Dolce > Dick’s

As the old adage goes, “Nordstrom giveth and Dick’s taketh away.”

Shares of the former were higher Wednesday, after luxury shoppers helped the storied department store post an improbably solid quarter amid a broad retail malaise that’s spared few.

I’ll include language I’ve employed several times since Walmart and Target stunned investors last week. I’m spilling more ink on retailers’ results this quarter because this is a critical juncture for consumer goods demand. In addition to the long awaited goods-to-services switching dynamic analysts and economists have spent the last year predicting, surging inflation is eroding households’ disposable income. When food and gas are more expensive, discretionary purchases are the first casualty.

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For US Retailers, ‘Better-Than-Feared’ Is The New ‘Good’

Voracious demand for scarce goods post-pandemic means many consumers have already overbought and stores may have over-ordered in a frantic attempt to keep up with demand. This is particularly acute for durables and electronics, but it applies to apparel too, and certainly to items families can do without — like new baseball bats.

The retail ETF is on track for a 16% decline in May (figure below). If that sticks, it’d be among the largest monthly drops ever for the vehicle outside of the pandemic collapse and the financial crisis.

Perhaps more tellingly, the product is down seven months in a row.

Nordstrom’s results were a reminder that catering to the rich helps when “normal economic people” (as Jerome Powell called the middle-class earlier this month) are struggling with surging costs for gas and food. “We haven’t seen inflationary cost pressures adversely impact customer spending,” CFO Anne Bramman mused, during the company’s call. “We believe [that’s] due to the higher income profile and resiliency of our customer base.”

Nordstrom boasted increases in both customer counts and spend per customer versus the prior year and Bramman said “benefits from supply chain optimization initiatives” helped offset “macro-related cost pressure in labor and fulfillment.” The latter was factored into the company’s outlook, which was good. In fact, Nordstrom lifted its sales forecasts and raised the lower-end of its profit guidance.

So, if the question is whether higher gas and grocery prices are affecting demand for $700 Dolce bucket hats and $850 Prada slides, the answer is “No. Definitely not.” If, on the other hand, the question is whether the hit to household incomes is affecting spending on batting helmets and cleats, the answer would appear to be “Possibly.”

Shares of Dick’s fell double-digits early Wednesday after the company updated its full year 2022 outlook “to reflect the impact of evolving macroeconomic conditions.” Later, on the call, management said the new outlook wasn’t tied to an observed deceleration in demand. “[It’s] purely coming out of being appropriately cautious about the outlook on what is happening in the overall economic landscape,” CFO Navdeep Gupta said. “The pressure that our consumer, and the consumer in general, has is something that we wanted to not ignore and wanted to address that upfront.”

The stock reversed course to close higher. As Bloomberg noted, “the company didn’t explain how it calculated the new forecast if it isn’t based on current trends.”

Although Q1 results looked ok, comps nevertheless dropped more than 8%. Inventories (which are poised to become the locus of macro concerns, or at least as it relates to goods demand) rose more than 40% YoY. That figure for Nordstrom was just 23.7%.

Dick’s now sees adjusted EPS for this fiscal year of $9.15 to $11.70. Previously, it saw $11.70 to $13.10. In March, the company guided for flat to -4% comps. On Wednesday, Dick’s revised that range to -2% to -8%. Capex plans were unchanged.

CEO Lauren Hobart said the company is “mov[ing] with agility” in a “highly dynamic environment,” and said management is “confident in our continued ability to adapt quickly and execute through uncertain macroeconomic conditions.” We’ll see.

Meanwhile, Express delivered what, at first glance anyway, looked like anomalously good results. Comps rose an astounding 31% and gross margins expanded by 640bps even after a $6 billion hit from what the company described as “supply chain challenges.”

Inventory was up 40% but if sales continue to grow rapidly, that won’t matter as much. Express called inventories “closer to parity with sales growth in the back half of the year.”

CEO Tim Baxter was ecstatic. “Our first quarter results exceeded our expectations. Our brand purpose is taking hold,” he beamed on Wednesday. “I am energized by our momentum and this is reflected in our increased annual outlook.”

Let’s revisit all of the above in October.