Nordstrom's earnings exceed expectations, resulting in a 10% stock jump, but the retailer provides cautious future outlook.

• Wall Street's earnings estimates were surpassed by Nordstrom as its cost-cutting measures and efficiency improvements started to yield results.
• Although the company exceeded earnings expectations, it gave lackluster full-year forecasts due to declining demand for high-end products.
• The operator of the department store has been relying on its discount store Nordstrom Rack for expansion.

On Tuesday, the department store posted earnings that surpassed Wall Street's expectations, indicating its progress in reducing costs and increasing efficiency.

Despite posting earnings per share that were 25 cents higher than anticipated, the Seattle-based retailer issued lackluster guidance for the entire year.

Nordstrom has revised its earnings per share forecast to be between $1.75 and $2.05, from a previous range of $1.65 to $2.05. Additionally, it now anticipates sales growth to be between 1% decline to 1% growth from the prior year, compared to previous guidance of down 2% to up 1%.

Despite the cautious guidance, Nordstrom CEO Erik Nordstrom expressed optimism about the second half of the year in a news release.

"Nordstrom stated that our second quarter results were strong, and we are optimistic about the continued growth in both banners and the progress we are making to increase gross margin and profitability. We are confident in our outlook for the rest of the year and look forward to maintaining the momentum we have established."

Shares rose more than 10% in extended trading.

Based on a survey of analysts by LSEG, how did the department store perform in its second fiscal quarter compared to Wall Street's expectations?

• Earnings per share: 96 cents adjusted vs. 71 cents expected
• Revenue: $3.89 billion vs. $3.90 billion expected

The company's reported net income for the three-month period that ended August 3 was $122 million, or 72 cents per share, compared with $137 million, or 84 cents per share, a year earlier. However, excluding one-time items related to supply chain impairments, the retailer posted adjusted earnings of 96 cents per share.

Although revenue fell short of analysts' expectations, sales increased by 3.4% to $3.89 billion from $3.77 billion the previous year.

While comparable sales increased by 1.9%, gross merchandise value jumped by 3.5%. It is uncertain how much of the GMV increase was due to price increases or volume.

In order to safeguard their profits amidst declining demand due to inflation and high interest rates, retailers have been focusing on enhancing their operations and reducing expenses.

Although Nordstrom's profits decreased in the quarter compared to the previous year, its earnings increased over the past six months. In the six months ended July 29, 2023, Nordstrom reported a net loss of $67 million last year, but this year it made a profit of $83 million in the same period.

Nordstrom has announced that it is working to enhance its supply chain. In the last quarter, it stated that the delivery time for online orders had decreased by over 5%. Additionally, the company has improved the way merchandise is being transported to customers and stores, which has resulted in higher conversion rates and lower return rates.

The company has been concentrating on expanding its off-price banner, Nordstrom Rack. In recent quarters, sales at Nordstrom Rack have been increasing, contributing to the company's overall success. During the most recent quarter, Nordstrom Rack sales rose by 8.8%, while comparable sales increased by 4.1% compared to the same period in the previous year.

Nordstrom's mainline banner experienced a 0.9% increase in net sales and comparable sales.

Nordstrom has been concentrating on expanding its Rack locations and has already opened 11 new ones this fiscal year, with a plan to open at least 22 more by the end of the year. This focus on Rack has been crucial for Nordstrom to remain competitive with off-price giant, the owner of TJ Maxx and Marshall's, and to attract consumers who are still spending but looking for cheaper options and deals.

Despite experiencing explosive growth in the off-price sector for over a year, Rack failed to capitalize on the beginning of the trend. In an effort to reverse its slump, the company has intensified its efforts by opening more locations, recruiting off-price industry experts, and honing in on well-known brands.