Though Nordstrom Inc. continued to lose ground in the second quarter, the company said it did better than expected on the bottom line due to stronger inventory and expense controls.
For the quarter ended Aug. 3, net earnings dropped to $141 million compared with $162 million in the same period in fiscal 2018.
Earnings before interest and taxes were $216 million, or 5.7 percent of net sales, compared with $246 million, or 6.2 percent of net sales, during the same period a year ago. The decrease was driven primarily by lower sales volume, Nordstrom said.
While the bottom line exceeded expectations, sales were around the low end of its expected range, Nordstrom said. There was a slow start to the quarter and softer-than-expected performances by Nordstrom’s Anniversary Sale and the Rack off-price business.
With the Anniversary Sale, which brings fresh fall product in at discounts for a limited period, “We did go into the event a little narrower and deeper on brands. We didn’t go far enough. We simply ran out of our top items,” said Erik Nordstrom, copresident, during a conference call with investors. “There was a change in consumer behavior. We saw more demand on our top items than we did previously. We are encouraged. Our buyers did a great job of picking the right items and putting their dollars in the best items.”
At Nordstrom’s full-price department stores, net sales decreased 6.5 percent, in part due to ongoing challenges in women’s. But according to copresident Pete Nordstrom, “We made some strides in women’s apparel. There’s not a lot to quantify but we did a good job of identifying key items, brands and styles that the customers were responding to. We always had an aggressive program on identifying and amplifying emerging brands. The cycle on that is shorter than it’s ever been, but we have confidence in our ability to pour on the gas when things are working well. The (buying and planning) teams can’t really use last year as a guide. It’s been a tough go for awhile in women’s, but we have optimism on making improvements especially in the back half of the year.”
He said the company is working on a re-commerce program. “There’s a bunch of things we are working on but we are not in a position to fill you in. It will be a major theme for our merchandising strategy.”
Nordstrom’s best-selling categories last quarter were beauty, after correcting out of stock issues in the beginning of the year; designer, across all categories; lingerie; active, and Nordstrom Product Group for in-house brands.
On the other hand, the company saw a slowdown in shoes and men’s had challenges. “The casualization of America impacts men’s business quite a bit,” said Pete, noting that the average price per item is now often lower than what it’s been in the past.
Off-price net sales decreased 1.9 percent, partly due to a reduction of flash sales. “In the last three weeks, we got back on a normal cadence of flash events,” said Erik. “We feel good about flash events going forward.” He said the company will be accelerating opportunistic buys for off-price, and that the company has plenty of open-to-buy since it’s in a good inventory position.
Total company digital sales grew 4 percent and represented 30 percent of the company’s total volume.
Nordstrom has been having a tough year, marked by merchandise misses, poor execution on the relaunch of its loyalty program initially, and, of course, the passing of Blake Nordstrom in January, who was copresident, and the brother of Erik and Pete.
In commenting on the last quarter, Erik changed the narrative somewhat, stating, “We delivered strong bottom-line results, demonstrating our inventory and expense discipline. We exited the quarter in a favorable inventory position and made important strides in productivity.
“We’re focused on driving our top line, and while this can take time, we are confident in our ability to manage through cycles. We remain encouraged by our key initiatives, including our local market strategy, and are making good progress on key areas of focus that we believe will collectively drive increased value creation for our shareholders.”
Nordstrom shares rose 13 percent to $30.18, in after-hours trading, after the company issued its better-than-expected results and lowered its outlook for the year. Nordstrom now forecasts sales down 2 percent, compared with a previous forecast of sales being flat to down 2 percent. Earnings per share are now seen between $3.25 and $3.50, versus the previous forecast of between $3.25 and $3.65.
While striving to regain momentum, Nordstrom hopes to get a big lift from the Oct. 24 opening of its 320,000-square-foot, seven-level women’s flagship on 57th Street and Broadway in Manhattan. It’s the Seattle-based retailer’s first New York City full-line store and its most ambitious and costliest project in its history. Two years ago, there were reports that the project would cost over $500 million. It’s now believed to be more expensive.
The company is also opening two Nordstrom Local sites next month in Manhattan to support the flagship and the Nordstrom Men’s store opened last year. The company is also scaling its local strategy in Los Angeles, its largest volume market. However, for online sales only, New York is Nordstrom’s biggest market.
Nordstrom’s slippage in the quarter was consistent with lackluster quarterly reports in the past week by Macy’s, J.C. Penney and Kohl’s, though Target turned in a standout performance.