Q3 2025 Earnings Summary
- Nordstrom Rack presents significant growth opportunity: The company plans to open 20 to 25 new Rack stores per year, acknowledging that they are underpenetrated compared to off-price peers, and sees "ample opportunity to continue to put some new Rack stores in areas where we have customers that would love to shop a Rack store." This expansion is expected to drive top-line growth.
- Strong customer engagement and growth in customer count: Nordstrom is experiencing growth in customer count, with increased customer trips across both banners. Rack new stores are the company's biggest source of customer acquisition, and there is good migration of these new customers across both banners and channels.
- Multi-year EBIT margin expansion driven by top-line growth and operational efficiencies: The company is off to a good start with over 4% year-to-date top-line growth, which is expected to be the biggest contributor to EBIT margin expansion. Investments in supply chain and technology are also expected to yield benefits, providing additional opportunities for EBIT expansion in future years.
- Sales slowdown in the fourth quarter: Nordstrom experienced a noticeable decline in sales starting at the end of October, which continued into the fourth quarter. This slowdown was observed across all businesses without a clear understanding of the causes, raising concerns about meeting revenue targets during the critical holiday season that typically accounts for approximately 40% of annual EBIT. , ,
- Higher-than-desired inventory levels in seasonal categories: The company reported slightly higher inventory levels than planned, particularly in cold-weather categories like boots, sweaters, and outerwear due to unseasonably warm weather delaying sales. This excess inventory poses a risk of increased markdowns and pressure on gross margins if these items do not sell as expected. , ,
- Persistently high shrink levels impacting margins: Nordstrom acknowledged that shrink, which includes inventory losses from theft and other causes, remains at historically high levels. While efforts are underway to address this issue, continued elevated shrink could negatively impact profit margins in the future.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Nordstrom Rack expansion strategy and new store openings | Consistently highlighted in Q4 2024 ( ), Q1 2025 ( ), and Q2 2025 ( ) with detailed plans, target numbers, and ROI emphasis | Q3 2025 emphasized opening 12 new Rack stores, detailed geographic strategy, and underscored customer acquisition benefits ( ) | Consistent expansion with continued focus on driving new customer acquisition |
Consistent customer acquisition and engagement across banners | Emphasized across Q4 2024 ( ), Q1 2025 ( ) and Q2 2025 ( ) with loyalty programs and digital initiatives noted | Q3 2025 noted robust customer count growth, healthy traffic, and strong digital engagement across banners ( ) | Steady and consistent engagement with a slight uplift in digital momentum |
Robust sales growth performance | Discussed in Q4 2024 ( ), Q1 2025 ( ) and Q2 2025 ( ) with strong net sales and digital gains | Q3 2025 reported 4.6% net sales growth overall, strong digital sales (6.4% growth), and healthy performance across categories ( ) | Sustained robust growth with balanced contributions from physical and digital channels |
EBIT and gross margin improvement initiatives versus emerging margin pressures | Q4 2024 ( ), Q1 2025 ( ) and Q2 2025 ( ) discussed initiatives like operational optimization along with challenges such as timing issues and cost pressures | Q3 2025 focused on top‐line growth, supply chain improvements, and shrink reduction to drive margin expansion while noting pressures from higher labor costs and tech depreciation ( ) | Ongoing initiatives are being weighed against emerging cost pressures resulting in a mixed sentiment |
Operational efficiency through supply chain and technology investments | Addressed in Q4 2024 ( ), Q1 2025 ( ) and Q2 2025 ( ) with emphasis on RFID, faster processing, and fulfillment center moves | Q3 2025 highlighted a 40% improvement in click-to-delivery speed and continued technology investments, showing clear operational benefits ( ) | Continued progress in streamlining operations with measurable efficiency gains |
Inventory management challenges and improvements | Q4 2024 ( ), Q1 2025 ( ) and Q2 2025 ( ) discussed inventory alignment, quality, and operational improvements | Q3 2025 noted a modest inventory increase (5.9% YoY) with a focus on maintaining quality despite seasonal challenges impacting some categories ( ) | Persistent operational challenges remain but are being managed through quality improvements and technology |
Recurring designer category performance challenges | Q1 2025 ( ) and Q2 2025 ( ) acknowledged challenges and normalization in the designer category | Q3 2025 did not mention the designer category challenges | Topic has receded in the current period, suggesting reduced emphasis or resolution |
New concerns over persistently high shrink levels impacting margins | Q2 2025 noted modest improvement in shrink and Q1 2025 mentioned operational theft and cleanup issues ( ) | Q3 2025 explicitly highlighted that shrink remains historically high and is a significant margin concern ( ) | An emerging negative sentiment as high shrink levels are becoming a prominent concern |
Emerging trend of rising credit losses | Q2 2025 discussed rising credit losses with modest increases and industry-context risk ( ); Q4 2024 mentioned credit quality factors ( ) | Q3 2025 linked a modest decline in credit card revenue to higher credit losses, consistent with expectations ( ) | A consistent trend with moderate caution, reflecting rising losses but within forecasted ranges |
New SG&A headwinds and increased labor costs affecting profitability | Q4 2024 ( ), Q1 2025 ( ) and Q2 2025 ( ) noted SG&A pressures with labor and supply chain charges influencing margins | Q3 2025 reported a 25 bp increase in SG&A (due to higher labor costs and accelerated technology depreciation) that was largely offset by sales leverage ( ) | Consistent headwinds are persisting, with slight increases in labor and cost pressures noted |
Digital sales growth shortfalls and soft store traffic | Q4 2024 discussed soft store traffic and digital sales mix ( ); Q2 2025 provided solid digital growth data ( ); Q1 2025 focused on digital sequential improvement ( ) | Q3 2025 recorded 6.4% digital growth with a noted 100 bp negative impact from the timing of the Anniversary Sale; no explicit mention of soft store traffic ( ) | Digital performance remains positive overall, though timing factors have introduced slight shortfalls |
Diminished emphasis on private brand performance in women's apparel | Q1 2025 ( ), Q2 2025 ( ) and Q4 2024 ( ) emphasized strong or growing performance in this area | Q3 2025 did not mention any diminished emphasis, implying private brand performance is not a concern | The focus on private brands appears steady, with no downturn or reduced emphasis emerging |
External market and economic uncertainty with potential long-term impact | Q4 2024 ( ), Q1 2025 ( ) and Q2 2025 ( ) consistently referenced economic and market uncertainties affecting outlook | Q3 2025 noted slowing sales trends towards late October and maintained a cautious outlook due to external uncertainties ( ) | Ongoing uncertainty remains a key external factor, with consistent cautious sentiment across periods |
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Q4 Slowdown and Cautious Outlook
Q: Why has your Q4 outlook become more cautious?
A: Management observed a slowdown in sales trends starting in the last week of October across all businesses, prompting a more cautious Q4 outlook. They cited factors like calendar shifts with five fewer days between Thanksgiving and Christmas, unseasonably warm weather affecting cold-weather categories, and general election noise as contributors to this slowdown. -
EBIT Margin Expansion and Shrink Impact
Q: What are the key drivers for EBIT margin expansion?
A: The primary driver for EBIT margin expansion is top-line growth, with the company achieving over 4% year-to-date growth. They also aim to improve supply chain and technology investments to benefit from their omnichannel strategy. Importantly, shrink remains at historically high levels, and reducing it is necessary for substantial margin expansion. -
Inventory Levels and Cold Weather Categories
Q: Why are inventory levels higher than expected?
A: Inventory levels are slightly higher than desired, mainly due to supporting the Rack business and increased stock in cold-weather categories like boots, outerwear, and sweaters. The unseasonably warm start to winter led to suppressed sales in these areas, resulting in higher inventory quantities, though inventory quality and aging remain healthy. -
Gross Margin Improvement and Promotional Environment
Q: How did gross margin perform, and what's the outlook?
A: Gross margin improved by 50 basis points, driven by strong regular-price selling, slightly stronger in the Nordstrom banner. For Q4, they expect year-over-year improvement in gross margin and profit. The promotional environment is always significant in Q4, and so far, it has met their expectations. -
Rack Growth and New Store Expansion
Q: What's the plan for Rack store growth?
A: The company plans to open 20 to 25 new Rack stores each year, seeing ample opportunity due to being under-penetrated in certain areas. New Rack stores are a major source of customer acquisition, bringing in new customers who often shop across both banners. -
BOPUS at Rack and Impact
Q: How will BOPUS at Rack affect sales?
A: Implementing Buy Online, Pick Up In Store (BOPUS) and store fulfillment at Rack, rolled out to 100 stores, will enhance customer experience by offering more inventory online. This is enabled by investments in RFID technology, leading to expected improvements in sales, margin, and the ability to serve more customers. -
SG&A Leverage Expectations
Q: At what sales growth will you leverage SG&A?
A: To leverage SG&A expenses, especially considering 2% to 3% inflation, the company needs to achieve comparable sales growth of around 1%. Rack growth will contribute to top-line growth, aiding in reaching this target.
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