Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nordstrom Inc (JWN, Financial) reported solid second-quarter results with net sales of $3.8 billion and earnings per share of $0.96.
- The digital business showed strong momentum with a 6% increase in net sales.
- The company successfully launched its marketplace, adding over 15,000 items and nearly 100 new brands.
- Nordstrom Inc (JWN) opened five new Rack stores in Q2, with plans to open 12 more before the holiday season.
- The company saw strong performance in key categories such as activewear, women's apparel, beauty, and kids.
Negative Points
- Nordstrom Inc (JWN) experienced an 8.3% increase in inventory, which exceeded sales growth.
- The company took an asset impairment charge due to the strategic decision to cease the build-out of a leased omnichannel center.
- SG&A expenses as a percentage of net sales increased by 160 basis points, partly due to a supply chain asset impairment charge.
- Credit card revenues as a percent of total revenue declined modestly due to higher losses.
- The external environment remains uncertain, leading the company to be cautious with its full-year outlook.
Q & A Highlights
Q: As you went through the anniversary sale, any cadence to the anniversary sale that you saw that gives an indicator of consumer health for the balance of the year? And also with your private brand launch versus the brands and the good reception on womenswear, how are you thinking about the women's category overall? And then just lastly, on credit, Cathy, the debt levels and what you're seeing there, how did that differ from the first quarter? And how are you planning for the balance of the year? Thank you.
A: Hi, Dana. It's Pete. With regards to anniversary, I mean you were essentially on plan. I think there's really nothing there relative to the cadence specifically, but we do have -- one thing that's great about the sale, we get an early read on fall categories. Because as you know, the sales as new product in there and so getting marked up. And we had good performance in both outerwear and sweaters, which I think bodes well for the fall for us. But over the years that it's become a bit of a balance on people buying with anticipation of fall, those of buying out wear now. So we're always trying to find that balance. So I don't think they have any super impactful information for you about how it's going to relate to future sales. But we were happy with how anniversary went. With regards to private brands, we've had strength really across all categories, which is super encouraging because as you know, we've been talking about for a while that we have a lot of headroom there to grow that business. But the most important part is when we have success in women's apparel because. It's such a big category, and we had a lot of success in women's apparel. The anniversary sale in private brands. So again, that gives us a lot of confidence going forward. Good afternoon, Dana. I'll take the last two parts of your question. with regards to customer insights, possibly, we saw good growth across all income cohorts at the Rack. And then at Nordstrom stores, our higher income consumers or customers, we saw spending improve the most out of that -- in that banner. And then on credit losses, we shared early in the year that we expect to see losses tick up modestly this year. That's, I think, consistent with what the industry has been seeing and that's no different, but it's within our plan and our guidance. So nothing that's unforeseen there, but we are seeing credit losses tick up a little bit.
Q: You had strong regular price sales on the gross margin. which was quite nice. How did that triangulate with the inventory position that you're in now? Which parts of the inventory might you be a little bit over inventoried? And you mentioned operational optimization. Just would love details on that -- that headline. Rack continues to see great progress as well. It's a difficult business and that the inventory flows are so important. Do you see continued positive comps in great momentum there. Are you in the right place for where you want to be there? Thank you.
A: Oliver, it's Pete. With our inventory levels, as Cathy mentioned in terms of the quality of what those are, I think that's probably the most important point. We were a little over in that inventory grew faster than the sales. But if you look at where it is and what the content of inventory is that helps, I think, bring some clarity. So most of that really showed up in the Rack business. And to your point that we have this Rack momentum, I think particularly the new stores we're opening and then the rack.com business, that's really solid. If you look at where we have the quantities that are over last year, it's largely there. And I think that's a pretty good sign. Also what you would see in terms of being able to forecast how this impacts our profitability going forward is -- if you look at aging, primarily and our aging is really good across both banners, both Rack and Nordstrom. So I think we feel pretty good about it. It's -- obviously, we pay really close attention to inventory levels, and we want to bring it down some, but we're not particularly concerned. And certainly, it doesn't create any overhang for us that we're anticipating for the second half. And Oliver, I'll pick up on operational optimization and then throw it to Erik on the Rack. On operational optimization. It's been, as you know, a priority of ours all year and we'll continue to focus on it. Our team makes -- is making really good progress. And I think you hit on the one that's really encouraging, which is that consistent flow of merchandise is so important to continue that thread of newness for our customers in both banners. It helps to drive those regular price sales, and we saw the increase in regular price sales again this quarter, which is great. But underneath that, we're seeing us process inbound merchandise faster, which gets us and returns faster, which enables us to refresh, too, and again, a better customer experience. And RFID, we continue to roll it out across our fleet. But more importantly is we're now starting to get the benefits that, that insight gives us. And again, it enhances the customer experience as we're able to fill their orders. And then lastly, we'll continue to look to leverage our existing supply chain network, always balancing the best customer experience, we can with speed and cost. So just good progress across the board. Hey, Oliver, this is Erik. On Rack, yeah, we feel good about our results. Our team is executing well on the plan. Rack is a, of course, a growth vehicle for us. And that's new stores. We continue to see opportunities to add new stores at the pace we're currently adding. And certainly, the comp store business, as well as our digital business. You mentioned flow. Yeah, customers come to Rack in constant flow of newness from the brands that they associate with us. So our focus on great brands at great prices continue to serve us well. And we feel really great about that. The digital piece -- it is a point of differentiation. There's not many online off-price retailers out there. It works for us because it's part of our bigger ecosystem. And we see more opportunities there to leverage on the capabilities to engage with customers more and get a bigger share of wallet. So we're delivering on our plans and have plans going forward to continue that growth.
Q: What's the margin impact from anniversary sale timing shift in 2Q? You guys a nice gross margin, called out strong full price sales. So just curious about how to think about anniversary sale gross margins versus the non-sale and just that impact of the timing shift to margins on top of the revenue that you mentioned? And then just appreciating -- appreciate the color and appreciate the commentary you gave us for the tech that you're not going to be using any more, any costs we should be thinking about for the new approach to storing data ahead? Thanks.
A: Yeah. Thank you. Good afternoon, Simeon. so gross margin, I'm smiling on your comment around impact anniversary sale and Pete should weigh in here, too. But the great news is our team does a good job of negotiating with our vendors and we get good new merchandise
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
