In This Article:
Dive Brief:
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Nordstrom’s Q3 net sales fell 6.8% year over year to $3.2 billion, with gross merchandise value down 7.1%. The wind-down of its Canada business siphoned 270 basis points, while its anniversary sale timing added 200. Credit card sales grew 6.2% to $120 million, despite delinquencies above pre-pandemic levels.
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By banner, full-line Nordstrom net sales fell 9.4%, with GMV down 9.8%. At off-price Rack net sales fell 1.8%. Digital sales fell 11.3% and represented 34% of total sales in the period.
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Gross margin expanded 180 basis points to 35%, mostly thanks to lower markdowns, inventory productivity, and lower buying and occupancy costs. Ending inventory fell 8.8%. The company swung to net earnings of $67 million, from a $20 million net loss a year ago.
Dive Insight:
Like other retailers, especially department stores dependent on apparel sales, Nordstrom had a mixed quarter. Sales fell but margins recovered, and analysts noted some progress on inventory management.
But the company’s aggressive expansion of its off-price Rack business is prompting questions.
Number of Nordstrom stores
| Store | Number of locations |
|---|---|
| Nordstrom - U.S. | 93 |
| Nordstrom - Canada | 0 |
| Nordstrom Local service hubs | 6 |
| ASOS | Nordstrom | 1 |
| Nordstrom Rack - U.S. | 258 |
| Nordstrom Rack - Canada | 0 |
| Last Chance clearance stores | 2 |
| Total | 360 |
SOURCE: Nordstrom press release Nov. 21, 2023
Nordstrom opened 11 new Rack stores in the third quarter and another early in the fourth, bringing the total for the year to 19, CEO Erik Nordstrom told analysts in prepared remarks. Evercore analysts led by Michael Binetti noted that, after no net openings from 2018 through last year, 17 more new Racks are earmarked for 2024.
The openings have garnered “strong customer response” and positive feedback, according to Erik Nordstrom. In general, Rack stores are a great investment because they deliver returns above their capital cost, with a short payback period, and are the largest source of new customer acquisition, he said. The company expects Rack’s digital channel to be profitable for the year.
“We also know that our Rack customers value convenience, and we believe our stores are underpenetrated,” he said.
For a while, executives have maintained that, rather than cannibalizing the full-line stores, Rack actually delivers new customers to them, though several observers have been skeptical of that. William Blair analysts Dylan Carden and Alexander Vasti noted they didn’t do so on this call.
“[M]anagement seems to be moving away from calling out the synergistic nature of the two banners, which in our view puts it in even greater competition within the competitive off-price space,” William Blair wrote in a client note Wednesday.