Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nordstrom Inc (JWN, Financial) delivered net sales growth of 5% in Q1 2024, with double-digit growth at Nordstrom Rack.
- The company saw year-over-year increases in customers and purchase trips, indicating strong customer engagement.
- Nordstrom Inc (JWN) managed inventory effectively, ending the quarter with a double-digit positive inventory spread.
- The Nordy Club loyalty program saw significant growth, with loyalty sales reaching nearly 70% of total sales.
- Digital business showed its fourth consecutive quarter of sequential improvement, driven by better balance across price points and faster shipping.
Negative Points
- Nordstrom Inc (JWN) reported a loss per share of $0.24 for Q1 2024, indicating profitability challenges.
- Gross profit as a percentage of net sales decreased by 225 basis points compared to the same period last year.
- Operational factors such as external theft and inventory cleanup in the supply chain negatively impacted gross margin.
- Higher labor costs partially offset improvements in variable costs, affecting SG&A expenses.
- The macroeconomic environment remains uncertain, with higher interest rates and inflationary pressures posing risks.
Q & A Highlights
Q: Erik, can you speak to the sustainability of the stronger comp momentum you saw across both banners this quarter? How did the trend sequence by month throughout the quarter? And are you seeing comparable trends quarter to date?
A: Sales were positive in each month during Q1 at the JWN level. There were some timing changes with Easter that caused some change throughout the quarter. Quarter-to-date, our positive trends continue, though they have softened a bit. Our second quarter is really driven by our performance during the anniversary sale, which comes at the end.
Q: Given the strong start to the year, can you provide some color on the drivers that led you to reaffirm the full-year sales and comp guide rather than passing this through to the full-year outlook? What factors in your cost and margin outlook are helping to offset some of that gross margin headwind from timing headwinds that you're seeing this year?
A: The strength of the top line gives us a lot of confidence. The impact we saw in gross margin in the first quarter is timing related. Strength in our loyalty or Nordy Club sales is a good thing, though it will impact us this quarter but will come back in future periods. The operational factors that held back our profitability in the first quarter have been addressed, and we are committed to offsetting those impacts.
Q: Would you guys speak to the margins at Nordstrom versus Rack? How do you think about the opportunity there? Maybe how should we think about the current, but also the future P&L impacts of Rack growth versus Nordstrom?
A: There isn't as big a difference in margins between Nordstrom and Rack as one might think. We use the same supply chain and technology for both. We leverage our business across both banners, allowing customers to interact with us in any way they want.
Q: How are you feeling about the selection at the Rack now versus your target? Is there a lot more investment to be made around the brands in the selection?
A: We typically have not had much challenge getting the best brands represented in the Rack. Our biggest issue is creating focus around our top brands. The more we focus on these brands, the better our performance. Customers love the brands we have and the great prices, which reaffirms our strategy.
Q: Can you comment on your view of the current promotional environment and what you're expecting for the remainder of the year?
A: The promotional environment seems pretty normal to us, and we don't anticipate it changing much.
Q: Could you please spend a couple of minutes on the marketplace? Can you share early read to the customer acceptance and what's the Rack going forward on this initiative?
A: We launched Marketplace in late April, and it's off to a good start. It's a relatively small launch at this point, and we plan to scale it in 2025. The bigger story is that Marketplace is a key part of bringing more customer choice and improving the discovery experience for our digital shoppers.
Q: Is there anything structural that would prevent Nordstrom from getting back to double-digit EBIT margins?
A: Before aiming for double-digit margins, we are focused on reaching our 2019 level of 6% EBIT margin. The business has changed significantly, and we have invested in supply chain capabilities and technology to serve our customers better. We are focused on driving EBIT margin growth over the next couple of years.
Q: Can you talk broadly about how much the Rack customer is seeking value versus newness? Are you seeing any change or growth in new customers?
A: It's hard to separate value from newness. Both are essential. Our mix of coveted brands at great prices is our secret sauce. We continue to see better business as we improve our mix and shopping experience. New store openings are also bringing in new customers.
Q: Can you quantify how much full-price sales you have and how that's changed over the last few quarters?
A: The health of our margin is directly linked to full-price sales. We focus on selling items at regular price, which drives our margin. In the Rack, the value is recognized because of the great brands we offer. The brands create an obvious benchmark for value.
Q: What are your expectations for credit card income for the year, and how does the delay in the ruling affect your forecast?
A: The credit quality of our cardholders is higher, which helps mitigate potential impacts from late fee changes. The CFPB regulation is still on hold, and we are monitoring it. Our credit revenue will be about 3% for the year, slightly lower than in 2023.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
