Nordstrom Inc., impacted by steeper markdowns and macroeconomic headwinds, reported fourth-quarter declines on the both the top and bottom lines and announced that it was pulling out of Canada.
Fourth-quarter net earnings declined to $119 million, or 74 cents a diluted share, from $200 million in the year-ago quarter.
Net sales in the quarter dipped 4.1 percent to $4.2 billion from $4.38 billion in the year-ago period.
However, executives noted that sales and earnings were in line with their updated fiscal 2022 outlook.
“We took decisive actions to right-size our inventory as we entered the new year, positioning us for greater agility amidst continuing macroeconomic uncertainty. We also made the difficult decision to wind down operations in our Canadian business. This will enable us to simplify our operations and further increase our focus on driving long-term profitable growth in our core U.S. business,” chief executive officer Erik Nordstrom said in a statement.
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The Nordstrom division overall saw a 2.4 percent dip in sales last quarter, while the Nordstrom Rack saw sales decline 8.1 percent compared to the year-ago period.
Digital sales decreased 13.1 percent from the fourth quarter a year ago.
“As we enter fiscal 2023, we are focused on enhancing the customer experience, improving Nordstrom Rack performance, increasing inventory productivity and continuing to advance our supply chain optimization initiatives,” Nordstrom said. “We remain confident in the strength of our brands and our ability to drive profitable growth and deliver long-term value to our shareholders.”
Pete Nordstrom, president and chief brand officer, added, “While the incremental markdowns in the second half impacted our margins, we are better positioned for a stronger 2023. Our actions have given us increased flexibility to react more quickly to changing customer demand and provide the newness and fashion customers love.” Inventories are down 15 percent from last year and comparable to 2019 levels.
Addressing the shutdown of all of Nordstrom’s stores in Canada, Erik Nordstrom said, “We regularly review every aspect of our business to make sure that we are set up for success. We entered Canada in 2014 with a plan to build and sustain a long-term business there. Despite our best efforts, we do not see a realistic path to profitability for the Canadian business.”
Nordstrom has commenced a wind-down of its Canada stores, both Nordstrom and Rack, and its e-commerce operations there, and will be assisted by a liquidator. E-commerce has already ceased operating and the wind down of the stores is expected to be completed by June this year. Approximately 2,500 Nordstrom workers will lose their jobs in Canada.
The wind-down will result in a loss of approximately $400 million in sales, and a $35 million improvement in earnings before interest and taxes this year, excluding the $300 million to $350 million in charges this quarter expected from closing the Canadian operations. Nordstrom operates six department stores and seven Rack stores in Canada.
Nordstrom officials remain bullish on Nordstrom Rack, despite its issues, and sees room to grow the off-price business with more stores, with several new ones planned this year, and by remaking Rack’s product mix by prioritizing 50 strategic, very productive brands “that are well-known and loved across the U.S. These include many brands we curate for the Nordstrom (full-price) banner. As previously mentioned 90 percent of the top 50 brands at Nordstrom are also carried at Nordstrom Rack,” Erik Nordstrom said during a conference call. “While these brands accounted for half of rack sales in 2022, they make up 60 percent of our on order for the first half of ’23.” He said Rack should have a strong assortment in place by mid 2023.
Best selling categories last quarter at Nordstrom were dressier men’s wear, outerwear, sweaters and boots, and at Rack, beauty did well.
“It’s pretty clear that the customer across the board is is challenged,” said Erik Nordstrom. “There’s some softness particularly in the discretionary area. It’s more pronounced in our Rack business.”
Commenting on Nordstrom’s designer business, Pete Nordstrom said, “This may be the first quarterly call I’ve been on in the last 10 years where I didn’t say designer was one of our best-performing. I think it’s important to keep this in context. One quarter does make a trend. Last year, sales of designer were the best in the history of our company, a double-digit increase.” But with business normalizing lately, “We find ourselves with too much designer inventory.…We’ll be able to work through that. The good news is our customers over a long period of time have showed a strong interest in designer.”