Nordstrom warns of feeble second half as consumers spend cautiously

The Nordstrom store is pictured in Broomfield

By Granth Vanaik

(Reuters) -Nordstrom joined rival Macy's in adopting a cautious tone over demand in the second half of the year and warned of higher credit losses as more consumers default on payments, sending its shares down 4% in extended trading.

Recent results from retailers ranging from Target to Foot Locker have shown customers in the middle- to low-income cohort have continued to restrict discretionary purchases as they deal with higher prices and borrowing costs.

"We continue to see a cautious consumer," said Nordstrom finance chief Catherine Smith, adding sales slowed at both its eponymous stores and off-price Nordstrom Rack banner during the third quarter.

The company warned of delinquencies increasing gradually, echoing Macy's which saw a 41% slump in credit card revenue, even as Nordstrom said revenues from that business rose 5.8% in the quarter.

"(Delinquencies) are now above pre-pandemic levels, which could result in higher credit losses in the second half and into 2024," Smith said.

The warning overshadowed a sequential improvement in net sales at Nordstrom and Rack stores.

Shares in Nordstrom rose 7% in extended trading initially, but later fell after the company flagged slowing demand.

"Investors were initially excited by the earnings beat, but quickly lost that enthusiasm once it became clear that Nordstrom still sees a difficult road ahead," said Insider Intelligence analyst Rachel Wolff.

Nordstrom's efforts to stock up its shelves with national and "strategic" brands like Nike, however, have helped it top quarterly profit and revenue estimates.

Total revenue fell about 8% to $3.77 billion in the second quarter ended July 29, compared to expectations of $3.65 billion, according to Refinitiv data.

Nordstrom said inventories dropped to 17.5% in the quarter for a third straight time.

Nordstrom CEO Erik Nordstrom also said theft at its stores was still a drag on earnings, though not any more than the company has already planned for this year.

"That needs to come down," Nordstrom said, adding the company had taken steps such as partnering with local jurisdictions and law enforcement.

Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, said Nordstrom's earnings indicate shoplifting and store card delinquencies are the new surprise warnings management and investors have to contend with.

Nordstrom earned 84 cents per share in the quarter. Analysts had estimated a profit of 44 cents.

(Reporting by Granth Vanaik in Bengaluru; Editing by Maju Samuel and Krishna Chandra Eluri)