Nordstrom is the latest retailer to lower its outlook

The news: Nordstrom lowered its forecast for full-year sales to 5%-7%, which is down one percentage point from the 6%-8% range it announced just three months earlier.

• Nordstrom also trimmed its earnings-per-share forecast to $2.45-$2.75 down from $3.38-$3.68.
• While the retailer said during its Q1 earnings call that it did not anticipate macroeconomic pressures to adversely impact customer spending due to its affluent customer base, demand began to soften in late June, particularly at Nordstrom Rack, said CEO Erik Nordstrom during the retailer’s latest earnings call.
• Compared to the first two months of the quarter, July sales decelerated 9 percentage points at Rack. The trend was particularly pronounced among lower-income consumers.

It isn’t just Nordstrom: Nordstrom has plenty of company among retailers lowering expectations for the second half of the year.

• Macy’s earlier this week lowered its outlook for the rest of 2022, noting that its inventory levels remain elevated as consumers shifted more discretionary spending to services.
• Best Buy cut its forecast for the rest of the year due to weakening demand for consumer electronics.
• Other higher-end retailers, including Tapestry, parent company of the Coach and Kate Spade brands, Estée Lauder Companies, and Ralph Lauren Corp. have also trimmed their outlooks or projected lower-than-expected growth in recent weeks due to the slowing Chinese economy and the strong US dollar, per Bloomberg.

Promising signs: Despite Nordstrom and other retailers’ reservations about the latter half of the year, there are a number of reasons to believe the holidays may not be so bleak.

• Retail sales continue to rise. Excluding gas and motor vehicle and parts sales, July retail sales grew 0.7% month-over-month (MoM), although the figures don’t account for price increases.
• Gas prices are falling. The national average for a gallon of regular gas has dropped every single day since soaring to a record high of $5.02 per gallon on June 14, per AAA. The national average for regular gas dipped on Wednesday to $3.88 a gallon, down from $4.38 a month ago.
• Consumer confidence is rising, according to both the University of Michigan’s consumer survey and the Morning Consult/Axios Inequality Index. Notably, each component that makes up the University of Michigan survey’s economic expectations index improved—particularly among low- and middle-income consumers for whom inflation is particularly salient.
• The global supply chain is in its best position in several years as multiple metrics that gauge both the time and cost of transporting items have recently moved in a promising direction.

The big takeaway: There’s no question that the need to clear excess inventory will weigh down retailers like Nordstrom and Macy’s in the latter half of the year. But there’s plenty of reason for optimism: Nordstrom reported that its total sales rose 12% YoY in Q2, which shows that there are still plenty of consumers who are willing and eager to spend. And many economic indicators are pointing in a promising direction.

Yet after the abrupt slowdown in retail sales earlier this year, it makes sense for merchants to adopt a posture that allows them to underpromise and overdeliver.

Go further: For more on The Era of Uncertainty, read our report here.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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