Nordstrom Inc said poor inventory planning at its off-price Rack stores dragged on revenue growth in the third quarter, a problem company executives said they were working to address heading into the holiday season.
Sales at the Rack division were 8% below where they were before the pandemic. Revenue at the company overall was down 1% in the same period. That was in part due to a lack of high-end, discounted merchandise on hand at Rack stores, which is part of what attracts shoppers to the brand.
The shortage was particularly acute in women’s shoes and apparel. To compensate, executives pivoted and sold more modestly priced items from lower-end brands, but the company went in that direction, which slowed revenue growth.
“We are not satisfied at all with our Rack business as clearly our recovery is lagging what we think it should be,” Chief Executive Officer Erik Nordstrom said during a call on Tuesday with analysts. He added the company hasn’t moved “as quickly and aggressively as we need to.”
The shares plunged as much as 25% in late trading. The stock had advanced 2.3% in 2021 through Tuesday’s close.
Nordstrom appears to be struggling more than its peers to get revenue back to where it was before Covid-19. This is now the second straight quarter in which the Seattle-based retailer has reported sales that were below pre-pandemic levels.
“Given the current strength of off-price, where some rival players are reporting low double digit gains over 2019, Nordstrom Rack’s numbers are terrible,” GlobalData analyst Neil Saunders wrote in a research report.
Nordstrom reiterated its expectations that revenue is on track to grow more than 35% for its fiscal year from fiscal 2020.
Like other retailers, higher costs are also causing a headache for the company. Costs related to sales, advertising and general expenses in the third quarter ballooned 260 basis points compared with the same period in 2019 due to higher fulfillment and labor costs.