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Nordstrom Posts Q3 Declines, but Meets Its Expectations

Nordstrom Inc., seeing customer demand decelerating like other major retailers this season, reported top- and bottom-line declines for the third quarter ended Oct. 29, though the company managed to meet its expectations on both fronts.

The Seattle-based retailer said Tuesday it had a third-quarter net loss of $20 million, or $0.13 per diluted share, compared to a net profit of $64 million, or $0.40 per share in the year-ago period.

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Earnings before interest and taxes were $3 million in the third quarter of 2022, compared with $127 million during the year-ago period, primarily due to higher markdowns and a supply chain technology and related asset impairment charge, partially offset by fulfillment expense efficiencies.

Adjusted EBIT of $73 million for the third quarter of 2022 excluded an impairment charge associated with supply chain technology and related assets. Excluding that charge, the company reported adjusted earnings per diluted share of $0.20.

Net sales decreased 2.9 percent to $3.43 billion, from $3.53 billion in the same period in fiscal 2021.

Nordstrom’s numbers didn’t go over particularly well with Wall Street, which in after-hours trading, pulled the stock down 8.3 percent, or $1.90, to $20.75, around 6 p.m., after earlier rising 6.5 percent to $22.65.

Anniversary Sale timing, with one week shifting from the third quarter to the second quarter, had a negative impact of approximately 200 basis points on net sales compared with 2021.

During the quarter, Nordstrom banner net sales decreased 3.4 percent, which included a negative impact of approximately 300 basis points from Anniversary Sale timing, and gross merchandise value decreased 2.9 percent.

Net sales for Nordstrom Rack decreased 1.9 percent.

Digital sales last quarter decreased 16.4 percent. The timing shift of the Anniversary Sale and consumer returning to physical stores more frequently had a negative impact on digital sales.

Nordstrom Inc.’s key strategic initiatives are focused on improving Rack’s performance, increasing profitability and optimizing the supply chain and inventory flow.

“We delivered both top-line and bottom-line results in line with our expectations in the third quarter while enhancing our strategic capabilities,” said Erik Nordstrom, chief executive officer, in a statement Tuesday.

“When customer demand decelerated in late June, we took action to align inventory and expenses with the changing trends, which has prepared us to navigate the current macroeconomic environment. This quarter our teams continued to advance our Closer to You strategy and supply chain capabilities, as we focus on initiatives to drive profitable growth and achieve our long-term strategic and financial goals.”

In the third quarter, core categories, including men’s and women’s apparel, shoes and designer, had the strongest growth versus 2021, as customers continued to shop for occasions, travel, work and holidays, while there was softness in active and home.

“We are right-sizing our inventory levels and mix, and are on track to end 2022 in a healthy and current position,” said Pete Nordstrom, president and chief brand officer. “Customers continue to respond to newness and fashion in our offering, and we are focused on remaining agile to respond to their changing needs. This holiday season we are delivering a fresh, relevant assortment, which supports our goal of being the go-to destination for gifting, and preparing for the moments that matter most to customers.”

During a conference call, analysts were most eager to get answers from Nordstrom managers on why Rack has experienced a prolonged downturn while other offpricers have show better results.

Pete Nordstrom responded that Rack didn’t get its mix right, lower-income cohorts have been impacted most severely by inflation and reducing apparel spending more than higher-income groups, and that during the pandemic, Rack did not have enough home and active merchandise, categories that excelled at other retailers. Also, Rack stores recently stopped fulfilling Rack.com orders, resulting in some top-line decline, while saving costs.

The Rack is striving to increase its supply of premium brands. According to Erik Nordstrom, 90 percent of top brands at the Nordstrom department stores are sold at Rack, and that sales for the top 100 brands at the Rack increased 9 percent last quarter.

The Nordstroms expect Rack’s product mix to be optimized by mid-2023.

“Reducing store fulfillment for Nordstrom Rack digital orders during the third quarter and sunsetting Trunk Club earlier in fiscal 2022 negatively impacted digital sales by approximately 700 basis points,” the company indicated. Digital sales represented 34 percent of total sales during the quarter.

Regarding recent sales trends, Erik Nordstrom said late October and early November saw declines, but the last two weeks sales trends improved. The Nordstrom executives said customers are responding best to newness, outerwear and dressier items, and are refreshing their wardrobes for holiday celebrations, return to working in offices, and traveling, and that higher-priced items are generally performing better than lower priced items.

Michael Maher, interim chief financial officer, said he thinks customers are waiting longer to buy gifts, in part because there is an extra Saturday this year between Thanksgiving and Christmas. He also cited an “elevated promotional environment.”

Other major retailers reporting third-quarter declines include Abercrombie & Fitch Co., Macy’s Inc. and Kohl’s Corp.