What Nordstrom’s earnings suggest about the current mood of upscale shoppers

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Nordstrom’s holiday season sales were softer than prepandemic levels, the company said.

Craig Barritt/Getty Images for Nordstrom

If Nordstrom’s latest sales update is anything to go by, high-income shoppers are finally starting to feel the pinch of a slowing economy.

The luxury department store, whose product lineup is aimed mainly at wealthier people, said late on Thursday that holiday sales were softer than hoped. It is the latest retailer to warn that consumers took a more cautious approach to holiday shopping in 2022.

“The holiday season was highly promotional, and sales were softer than prepandemic levels,” said CEO Erik Nordstrom in a news release late Thursday. “While we continue to see greater resilience in our higher income cohorts, it is clear that consumers are being more selective with their spending given the broader macro environment.”

Shares of Nordstrom (ticker: JWN ) were largely unchanged in early Friday trading, with a gain of 0.1% to $17.47.

The company also updated its financial forecasts for fiscal 2022, the 12 months ending January 2023. It now expects revenue growth to be at the low end of the range of 5% to 7% it had forecast. Holiday sales fell by 3.5% in 2022, driven by a 7.6% decline in the company’ Nordstrom Rack banner and a 1.7% decrease in core Nordstrom sales.

Nordstrom also said that the need to sell off outdated inventory weighed heavily on profit and margins. Adjusted earnings per share will range between $1.50 and $1.70, compared with the company’s prior call for $2.30 to $2.60. The consensus call among analysts surveyed by FactSet was for earnings to land at $1.81 for fiscal 2022.

Adjusted earnings before interest and taxes margin will be 3.1% to 3.3%, compared with the 4.3% to 4.7% management had predicted.

While costly to the bottom line, discounting heavily during the holiday season may actually be better for Nordstrom in the long run. The company expects year-end inventory levels to be down by a double-digit percentage compared with last year, putting them roughly at 2019 levels.

“We believe this reduction, coupled with cleaner inventory (~flat to 2019), may actually have been better than feared,” wrote BMO Capital Markets analyst Simon Siegel in a research note. Siegel maintained a Market Perform rating and trimmed his target for the stock price to $20 from $23.

Still, it isn’t an easy time to be a department store. Nordstrom’s announcement comes weeks after Macy’s provided investors with a similar update, saying sales would come in at the low to middle end of the range it had forecast as a result of unexpected lulls in demand outside of the peak shopping weekends.

On Wednesday, the Census Bureau reported that department stores’ retail sales fell by 6.6% in December from November, and were down 0.6% from December 2021.

Analysts have also expressed concern about what Nordstrom’s guidance means for demand from high-end consumers, whose buying has remained fairly resilient despite macroeconomic challenges.

For Piper Sandler ‘s Edward Yruma, who the revision indicates that high-income shoppers may be “undergoing a cyclical slowdown,” driven by layoffs in white-collar industries, a volatile stock market, and a weak housing market. He maintained a Neutral rating on the stock.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

This article was originally published by Marketwatch.com. Read the original article here.

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