Nordstrom(US:JWN)2023-08-24 23:47Financial Data and Key Metrics - Q2 2023 earnings per share (EPS) was $0.84, up from $0.77 in the same period last year, despite $330 million fewer sales [42] - EBIT margin for Q2 was 5.3%, up 20 basis points year-over-year [46] - Inventory decreased by 18% compared to last year, with sales down 8%, indicating improved inventory productivity [45][71] - Supply chain costs fell by over 100 basis points for the fourth consecutive quarter, contributing to operational efficiencies [32][72] - Full-year revenue is expected to decline 4% to 6%, with a 2.5 percentage point negative impact from the wind-down of Canadian operations [47] Business Line Performance - Nordstrom Rack sales decreased 4% in Q2, improving sequentially from a 12% decline in Q1 [44] - Strategic brand penetration at Nordstrom Rack reached 65% of sales, with plans to maintain this level in the second half [30][40] - Digital sales accounted for over 60% of the Anniversary Sale, with 40% of digital sales enabled by stores [65] - Active footwear and beauty categories performed well, with Active footwear driven by brands like Hoka, On Running, and Nike [36] - Women's apparel improved sequentially but remained below average, while men's and kids' apparel performed better than average [36] Market Performance - Nordstrom banner sales and GMV decreased by 10% year-over-year, with sales improving sequentially from Q1 [43] - The Anniversary Sale saw a 5% decline in total event sales compared to last year, but strong sell-through improved inventory positioning [38] - Designer categories remain under pressure, with efforts to rightsize inventory ongoing [63] - Traffic trends were soft across both banners, but higher conversion and spend per customer offset some of the decline [108] Strategic Direction and Industry Competition - Nordstrom Rack is identified as a key growth vehicle, with plans to open 11 additional stores by the end of 2023 [58] - Digital channels are seen as a significant opportunity, leveraging physical assets to enhance customer experience [14] - Investments in AI and analytics are being made to improve operational efficiency and customer experience [17][18] - The company is focusing on inventory productivity, supply chain optimization, and improving Nordstrom Rack performance as key priorities [27][57] Management Commentary on Operating Environment and Outlook - Management remains confident in delivering the 2023 financial outlook despite economic uncertainty [29] - The company is navigating a cautious consumer environment, with potential headwinds from rising delinquencies in the credit card business [48][85] - Sequential improvement in sales trends is expected to continue through the second half of the year [78] - The 53rd week in fiscal 2023 is expected to add approximately $200 million in sales in Q4 [97] Other Important Information - The company declared a quarterly cash dividend of $0.19 per share [76] - Credit card revenues were up 10% in the first half of the year, but delinquencies are rising and could impact future credit losses [48][85] - The company is focused on reducing leverage and maintaining an investment-grade credit rating, targeting a leverage ratio below 2.5x [99] Q&A Session Summary Question: How should we think about the pace of full banners in the back half of the year? - Sequential improvement is expected to continue, with easier year-over-year comparisons in Q3 and Q4 [78][100] Question: Can you provide more detail on the drivers of Rack performance during the quarter? - Rack performance improved steadily, driven by strategic brand penetration and better inventory management [107][108] Question: What are your expectations for credit card losses in the back half of the year? - Delinquencies are rising and could lead to higher credit losses, though the portfolio remains resilient [85][111] Question: How is new store productivity ramping versus expectations? - New Rack stores are performing well, with returns exceeding the cost of capital [135] Question: What is the outlook for gross margin and shrink for the remainder of the year? - Gross margin is expected to improve in Q4 due to reduced markdowns, while shrink remains a concern but is within planned levels [118][138] Question: What is the path forward for e-commerce growth? - The company focuses on a seamless customer experience across channels, with digital sales impacted by operational changes and comparisons to last year [148] Question: What are the incremental opportunities to drive top-line improvement at Rack? - Strategic brand penetration and inventory agility are key drivers, with opportunities to invest in higher-performing brands [131][153]