Q2 2020 Nordstrom Inc Earnings Call
Greetings.
Welcome to the Nordstrom second quarter earnings Conference call.
At this time all participants are any listen only mode. We'll begin with prepared remarks, followed by question and answer session.
If you'd like to ask your question. Please press star one on your telephone keypad.
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As a reminder, this conference is being recorded.
At this time I'll turn the call over to Trina Schurman.
Senior director of Investor Relations for Nordstrom, you may begin.
Good afternoon, and thank you for joining us.
Earnings call last 45 minute and one of the crude.
Currently 30 minutes for your question.
Before we begin I want to make sure that we'll be referring to slide which can be viewed by going from Investor Relations section.
Or some dotcom our discussion may include forward looking statement.
Please refer to the slide showing our safe Harbor language.
Dissipating and today's call, our Erik Nordstrom, Chief Executive Officer, and Anne Bramman, Chief Financial Officer, who will provide us as an update and discuss the company's second quarter performance for 2020.
Joining during the acuity session will be peaks Nordstrom president of North Montney, and Chief brand officer with that I'll turn the call buffer to Eric.
Good afternoon, and thank you for joining us.
We're discussing the quarter I'd like to take a moment to share our approach to managing through this current environment.
We're pleased with how we executed our planned for Q2.
At the onset of the pandemic, our primary objective with protecting and enhancing liquidity given the uncertainty over how long are temporary store closures will last and with inventory as our biggest investment we took decisive action to minimize risk and stabilize our business.
The first quarter, we significantly reduced inventory levels by more than 25%, allowing us to mitigate markdowns and bring in new nets for customers.
A piece of changing customer behavior continues to accelerate we also took proactive steps to execute our strict strategic plans with greater speed.
Included restructuring our organization.
Currently closing 16 full line stores, which contributed to overhead cost reductions of nearly 20% in the second quarter.
From a top line perspective, we achieved our expectations and identified opportunities to drive further improvement.
Our streamlined operations in inventory position gave us flexibility to bring in new and relevant product.
Inventories were constrained we left some demand on met our decision to be prudent with their inventory plan helped deliver better than expected merchandise margin earnings and operating cash flow.
We exited the quarter in an advantageous position with inventories Queen and would open to buy to capture customer demand.
We increased receipts in July as we geared up for anniversary sale that began on August sport. This is our largest of that offering new arrivals and limited time savings.
We're in the final we could be a bad and results are in line with our expectations, reflecting a notable sequential improvement at full price sales trends.
Price traffic remains consistent and we're starting to see steady improvement in conversion and sales as we begin to flow in inventory receipts.
And our digital businesses traffic grew by double digits year over year at sequentially improved from Q1, indicating signs of increasing customer demand.
As we experienced last quarter, we had more than 50% growth in new Nordstrom customers through our digital platform.
He also increased customer engagement up contact with services, such as curbside pickup in returns, which represented a one quarter a quarter pickup volume in total order pickup is approaching 15% of Nordstrom Dot com sale.
Our financial position strengthened we're now pivoting to prioritize market share gains and profitable sales growth. This includes building out our heritage of service to accelerate growth initiatives.
We made foundational investments in our market strategy partnership rack brand offering and digital capabilities to scale our business.
As we look ahead, our team is unified in executing our market strategy to deepen customer engagement with a focus on offering a seamless and personal experience. However, they choose to shop with us.
In five of our top markets, we're providing customers with greater merchandise selection and faster delivery, while increasing engagement through surfaces.
We're on track with our plans this year to scale our strategy to 10 total markets that account for over half of our business.
To summarize the quarter, we executed on our operating plan delivering earnings and cash flow well ahead of our expectations.
Through our inventory in expense discipline, we improved merchandise margins that cheap greater operational efficiencies on the lower cost structure and in the quarter with 1.3 billion in liquidity, we generated more than 185 million in operating cash flow realigned inventory levels and reduce.
Overhead expenses by nearly 20%.
Our anniversary sale is an important opportunity for us to provide a one of a kind experience for our loyalty customers, while introducing new customers to Nordstrom.
Duty Kobin 19, we moved our that from July to August to help ensure the safety and comfort of our customers and employees and to deliver the most relevant merchandise assortment.
Our approach to planning and executing anniversary reflects how we are leveraging our customer insights and enhanced agility to drive both topline and profitability. During this important period.
We took actions to meet evolving customer preferences by expanding our assortment to reflect growing preference for category focused on casualization comfort wellness at home.
For the first time customers could preview items through a digital catalog and build a wish list to enable them to check out faster when it was time to shop.
Our customers created nearly 20 million wish lists which was not only a great way for them to engage early but also allowed us to adjust in real time to high demand items.
For holiday, we plan to continue to build on last year success with an emphasis on expanding our assortment of giftable products with greater Brad at lower prices and across categories. We're focused on making it better than easy for customers to shop by emphasizing our convenient services and experiences in store.
Tours and online.
Using an approach similar to what has been successful in anniversary, we will continue to leverage data to inform our assortment and categories that are resonating with our customers.
Our unique business model is a competitive advantage we're building on the strength of our Nordstrom and Nordstrom rack brands seamlessly across stores and online to serve customers on their terms through a combination of convenience and connection.
We expect to deepen our relationships with existing customers and attract new ones driving market share gains and profitable growth.
We've also worked for the last several years to create a more flexible organization with the resetting of our base cost structure, we have become leaner and more efficient when combined with a capital structure that provides a strong foundation for reinvestment, we are well positioned to respond quickly to a period of accelerated change and customer behavior.
We look forward to providing additional details our growth strategy at our virtual investor of that later this year.
Finally, I want to thank our entire team for their dedication and commitment to our customers. Our brand is defined by the exceptional service that we strive to provide for customers.
Thanks to the hard work of our people throughout the company. We believe we will successfully emerge from this pandemic in an even stronger position to serve customers.
I'll now turn it over to and to provide additional insights into our financial results.
Thanks, Eric as we continue on our recovery path, we're confident in our ability to deliver sequential improvement in our business.
Our capital structure and liquidity position, providing strong foundation as we build on the success of our market strategy and further leverage our strategic investments to drive sustainable long term growth.
For Q2, we reported a loss per share of $1.62 and EBIT loss of $370 million, including Cobot 19 related charges of eight cents or $23 million, primarily associated with corporate asset impairment.
Earnings cash and liquidity came in well ahead of our expectations driven by improved merchandise margins and significant reductions in our overhead costs.
We benefited from the continued progress, we're making permanently reducing our cost structure.
Addition to plan expense savings of $200 million to $250 million at the beginning of the year, we're continuing to execute cash savings across expense.
Next and working capital of more than $500 million net of cobot 19 related expenses.
Tracking ahead of our plans, we realized $420 million in cash savings year to date.
Turning to our financial position, we ended the quarter with $1.3 billion and liquidity, including $1 billion in cash.
Despite our stores being closed for roughly 50% of the days in Q2.
We generated operating cash flow of more the $185 million, enabling us to pay down $300 million on a revolving line of credit.
From a capital allocation perspective, our long term financial principles remain the same.
While we reduced our annual Capex plans by roughly 30%, we're continuing to invest in technology and supply chain to provide a seamless digital and physical customer experience and drive profitable growth.
Turning to sales our Q2 decrease of 53% reflected extended store closures in our east and West coast markets that have been more impacted by Copel 19.
Our results also included a timing shift of approximately 10 percentage points from moving the entire anniversary event from Q2 into Q3.
Overall sales were inline with expectations.
Full price sales decreased 58% or in the mid Fortys range when excluding the anniversary shift.
Off price sales decreased 43%.
Across both businesses top performing categories included coal is wear accessories beauty and active.
Our initial story opening trends improved from May into June and were slightly above our expectations.
In addition, we had fewer merchandise returns than we expected, which benefited sales and merchandise margins.
From a store traffic perspective, while we sold deceleration in July but the surge in cobot 19 cases in several of our larger markets.
Overall traffic trends has stabilized and improved.
Our digital sales decrease of 5% was impacted by the anniversary shift.
Excluding this shift digital sales grew approximately 20% reflect the benefit from lower merchandise returns.
Conversion end demand trends were depressed as a result of the constraints on inventory flow the Eric mentioned.
Moving to gross profit our rate was 21% down from 35% last year due to planned markdowns and deleverage on lower sales volume.
Merchandise margin trends exceeded our expectations and improved relative to the first quarter.
We attribute this to our efforts to significantly reduce inventory levels in Q1 to mitigate markdowns on addus use of merchandise.
We exited Q2 any clean position with the inventory decrease in line with sales when excluding the anniversary shift.
In SGN, a expenses decreased approximately 33% from last year, when excluding covered 19 related charges.
This was primarily driven by lower sales volume and reduced overhead cost of nearly 20%.
Most of the reductions to our cost structure, our permanent positioning us well for improved EBITDA flow through.
As we head into the second half of the year, we're continuing to take a flexible and prudent approach to planning our business.
Given the highly uncertain environment, we're prepared for a range of scenarios to ensure we can sustain and grow our business.
Confident in our ability to continue developing critical enabler of the customer experience, while maintaining the ability to adjust quickly.
Based on current trends in our inventory plans, we're expecting sequential and gradual improvement in sales earnings and cash flow in the back half of the year.
These expectations incorporate the anniversary shift.
Our stores remaining open.
A continuation of increased inventory receipts and full price.
On a steady flow inventory receipts in off price that began this month.
In closing our actions to shore up our financial position in the first half between 20 allow us to head into the second half of this year and prepare for 2021 from a position of strength, we have accelerated our long term strategic plan by optimizing the mix of physical and digital assets and increasing.
Our agility through a leaner and more efficient organization.
We made meaningful reductions to our cost structure, enabling us to drive higher profitability during or sales recovery.
Over the near and medium term, we're focused on reinvesting in our strategic growth priorities to deliver a best in class customer experience, while maintaining a strong balance sheet.
As we emerge from this disruptive period, our ambition is for Nordstrom to be positioned as a retail winner gaining market share and driving profitable growth.
I'd like to now turn it over to Trina for Q and I.
Thank you.
If you'd like to ask your question. Please press star one on your telephone keypad confirmation tone that will indicate your lines in the question Q.
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Well I remind you to ask one question to allow everyone a chance to ask a question.
Yeah.
Your first question comes from the line.
Omar Saad with Evercore ISI. Please proceed with your question.
Thanks for taking my question good afternoon.
I know you guys are one of the most digitally sophisticated retailers out there.
Plus 20 E com digital growth.
Excluding the anniversary sale shift is impressive.
Do you think that the growth in that business is being constrained more by the inventory and logistics constraints you were talking about or is it more the lower exposure you guys have in the merchandising to home athletic an active.
Which seems to be this helped kind of the hottest categories that are out there right now and are there plans to kind of shift their merchandising.
Accordingly, or or do you think theres going to be a rebound in fashion.
And some of your core areas of strength. Thanks.
Hi, Thank you for questions. So Eric when you take the first piece on the digital components. What we saw and then Pete maybe you can have a little bit about how we're thinking.
Yes.
Hi.
Yes.
Certainly the inventory subjects cut across stores and online.
Oh subjects include flow, but they also include I think can do your point of how we're invested by categories.
Okay, Theres no doubt that the pandemic significantly shifted demand by categories and.
One of the aspects that we.
Really feel great about our performance for last quarter is not just the overall inventory.
All or reduction, but where are those dollars are invested.
Anniversary sale reflects.
Significant adjustment and where we placed our inventory dollars.
To get into those categories that are hot right now and it's.
It's really just category if our.
Grocery at home that's.
It's been successful for retailers.
In this last quarter, but.
Within what we felt we have a home business that's growing nicely.
There are plenty of categories that we've been able to adjust our investment and and we're seeing great signals from customers and can I trust tend to that so.
There is some effect of inventory.
Our digital businesses certainly.
Add as flow improved than it is improving the last couple of weeks.
Gives us confidence going forward that coupled with.
The investments, we've made and digital not only in our site, but also to digital connections to our physical assets.
Yes, I'll give a little color on just tapping relative to the product and you know we bid on the path for a while about the casualization generally of America, what's happening with our customers. So thats.
It's not surprising that we find that to be an amplified.
Situation right now so we pivoted to have more of a casual offer and I think the good news for US is still we have.
Quite a bit a breadth to our product offering in the first place and allows us a lot of flexibility in the fact that we're we're leaning into this digital first.
We're getting a lot of very clear signals about what's relevant and meaningful to our customers in this moment so.
To Eric's point, we were able to make some adjustments even at a really late they.
Our anniversary offering and can you talk about clear signals that anymore, we're seeing it and we're having some outsized performance.
And things like active and all of them what have you end up.
It give us a lot of confidence.
What's going to happen here.
During the second half the year, because we are in such a clean inventory position it gives us flexibility the opportunity.
Respond.
The way that customer first.
Thank you best wishes.
Your next question comes from line of Ed Yruma with Keybanc capital markets. Please proceed with your question.
Hey, good evening, Thanks for taking the question I guess I'm on a on rack given that there seems to the excess inventory really across the industry can you kind of help us understand what buys of look like if you've been able to be opportunistic and just one quick housekeeping question. The return reserve liability was that a reversal in the second quarter and I guess how does.
Are there any implications for the third quarter. Thank you.
Yes, so Eric if you take that question and I'll do the ill return return sure. So.
Yeah, we really look at our total business being connected and synergistic SAR. We have this robust off price business that has both stores and online component.
But it's not a standalone business.
The roots of our rack businesses and a more efficiently clearing out inventory from our full price business, allowing us to flow in new merchandise.
So this was certainly a time for us to leverage that capability that asset to look at our inventory health overall across our company and Iraq team played a huge part and.
Guinness into.
The clean inventory position that we enjoy being and right now.
As far as asset access excess product.
It's been all spot.
There's no doubt that our vendor base has has pulled back during the pandemic.
And.
It takes a closer collaboration with our vendor partners.
In many cases ticket kept the flow with if we want.
Yes, so on the return reserve.
You know we go through a process every quarter, we look at what digital sales, we have and Weve data and analytics you just how predictive models what gets return that we recorded a net sales item.
And so as we saw that through the quarter, we just see the returns coming in less than what we anticipated.
But we do a true up of that every quarter and look at four pieces, what what's the full digitally as well.
Thank you.
Next is Oliver Chen with Cowen. Please proceed with your question.
Thank you as we approach holiday and the back half how would you characterize some of the main differences in your strategy given how unprecedented the environment is with how your holiday planning and in the context of that question value and affordability or are really important to the consumer so what are your thoughts on.
Best positioning your business and with that mindset as well.
So.
Why don't you take doesn't talk about how we're thinking about holiday offering yeah, I think what.
Moving encouraging for us relative to all the continuation of a plan that we executed on and learn from last year and that was to be more relevant gift giving categories.
And that will it definitely has to do exactly what we're selling its also a price points as well. So we don't before the pandemic came and we had a pretty clear path.
We thought we could be successful there.
I think.
Typically in this moment when there's more of sales being done digitally we have the opportunity to expand our offer because you're not limited by four spacing things wiped out a floor. So I think it actually lends itself well to being opportunistic around the holiday time around gift, giving so that that's going to happen and then.
Again, the whole idea about relevant products for customers, just a real along with fees of casualization active and wellness, we're having a clear signals that we're getting.
You know we feel like we have all the time around what we have some time will weaken amend what we have going on and the fact that we're open to finding good inventory position.
Super positive.
Thank you best regards.
Next is Simeon Siegel with BMO capital markets. Please proceed with your question.
Thanks, Good afternoon, everyone Hope you in your family who are doing well through this.
Nice job on a sequential merch margin improvement how were the merch margins year over year, and then what's the expected merch margin impact from the anniversary sale timing shift between Twoq and Threeq you and then just can you help frame the lean inventory between what you pulled back intentionally given the true expected trends versus maybe more of the external supply constraint and where do you expect inventory to.
Go for the rest of the year. Thank you.
Yes, let me take a step back and talk about this broad context, so we had planned.
Hi, Mark Downs.
And from a margin perspective that came in.
Better than we anticipated certainly where margins that we have last year, but definitely the merchandise side of it came in better simply because we got through so much inventory that was.
Seasonal in Q1, and we pick up more value added that inventory and were very prudent on the inventory choices. We made for Q2, partially because they really want to make sure. We're set up in the transition period for fall in the second half the year.
We think about the shifting the anniversary and we're not giving a lot of we're not giving forward guidance. What I will say is more broadly we expect given slow, but given the shift in anniversary and given the fact worse I will turn into stores to be opened in the second half.
We expect.
A couple improvement both topline.
From a margin perspective and from a cash perspective in the second half a year.
From an inventory perspective again, we were very prudent how we thought about this our plan was quite frankly to focus on preserving cash and liquidity and really looking at how to manage the biggest assessment and risks that we have which was an inventory primarily seasonal inventory and we were really pleased with how we executed against that.
[noise] great. Thanks, much that's left for the rest of year.
Thank you.
Next is Sarah Goldberg with Baird. Please proceed with your question.
Hi, Good afternoon. Thank you for taking my question I just wanted to ask on the timing of the holiday season, we've heard some other retailers discuss expectation for earlier start and I was curious what your thoughts are there and how you're planning for that thank you.
A couple of about how we're thinking about cutting holiday. Yeah. You know we've we've had this long tradition that we don't decorate our stores. So after Thanksgiving and that's it may be the thing that we get more positive comments back from customers and anything else, we do but that doesn't mean that we shouldn't be in a position upselling customers, what they want when they want it and I think its pro.
Any clear that theres, an opportunity for us to sell gifts.
Prior to Thanksgiving and so when we talk about an extension of the what we've learned already from our gift giving strategy last year I was one of the key takeaway. So we're going to be bringing in gift offerings before Thanksgiving and and having a clear to customers that we have that so again I I think it represents.
Pivot to growth and the opportunity that we have that makes us feel good about how we can bend the curve in the trend that we've been living with here for the past few months.
[music].
Next is Paul Trussell with Deutsche Bank. Please proceed with your question.
Yes, hi, and good afternoon.
What did you just maybe better understand how you were.
Can you kind of planned the anniversary sale.
On a year over year bases, and maybe just talking a bit more detail on the London and what you've seen so far and then in addition, you have a slight discussing the the market strategy.
Just be curious on any any other color that you could provide one.
Execution is going.
[music].
Anything in terms of performance of the 2019, Mark is that were converted and just where are you on process on the 2020 clients. Thank you.
I felt there was a couple questions and that I think we're going to focus on the plan to anniversary sale learning from I think what we're really focused on it is how we thought about this my category perspective, so learnings.
Yes, I do.
If this was a year when whatever we may have done in the past from old legacy perspective adversary got turned on its here and I give our team a lot of credit for being nimble in thinking about it in different ways. So.
As we were working to right size or inventory. We also scrambled to do we can to bring relevant categories and as I've mentioned before it's just a confirmation of the casualization trend, that's having happening broadly and as you look at our results so far no sales not old.
But there's so many clear signals about the brands that are performing well and the tax classifications of categories that I would say you know probably the biggest benefit we get well, there's two big benefit to what's happening anniversary first of all the fact that we're selling through at a higher rate than we've ever sold through floor sets us up super well.
Hi, good profitability standpoint, as we get out too that's number one but secondly, you're also getting a clear signal from customers about up again, just relevant categories brands and products.
So while anniversary isn't always a perfect indicate or what's going to happen in have to I think.
What we're learning now.
Gives us again increased confidence that were on the right track about how we can amplify categories like active at home and and wellness that relates like to allow the beauty that we carry.
Our do you want give some color on the market strategy, yeah, well, obviously cove it.
Added a lot of bumpiness to put it mildly moffett arpus.
But it has been clear for some time, that's where we have rolled out market strategy those markets have outperformed our other markets. So we rolled out five markets of our of our top 10, a the back half last year, we're on pace to rollout five more.
In.
The back half of this year.
And it's Ah I would say that untapped pandemics shifts clarified that this is that right strategy. It was working pretty cobot, but it is that right strategy in giving customers are greater inventory choice.
Faster delivery more ways of.
Obtaining their product.
And engaging and services that Oh, we already resonate with our customers.
[noise] next Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Good afternoon, everyone hope, everyone safe and healthy as you as you reopen the stores of both the full line in the rack stores and now that there's been a period that they've been open pent up demands and satisfied what's the biggest difference you're seeing between the two concepts and what are you seeing in terms of the regions, which do have spikes in cobot and.
Just lastly, with the store closures that are going on are you seeing the transfer of sales like you had expected. Thank you.
So Eric.
What we're seeing.
Maturing for one of rock.
Uh huh.
Hey.
Yeah, our stores and open up all at once a year or so a very localized decision and and and we did have a a few close again for a small amount of time, but.
Almost all of our stores are open now.
Theres some difference when there's been Ur cobot outbreak spikes up by market, but overall the traffic trends in both rack and full line have been.
Very consistent.
And seeing slightly better traffic trends when rack and on full line stores, but not significantly so.
And the transfer of sales from any stores that are closing how's that going along.
Oh, Yeah, let me take that one little early to tell on that.
I would say an.
And Peter did a lot of noise going on right. They're out there right now so they will early but certainly not our expectation is that tranche a lot.
Thank you.
Next is Matthew boss with Jpmorgan. Please proceed with your question.
Great. Thanks, maybe on the cadence of reopen sales performance at full price could you just elaborate a little on the magnitude of the July moderation that I think you mentioned I think on our math reopened stores roughly negative 40, some percent I'm, just curious where you stand today on store.
Performance in Rio in reopened locations and how best to think about the gradual improvement that you cited over the course of the remainder of the year.
Yes, let me take a stab at that and then if there's my time and they can.
General we did see a moderation in traffic in July.
In our stores, especially those markets that have bikes hope it as we talked about.
And one with addition of full line given the shift and anniversary in general for the quarter anniversary. If you exclude that shift within the mid forties in off price was down 43 and sale.
And as Eric mentioned earlier that the stores really open up very different ways. So it wasn't like you had a big trouble a big Bang all at once so I'd say that the all first a little bit better than full price for total sales, but I'm kind of still on an all time high so as we talked about going forward as we've seen inventory flow and four.
For the rapid we're seeing we're seeing traffic stabilized or off price business, and we're seeing higher conversion and and people are really pleased with the inventory product and we've also talked about the fact that we're seeing really high sell throughs.
Our anniversary sale higher than we've ever seen so we're very pleased with the last couple of weeks SBC inventory flow newness coming in.
And shipments on the category.
Yeah, I would just said it's.
We have seen improved trends last several weeks it and it's not because traffic has changed traffic has been pretty darned consistent but it is what gives us confidence that we.
We see our topline trends improving.
And taking advantage of the position that our teams really worked hard to be in over the last quarter.
Both with our cash position our inventory position.
As we're flowing in product because we're open to buy and can.
We are seeing improved top line both.
Full line stores and rack stores.
That's great best of luck.
Next is Paul legs way with Citi. Please proceed with your question.
Hey, Thanks, I Wonder if you could talk about the credit revenue declined curious if thats something related to the sale decline or anything to talk about.
Portfolio, whether you're seeing higher charge offs or maybe early pay down of hundreds of thousands and then second what percent of your business would you say is exposed to back to school and any color you could provide a in terms of what you're seeing in those categories. Thanks.
I wanted to take the credit question and then.
It can talk to you live out of school. So in general the credit revenue is really proportion that your total retail sales being down I would say that we are overall pleased with the strength of our portfolio in our credit portfolio.
We are seeing customers pay their cards were seeing a thing current.
Oh.
We think we've got pretty healthy customer.
That's great question about back to school and again I would rewind the tape from before covert happened there back to school is not exactly what it used to be because you used to be that kids were very specific close to school that were very different from what they weren't any of their time and unless the kitchen and private schools.
Uniform, that's just not true.
But what happens with kids that is great. The makes it a durable business kids keep growing regards to pandemic, regardless, whether in a physical school or not so we've had good kids results and I.
It's clear that if we have the relevant product for kids there is upside potential threats Mckesson. That's another place we've got some clear signals. So yeah I don't if we have a sizable kit business, particularly of a pretty big hits shoe business, but.
I don't I don't think the physical school part of it is as much as a limiting factor is our ability to make sure. We're in relevant product as those kids grow and they need new clubs.
Thank you good luck.
Next is Michael Binetti with credit Suisse. Please proceed with your question.
Hey, guys. Thanks for taking my questions here I think just two quick ones. I think you mentioned that return product it was a bit lower than normal and help revenues and merchandise margins in the quarter can you help us understand how much that contributed.
Just last year and maybe if you think there any parts of that that are structural versus just hoping to related behavior changes that could be more temporary and if any that could remain low like new categories that you guys are pushing harder into that could be less likely to be returned or anything and then I wanted to ask you about.
I guess on the digital business.
When you think of the K P eyes in some of the digital only businesses report like order growth rates average order values unit per transactions. When you look through the lens of those metrics how would you help us understand the 5% reported digital.
Declined versus the 50% new customer growth rates, what are some of the biggest differences in the profile of the of the new customers versus your loyal customers that we help us think about how that new customer I guess grows up with you.
Yeah, I might take a quick seven return question you had and then I think what air can do we should talk in general about how we think about our digital business and what we're seeing new customer acquisition side.
And the return project it is it we're seeing.
We're not going to inventory come back it did help sales it help margin actually hurt inventory because we had anticipated that inventory was going to come then we would take the markdown on it but we would have ward you was sold again in that process. So.
The good news is it was better from a sales perspective, the offset to that with it we didn't have much inventory coming back and it'd be probably from a category perspective that is the energy. We are seeing is that with different price points and in certain categories like active.
It tends to be categories the customers return lives.
So it's early days as we reach through those its return metrics in that that data.
But that is something that we are keenly watching there do you hold about how many additional yeah. There's no doubt the funnel is different.
And then pretty coated.
There's clearly a lot of customer shopping online we didn't do much online shopping a pre covis.
There's also a big different categories center picked up in some price. So that was all that our units per transaction are up our average unit prices down and some of that is a reflection of it cleared out of inventory or some of it is.
Shifting categories Fats are we think well lasted longer than just Q2.
But encouraging prepaying for us is engagement, if we get new customers and engage with them.
Regardless of what their transaction is.
Bob.
We feel really good that that weekend continue that engagement be it online or in stores are increasingly services like byline pick up in in store or are quickly growing curbside services.
[noise] makes a lot.
Okay.
Next is Chuck Grom with Gordon Haskett. Please proceed with your question.
Hi, Thanks. Good afternoon, just no inventory levels are and Richard then I train, 4%. Just wondering if you guys can I just pulled ahead environment and the gross margin might think about the puts and takes particularly the shifted anniversary.
Lots of ended the fourth quarter the quality. Thanks.
Hi Tech so thanks for the most recent and that's why we feel really good about where we finished the quarter as they continue to bring newness and frameless retail and for a price business from a gross margin perspective in Q2.
It was you know some of the losses related to how it was related sales to leverage versus last year on the other half and it's our count because they feel like another really good position platform. We will continue to expect to see improvement our margin structure.
Huh.
Great. Thanks, Chuck will now take one more question.
Our final question comes from line of Bob durable with Guggenheim Securities. Please proceed with your question.
Hi, guys.
You are taking the question I asked the question I have is can you talk a little bit about how you're operating.
The flagship in New York, and the New York stores in and just really how those you're trending over the last few months it'd be helpful. Thanks.
Eric do you want to the New York question sure. So I'm just make sure or if it broke up Opex. Your question is how we're operating in New York.
Yeah, just just how it's performing how your New York stores are performing and it really sort of how you're handling the trends and the market yeah.
Yeah, I would say in general are are big urban stores in general I have been harder hit a.
Hi, Fi cope and other and.
I felt we started much has been more densely populated areas.
I've had a bigger drop off in traffic. So New York is not unusual in that it's a kind of right in the middle.
Of that group of stores for us.
What were we are pleased with New York is we have more capabilities and and that we have our mark astrachan rolled out there to leverage the whole markets or inventory that we own there and connect with customers and I never full line stores and the two rack stores that we have on the island as well as the too.
From a local locations there so.
Flexibility.
And order pickup and returns is proving very beneficial on New York.
Got it thank you.
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