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Dive Brief:
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Nordstrom on Tuesday said that Q2 net sales rose 3.4% year over year to $3.8 billion. Full-line net sales and comps each rose 0.9%, with the Anniversary Sale contributing about 200 basis points; off-price Rack net sales rose 8.8% and comps rose 4.1%. Digital sales rose 6.2% and were 37% of total sales.
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Gross margin expanded by 155 basis points, thanks mostly to strong regular-price sales. Ending inventory was up 8.3% compared to a year ago. Credit card revenue reached $109 million, down $1 million from last year. Net earnings declined 10.9% to $122 million.
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In Q2, the company opened five new Rack stores, bringing its year-to-date total to 11, and plans to open 12 more ahead of the holidays, CEO Erik Nordstrom told analysts Tuesday, calling Rack “an important growth vehicle for us.”
Dive Insight:
Nordstrom finished ahead of the expectations many analysts had for its second quarter. The company saw more customers, who shopped more often, and expanded its margins, Chief Financial Officer Cathy Smith said in prepared remarks.
Some analysts nevertheless remain wary of the volatility at both the department store and off-price businesses. Company President Pete Nordstrom addressed the elevated inventory, saying it exceeded sales growth for the first time in a while. The company had invested in inventory to stock new Rack stores and improve the assortment in existing Rack stores, part of an ongoing effort to correct merchandising failures at Rack.
“While the growth was higher than we typically like, we feel good about the content of our inventory,” Pete Nordstrom said. “We closed the quarter with an increase in newness and a commensurate decline in clearance and aged inventory at both banners. In the future, we do expect our sales-to-inventory spread to improve.”
The company bumped up the low end of its guidance for the year, and William Blair analysts led by Dylan Carden said that “suggests the company might be able to continue to string together better top-line performance through the balance of the year as stacked comparisons remain favorable.”
The company said it now expects revenue for the year (retail sales plus credit card revenue) to land somewhere between a 1% decline to 1% growth, and for comps to range from flat to 2% growth. That includes about a 135-basis-point revenue hit because there was an extra week last year, Smith said.
That’s up from the guidance issued in March: an expectation for revenue growth of between a 2% decline to a 1% rise and comp sales to range between a 1% decline and 2% growth. Erik Nordstrom said the Q2 performance is just one indication that the company is making good on its goals.
“During the second quarter, we made progress on our three key priorities of driving Nordstrom banner growth, optimizing our operations, and building upon the momentum at the Rack,” he said.
Still, Nordstrom has struggled with consistent strength in its top line, margins have wavered and its inventory position is high for a promotional time of year, William Blair analysts said.
“We believe the company is still in a show-me state, going into a period of slower consumer demand,” they said in emailed comments.
The department store had no update on the status of a potential offer from Erik and Pete Nordstrom to take the business private and declined to take questions about that during the call with analysts.
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Daphne Howland, Khareem Sudlow
