Nordstrom stock spikes 35% as retailer makes key strides in its off-price Rack business, issues strong guidance – CNBC

Nordstrom on Tuesday reported better-than-expected profits and sales for the holiday quarter, prompting the retailer to offer an optimistic outlook for the coming year in spite of ongoing supply chain concerns and rampant inflation.

Shares of Nordstrom spiked more than 35% in after-hours trading immediately following the report. Nordstrom is currently among the most heavily shorted stocks, with 22% of its shares available for trading sold short.

Importantly, the retailer called out improvements in its off-price business, Nordstrom Rack, amid a report that the company has been reviewing a potential spin-off of the segment following its underperformance in recent quarters.

For its fiscal fourth quarter, Nordstrom said net sales at Rack were down 5% on a two-year basis, marking a sequential improvement from the prior quarter, when its off-price segment logged an 8% decline compared with 2019.

Still, the segment lags Nordstrom’s full-line business, with that revenue stream rebounding to essentially flat with 2019 levels.

During the pandemic, Rack has struggled to procure merchandise since it relies on other apparel brands to offload items to sell at a clearance. With less clothing inventory to go around, the company has had difficulty stocks shelves. Rack also competes with other off-price chains including TJ Maxx, Ross Stores, Burlington and Macy’s Backstage.

Nordstrom CEO Erik Nordstrom said in a statement that the department store chain is focused on three key things: improving Nordstrom Rack’s performance, increasing profitability and optimizing supply chain and inventory flow.

Here’s how the retailer performed in its fourth quarter compared with what Wall Street was anticipating, according to a survey of analysts by Refinitiv:

• Earnings per share: $1.23 vs. $1.02 expected
• Revenue: $4.49 billion vs. $4.35 billion expected

Nordstrom’s net income for the three-month period ended Jan. 29 grew to $200 million, or $1.23 per share, from $33 million, or 21 cents a share, a year earlier. That topped estimates for per-share earnings of $1.02, according to Refinitiv.

Total revenue, including credit card sales, grew to $4.49 billion from $3.65 billion a year earlier. That topped estimates for $4.35 billion. Net sales, which don’t include credit card revenue, increased 23% year over year but decreased 1% compared with 2019 levels.

The department store chain said that its home, active, designer, beauty and kids categories were the strongest performers, as shoppers sought comfortable clothing and more items to spruce up their homes.

Suburban stores also continued to perform better than urban locations, it said. That’s in large part due to a lack still of international tourists in the U.S.

Digital sales, which saw a boost during the earlier days of the pandemic with consumers stuck at home, fell 1% compared with the same period in 2020. They rose 23% on a two-year basis, however, and accounted for 44% of total revenue in the quarter.

In the coming months, Nordstrom is hoping — like other retailers — that consumers head back to offices, parties, concerts and other social venues. Its business is poised to benefit as shoppers spend money on refreshing their wardrobes.

Nordstrom said Tuesday that it’s encouraged thus far by consumers’ resumption of travel following the spread of the omicron variant.

For fiscal 2022, Nordstrom sees revenue, including credit card sales, up 5% to 7% compared with 2021 levels. Analysts were looking for growth of 3.7%.

It sees earnings, excluding the impact of any share repurchase activity, in a range of $3.15 to $3.50 per share. That’s far ahead of estimates for earnings per share of $2.01.

Pete Nordstrom, president and chief brand officer, said that Nordstrom is focused on balancing inventory levels with demand. During the pandemic, the company has struggled to bring seasonal items into stores at the right time, due to poor planning and supply chain backlogs.

Nordstrom said it ended the fourth quarter with more inventory than planned, but it anticipates reducing those levels relative to sales in the first quarter.

The company also touted a growing media advertising platform, which allows for brands to pay and advertise on its website. Retailers from Macy’s to Target to Best Buy have been investing in their own advertising platforms as a new revenue stream.

“We believe we have a meaningful opportunity to improve both the customer experiencer and our financial outcomes,” Pete Nordstrom told analysts on an earnings conference call.

Prior to Tuesday’s extended trading surge, Nordstrom shares were down about 14% year to date.

Find the full financial press release from Nordstrom here.