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Nordstrom stock reverses gains as execs warn about 'historic' retail theft

Nordstrom joins a list of retailers that remain cautious on the back half of 2023.

Vanishing merchandise is hitting Nordstrom's bottom line just like other big-name retailers.

"Losses from theft are at historical highs," Nordstrom CEO Erik Nordstrom told Wall Street on an earnings call late Thursday. "And I'd say we find it unacceptable and needs to be addressed."

Shares fell 4.3% in after-hours trading, reversing gains of as much as 6% on better than expected sales and earnings. Nordstrom's stock fell 1% in pre-market trading on Friday.

The company reported sales dropped 8.3% compared to the same time period last year, with Nordstrom attributing the decline to the timing of its Anniversary Sale, which pulled one week into the third quarter from the second. The company also wound down its Canadian operations during the quarter.

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Without these two impacts, sales would have fallen nearly 4%. Performance at the company's Nordstrom Rack outlet stores also outperformed its flagship brand stores, falling 4.1% after an 11.9% drop in the first quarter.

The company reiterated its 2023 outlook.

Nordstrom expects retail sales and credit card revenues to drop between 4% and 6% compared to last year and adjusted earnings to come in between $1.80 and $2.20, excluding charges related to the wind-down of its Canadian business.

On a call with investors following the results, CFO Catherine Smith said consumers are still cautious.

"It remains to be seen how changes in inflation and higher interest rates will affect discretionary consumer spending in the second half of the year, particularly during the holiday season," Smith warned.

The earnings rundown

Here are Nordstrom's Q2 results versus estimates, according to Bloomberg data.

  • Net sales: $3.66 billion vs. $3.61 billion expected

  • Adjusted EPS: $0.84 vs. $0.44 expected

  • Segment revenue:

    • Nordstrom: $2.49 billion vs. $2.47 billion

    • Nordstrom Rack: $1.17 billion vs. $1.10 billion

  • Credit card: $100 million vs. $107.35 million

  • Same-store sales: -8.3% vs. -10.34%

  • Inventories: -17.5% compared to a year ago

Overall sales dropped 8.3%. Net sales for the namesake Nordstrom brand dropped 10%, while its off-price business Nordstrom Rack saw sales decrease 4.1%. Sales of activewear with brands like HOKA, On Running (ONON), New Balance, and Nike (NKE), as well as beauty products, grew by low-single digits. Kids' and men's apparel outperformed previous quarters.

Sales of accessories and handbags showed strength at Nordstrom Rack, but designer brands are still under pressure.

A general view of the atmosphere as Nordstrom Rack opens a new store on August 17, 2023 in Aurora, Colorado.
A general view of the atmosphere as Nordstrom Rack opens a new store on Aug. 17, 2023 in Aurora, Colo. (Tom Cooper/Getty Images for Nordstrom Rack) (Tom Cooper via Getty Images)

What else we're watching: Digital sales decline, inventory, credit card revenue, theft

Digital sales, which made up 36% of total sales in Q2, declined nearly 13%, driven lower by Nordstrom Rack eliminating the fulfillment of digital orders in store and shuttering its styling service Trunk Club in the quarter.

The timing shift of the Anniversary Sale had a negative impact on digital sales too, per the release.

Inventory, a key issue for Nordstrom in Q2 2022, dropped 17.5% compared to last year. CEO Nordstrom said the team is "focused on managing inventory with greater discipline" by improving mix and productivity.

Credit card revenues were up 10% in the first half of the year, driven higher by its credit card partner agreement and lower-than-expected credit card losses.

"We have seen delinquencies rising gradually, and they are now above pre-pandemic levels, which could result in higher credit losses in the second half and into 2024," Smith said though.

Typically, its credit customer is loyal, resilient, and is a "little higher-quality credit consumer."

What analysts are saying post earnings:

  • "Progress year to date has been meaningful across Rack assortment, a key catalyst, rightsizing inventory, and supply chain efficiency. Going forward, executing on 2H guide should be important for sentiment, with margin normalization next year also a focus point." -Jefferies, Ashley Helgans

  • "There are certainly signs here that initiatives around Rack and overall operational efficiencies are taking hold. Rack improved materially from down 12% to down 4%, including a notable headwind from the removal of in-store fulfillment. Inventories ended the quarter down 17.5%. Management noted a strong Anniversary Sale, with sell-through that allows for even cleaner inventories looking into the second half, which should help support continued gross margin improvement. And finally, the company has been able to maintain margin despite softer sales and the loss of the Canadian business, which ran at an EBIT margin level considerably above the core business. Despite these improvements, we would call out more general weakness in the fundamentals pointing to greater uncertainty ahead. Management spoke to a potential worsening consumer backdrop with growing delinquency rates within its private label credit card balance and decelerating trends into August (similar to commentary from Macy’s)."-William Blair, Dylan Carden

  • "We continue to think the Street underestimates pressure on JWN earnings from share loss as consumers' move to online pureplay channels, retailers with better value-for-money propositions such as TJX, and brands' own stores and websites."-UBS, Jay Sole

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma.

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