Shoppers won’t even buy clearance items right now

Most analysts would agree Nordstrom has arguably the best-looking department stores and customer service in the game. Even those great attributes don’t appear to be enough currently, though, as U.S. consumers shun discretionary purchases like apparel with inflation raging. The stress on consumer budgets has reached a point where a […]

Most analysts would agree Nordstrom has arguably the best-looking department stores and customer service in the game.

Even those great attributes don’t appear to be enough currently, though, as U.S. consumers shun discretionary purchases like apparel with inflation raging. The stress on consumer budgets has reached a point where a trip to the sales rack at a Nordstrom store or the clearance section at a Nordstrom Rack are off the table for the time being, execs hinted on an earnings call late Tuesday.

“The softening trend was more significant in customer segments with the lowest income profile,” Nordstrom CEO Erik Nordstrom stated on the company’s earnings call. “While we saw greater resilience in the higher-income segments — for example, at the Nordstrom banner, items with lower AURs [average unit retail prices] underperformed — higher AURs within our designer business and higher-price luxury projects significantly outperformed lower-priced product.”

Miami, Nordstrom Rack, men's clothing in discount outlet. (Photo by: Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images)

Miami, Nordstrom Rack, men’s clothing in discount outlet. (Photo by: Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images)

On the call, the company added that because customers “have been less responsive to clearance product in the second quarter, we had to take deeper markdowns than anticipated to move clearance inventory, and we expect that dynamic to continue in the second half of the year.”

Nordstrom expects the slowing demand environment will cause a $200 million hit to profits in the second half of the year as it marks down inventory.

Nordstrom stock fell 15% in pre-market trading on Wednesday after the red flag-worthy commentary and profit warning. The company’s ticker page was the third-most visited on the Yahoo Finance platform.

Here is how Nordstrom performed versus Wall Street estimates:

  • Net Sales: $3.99 billion vs. $3.9 billion

  • Adjusted EBIT: $202 million vs. $214.5 million

  • Diluted EPS: $0.81 vs. $0.80

  • Full-Year Outlook: Sales +5% to +7% (previous: +6% to +8%); EPS $2.30 to $2.60 (previous: $3.20 to $3.50)

Nordstrom’s tone on the call — and revised guidance — overshadowed a decent quarter from the company in the context of far worse results elsewhere in retail (see Kohls). Sales at Nordstrom and Nordstrom Rack rose 14.7% and 6.3%, respectively, in the quarter. Digital sales rose 6.3% from a year ago.

The Street is staying cautious on Nordstrom shares despite the steep earnings-related pullback.

“This [profit warning] lowers the bar, but Nordstrom’s business has been highly volatile in recent quarters, and we believe there remains risk to guidance, particularly in what is shaping up to be a highly promotional 4Q,” Citi Analyst Paul Lejuez wrote in a note to clients.

The analyst reiterated a neutral rating on Nordstrom’s stock.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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