Nordstrom delivers surprise profit as inventory woes ease

Nordstrom Inc posted a surprise first-quarter profit on Wednesday as better inventory control and demand from wealthy shoppers helped the company defy an inflation-driven slump in retail spending, sending its shares up 7% after hours.

The upmarket department store chain's decision to stock up on popular national brands at its off-price banner Rack was also paying off, driving a recovery after months of outdated inventories and product shortages.

Affluent Americans are still spending on clothing as return-to-office trends and other social gatherings boost demand for dresses and formal wear, while pandemic-era habits of lounging in comfortable activewear and leisure clothing are also pushing up sales.

"The high-end customer (is) pretty resilient, but they're also cautious," CEO Erik Nordstrom said on a post-earnings call, adding that higher spending per trip was helping offset weak traffic.

While quarterly sales at Rack fell 11.9%, Nordstrom said trends improved later in the quarter and have continued into May. The company has also been opening new Rack stores in a bid to attract more budget-conscious shoppers.

"Rack has been struggling for the last few years. It's still not where it used to be, but it's getting back on the right track," Morningstar analyst David Swartz said.

The company's inventories decreased 7.8% at quarter-end, while gross margin improved 110 basis points, partly due to easing cost pressures.

Nordstrom joins apparel chain Abercrombie & Fitch Co in bucking a broader gloom in retail, after companies ranging from Target Corp to Home Depot Inc all issued cautious forecasts for the year.

Total quarterly revenue at Nordstrom fell about 11% to $3.18 billion, but surpassed analysts' average estimate of $3.12 billion, according to Refinitiv IBES data.

Excluding items, it reported a per-share profit of 7 cents, compared with estimates for a loss of 13 cents.