Nordstrom Shares Jump After Reporting Improvements in Rack Business

Nordstrom’s Rack business is improving.

The department store retailer shared on Tuesday that Nordstrom Rack, its off-price arm, is in the process of recovery. While Rack sales declined 5% in Q4 compared to 2019, the business saw an improvement of 320 basis points over Q3, as the company focuses on driving inventory and improving selling prices.

“We have a lot of effort going on in our Rack business,” said Nordstrom CEO Erik Nordstrom in a call with investors. “And while we saw some improvements last quarter, we have a ways to go. And we’re hard at work on that, and we like our plans and believe there’s opportunity for continued improvement there.”

Shares of Nordstrom had climbed over 38% by early afternoon on Wednesday.

In November, Nordstrom laid out a plan to improve its Rack business after reporting earnings that fell short of analysts’ expectations. Part of this plan involved rebalancing assortments and improving average selling price to better align with customer expectations. Like other off-price retailers like Burlington and Ross stores, Rack suffered from inventory shortages due to supply chain slowdowns that made less product available for clearance.

Given Rack’s performance as of late, Nordstrom was reportedly in talks to potentially spin off its Rack business. Bloomberg reported that the retailer had hired consulting group AlixPartners to help it navigate a potential spin off for its off-price arm as other department stores like Macy’s, Kohl’s and Neiman Marcus consider similar splits.

But this most recent quarter suggests things could be looking up for Rack. To mitigate recent supply chain headwinds, Nordstrom said it has expanded its offering of “coveted brands,” sought out new vendor partnerships, had more frequent product deliveries to stores and focused on sourcing key product categories like footwear and apparel.

To increase brand awareness, the company rolled out its “More Reasons to Rack” marketing campaign in September.

The company is also testing higher unit prices at Rack and has not seen any resistance from consumers, CFO Anne Bramman said in a call with investors. 

Given the improvements, executives are bullish that the Rack business will continue to improve through fiscal year 2022.

“We are confident in our ability to profitably grow our Rack business and won’t be satisfied until we do so,” said Erik Nordstrom.

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