Nordstrom(US:JWN)2022-08-23 23:49Financial Data and Key Metrics Changes - Total sales increased by 12% year-over-year, benefiting from approximately 200 basis points due to the Anniversary Sale shifting into the second quarter [9][35] - Earnings for the second quarter were $0.77 per diluted share, with adjusted EPS at $0.81 after excluding charges related to Trunk Club [35] - Gross profit margin increased by 65 basis points, primarily due to leverage on buying and occupancy costs, despite higher markdown rates on clearance products [36] - Ending inventory rose by 10%, compared to a 12% increase in sales [36] - EBIT margin was 5.1% for the second quarter, with an adjusted EBIT margin of 5.3% [38] Business Line Data and Key Metrics Changes - Nordstrom banner sales and gross merchandise value (GMV) grew by 15%, exceeding pre-pandemic levels, while Nordstrom Rack sales increased by 6% [36] - Digital sales also increased by 6%, representing 38% of total sales during the quarter [36] - Sales of occasion-based items, such as suiting and dresses, showed double-digit growth, with Shoes and Beauty categories also performing well [23] Market Data and Key Metrics Changes - Customer demand decelerated significantly in late June, particularly at Nordstrom Rack and among lower-income customer segments [7][11] - July sales in the Rack banner decelerated by 9 percentage points compared to the first two months of the quarter [11] - The top 100 brands at Nordstrom Rack saw a 17% increase in sales, indicating strong demand for premium brands [19] Company Strategy and Development Direction - The company is prioritizing actions to reduce inventory levels and improve performance in Nordstrom Rack while focusing on enhancing digital capabilities and customer service [14][16] - The "Closer to You" strategy aims to win in key markets by providing convenience and access to a strong product selection [15] - The company is adjusting its plans for the second half of the year to align expenses and inventory with current demand trends [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged uncertainty in consumer demand and the need to adapt to changing market conditions [20] - The company updated its 2022 financial outlook to reflect anticipated margin pressure and deceleration in customer demand [40] - Despite challenges, management remains confident in the company's ability to navigate the current environment and achieve long-term growth [47] Other Important Information - The company plans to invest in supply chain and technology capabilities while reducing leverage and returning cash to shareholders through dividends and stock repurchases [44][45] - The company expects to have a clean inventory position by the end of the year, despite markdown pressures in the second half [29][46] Q&A Session Summary Question: Commentary on Rack price points and demand stabilization - Management indicated a shift away from lower price offerings at Rack to focus on premium brands, with no significant evidence of demand stabilization in late July [51][53] Question: Satisfaction with the Anniversary Sale and private label performance - The Anniversary Sale saw a 5% increase in sales, but private label products underperformed, prompting a reassessment of the strategy [57][58] Question: Attribution of softening trends at Rack - Management attributed the softening trends primarily to macroeconomic pressures affecting lower-income customer segments [63][65] Question: Brand mix at Rack and inventory management - The share of premium brands in Rack's inventory has been increasing, with plans to continue improving the brand mix while managing clearance inventory [71][73] Question: Third quarter guidance and promotional environment - The company anticipates a mid-single-digit decline in revenue for the third quarter, with expectations of a more competitive promotional environment in the second half [75][78] Question: Trade down evidence and channel performance - Management has not observed significant trade down behavior, with customers showing a preference for newness over clearance items [80][83] Question: Slowdown in designer categories - The slowdown in designer sales was noted, particularly in lower-priced items, with management preparing for potential promotional activity if trends do not improve [87][89]