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Nordstrom Is Leaning Into What’s Working

Nordstrom Inc. executives said the company exited the second quarter with clean inventory levels and an open-to-buy that allows it to leverage learnings from online to lean in on items that are resonating with customers.

In a Nutshell:  The company continues to focus on its market strategy, such as providing customers in its top five markets with “great market selections and faster delivery,” CEO Erik Nordstrom said in a conference call with analysts. That strategy will be accelerated to 10 total markets which account for half of the firm’s business.

“Where we have rolled out our market strategy, those markets have outperformed [our] other markets. We are on pace to roll out five more in the back half of this year. The pandemic has clarified that this is the right strategy,” Nordstrom said.

“Casualization, comfort, wellness and  home” remain a staple of what customers are searching for, and the company also now provides for a preview of its online catalogue that allows for the creation of a wish list, and so far 20 million wish lists have been generated, the CEO said. That information allows the company to adjust inventory to focus on customers’ online-demand items. For holiday, it plans to expand its gifting assortments and make it “better and easy for customers to shop both in-store and online,” the CEO said.

“We’re confident that we can improve sales trends in the second half of the year and beyond,” Pete Nordstrom, president and chief brand officer, added. “Our inventories are current and in-line, and we’re focused on amplifying relevant categories, brands and trends to meet customers’ changing preferences.”

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The chief brand officer told analysts that with the growth in digital sales, the company can expand its inventory choices because  online means “we’re not limited by floor space.” He said there’s still time to make some adjustments to items it wants to have on hand based on learnings from its data analytics from digital activity. With one week left for the Anniversary Sale, he said, “We’re selling through at a higher rate than we’ve ever sold through before, and we’re getting a clear signal from customers about brands and products [they prefer].”

Net Sales: For the three months ended Aug. 1, total revenues fell 51.9 percent to $1.86 billion from $3.87 billion. Included in that figure was a 52.9 percent decline in net sales. The balance of revenue reflects a 10.6 percent decrease in credit card income.

The company said net sales fell 58 percent in its full-price Nordstrom stores, and were down 43 percent in its off-price Nordstrom Rack doors. Top-performing categories include home, kid’s, accessories, beauty and active in both sales channels. The retailer also said total company digital sales fell 5 percent in the period. Excluding the Anniversary Sale shift, digital sales rose 20 percent in the quarter. The company said its e-commerce business continued to see “significant growth in new Nordstrom customers of more than 50 percent.”

The company reduced inventory levels by 25 percent in the first quarter. That move helped it to mitigate markdowns on seasonal inventory, helping merchandise margins trends in the second quarter that improved sequentially and exceeded expectations, Nordstrom said.

The company said gross profit, as a percentage of sale, was 21 percent, down from 35 percent in the same quarter a year ago, attributed in part to planned markdowns.

Bottom Line: The net loss for the quarter was $255 million, or $1.62 a diluted share, against net income of $141 million, or 90 cents, a year ago.

Wall Street was expecting narrower adjusted diluted loss of $1.48 a share on revenue of $2.38 billion.

CEO’s Take: “At the onset of the pandemic, we focused on protecting and enhancing liquidity, and we successfully executed on these plans,” Nordstrom said. “We are now pivoting to prioritize market share gains and profitable growth as we advance our strategies.”