Seattle-based luxury retailer Nordstrom saw its stock soar over 30% Tuesday evening (March 1) after reporting better than expected Q4 results that were led by improved conditions at its 350-store off-price Rack unit.
The market reaction and earnings for the three months ending Jan. 29 were a mirror image of the third-quarter results Nordstrom posted 90 days ago, which triggered a massive sell-off.
In addition to the improved Rack performance, the owner of 110 namesake physical stores said continued growth in its digital business and mobile app users, as well as improved supply chain and COVID environments, helped lift its trailing results and give it confidence to issue guidance that was ahead of analyst expectations.
“We are laser-focused on the three key areas,” CEO Erik Nordstrom said on the company’s webcast, “Improving Nordstrom Rack performance, increasing profitability, and optimizing our supply chain and inventory flow.”
On the first point, the high-end retailer said a top-to-bottom analysis of the business allowed it to increase inventory by nearly 20% and keep shelves stocked in its discount stores, while also sourcing and selling the latest full-priced items at the namesake locations.
As a result, the retailer was able to raise inventory levels and improved average price points, which led to more than a 3 percentage point increase in Q4 sales versus Q3.
“We’re in the early stages of implementation,” Nordstrom said, “but the Rack results and improving store customer satisfaction scores reaffirm our confidence in the plan.”
Insights and Delights
Officially and coincidentally, the retailer said Q4 revenue at Nordstrom banner and Nordstrom Rack each rose 23% versus a year ago, while full-year revenues rose 38% on the back of strength in retail and credit card revenues.
At the same time, the 120-year-old brand said its digital business was down 1% from a highwater mark set during store closures last holiday season, but up 23% from pre-pandemic levels.
COO Pete Nordstrom told attendees on the call that the retailer’s customer focus will remain at the center of its re-tooling plans.
“We are transforming our approach and leveraging deeper insights to give the customer more choices, while increasing relevance and profitability,” the great grandson of the company’s founder said, noting plans to improve its supply chain and merchandising ecosystems.
“We will deliver a better experience through faster and more flexible fulfillment that provides newness at the right price, and the right quantities, where and when our customers want, all while improving our agility and productivity.”
Macro Management
Like many who have reported before it, Nordstrom pointed to macroeconomic tailwinds last quarter as another catalyst, while acknowledging that it still had more work to do.
“We are executing a multi-layer plan to improve Rack’s performance and capture market share in the off-price sector,” CFO Anne Bramman said during the webcast, while highlighting a decline in markdowns, better leverage in buying, reduced occupancy costs as well as continued progress with customers looking to get out and shop again after the latest omicron spike.
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