The American department store chain outperformed Wall Street’s expectations in the second quarter, which was greeted by a rise in its shares. Against a backdrop of slowing consumer spending across the Atlantic, Nordstrom is steadily expanding Rack, its low-price brand.
Despite its resilience in a complicated environment for American department stores, against a backdrop of falling purchasing power, Nordstrom is not claiming victory.
The group, owner of the eponymous department store chain and Rack discounter, may have posted a second quarter ending August 3 that exceeded Wall Street expectations, but it continues to make cautious forecasts for the full 2024 financial year.
Nevertheless, its quarterly performance was welcomed by the stock market, with its shares rising by around 5% on the day the results were published, August 27.
Reinventing itself
It’s true that Nordstrom has managed to stay in the saddle when competitors such as Lord & Taylor and Barneys have gone bankrupt in recent years, and are sometimes on the verge of being bought out (like Neiman Marcus in the sights of HBC, owner of Saks Fifth Avenue and…Amazon!). Nordstrom, on the other hand, has managed to reinvent itself by focusing on its Rack off-price brand rather than on luxury goods, which are currently poorly oriented, and by optimizing its organization and cutting costs.
Overall, Nordstrom’s net sales rose by 3.4% to $3.89 billion in the second quarter compared with the same period in fiscal 2023, while its comparable sales increased by 1.9%.
On theearnings front, Nordstrom pleasantly surprised Wall Street. During the quarter, the Group’s net profit did indeed fall year-on-year, to $122 million from $137 million a year earlier.
But its adjusted earnings per share -96 cents (excluding exceptional items linked to supply chain depreciation) – exceeded the average of 71 cents expected by analysts.
Back in the green
More importantly, Nordstrom returned to the green in the first half of the year. Whereas it posted a net loss of $67 million in the six months to July 29, 2023, it made a profit of $83 million in the first six months of the current fiscal year.
In more detail, sales growth was driven by Nordstrom Rack sales (+8.8% and +4.1% on a comparable basis), while its historic full-price Nordstrom banner virtually stagnated (+0.9% in both cases). The inflationary context is encouraging American consumers to prefer low-price brands.
The Group opened 11 new Rack stores in the United States in the first half, and plans to open at least 22 by the end of the year. At the end of the second quarter, the Rack network comprised 269 units. Meanwhile, the Nordstrom network has been reduced by one store since the beginning of the year, to a total of 93.
By stepping up its presence in low-price retailing, Rack is catching up with competitors such as TJ Maxx and Marshall’s, which have been active in this highly profitable segment since 2023. According to the press, it has also recruited experienced profiles in this niche.
Progress in e-commerce
Nordstrom also made good progress in e-commerce, with digital sales up 6.2% year-on-year. The Group’s investments in its online platforms and omnichannel customer experience are bearing fruit: digital sales accounted for 37% of sales in the second quarter.
In terms of products, the most successful categories in the second quarter were women’s wear, beauty and children’s wear.
To enhance customer satisfaction, the Group is focusing on improving its logistics. Delivery times for online orders were accelerated by 5% in the second quarter, while improvements to the way goods are delivered to customers and stores helped reduce return rates and improve conversion rates.
More generally, the Group pointed out that the advancement this year of its anniversary sale, with only one day falling in the third quarter of 2024 compared with eight days in 2023, had a positive impact onsecond-quarter net sales across all channels. Beauty, activewear and Home were the most buoyant departments during this promotional operation.
Solidity
All this prompted Nordstrom CEO Erik Nordstrom to make some rather optimistic statements.
“Our second-quarter results are solid, and we are encouraged by the continued strength of our sales in both formats and the progress we are making to increase gross margin and profitability,” he stressed in a press release. He and his teams said they were “confident in our prospects for the rest of the year” and “looking forward to building on the momentum we have created.”
The company has updated its financial outlook for the full year 2024. It now expects a revenue range, includingretail sales andcredit card revenues, of between a 1% decline and a 1% increase, and like-for-like sales growth of between 1% and 2%.
More optimistic than in March
EBIT margin should be between 3% and 3.4% of sales, and adjusted EBIT margin between 3.6% and 4% of sales. Finally, adjusted earnings per share should be between $1.75 and $2.05.
Last March, when it published its annual results, the Group had been even more cautious, forecasting annual growth for 2024 of between -2% and +1% and adjusted earnings per share of between 1.65 and 2.05 dollars.
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Photos à la Une : © Nordstrom
