Based on top- and bottom-line improvements in the last two quarters, the Seattle-based retailer upped its forecasts for the year. Revenue growth is seen at 35 percent, versus 25 percent previously forecast. EBIT margin is seen at 3 to 3.5 percent of sales, versus approximately 3 percent previously forecast.
While Nordstrom’s report was largely positive, the sales gains were not big enough to beat 2019 levels. Net sales last quarter increased 101 percent to $3.57 billion, from $1.79 billion in the same period in fiscal 2020, and decreased 6 percent from the same period in fiscal 2019, representing a sequential improvement of approximately 700 basis points relative to the first quarter of fiscal 2021.
The timing shift of the annual Anniversary Sale, with roughly one week falling into the third quarter of 2021, had a negative impact of approximately 200 basis points on net sales compared with fiscal 2019, though the company said the sale had a strong performance this year. Adjusting for this timing shift, sales trends improved by approximately 900 basis points relative to the first quarter.
Nordstrom Inc.’s chief executive officer Erik Nordstrom said during a conference call with retail analysts that there is “uncertainty in the external environment” including continued disruptions in product flow in the supply chain and “headwinds” with rising freight costs and labor wage increases, though the company is working to ensure having the “right teams and proper levels of service” in place.
“A real lumpiness in the global supply chain led to some shortages,” Nordstrom said. “There’s just an unevenness, which makes it difficult to plan inventory flow with much precision. We do not expect conditions to change anytime soon,” though he also said there were some encouraging signs for the third quarter.
To mitigate the impact, he said the company is pulling forward orders, doing some air freight for holiday, and extending longer lead times. He said women’s apparel and shoes at Rack has been affected the most by merchandise shortages.
On the more positive side, executives indicated that consumers last quarter were refreshing their wardrobes, and that the company’s core categories of shoes, apparel and accessories experienced the largest improvement in sales trends relative to the first quarter. In addition, sales in active, home and designer categories continued to grow versus 2019.
“Our second-quarter results demonstrate the strength of our two brands, the power of our ‘closer-to-you’ strategy and the success of our iconic Anniversary Sale,” said Nordstrom, in a statement released prior to the conference call. Nordstrom’s ambitious “closer-to-you” agenda involves evolving its market strategy to link stores and services to speed deliveries and add conveniences to shoppers, as well as bolstering online offerings and adding lower-price merchandise at many of the Rack off-price stores.
“We capitalized on improving customer demand with focused execution, healthy inventory sell-through and continued expense management to deliver strong quarterly results,” Nordstrom said in his statement Tuesday. “We remain focused on executing our strategy to win in our most important markets, broaden the reach of Nordstrom Rack and increase our digital velocity, and are well-positioned for continued progress toward our long-term strategic and financial goals as we look ahead to the second half of the year.”
Total Anniversary sales increased 1 percent compared with 2019, including the final week of the event, which fell in the third quarter. According to the company, traffic and sales trends during the Anniversary Sale “were strong across both digital and stores as customers responded positively to expanded selection, better in-stock rates on top-selling items and enhanced capabilities including convenient pickup options at Nordstrom and Nordstrom Rack stores.”
Pete Nordstrom, president and chief brand officer of Nordstrom Inc., said, “A compelling merchandise assortment, combined with new and differentiated services and experiences, contributed to strengthening customer engagement and improving financial results during our Anniversary Sale.”
In July, Nordstrom retired $500 million in unsecured 4 percent notes that were due in October 2021 by using cash on hand. This will reduce annualized interest expense by $20 million, beginning in the third quarter of fiscal 2021.
The company said it remains on track to reduce its leverage ratio to approximately three times by yearend. Interest expenses of $40 million decreased from $51 million during the same period in fiscal 2020 primarily as a result of the redemption of the 8.75 percent secured notes during the first quarter of fiscal 2021. The company has $2.85 billion in long-term debt.
At the Nordstrom brand, second-quarter net sales increased 127 percent compared with the same period in fiscal 2020, and decreased 5 percent compared with the same period in fiscal 2019. The timing shift of the Anniversary Sale had a negative impact on Nordstrom net sales of approximately 300 basis points compared with the second quarter of 2019.
For Nordstrom Rack, second-quarter net sales increased 61 percent compared with the same period in fiscal 2020, and decreased 8 percent compared with the same period in fiscal 2019.
Digital sales increased 30 percent compared with the same period in fiscal 2020 and increased 24 percent compared with the same period in fiscal 2019. The timing shift of the Anniversary Sale had a negative impact on digital sales of approximately 500 basis points compared with the second quarter of 2019. Digital sales represented 40 percent of total sales during the quarter.
Gross profit, as a percentage of net sales, of 35 percent increased approximately 1,370 basis points compared with the same period in fiscal 2020, primarily due to leverage from higher net sales and lower markdowns.
Gross profit, as a percentage of net sales, was flat compared with the same period in fiscal 2019, as lower markdowns resulting from healthy inventory sell-through offset deleverage on lower net sales.
Based on better-than-expected results in the first half, and its expectations for continued progress in the second half, the company raised its outlook for fiscal 2021.
By: davidmoin
