Nordstrom's shares are up. But executives are staying cautious on the rest of the year.

By Bill Peters

'Two-thirds of our profits typically come in the second half, and we're just being thoughtful around that,' CFO says

Shares of Nordstrom Inc. were up after hours on Tuesday after the department-store chain nudged the low end of its full-year sales outlook higher, but management said it was staying cautious through the back half of the year, when holiday demand drives much of retailers' overall sales.

During the chain's earnings call, Nordstrom (JWN) executives called out gains at its off-price Rack stores. They also pointed to strength in its private brands, dresses and knit tops, and fragrances and hair care. Private shopping events and brand showcases helped attract more customers, they said. And solid sales in outerwear and sweaters could mean good things for fall-season demand.

Still, as shares ran 7.7% higher after hours, Chief Financial Officer Cathy Smith tried to temper expectations.

"The environment does remain uncertain, and we've got a really big part of the back half of the year, as with all retailers," she said. "Two-thirds of our profits typically come in the second half, and we're just being thoughtful around that."

Uncertainty has been the refrain among clothing retailers for the past two years, as higher prices for groceries force many shoppers to be more budget-conscious. UBS analyst Jay Sole, in a research note this month, also said that while Nordstrom was traditionally a go-to store for special-occasion shopping, more people were taking their special-occasion spending to discounters.

Nordstrom on Tuesday said it now expects full-year sales within a range of down 1% to up 1%, compared with a forecast in May for sales being down 2% to up 1%.

The company said it expects same-store sales within a range of flat to up 2%, a bit better than its prior forecast. The chain also said it expected adjusted earnings per share of $1.75 to $2.05.

That forecast also included a "supply-chain asset impairment," as Nordstrom shows signs of pulling back on investing in its distribution infrastructure to save money, after 2021's supply-chain crunch backed up ports and warehouses and delayed deliveries.

During the quarter, Chief Executive Erik Nordstrom said on the call, the company decided to stop building an "omnichannel center" to be used in the Pacific Northwest. The resulting impairment charge, he said, was reflected in the results.

"Logistics networks have recovered from the supply-chain challenges that began during the pandemic, and we've improved our supply-chain operations over the last few years," he said. "We found that we can serve West Coast customers more efficiently from our existing supply-chain network, while avoiding additional costs to build out the facility."

Nordstrom is incorporating RFID technology to better track its clothing backlogs. Executives also said the company was changing how it accessed and stored data to use more artificial intelligence.

For its second quarter, Nordstrom reported net income of $122 million, or 72 cents a share, compared with $137 million, or 84 cents a share, in the same quarter last year.

Adjusted for the supply-chain impairment, Nordstrom earned 96 cents a share. Revenue rose to $3.89 billion from $3.77 billion a year ago. Same-store sales were up 1.9%.

Analysts polled by FactSet expected Nordstrom to report adjusted earnings per share of 71 cents, on revenue of $3.88 billion and a 1.2% same-store sales gain.

Nordstrom's Rack stores have drawn sales as customers try to sniff out discounts. During the second quarter, same-store sales at those locations rose 4.1%, compared with 0.9% at Nordstrom banner stores.

Nordstrom's stock is still up 14.6% so far this year. The company in April said it had formed a committee to explore taking it private.

During Wednesday's call, executives said there was no update on the matter, and said they wouldn't be commenting on it. Still, some analysts questioned the level of interest from private equity.

-Bill Peters

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08-27-24 2029ET

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