NORDSTROM INC (JWN)·Q1 2025 Earnings Summary

Executive Summary

• Q1 FY2025 (quarter ended May 4, 2024): Net sales rose 5.1% to $3.22B; diluted EPS was -$0.24 as gross margin fell 225 bps to 31.6% on timing and operational factors; management reaffirmed FY2024 guidance (revenue -2% to +1%, EBIT margin 3.5–4.0%, EPS $1.65–$2.05) .
• Rack momentum was the bright spot (net sales +13.8%, comps +7.9%), while the Nordstrom banner returned to growth (net sales +0.6%, comps +1.8%) .
• Profitability headwinds were split roughly half timing (inventory reserve build under new cost accounting; loyalty deferred revenue) and half operational (external theft in transportation network; inventory cleanup), with management expecting timing impacts to moderate/reverse in future periods .
• Liquidity remained strong ($1.2B including $428M cash) and JWN retired $250M notes in April; the Board declared a $0.19 dividend (payable June 19, 2024) .

What Went Well and What Went Wrong

• What Went Well

  • Rack acceleration and customer response to “great brands at great prices” with double-digit net sales growth and mid/high engagement, aided by new store openings (nine year-to-date) .
  • Nordstrom banner returned to growth with improved regular price sell-through; management emphasized improved search/discovery and the initial launch of the digital marketplace to broaden choice, positioning for scale in 2025 .
  • Operational improvements drove >5% faster click-to-delivery and lower variable fulfillment costs; transition to a more automated West Coast omnichannel center to further lower cost-to-serve .

• What Went Wrong

  • Gross margin contracted 225 bps to 31.6% despite strong sales, hurt by timing of higher reserves under cost accounting and higher loyalty deferred revenue, plus external theft in the transportation network and inventory cleanup during facility consolidation .
  • Profitability (EBIT -$21M; EPS -$0.24) lagged internal expectations due to the above; management reiterated confidence but noted it’s learning through first quarter in cost accounting .
  • Designer category remained challenged relative to elevated pandemic-era levels (normalizing), though inventory is right-sized to protect margins as trends stabilize .

Financial Results

Sequential trend (oldest → newest)

Year-over-year quarterly comparison

Segment breakdown (Q1 FY2025 vs prior year)

KPIs and operating metrics

Notes: Q4 FY2024 gross margin expansion was aided by cost-method timing, improved shrink, and lower loyalty promotions ; Q1 FY2025 gross margin contracted on timing and operational factors .

Guidance Changes

Commentary: In Q2, management slightly updated the guidance ranges (notably EBIT margin 3.6–4.0%) but in Q1 the outlook above was reaffirmed as shown .

Earnings Call Themes & Trends

Management Commentary

• “We are pleased with the strength of our top line growth across both Nordstrom and Nordstrom Rack... Although our earnings were held back, we remain confident in our outlook for the year. We are reaffirming guidance” — Erik Nordstrom, CEO .
• “Our outsized sales came with strong sell-through... margin pressure... roughly one-half timing-related, and the other half from operational factors” — Cathy Smith, CFO .
• “Our ‘Make Room for Shoes’ campaign... delivered year-over-year and sequential improvements in Shoes... We introduced 30-plus new [Beauty] brands in the first quarter” — Pete Nordstrom, President .

Q&A Highlights

• Sustainability of comp trends: positive comps each month in Q1; quarter-to-date trends remained positive but softened; Anniversary Sale timing drives Q2 profile .
• Margin drivers and timing: ~200 bps gross margin pressure vs expectations split ~50/50 timing (inventory reserves under cost accounting; loyalty) and operational (theft, inventory cleanup); timing to reverse over subsequent quarters .
• Rack economics: new stores consistent mid-to-high-teens IRR; ~20k new customers per new Rack; unique value proposition is access to coveted brands at off-price .
• Long-term margin path: next waypoint is ~6% EBIT (2019 level) before contemplating double-digit potential .
• Credit card outlook/regulation: portfolio credit quality higher-end; CFPB late-fee rule delay contemplated in guide; credit revenue ~3% of revenue for year, slightly below 2023 .

Estimates Context

• We attempted to retrieve S&P Global (Capital IQ) consensus for Q1 FY2025 revenue and EPS, but the mapping for JWN was unavailable in our tool at this time; therefore, we cannot present a vs-consensus comparison for this quarter. As a result, any estimates-based comparisons are unavailable (S&P Global consensus data not retrievable for JWN this period).

Key Takeaways for Investors

• Rack is the structural growth engine (double-digit net sales, high-single-digit comps) with attractive new-store returns and digital off-price differentiation; continued brand-led mix should support sustained share gains .
• Q1 margin headwinds are largely timing-related and should partially unwind (inventory reserve and loyalty deferrals), while operational issues (theft, inventory cleanup) are being addressed; watch Q2/Q3 for reversal evidence .
• Nordstrom banner’s return to growth plus improved regular price sell-through and discovery/search upgrades are constructive, with marketplace expected to scale in 2025 — a potential medium-term digital GMV catalyst .
• Liquidity and de-risking continue (retired $250M notes; $1.2B liquidity), supporting ongoing capex (3–4% of sales) and dividend continuity ($0.19/qtr) .
• Category mix tailwinds (Active, Women’s, Beauty) and eventing/styling initiatives are bolstering traffic and sell-through; designer normalization is managed with lean inventories to protect margin .
• Guidance was reaffirmed in Q1, signaling confidence despite macro uncertainty; later Q2 update slightly refined ranges — monitor EBIT margin trajectory toward the 3.5–4.0% FY target as a key stock narrative driver .
• Trading implications: near-term sentiment hinges on evidence of gross margin normalization and Rack consistency; medium-term thesis centers on Rack unit growth, marketplace scaling, and EBIT margin progress toward the pre-COVID ~6% waypoint .

Additional Primary Source Details

• Q1 2025 earnings release (Item 2.02 8-K and PR) including detailed P&L, balance sheet, cash flows, segment sales and outlook .
• Q1 2025 earnings call transcript: prepared remarks and Q&A detail on timing, operational factors, category performance, marketplace, and Rack strategy .
• Prior two quarters for trend analysis: Q3 2024 and Q4 2024 press releases with sales, margins, and guidance updates .
• Dividend declaration for context .