In a surprising turn of events, Nordstrom shares experienced a slight dip in pre-market trading, cutting into the significant gains that were achieved following the release of its impressive second quarter earnings. This shift comes as the upscale retailer anticipates an increase in default rates on its credit cards, reflecting a cautious consumer environment. Nordstrom, which primarily targets a more affluent consumer base compared to many of its department store competitors, reported adjusted profits for the three months ending in July at 84 cents per share, a solid 3.7% rise from the previous year and significantly surpassing the Street consensus forecast of 45 cents.

Despite an overall revenue decrease of 8.3% to $3.66 billion, Nordstrom managed to exceed analysts’ expectations of a $3.65 billion tally. However, the retailer also reported an unprecedented peak in store theft levels over the quarter, mirroring concerns raised by other retailers throughout the first half of the year. Additionally, Nordstrom noted a troubling acceleration in payment delinquencies on store-issued credit cards, surpassing pre-pandemic levels with predictions of further deterioration in the latter half of the year. This unsettling trend, together with the high theft rates, has prompted the company to explore measures to enhance store security and mitigate loss, as communicated by CEO Erik Nordstrom in a recent conference call with investors.

Nordstrom Shares Dip Amid Concerns of Rising Credit Card Default Rates

Nordstrom (JWN) shares experienced a slight decrease in pre-market trading, despite posting stronger than predicted earnings for Q2. The drop in share value seems to be linked to the retail giant’s prediction of higher default rates on its credit cards, hinting at a cautious consumer environment.

Q2 Earnings Surpass Expectations

Nordstrom’s adjusted profits for the three-month period ending in July were reported to be 84 cents per share, representing an increase of 3.7% from last year. This figure comfortably beats the Street’s forecast of 45 cents. Despite revenues falling by 8.3% to $3.66 billion, this sum still surpassed analysts’ estimates of $3.65 billion.

Store Theft Reaches All-Time High

The company also highlighted that store theft levels reached an unprecedented high over the quarter, echoing similar concerns expressed by other retailers during H1 of this year. Payment delinquencies on store-issued credit cards were reported to have risen above pre-pandemic levels, with an expectation of worsening in the latter half of the year.

CEO Plans to Address Losses

CEO Erik Nordstrom, addressing investors in a recent conference call, acknowledged the rise in theft, stating: "Losses from theft are at historical highs. And I’d say we find it unacceptable and needs to be addressed." He further added, "We’ve done a lot of things, and we’re looking at everything we can do to make our stores safe and secure… but also to address the loss."

Nordstrom Shares See a Dip

Despite the strong Q2 results, Nordstrom shares were marked 0.42% lower in pre-market trading, indicating an opening bell price of $16.75 each.

Takeaways

In light of these revelations, the forecast of higher default rates on Nordstrom’s credit cards signals a potentially cautious consumer environment. While the company has surpassed earnings expectations for Q2, the ongoing concerns regarding store theft and payment delinquencies may serve as warning signs for a challenging H2. The company’s strategy to address these issues will be critical to observe in the coming months.