Dive Brief:
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Nordstrom on Tuesday said that Q3 net sales rose 4.6% year over year to $3.3 billion, with total comps up 4%. E-commerce rose 6.4%.
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By banner, Nordstrom net sales rose 1.3%, comps rose 4% and gross merchandise value rose 2.4%. Nordstrom Rack sales rose 10.6%, with comps up 3.9%.
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Gross margin expanded by 60 basis points to 35.6%. Inventory rose 5.9%. Net earnings fell 31.3% to $46 million.
Dive Insight:
Nordstrom beat analyst expectations in several measures in the third quarter, and executives noted increases in traffic, customer count and transactions at both its full-line and off-price Rack stores.
“We saw good health for our customers across both banners and across income cohorts,” CEO Erik Nordstrom told analysts Tuesday.
But that subsided somewhat early in Q4 and executives couldn’t quite explain it. At the end of Q3, warm weather impeded some seasonal apparel sales, which picked up as temps grew cooler, executives said.
“As far as the Q4 slowdown, we really don't have a lot of information on that,” Erik Nordstrom said. “It's a couple of weeks into the quarter, and we just thought that the prudent thing would be to share what we saw, which is a decline in trend there, but too early to pull that apart.”
Nordstrom tends to realize nearly a third of its annual net sales and about 40% of its annual EBIT in the holiday quarter, according to Chief Financial Officer Cathy Smith. The momentum in Q3 led the company to upgrade its expectations for the year, but only somewhat, due to the Q4 deceleration, she said.
The company now expects revenue, including retail sales and credit card revenue, to be flat or rise 1% year over year, which includes a hit of 135 basis points because last year had an extra week. Comps are expected to rise 1% to 2%, per a company press release. That’s up slightly from the previous forecast, from August, for revenue to range between a 1% decline to 1% growth, and for comps to range from flat to up 2%.
Elevated inventory levels continue to be a concern, but the quality of the assortment is good, executives said. The uncomfortable inventory situation and early-Q4 downturn add to worries about the holiday quarter, according to a client note Tuesday from Evercore ISI analysts led by Michael Binetti. Most retailers don’t seem to have experienced a similar slack in sales at that time, according to Evercore as well as William Blair analysts Dylan Carden and Anna Linscott.
These analysts also all noted that there was no news regarding the Nordstrom family’s offer to take the company private. CEO Erik Nordstrom, his brother President Pete Nordstrom and other family members in September teamed up with Mexican retail conglomerate El Puerto de Liverpool to offer $3.8 billion in cash, or $23 per share, to take over the retailer.
A special committee of the board, established earlier in the year when the Nordstroms first indicated their interest, is still reviewing the bid, and executives made clear Tuesday that there would be no update and they would take no questions about it. This is adding to the unknowns and what Binetti called “4Q’s confusing guidance.”
“While [Nordstrom] had a great quarter, it’s hard to embrace either a bullish or bearish thesis going forward with no update on the Nordstrom family’s offer to buy the company from September,” Binetti said, adding, “We hope the company can relieve the distraction soon.”
