Nordstrom reported solid Q2 earnings and sales, citing a calendar switch in the Anniversary Sale and momentum from strategic initiatives. However, decelerating consumer demand beginning in late June, lead the company to revise its 2022 forecast downward. Nordstrom is seeing the benefit of operating upscale department stores catering to higher-income customers, who haven’t been feeling the impact of inflation as much as lower-income consumers and offering a relatively high proportion of more fashionable merchandise suitable for wear-to-work, special occasions and going out, which Americans have been gravitating toward this year. It’s been coming at the expense of declining discretionary spending in casual, active and home areas as of late. Net earnings for Q2 ended July 30 came to $126mn versus $80mn in the year-ago period. EBIT were $202mn, compared with $151mn, primarily due to higher sales, partially offset by higher markdowns and higher labor expenses. Net sales in Q2 reached $3.99bn, a 12% increase from the year-ago period.
Nordstrom indicated some key trends happening, among them:
. Softness in demand for clearance product.
. Customers not trading down and wanting newness.
. A deceleration of sales starting in late June and most evident at Rack in its lowest-priced merchandise.
. Softness in sales of private label, where there is new leadership and work underway to revamp the program.
. Strong sell-through on higher-priced items, with double-digit growth in designer but some deceleration seen there.
They also cited reducing inventory levels, and expectations of exiting the year in a “clean inventory position.” Other areas highlighted were capital investments, primarily in supply chain and technology capabilities, and priorities in reducing leverage and returning cash to shareholders, and taking a “measured” approach to share repurchases. Nordstrom is also working to advance its digital capabilities, and has been scaling its styling program by offering more looks, virtual style boards and online styling appointments. Another important initiative is at Rack, where the merchandise is being repositioned to increase the supply of premium brands and the marketing is being focused more on growing awareness of the off-price brand. 90% of the top brands sold at the full-line Nordstrom department stores are sold at Rack, and last quarter, sales of the top 100 brands at Rack increased 17%.
The strategy involves shifting away from lower price points items that have not resonated with customers. During the second quarter, men’s apparel had the strongest growth versus 2021, and shoes, women’s apparel and beauty also had double-digit growth. At the Anniversary event, sales increased 5%. In its revised outlook Nordstrom is now projecting 5 to 7% revenue growth for 2022. For the Nordstrom Department Store, net sales increased 14.7%, improving sequentially from the first quarter versus pre-pandemic sales levels. At Nordstrom Rack, net sales increased 6.3% compared with the same period in fiscal 2021, improving sequentially from the first quarter versus pre-pandemic sales levels. Digital sales increased 6.3% compared with the same period in fiscal 2021. Digital sales represented 38% of total sales during the quarter.
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