percent compared with the same period in fiscal 2021. The timing shift of the Anniversary Sale had a positive impact on Nordstrom banner net sales of approximately 400 basis points compared with the second quarter of 2021.
  • For the Nordstrom Rack banner, net sales increased 6.3 percent compared with the same period in fiscal 2021, improving sequentially from the first quarter versus pre-pandemic sales levels.
  • Digital sales increased 6.3 percent compared with the same period in fiscal 2021. The timing shift of the Anniversary Sale had a positive impact on company digital sales of approximately 400 basis points compared with the second quarter of 2021. Digital sales represented 38 percent of total sales during the quarter.
  • Gross profit, as a percentage of net sales, of 35.2 percent increased 65 basis points compared with the same period in fiscal 2021 primarily due to leverage on buying and occupancy costs, partially offset by higher markdown rates.
  • Ending inventory increased 9.9 percent compared with the same period in fiscal 2021 versus a 12.0 percent increase in sales.
  • SG&A expenses, as a percentage of net sales, of 32.8 percent decreased 15 basis points compared with the same period in fiscal 2021 primarily due to leverage on higher sales, partially offset by higher labor expense.
  • Earnings before interest and tax (EBIT) was $202 million in the second quarter of 2022, compared with $151 million during the same period in fiscal 2021, primarily due to higher sales, partially offset by higher markdowns and higher labor expense. Adjusted EBIT of $210 million for the second quarter of 2022 excluded costs associated with the wind-down of Trunk Club.
  • Interest expense, net, of $34 million decreased from $40 million during the same period in fiscal 2021 as a result of the redemption of $500 million of unsecured notes in the second quarter of 2021.
  • Income tax expense was $42 million, or 25.2 percent of pretax earnings, compared with $31 million, or 27.9 percent of pretax earnings, in the same period in fiscal 2021.
  • The company ended the second quarter with $1.3 billion in available liquidity, including $494 million in cash and the full $800 million available on its revolving line of credit. In May 2022, the company entered into a new $800 million revolving credit agreement expiring in May 2027, replacing its previous revolving credit agreement that was scheduled to expire in September 2023.

Fiscal Year 2022 Outlook
The adjusted outlook calls for:

  • Revenue growth, including retail sales and credit card revenue, to range between 5 percent to 7 percent (6 percent to 8 percent previously);
  • EBIT margin, as a percent of sales to range between 4.5 percent to 4.9 percent (5.8 percent to 6.2 percent previously);
  • Adjusted EBIT margin to range between 4.3 percent to 4.7 percent (5.6 percent to 6.0 percent previously);
  • EPS, excluding the impact of share repurchase activity, if any, between $2.45 to $2.75 ($3.38 to $3.68 previously); and
  • Adjusted EPS, excluding the impact of share repurchase activity, if any, between $2.30 to $2.60 ($3.20 to $3.50 previously).

Photo courtesy Nordstom/Bustle