In a Nutshell: “We successfully strengthened our financial flexibility by increasing liquidity, lowering inventory by more than 25 percent from last year and significantly reducing our cash burn by more than 40 percent from March into April,” Erik Nordstrom, CEO, said. “We’re entering the second quarter in a position of strength, adding to our confidence that we have sufficient liquidity to successfully execute our strategy in 2020 and over the longer term.”
Nordstrom began temporarily closing its stores in mid-March as state and local governments issued shelter-in-place mandates to curb the spread of the COVID-19 pandemic.
The company earlier this month began reopening stores, and now has about 40 percent of its store fleet reopened, mostly in smaller markets, Nordstrom said in a conference call to analysts Thursday afternoon, adding that contactless curbside pickup is available at most locations. While those stores have been open for less than two weeks, he said there are “encouraging early reads” with sales trends ahead of expectations. But he’s remaining cautious about those sales trends as stores in major markets haven’t yet reopened. All stores are expected to be reopened by the end of June, starting shortly with its store network in California, followed by doors in New York.
The company recently said it would close 16 full-line stores, which are more than 20 years old and largely in markets where there are multiple full-line stores, the CEO said. The company is transitioning from a “predominantly mall-based” retailer to a diversified one leaning into digital and off-price components, he told analysts.
Three Jeffrey specialty boutiques are also slated to close.
Net Sales: Total revenues for the three months ended May 2 declined 38.5 percent to $2.12 billion from $3.44 billion, which include a net sales decrease of 39.5 percent to $2.03 billion from $3.35 billion. The company reported earnings after the equity markets closed their trading sessions for the day.
By segment, Nordstrom said net sales at full-price stores fell 36.2 percent to $1.36 billion and were down 45.2 percent to $669 million at its off-price division. Online demand rose 9 percent, “consistent with the second half of 2019,” the company said, adding that total company digital sales grew 5 percent to $1.1 billion in the first quarter. The company also saw “significant growth” of new customers at over 50 percent in its e-commerce business while its stores were temporarily closed.
“The inventory reduction of more than 25 percent from last year resulted from the company’s efforts during the quarter to decrease receipts by approximately 30 percent, stimulate demand through increased marketing and promotions and utilize store fulfillment capabilities,” Nordstrom said. The company added that its inventory position enables it to bring in newness for customers beginning in June.
The retailer’s off-price and e-commerce businesses in 2019 accounted for about 60 percent of total sales, Pete Nordstrom, president and chief brand officer, noted. “As we anticipate an acceleration of these longer-term customer trends, we’re taking proactive steps to move faster in executive our strategic plans,” he said.
The company’s strategy has never been to become a promotional retailer and therefore it will continue to focus on full-price selling, even though the expectation is that July and August will see a promotional environment in the retail sector, he told analysts. Nordstrom’s one-of-a-kind Anniversary Sale this year was moved from July to August 19, and will feature new arrivals at reduced prices for a limited time.
Earnings: The retailer posted a net loss of $521 million, or $3.33 a diluted share, against net income of $37 million, or 23 cents, a year ago. The quarter’s results included after-tax charges of $173 million related to COVID-19, such as asset impairments from store closures and other costs.
CEO’s Take: Nordstrom told Wall Street that the current unprecedented period has accelerated the changes the company already had been seeing in connection with how customers shop and the overall customer experience. For the retailer, it has been benefiting from synergies between Nordstrom and Nordstrom Rack, with off-price continuing to be a source of new customers as 30 percent of its shopper base cross-shop between the two businesses. “We believe our relentless focus on customers provide a key point of differentiation,” the CEO said. The company’s off-price business is outperforming expectations, while the full-line stores are performing in-line with expectations.