8-K: Nordstrom Reports Mixed Q4 Results, Provides Cautious 2024 Outlook

Nordstrom's fourth-quarter earnings met expectations, with strong Rack sales growth offsetting declines in the Nordstrom banner, while the company provided a cautious outlook for fiscal year 2024.

Summary

• Nordstrom reported fourth-quarter net earnings of $134 million, or $0.82 per diluted share, for the 14-week quarter ended February 3, 2024.
• Adjusted EPS, excluding a supply chain asset impairment, was $0.96 for the quarter.
• For the full 53-week fiscal year, net earnings were also $134 million, with diluted EPS of $0.82.
• Adjusted full-year EPS, excluding charges related to Canadian operations and a supply chain impairment, was $2.12.
• Total company net sales increased 2.2% in the fourth quarter, including a $190 million benefit from the 53rd week, while gross merchandise value (GMV) increased 2.0%.
• Nordstrom banner net sales decreased 3.0%, while Nordstrom Rack net sales increased 14.6%.
• Digital sales decreased 1.7% in the fourth quarter, representing 38% of total sales.
• The company expects fiscal 2024 revenue to range from a 2.0% decline to 1.0% growth, with comparable sales ranging from a 1.0% decline to 2.0% growth.
• EBIT margin for 2024 is projected to be between 3.5% and 4.0%, and EPS is expected to be between $1.65 and $2.05.
• The company plans to open 22 new Rack stores in 2024.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong Rack performance and improved inventory management, but tempered by declines in the Nordstrom banner, digital sales, and a cautious 2024 outlook. The transition to cost accounting and a potential revenue decline add to the uncertainty.

Positives

• Nordstrom Rack demonstrated strong sales growth, with a 14.6% increase in net sales for the quarter.
• Gross profit margin improved by 125 basis points, driven by lower markdowns and better cost management.
• Inventory levels decreased by 2.7%, indicating improved inventory productivity.
• The company is expanding its Rack store network, which is a key driver of new customer acquisition.
• Nordstrom is launching a digital marketplace to expand its online product offerings.
• The company has a strong liquidity position with $1.4 billion in available liquidity.

Negatives

• Nordstrom banner net sales decreased by 3.0% in the fourth quarter.
• Digital sales decreased by 1.7% in the fourth quarter.
• The wind-down of Canadian operations had a negative impact on total company net sales.
• The transition to cost accounting for inventory is expected to create a slight headwind in 2024 results.
• The company expects a 2 percentage point increase in its effective tax rate in 2024.
• The company is forecasting a potential revenue decline of up to 2% for fiscal year 2024.

Risks

• The company faces a cautious consumer environment due to inflation, higher interest rates, and the resumption of student loan payments.
• The transition to cost accounting for inventory may negatively impact profitability in 2024.
• The company's digital sales are declining, which could impact overall growth.
• The wind-down of Canadian operations has negatively impacted sales and may continue to pose challenges.
• The company's guidance for 2024 includes a potential revenue decline, indicating uncertainty in the near-term outlook.

Future Outlook

Nordstrom expects fiscal 2024 to be a year of continued momentum in its growth and profitability drivers, with revenue ranging from a 2.0% decline to 1.0% growth, comparable sales ranging from a 1.0% decline to 2.0% growth, EBIT margin between 3.5% and 4.0%, and EPS between $1.65 and $2.05.

Management Comments

• Erik Nordstrom stated that the company delivered on its 2023 guidance and is confident in its expectations for continued sales improvement and sustained profitability in 2024.
• Pete Nordstrom mentioned that the company improved its merchandise assortment by effectively managing inventory levels and investing in products and brands customers respond to.
• Erik Nordstrom highlighted the launch of a digital marketplace on Nordstrom.com in April.
• Cathy Smith noted that the company is transitioning from retail to cost accounting for inventory, which will create a slight headwind in 2024 results.
• Cathy Smith stated that the company remains committed to an investment grade credit rating through a combination of earnings improvement and debt reduction.

Industry Context

Nordstrom's results reflect the broader challenges faced by department stores, including shifting consumer preferences and the rise of e-commerce. The company's focus on expanding its Rack stores and enhancing its digital presence aligns with industry trends, but it must navigate a cautious consumer environment and competitive pressures.

Comparison to Industry Standards

• Nordstrom's 2.2% increase in total company net sales is below the growth seen by some off-price retailers like TJX Companies, which reported a 5% increase in comparable sales for their most recent quarter.
• The 14.6% growth in Nordstrom Rack net sales is a positive sign, but it is important to note that this is from a lower base and is still below the growth rates of some pure-play off-price retailers.
• Nordstrom's digital sales decline of 1.7% contrasts with the growth seen by many online retailers, highlighting the need for further improvements in their digital strategy.
• The company's EBIT margin of 5.7% for the quarter is lower than the margins of some luxury retailers, but is in line with other department stores.
• Nordstrom's planned opening of 22 new Rack stores in 2024 is a positive step, but it is important to note that this is still a relatively small number compared to the store networks of some of its competitors.

Stakeholder Impact

• Shareholders will receive a quarterly cash dividend of $0.19 per share.
• Employees may be impacted by the relocation of operations from the San Bernardino Fulfillment Center to the West Coast Omnichannel Center.
• Customers will benefit from the expansion of the Rack store network and the launch of the digital marketplace.
• Suppliers may see changes in their relationships with Nordstrom as the company expands its digital marketplace and focuses on key brands.

Next Steps

• The company will launch a digital marketplace on Nordstrom.com in April.
• Nordstrom plans to open 22 new Rack stores in 2024.
• The company will continue to focus on driving growth at the Nordstrom banner, optimizing operations, and building on momentum at the Rack.
• Nordstrom will transition to cost accounting for inventory in 2024.
• The company will provide comparable sales data on a quarterly basis, beginning in Q1 2024.

Key Dates

Keywords

Nordstrom, Nordstrom Rack, Retail, Earnings, Sales, Digital Sales, EBIT, EPS, Inventory, Gross Margin, Supply Chain, Marketplace, Cost Accounting