As the department store operator deals with an overabundance of inventory and declining demand, Nordstrom cut its profitability forecast for the entire year on Tuesday.
Even though it announced fiscal second-quarter earnings and sales that above analysts’ expectations, the retailer still reduced its outlook. In extended trade, the shares were down 14%. Earlier in the day, Macy’s similarly downgraded its full-year projection, stating that it anticipates that declining customer spending on discretionary goods like garments will compel it to utilize significant markdowns to move things off the shelves.
“Customer traffic and demand decelerated significantly beginning in late June, predominantly at Nordstrom Rack,” in a statement, Erik Nordstrom, the CEO of Nordstrom, said. “We are adjusting our plans and taking action to navigate this dynamic in the short term, including aligning inventory and expenses to recent trends.”
Compared to a previous range calling for a 6% to 8% increase, Nordstrom now expects annual sales, including credit card income, to increase by 5% to 7%. A decrease from the previous prediction of $3.20 to $3.50 is expected, with adjusted earnings per share expected to be in the $2.30 to $2.60 range.
According to Refinitiv statistics, analysts had anticipated adjusted earnings per share of $3.04 and revenue growth of 6.7% over the prior year.
Based on Refinitiv projections, the following chart shows how Nordstrom performed in its fiscal second quarter relative to expectations:
- Earnings per share: adjusted 81 cents vs. anticipated 80 cents
- Revenue: $4.1 billion versus the anticipated $3.97 billion
In the three months that ended on July 30, Nordstrom’s net income increased to $126 million, or 77 cents per share, from $80 million, or 49 cents per share, a year earlier.
Sales increased from $3.66 billion to $4.10 billion, with digital sales increasing 6.3% to account for 38% of overall revenue.
As customers looked for attire for special occasions, Nordstrom reported that its men’s apparel segment experienced the most growth compared to 2021, with footwear, women’s clothing, and beauty also recording double-digit gains.
Due in part to the timing of the company’s annual anniversary sale, net sales under the Nordstrom banner increased by 14.7%. Net sales at Nordstrom Rack, the company’s off-price banner, increased from the prior year but decreased from levels prior to the pandemic.
In contrast to the company’s full-price banner, Nordstrom Rack competes with stores like TJ Maxx and Ross Stores by focusing more on lower-income shoppers who are under pressure from increased inflation.
The merchandise at Nordstrom Rack will be reset to include more of the high-end brands that customers are yearning for, management stated during a conference call on Tuesday.
Inventory levels throughout the entire company climbed by about 10% from the same time last year, driven by growth at both banners. By the end of the third quarter, according to Nordstrom, it hopes to be “clean” on its current inventory levels.