- Nordstrom, usually a retailer with a firm grip on inventory, experienced a supply-demand mismatch that interfered with its holiday quarter. Executives said their inventory planning was disrupted by shipping delays that forced markdowns later.
- Correction is underway, "including cancellation of orders, return to vendor and clearance activity where appropriate," CFO Anne Bramman told analysts during the company's earnings call. Plans are to cut the sales-to-inventory spread by half by the end of the current quarter, when inventory is expected to be realigned at Rack.
- Ending inventory in Q4 was down 3% from last year, which was above plan, according to a company press release Tuesday. Nordstrom full-line inventory is expected to be realigned in Q2, Bramman said.
The pandemic made running a retail business more difficult, scrambling consumer demand, especially in apparel, and wreaking havoc on supply chains.
Nordstrom's problem was out of character — and was an outlier in the sector, as most retailers faced lean holiday inventories rather than bloated ones, BMO Capital Markets Managing Director Simeon Siegel noted in emailed comments.
"This stands in contrast to the vast majority of the universe calling out too lean inventory which encouraged meaningfully lower markdowns and higher margins," he said.
GlobalData Managing Director Neil Saunders noted that the 19% sales decline at Nordstrom's full-line stores is among the worst in the department store sector.
"[G]iven that others also faced this pressure, and that Nordstrom has a very strong digital proposition, it does not explain away the dismal outcome," Saunders said. "For that we must look to the assortment over the holiday period which, for some reason continued to be skewed to expensive garments designed for pre-pandemic social occasions. Admittedly, some of these may have been bought before the virus hit but, given that Nordstrom had almost a year to pivot away from such low demand categories, we were surprised by how out of kilter the offer was with consumer demand."
The off-price business had a similar over-supply of formal garb, which few consumers have had any use for as the pandemic has kept them home. The sales decline at Rack is "significantly worse than the off-price segment and shows none of the recovery that has been witnessed at other players like TJMaxx and Ross," despite advantages like e-commerce and omnichannel, Saunders said.
Saunders had some praise for the plans recently outlined by Nordstrom during its investors' meeting, but warned that they're incomplete.
"[T]hey do not fully address the basic issues with the business and will not deliver in the near term," he said. "While we wait for Nordstrom to get its act together, the one saving grace is that it will soon lap the pandemic declines which will flatter its performance."
The inventory issues squeezed margins, and EBIT reached just $30 million, or 0.8% of net sales, from $299 million, or 6.7% of net sales in the year-ago period. Net earnings fell 82.9% to $33 million. E-commerce rose 24% and was 54% of sales.