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Diving certificate:
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Nordstrom said Tuesday that second-quarter net sales increased 3.4% year over year to $3.8 billion. Total assortment net sales and comparables each increased 0.9%, with the anniversary sale contributing about 200 basis points; off-price assortment net sales increased 8.8% and comparables increased 4.1%. Digital sales increased 6.2%, representing 37% of total sales.
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Gross margin increased 155 basis points, primarily due to strong regular-price sales. Ending inventory increased 8.3% year-over-year. Credit card revenue reached $109 million, down $1 million year-over-year. Net income decreased 10.9% to $122 million.
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The company opened five new Rack stores in the second quarter, bringing the year-to-date total to 11. It plans to open 12 more by the holidays, CEO Erik Nordstrom told analysts on Tuesday, calling Rack “an important growth tool for us.”
Diving insight:
Nordstrom beat many analysts’ expectations in the second quarter as the company saw more customers shop more frequently and increased its margins, Chief Financial Officer Cathy Smith said in a prepared statement.
Some analysts, however, remain concerned about volatility in both the department store and off-price businesses. Company President Pete Nordstrom addressed the increased inventory levels, saying they had outpaced sales growth for the first time in a long time. The company had invested in inventory to supply new Rack stores and improve assortment in existing Rack stores as part of an ongoing effort to correct merchandising mistakes at Rack.
“While growth was higher than we typically like, we are pleased with the inventory levels,” said Pete Nordstrom. “We ended the quarter with an increase in new arrivals and a corresponding decrease in clearance and older item inventory across both brands. Going forward, we expect our sales-to-inventory ratio to improve.”
The company raised the lower end of its full-year guidance and William Blair analysts led by Dylan Carden said this “suggests that the company may be able to continue to deliver better revenue through the end of the year as overall comparisons remain favorable.”
The company now expects a 1% decline in sales to 1% growth (retail sales plus credit card sales) and expects full-year sales growth of 2% to 1%. That includes a 135 basis point decline in sales because of an extra week last year, Smith said.
That’s more than the March forecast: sales growth between a 2% decline and a 1% increase, and comparable sales between a 1% decline and a 2% increase. Erik Nordstrom said the second-quarter performance was just one indication that the company is hitting its targets.
“In the second quarter, we made progress on our three key priorities: driving growth at Nordstrom, optimizing our operations and building on the momentum at Rack,” he said.
Still, Nordstrom is struggling with consistently strong sales, fluctuating margins and high inventory levels for the time of year with special offers, say analysts at William Blair.
“We believe the company is still in a ‘show-me’ phase and is moving into a phase of lower consumer demand,” the company said in emailed comments.
The department store had no update on the status of a possible offer by Erik and Pete Nordstrom to take the company private and declined to answer questions about it during the conference call with analysts.
