This week, Nordstrom reported much improved results for both its brands (Nordstrom and Nordstrom Rack), which likely reflects its efforts to create more freshness in inventory as well as being more leveraged to affluence (Bloomingdale’s and Ralph Lauren were both stronger as well). The Nordstrom banner saw comparable-store sales increase +1.8% and the Rack banner posted +7.9% comparable growth. Unfortunately, profits were less stellar and hit by a heist from its transportation network (worth over $60M at the retail per our math).
The improved consumer trend portends well for Macy’s and its “Bold New Chapter” initiative, which we last covered last week. As shown in the chart below, traffic for both upscale brands has steadily improved from the January malaise and weather.
As we've previously noted, 2023 was an especially tough year for the department stores--both the high- and moderate-end--which set a low comparative base that would allow for a better 2024. Last year’s headwinds for high-end department stores included trade-down thriftiness to T.J. Maxx and Marshalls as shoppers anticipated a recession as well as ebullient travel overseas. During Q1 2023, there was also the "Mini Banking Crises" which mostly impacted California– Nordstrom and Bloomingdale’s largest market. These headwinds, combined, led to annual traffic declines of -6.5% and -5.5% for Nordstrom and Bloomingdale’s, respectively. In 2024, there is little concern about a recession and while consumers are still off on international holidays, the year-over-year intensity is less, resulting in improved traffic. The better tone for affluent consumers was also reflected in Nordstrom management’s characterization of a benign competitive market and healthy merchandise margins. We look for the strength at the high end to continue into the summer and fall.
Nordstrom’s full-line business is different from its peers given its higher level of digital penetration (50%/50% bricks & clicks per our estimates). Fiscal Q1 2024 Physical store comparable sales grew +3.8%, driven by ticket and improved traffic; online retail comparable sales were flat year-over-year. Geographic mix is another difference as we show in the table below. As goes California, so goes Nordstrom. That too applies to Bloomingdale’s, which has 7 of its 35 locations in the state. Additionally, we estimate that Macy’s go-forward locations will have a higher exposure to the state. These differences in channel and geography are important when evaluating the future traction of Macy’s "New Chapter", a chapter one that is rooted in the successful turnarounds of Dillard’s and Abercrombie & Fitch (as we discuss below). Dillard’s has little exposure to California, so Macy’s go-forward locations will likely borrow more from what’s working well for Bloomingdale’s, Nordstrom, and specialty retail. This also means that understanding Macy’s go-forward success will be dependent on studying its market share trends in California specifically.
On its initiatives for the full-line banner, Nordstrom CEO Erik Nordstrom shared, “We are working to ensure this consistent and premium offering is not just at our largest stores but across our entire full-line store fleet. While we still have more work to do, the return to growth for the Nordstrom banner provides evidence that our efforts are resonating with customers. As we outlined last quarter, we are focusing our Nordstrom banner efforts on digital-led growth supported by stores, aiming to further enable our customers to shop when and where they want. In our digital business, Nordstrom.com, we implemented improvements around the search and discovery experience and worked to optimize the balance of price points across our merchandise selection while focusing on in-stock rates." Nordstrom President and Chief Brand Officer Pete Nordstrom shared, “Contemporary brands such as Veronica Beard, Mother, and Vince were the top performers. We relaunched the Nordstrom private brand for women in the first quarter with a focus on modern, high-quality, and on-trend products. The Nordstrom brand is our most popular private brand and customers have responded positively to the relaunch driving improvement in sales, sell-through, and margin in our Women's Apparel category...Women's Apparel grew in the mid-teens, representing its fourth quarter of sequential improvement.”
Kohl’s reported soft quarterly results and nearly halved their earnings outlook for the year, but still aspire to hold an EBITDA margin above 8%–a healthy cash-generative level. Kohl's CEO Thomas Kingsbury said, “Regular-priced sales were strong through the first eight weeks of the quarter. Those softened in late March and into April, especially for our spring seasonal product. And while regular price sales did increase low-single-digits in the first quarter, their best quarterly comp performance since 2018, they were below our expectations...While spending among our high-income customers has remained steady, our middle-income customer continues to be impacted. In this environment, we are working hard to deliver even more value, recognizing that the discretionary spend of our customers is pressured.” Sephora at Kohl's sales increased 60%, driven by comparable sales increases (+20%) and new locations.
Kohl's overall visits compared to 2019 (below) show a very soft spring/Easter season for the retailer. Historically, that has been a season that Kohl’s wins given its footprint and brand positioning; as such, the shortfall is what’s likely behind the guide down for the year. We are using 2019 as the baseline because Kohl’s ran unprecedented promotions from January-April last year which created a distorted base. On a year-over-year basis and excluding weeks impacted by winter storms, visits were down -2.2%, whereas comparable-sales were -4.4%. The difference between the figures likely reflects fewer units per basket with the decline in clearance. Management expects a better trend going forward given new assortments in jewelry, home, impulse, and more, plus adding 140 more Sephora locations in Q2 2024. In addition, Babies "R" Us will open in Kohl's stores in Q3 2024 and will benefit sales in the second half of the year.
