Nordstrom shares rise as rack shows signs of improvement

Nordstrom Inc. beat Wall Street’s estimates for net revenue in the most recent quarter as a turnaround at its off-price Rack stores starts to take hold. 

Some investors had been preparing for Nordstrom to disappoint after Macy’s Inc. said earlier in the week that delinquencies on its credit cards had accelerated more than expected, signaling consumer weakness. 

But Nordstrom said on Thursday that sales at its Rack stores had fallen less than analysts expected, a sign that the company’s attempt to attract more shoppers by pivoting back to its tried-and-tested strategy of selling high-end items on discount is beginning to work. 

Nordstrom rose as much as 8.8% postmarket before paring gains to around 4%.

“We’ve worked hard to improve our operating model, and our solid results reflect the continued progress we made against our top priorities to improve Nordstrom Rack performance, increase inventory productivity and deliver efficiencies through supply chain optimization,” Chief Executive Officer Erik Nordstrom said in a statement. 

In part because of supply-chain problems in the aftermath of the pandemic, the Rack chain started to sell more lower-end brands. Shoppers revolted and sales fell. That’s been in contrast to other discount chains such as TJX Cos. Inc., which have thrived as shoppers seek out more deals amid high inflation and a decline in pandemic-era savings. 

Nordstrom had said it expected sales to improve at Rack this year. Sales fell 4.1% in the three months that ended on July 29, an improvement from the 11.9% in the prior three months. 

But the company opened nine new Rack stores so far this year, “so it will be important to understand how much of Rack growth is from new versus existing stores,” Citi analyst Paul Lejuez pointed out before earnings were published. 

Nordstrom said total revenue, including credit cards, was $3.77 billion, above estimates of $3.68 billion. Adjusted earnings per share were 84 cents, well above forecasts of 44 cents. 

The company also reaffirmed its outlook for its current fiscal year. It sees total revenue down 4% to 6% versus the year-ago period and adjusted EPS of $1.80 to $2.20, excluding charges related to the wind-down of its Canadian business, which was closed earlier this summer.