Nordstrom says off-price Rack stores are helping attract new customers, as high-income shoppers stay ‘resilient’

Shares of Nordstrom Inc. ran higher after hours on Wednesday after the upscale department-store chain reported better-than-expected first-quarter results and held to its full-year outlook, helped by what executives characterized as a “resilient” but “cautious” high-income consumer.

The results came despite what management said was an “uncertain” economic backdrop that has dampened demand for clothing. And they followed Nordstrom’s recent decision to exit its business in Canada, a move that weighed on sales trends during the quarter.

During Nordstrom’s

earnings conference call on Wednesday, executives said that strong demand a year ago, when more people got back into the world after two years of pandemic restrictions, made it more difficult to put up profit and sales gains this year. The chain’s designer segment suffered during the quarter, while active-wear and sneakers were standouts.

Customers over the past year have gotten more selective about what they buy, as more expensive items in grocery stores, and more expensive essentials, chew up a bigger share of their spending. But as shoppers seek out cheaper fare, Nordstrom’s management also said that trends in off-price Nordstrom Rack stores were improving, and that they were helping land new shoppers.

“Rack stores are a great investment with returns that exceed our cost of capital and a short payback period,” Chief Executive Erik Nordstrom said on a conference call. “They also represent the largest source of new customers for Nordstrom. We are excited to roll out to more markets as we expand our Rack footprint.”

Shares of Nordstrom climbed 7.2% after hours. Other clothing retailers, like Gap Inc.

and Urban Outfitters Inc.
have recently seen their shares jump following their earnings, with the latter of those two helped by wealthier shoppers at Anthropologie.

Nordstrom reported a first-quarter net loss of $205 million, or $1.27 a share, contrasting with a $20 million profit, or 13 cents a share, in the same quarter last year. Revenue fell to $3.18 billion, compared with $3.57 billion in the prior-year quarter, weighed by the chain’s decision announced in March to close up shop in Canada — a move it said would help protect profitability.

Adjusted for costs related to the wind-down of that business in Canada, Nordstrom earned 7 cents a share, contrasting with a 6-cent per-share loss a year ago.

Analysts polled by FactSet expected the retail chain to lose 10 cents a share, on revenue of $3.12 billion.

Sales at Nordstrom’s namesake stores fell 11.4%. At its off-price Nordstrom Rack stores, sales slid 11.9%, but the company said those sales improved late in the quarter, as the company changed up its product selection at those stores.

The retailer maintained its outlook for the full year, which called for a sales decline of between 4% to 6% and adjusted earnings per share of $1.80 to $2.20. For the year overall, FactSet forecast earnings of $1.87 a share, on revenue of $14.7 billion, or a 5.1% decrease.

Ahead of the results, analysts had reservations about the demand backdrop.

“The consumer is much more discerning and choosing to spend on services and experiences over soft goods, like apparel and accessories, in our view,” Cowen analysts said in a research note this month.

Shares of Nordstrom have fallen 42% over the past 12 months. By comparison, the S&P 500

is up 1.2% over that period.

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