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Nordstrom turns a profit, but global supply chain disruptions and delays impact holiday fall/winter sales season

Nordstrom, the leading US department store, beat expectations for the second quarter, with net sales up 101% year-on-year but down 6% from 2019, according to a filing with the US Securities and Exchange Commission.

Of this total, digital sales increased 30% year-over-year, up 24% from 2019, and accounted for 40% of total sales; net sales increased 127% year-over-year, down 5% compared to 2019; and net sales of discounted merchandise increased 61% year-over-year, down 8% compared to 2019.

Last year, Nordstrom did not release specific sales for its shops to the public due to the New Crown Pneumonia outbreak, but this year it has turned a profit, going from a net loss of $255 million last year to a net income of $80 million this year.

Like many retailers, Nordstrom made a comeback in the wake of the 2020 Newcastle pneumonia outbreak, when the company's shops were temporarily closed for several weeks, disrupting both supply and demand.

Nordstrom CEO Erik Nordstrom told analysts on Tuesday that supply remained an issue.

In the second quarter, ending inventories increased by 13 per cent on a two-year basis, mainly because part of Nordstrom's annual sale takes place in the next quarter, while the company is working to "reduce ongoing supply chain backlogs and support improved sales trends".

Eric Nordstrom said: "We have seen disruptions and delays in the global supply chain, which has led to some shortages. What's more, various parts of the supply chain are affected in different ways, so it is difficult to plan inventory flows very precisely. Such a situation is unlikely to change any time soon.

Therefore, our main objective at the moment is to mitigate this situation. We have already taken some measures, such as submitting orders earlier and extending delivery times. We even plan to use some air freight strategically for the peak autumn/winter sales season."

Anne Bramman, chief financial officer, said the company expects to be "very tight" on holiday inventory.

Wall Street analysts Dylan Carden and Phillip Blee warned that Nordstrom's inventory problems could precede the new pneumonia outbreak and become more difficult to manage as the outbreak continues.

"Our view is that in the current environment, wholesalers are generally short of inventory as brands prioritise their direct sales channels. However, a broader move away from wholesale had already occurred prior to the Newcastle pneumonia outbreak and the resulting supply chain disruptions."

On the other hand, demand in the market was uneven. Nordstrom executives noted that while the New Crown outbreak was not over, shoppers were updating their outfits for returning to the office and attending events.

Pete Nordstrom, Nordstrom's president and chief brand officer, called the second quarter "an interesting one" characterised by improvement and stability. He noted, however, that urban shops, which are more dependent on tourists and commuters, did not rebound as dramatically as suburban shops.

In the quarter's client report, several analysts said Nordstrom's performance was dwarfed by that of other companies in the sector.

Nordstrom's two-year decline not only "compares unfavourably with other department stores - even Macy's posted a modest two-year sales increase of 1.8%.

More importantly, such results underperform relative to the overall retail sector, especially when compared to 2019, when overall retail spending grew by 19.9 per cent in the quarter," said Neil Saunders, managing director of GlobalData.

"In short, Nordstrom's recovery will take longer and be more intermittent than elsewhere in the retail industry."

In an effort to change its woes, Nordstrom is working to partner with other retail brands as a way to reach more new customers.

Pete Nordstrom called the company's recent partnership with Asos, which targets Generation Z, "definitely a real highlight of the last quarter."

The company acquired minority stakes in four Asos brands - Topshop, Topman, Miss Selfridge and HIIT - in the second quarter and said it was working to bring more Asos brands to North America.

In addition, Nordstrom announced on Wednesday that a selection of ready-to-wear, footwear, accessories, jewellery and beauty products from a range of well-known brands, including H&M, will be coming to Nordstrom shops this fall.

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