Nordstrom warns of 'softening' consumer spending, but says it's cutting prices less

By Bill Peters

'Given continued uncertainty and softening consumer spend, we're remaining agile and focused on serving our customers,' CEO says as retailer reports earnings

Upscale clothing retailer Nordstrom Inc. on Tuesday warned of "softening" consumer spending ahead of the holidays. But after more than a year of rushing to clear shelves of piles of unwanted clothing, executives there became the latest to say they haven't needed to cut prices as much.

Chief Executive Erik Nordstrom said on the company's earnings call that store inventories -- or its reserves of shirts, pants and shoes still sitting in stockrooms -- were down 9% during the third quarter. Those thinner stockpiles, he said, "required fewer markdowns than last year and helped to drive expansion in our gross margin."

The remarks, which could signal an end to the deepest clothing discounts for consumers, were made after months of wrangling by retailers to restock their stores with products people wanted, after shipping delays -- followed by a spike in food prices last year that forced people to cover basics -- left more things like clothing, TVs and furniture unsold.

"We've rightsized our inventory. We definitely got it in the right place in terms of the aging and the categories that matter," President Pete Nordstrom said on the call.

"As is always the case this time of year, you're waiting for the weather to change so you can flip the switch to sell more sweaters and boots and coats, what have you," he said. "It's gotten a little bit better of late."

Shares of Nordstrom (JWN) slipped 0.1% after hours on Tuesday. The company reported mixed third-quarter results, and it narrowed its full-year profit outlook and stuck with its sales forecast, citing "softening consumer spend."

But investors over the past week have largely been kinder to the clothing retailers who have reported quarterly results, amid low expectations and faint signs of firming demand.

Last week, shares of Gap Inc. (GPS) rallied after the clothing chain cited "improved promotional activity" -- or less pressure to cut prices to stimulate demand -- and a positive same-store sales gain at its Old Navy stores. Target Corp. (TGT), which also sells a lot of clothes, noted "accelerating" clothing demand, although same-store sales still fell. But the company said clothing sales could improve as prices for essentials came down.

Higher prices for basics -- which have steered consumer dollars away from buying more clothes -- have eased. But they're still high when compared to levels before the pandemic. And with mixed signals from the retailers themselves, higher interest rates and the return of student-loan payments, Wall Street analysts have had reservations about demand into the holiday season and next year.

Nordstrom reported third-quarter net income of $67 million, or 41 cents a share, contrasting with a loss of with $20 million, or 13 cents a share, in the same quarter last year. Adjusted for the wind-down of its business in Canada, Nordstrom earned 25 cents a share.

Revenue was $3.32 billion, compared with $3.55 billion in the prior-year quarter. Sales fell at Nordstrom's banner stores and its off-price Nordstrom Rack stores.

Analysts polled by FactSet expected Nordstrom to report adjusted earnings per share of 12 cents on revenue of $3.4 billion.

The company held to its full-year sales outlook for a 4% to 6% drop, and it narrowed its adjusted per-share profit outlook to $1.90 to $2.10. In August, the company forecast a profit range of $1.80 to $2.20 a share.

"Given continued uncertainty and softening consumer spend, we're remaining agile and focused on serving our customers," Erik Nordstrom said in a statement.

In August, Nordstrom also warned of a "cautious consumer," and said sales had slowed at its namesake and Nordstrom Rack stores. Management also said it saw "delinquencies rising gradually" within its credit-card business.

Earlier Tuesday, Abercrombie & Fitch Co. (ANF) boosted its full-year outlook. Bargain chain Burlington Stores Inc. (BURL) said the current quarter was off to a "solid" start. Executives at Urban Outfitters Inc. (URBN) on Tuesday said they were "confident" about the holidays.

Shares of Nordstrom are down 5.5% so far this year.

-Bill Peters

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-21-23 1818ET

Copyright (c) 2023 Dow Jones & Company, Inc.