Q1 2021 Nordstrom Inc Earnings Call
Greetings and welcome to the Nordstrom first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
We'll begin with prepared remarks, followed by a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad at.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, at this conference is being recorded at this time I'll turn the call over to Michael Mayer Chief Accounting Officer for Nordstrom you may begin.
Good afternoon, and thank you for joining us.
Today's earnings call will last 45 minutes and will include approximately 30 minutes for your questions.
Before we begin I want to mention that we'll be referring to slides, which can be viewed in the investor Relations section on Nordstrom Dot com.
Our discussion may include forward looking statements. So please refer to the slides with our safe Harbor language.
Participating in today's call are Erik Nordstrom, Chief Executive Officer, and Anne Brennan, Chief Financial Officer, who will provide a business update and discuss the company's first quarter performance.
Joining during the Q&A session will be Pete Nordstrom, President of Nordstrom, Inc, and Chief brand Officer.
And now I'll turn the call over to Erik.
Good afternoon, and thank you for joining us today for.
Pleased with our results for the first quarter, which were marked by improving sales momentum and continued progress at our transformation as we work to unlock the full potential of our digital first platform.
As demand continues to recover our unique product offering at connection to our customers place us in a strong position to capitalize on this opportunity and we're confident in our ability to capture market share and drive profitable growth at consumers resume activities, including social events travel and return to work.
Our topline trends increased sequentially for the third quarter in a row with improvements in both Nordstrom and Nordstrom rack supported by recovery in stores at corporate restrictions were lifted and continued growth in digital.
Sales trends reflected broad based improvement across businesses and regions and merchandise categories, both in store and online.
Stores in markets that have opened up earlier outperformed other markets by 7% to 10 percentage points, giving us increasing optimism about the pace of recovery as we look for the remainder of the year.
Our performance in the quarter reflects solid execution towards the growth priorities, we laid out at our Investor day in February.
Within our most important markets broaden the reach of Nordstrom rack and increase our digital velocity.
Starting with our priority to win in our most important markets our market strategy helps us engage with customers through better service and greater access to product no matter, how they choose to shop with.
We successfully expanded the rollout to 10, new markets, including Atlanta, Houston, Detroit and Minneapolis over the last 3 months market strategy is now in place in all of our top 20 markets, bringing an unmatched level of convenience and connection to customers, who make up about 75% of our sales.
We continue to scale of the enhanced capabilities, we launched in 2020 at.
The expansion of order pickup and ship to store to all of Nordstrom rack stores with order pick up more than doubling compared to the first quarter of 2019.
In addition, nearly 1 third of next day order pickup volume for Nordstrom Dot Com and our top 20 markets, which picked up at rack stores since launch as we continued to integrate our capabilities across our 2 powerful brands.
We also continued to evolve our approach to get closer to our customers than ever before this.
This quarter, we made significant progress expanding our personalized styling programs with new tools deployed in the first quarter to allow our salespeople to offer our customers highly relevant recommendations both in store and digitally.
For the 50% of our sales people are now utilizing these remote styling tools of 10 percentage point increase compared to just a quarter ago.
We also introduced new livestream shopping events, featuring some of our best brands we.
We delivered significant growth from these initiatives in the quarter and are on pace to meet our milestones for the year.
Our second growth priority is broadening the reach of Nordstrom rack.
In the quarter total rack sales declined 13% for 2019 at 10 percentage point sequential improvement from the fourth quarter.
Importantly, the merchandize repositioning across price hybrid and brand doors is progressing in spite of some challenge of matching slower than anticipated inbound inventory flow.
We remain in the early innings in these initiatives at our progress is encouraging.
Increased customer choice of price oriented offerings for kids home and active supported of 37% increase of sales compared to 2019 in these categories.
With respect for our priority to increase our digital of velocity, we maintained strong growth at Nordstrom Dot com and Nordstrom rack dot com in the first quarter given at store traffic and sales rebounded with increased mobility.
Digital sales increased 23% over the last year at 28% over the first quarter of 2019.
With continued growth in digital our total penetration has increased by 15 percentage points over the past 2 years to 46%.
Our Nordstrom and Nordstrom rack apps continue to be powerful drivers of customer engagement.
During the quarter, we generated over 1 million downloads of our apps of more than 50% increase over the first quarter of 2019.
Mobile customers, including App users represented approximately 75% of total digital traffic and 2 thirds of total digital sales for the quarter.
Looking ahead, we continue to enhance our digital capabilities to improve the customer experience across the shopping journey.
1 of the key opportunities, we see to offer our customers more choices for <unk>.
Plans to increase choice count to approximately $1.5 million over the next several years.
This quarter, we saw ramping benefits from this initiative with choice count increasing approximately 20% versus 2019, primarily driven by an expanded dropship assortment in both of our core categories and in demand categories like home active and kits.
This allowed us to drive strong sales growth in our digital business without a corresponding increase in our inventory investment.
We are also seeing continued strong improvement in conversion, which was up more than 15% compared to 2019.
We continue to deliver exciting product for our customers with some of the brands that matter the most to them through launches like our pop in with Skims and new concept shop, featuring fear of God.
As we look ahead to the second quarter, we believe that our anniversary sale will be well timed to benefit from customers, increasing confidence and return to pre pandemic activities.
That will also mark a significant step forward in the transformation of our approach to getting closer to you for.
Our goal is to have an event that rewards and engages our best customers with a superior shopping experience.
We are building on last year's launch of of digital catalog with personalized editorial content and product recommendations for.
Adding new virtual and in store events.
We will also significantly increase selection for anniversary this year with total customer choices up double digits compared to 2019.
Supported by an expansion of alternative partnership models with our vendors.
To ensure that we are best positioned to support our anniversary sale. We are also working with our vendors to accelerate product receipts, which Ken will talk about shortly.
Overall, we are very excited about our offering and our approach to anniversary, which remains an important opportunity for us to provide of 1 of a kind of experience for our loyalty customers, while introducing new customers to Nordstrom, Inc.
In closing coming out of the first quarter, our focus on accelerating our strategic priorities to serve customers in new and differentiated ways is gaining momentum.
We are in a stronger position net ever to capitalize on our market share opportunity as customer demand recovers for.
We're confident in our direction and look forward to share our continued progress in the quarters ahead.
With that I'll turn it over to Ann to discuss our financial results in greater detail.
Thanks, Erik our first quarter results represented a strong start for the year with sequential improvement in sales trends that have continued into the beginning of the second quarter strengthening of our inventory position and continued progress restoring our balance sheet.
Our performance in the first quarter at least as increasingly confident in our ability to deliver on our financial targets for the year despite cost headwinds.
Total sales were down 13% in the first quarter compared to the same period in fiscal 2019, representing a sequential improvement of 7 percentage points for the fourth quarter.
Sales trends reflected broad based improvement across both Nordstrom and Nordstrom rack with Nordstrom sales, improving 6 percentage points sequentially and.
And Nordstrom rack sales, improving 10 percentage points sequentially.
Demand recovery benefits from increased vaccination.
Good thing of Covid restrictions in many of our markets and government stimulus payments.
Encouragingly pent up demand also accelerated throughout the quarter is back to normal activities are redeeming, including social events travel and return to office.
These activities are driving accelerating momentum in some of our biggest categories.
We continue to satisfy our customers' desire for online shopping experiences delivering solid growth in digital even other store traffic and sales continue to recover.
Our digital business grew 23% year over year end, 2008% compared with the same period in fiscal 2019, as we continue to benefit from our efforts to unlock the full potential of our digital first platform.
From a merchandise perspective, we saw broad based improvement across our product offerings.
We continued to see strength in categories that led during COVID-19, particularly active in home for our sales are up 58% compared to 2019 levels and our penetration has increased by 5 percentage points since the start of the pandemic.
We saw customers responding well to designer brands for any classifications like sunglasses swim shorts and dresses as well as for covered categories like denim dressed wear makeup and handbags.
Taken as a group. These recovered category returned to growth compared to 2019 in March and April.
With strength continuing early into the second quarter. Our sales performance was supported by improvements in inventory flow, allowing us to exit the quarter with inventory decreasing 2% compared with the same period in fiscal 2019 versus a 13% decrease in sales.
This includes approximately $120 million of spring and summer end season inventory that was pulled forward into the first quarter at roughly 7 percentage point impact as we made the decision to accelerate vendor shipments to support sales trends and mitigate potential supply chain backlogs in the second quarter.
This reflects significant progress addressing seasonal and underperforming category inventory from the fourth quarter at both Nordstrom and Nordstrom rack.
At Nordstrom rack, our sales outpaced inventory growth for the first time since the start of the pandemic.
Across both Nordstrom and Nordstrom rack, our inventory is current and well positioned in key categories as we prepare for the anniversary sale.
Our teams are operating with continued agility and flexibility in what remains a challenging supply chain environment.
During we can appropriately just store inventories into high demand categories and provide our customers with the exception of product assortment they expect from us.
Looking ahead the company is balancing inventory levels of sales, while managing receipt flows to mitigate potential supply chain disruptions as the year progresses.
Gross profit as a percentage of net sales decreased 260 basis points compared with the same period in fiscal 2019, primarily due to deleverage on lower sales and lower merchandise margins as we took action to reduce elevated inventories coming into the quarter, partially offset by permanent reductions.
Buying and occupancy costs.
While COVID-19 related demand impacts are clearly moderating the underlying cost environment remains volatile with elevated labor and shipping costs as well as apparel industry supply constraints, creating continued pressure.
Total SG&A as a percentage of net sales increased 280 basis points compared to the same period in fiscal 2019.
Great and labor challenges were partially offset by continued benefit from the permanent reductions in overhead expense of approximately 15%.
We continue to make progress restoring our balance sheet closing $675 million in senior unsecured notes during the quarter at highly favorable interest rate between Q3 and for 2.5%.
Proceeds were used to redeem in full the $600 million outstanding of 875% secured notes, which were issued in April 2020 during the onset of the COVID-19 pandemic.
This allowed us to return our bond portfolio to being entirely unsecured fully unencumbered real estate used to secure the prior notes.
The transaction also reduces our annualized interest expense by approximately $30 million, while creating additional flexibility for continued debt paydown with a par call feature beginning in April 2022.
Based on our first quarter results, we continue to expect to deliver revenue growth of more than 25% in 2021.
With digital representing approximately 50% of sales.
Digital penetration is expected to vary over the course of the year, depending on the pace of store recovery.
We are responding with speed to manage external cost pressures and remain on track to deliver on our guidance for breakeven EBIT in the first half and 3% operating margin for the full year.
And we continue to see a path to an operating margin of approximately 3.5% depending on how the demand recovery and cost of a <unk> play out.
Our income tax rate is expected to be around 27% for the year.
From a capital allocation perspective, we're planning capex at normalized levels of 3% to 4 percentage of sales primarily to support investments in technology and supply chain capabilities.
We continue to expect to reduce our leverage ratio to approximately 3 times and to be in position to return cash to shareholders by the end of the year.
Overall, we have seen strong customer response to our initiatives to evolve our operating model.
<unk> as well to drive market share gains, while improving profitability returns and cash flow generation.
While there is still considerable uncertainty with respect to COVID-19, we remain confident in our ability to deliver on our targets for 2021 and generate profitable sales growth as demand recovers.
I'd like to now turn it over to Michael for Q&A.
Thank you and before we get started with Q&A. We are limiting participants to 1 question at a time to allow everyone a chance to ask 1 we'll now move for the Q&A session.
Thank you.
I'd like to ask a question. Please press star 1 on your telephone keypad.
Formation of total indicate your line is in the question queue. You May press star 2 if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. Our first question is from Oliver Chen with Cowen. Please proceed with your question.
Hi, the opportunity to increase choice choice count sounds quite innovative of what should we know about how this will impact your margin profile and also as you think about inventory versus sales.
Look for these alternative arrangements and flexibility, especially in that's the anniversary sale. Thank you.
Hi, Oliver Thanks for my let Pete.
A little bit about how we're thinking about the twist capture on assortment offering perspective, and then I'll come back end at the end of <unk>.
Address some of your questions about inventory sales and margin.
Yes, I think the main thing here is the drop ship model in particular of allows us to expand choice count at a weighted debt.
Creates a lot of of leverage for us in terms of at.
All of the work that goes with bringing inventory and if it was at a turning of our wholesale model that obviously theres a lot of bandwidth at that goes with that so.
It's a great way for us to expand choice count I think youre seeing that play out if we had to pick an example at the home category, where we've expanded quite.
Significantly over the last 18 months or so and drop ship spin at a really important part of that so.
Youll continue to see that at it is true as we move into anniversary of it creates more flexibility for us for their open to buy to as we have.
A decent percentage of that offering is going to be available interruption.
And to your question about the flow through on the P&L. The 1 thing I would highlight is that we added 20% more towards accounts versus 2019, but our inventory investment we were down 2%. So I think that just gives you a flavor of that when you draw on the inventory for sharing the economics with the vendor and it really is responding to customer demand.
As well so I think for for all of US involved it's really a great solution.
Thank you very much best regards.
Next is Edward <unk> with Keybanc capital markets.
Hey, good afternoon. Thanks for taking the question I wanted to focus a little bit on gross margin I know that in the first quarter. As you guys had anticipated you were clearing out of some of the access fourth quarter merchandise I guess at any comments on the current industry inventory situations of promotional environment, which seems to be in check and how that might portend as sales start to improve of accelerate for your gross margin.
Going forward. Thank you.
Hi, Adam and I'll, let Pete talk of about what's going on in the industry give some context, and then I'll circle back and talk about what we're thinking about for the <unk>.
Rest of the year.
Yes in terms of the.
Partially that gets put on gross margin for promotional activity.
That's been relatively low compared to recent times and I think.
Given the physician to everyone of them was the Pos momentum around sales trends I think we would expect that promotional activity.
Not be what it was for example say of 19th of May lessen that.
And as we think about.
Q1, we are really pleased with where we land from an inventory position heading into Q2 and the rest of the year.
We progressed faster than we thought.
A few months ago as far as clearing through inventory and so we feel like we've got a really strong offering for our customers.
That's that's relevant and seasonal.
Peter just to remind you of R&R Q1 deleverage was it was really related to 2 things 1.
If you look at against 19 was the sales deleverage component to it and the other 1 for Mark down space. So we anticipate that we'll continue to see favorability in the merchandize margin component.
Starting in Q2 and going forward.
Thank you.
Okay.
Our next question is from Omar Saad with Evercore ISI.
Good evening, Thanks for taking my question.
I wanted to dive in and ask if you could dive in a little bit deeper on the 7 point sales acceleration.
Focusing on at that kind of a pickup in business as it kind of compare and contrast of stores and traffic in stores versus E. Commerce is at the older customer coming back versus younger consumers.
Can you discern any difference between stimulus.
In vaccine reopening as a driver there and then categories, maybe theres some interesting takeaways, there, whether it's kind of categories.
Categories like return to work and return of social versus the Covid.
Pandemic, where if you will so diamond deeper that acceleration I think would be really helpful. Thanks.
Okay.
Thanks Omar this is Erik.
Yes.
Thanks for our southern regions.
From east to West performed 7% to 10 percentage points.
Greater than our northern regions end.
We find a lot of encouragement in those southern stores of <unk>.
<unk> opened up some from mandates from from just customers getting out more.
And we see that in traffic.
You see some of it at in conversion as well, but there is a difference of traffic.
And so we anticipate our northern stores well.
We will get at the same spot and we're starting to see that.
You mentioned.
Categories as well.
We've definitely seen of shifting categories category of fat.
We're really out of favor during the pandemic.
Many of those are start starting to come back.
Dan.
1 of them.
I think you should.
And looking at us.
We're a bit unique in our mix and also our geographic footprint.
Ann.
Our big markets and.
Many of our big categories.
It really had a disproportionate amount of headwinds during the pandemic and there are signs of that turning people are starting to get out more and people are starting to buy categories.
Check it out more.
Hearing a lot from customers about weddings this summer.
And so it's not necessarily.
Buying suits to go back to the office end.
But for <unk>.
Dresses handbags.
Anything to.
Get out it could be true of restaurant could be.
On a trip we're seeing a lot of movement, there and we're encouraged at the increasing store traffic.
Is it has not cannibalized online online is for.
We remain very strong.
And.
We're starting to see momentum across the board.
And anything on stimulus vs vaccine can you discern that Oh, yes.
No we can't.
It's hard to point of how much of.
Driven by those factors I'm sure it's in there somewhere.
Thanks for the color good luck.
Next is Dana Telsey with Telsey Advisory group.
Good afternoon, everyone. As you think about the anniversary sale what are the differences that you see this year, whether it was relative to 2019 and you were just beginning to open in 2020, whether it's timing and how you're thinking of the promotions and then Ann you mentioned the cost of headwinds can you unpack, what you're seeing in terms of port <unk>.
<unk> supply chain and the preparation for holiday in terms of waters. Thank you.
Erik do you want to take the anniversary of question, if I could circle back on the cost piece.
<unk>.
Danny you mentioned comparing of 19.
<unk>.
Thank you for big differences.
Digital at Mary.
Anniversary.
Has always been.
Certainly in recent years more of a digital event than other times of the year and then you add to last year, where.
It also took a huge step towards towards digital.
And we added additional features particularly the wishlist feature the anniversary of last year that greatly exceeded our expectations at our engagement there.
So.
This year, we still think there's going to be much more digital engagement versus 19.
At the Big difference with these stores.
We will have a lot more traffic.
<unk> last year and.
Those of digital features really.
We're really working to connect them to our physical assets as well in particular, our salespeople ability and the tools, we have for them to do remote selling.
Again, we know customers, especially in the.
Discovery part of anniversary like.
Doing that digitally.
And now our salespeople have tools and over half of our salespeople have been using them and.
In the last quarter, we expect that to grow to anniversary to where our sales people can reach out for their best customers end use these digital tools to hell.
Help them of customers discover new product for anniversary, Hey, Dan Peter the other thing I'd like to add there 1 of things.
It makes us optimistic about our anniversary event. This next year is just kind of where we are relative to everything at the pandemic and the fact that fall early fall represents a really good tipping point for people getting out there of resuming lives as they were before for example that could be a return to office or back to campus.
At that.
Sales for US were expenses 1 of people thinking about.
Coming season, and getting great savings on new products and so the timing is really great I think in terms of the opportunity that exists out there people say, okay I've been kind of on the sidelines, maybe not buying these types of things for a while and now at the time in here is of great reasons to go shop at Nordstrom.
And so to your question about what we're seeing more of the macro environment between supply chain disruption.
And labor and freight cost I would just step back and say.
We saw pressures in 2020 of that with COVID-19, and we have got pressures in 'twenty..1 are just different and I think the thing that we learned throughout the past 12 to 18 months is at even though the environment remains volatile we respond to it and we remain flexible and agile. So as we continue to see some volatility we're doing things to offset mid.
I gave that for for example, we pulled forward some receipts for Q2 into Q wanted to make sure that we had we can meet the customer demand and it was.
Darren for the customer as they were shopping in wanting to buy at the second thing is that we're looking at ways to offset some of the cost headwinds that we have we're pulling a lot of levers in place on that end.
As we went through our guidance even at a few months ago, we contemplated a lot of scenarios out there and so.
As part of this we are contemplated puts and takes in this is we're responding to what we're seeing in the macro environment around that.
Thank you.
Next is Matthew boss with Jpmorgan.
Great. Thanks, Erik maybe in terms of where your top line stands today relative to 2019.
Maybe what grade would you give performance to date at both our full line and the rack what gives you confidence in market share opportunity exiting the crisis and any opportunities you see to expand key vendor relationships just given the broader consolidation of wholesale distribution.
Okay. Thanks Matthew.
Yes.
We're very encouraged with our topline this last quarter versus last year and versus 2019.
The sequential and.
<unk> across the board both in rack and Nordstrom.
As significant end.
Certainly exceeded our expectations of our plans.
Things are changing quickly.
The economy starts to open up accounts restricted at.
Alright, good out there again.
So.
We remain at.
Aggressive as we get into the Q2.
We see lots of opportunities.
Both to build on what we've been working on particularly the last year.
Year over the pandemic, where.
<unk>.
We invested a lot in our digital capabilities and the connections between our digital business and our physical business.
Where do we see the opportunity for those investments to pay off.
Second pick option of used categories again has a lot of big categories for us care categories, where we know customers.
Price is top of mind.
And kind of higher stakes dressing.
Those sort of coming back end and when we see at a lot of opportunity there.
Market share yes.
That is of the long term standard of we hold ourselves juices to grow market share.
Certainly.
During the pandemic.
There are a lot of headwinds to that but as for years.
For start to come out of the pandemic.
We think the opportunities of our model end.
And our model truly grounded in 2 big brands, Nordstrom and Nordstrom rack.
And having big businesses at stores and online.
We've been over half of our business was online last year, so almost half of this last quarter.
And the scale across.
Those capabilities and how they are connected.
We've seen a lot of proof points over over the pandemic of of how customers like to shop fit for the capabilities we have in.
Things like for like our market strategy.
Half of shown a lot of encouraging results.
At have us focused on scaling.
As far as key vendors I think I'll pass it over to Pete.
Yes.
I think I may have mentioned this for last couple of calls is perhaps the silver lining of these tough times as debt.
It's created a great opportunity to improve.
Relationships with key vendors, because we got a lot of common issues to solve for and I would tell you as of where I feel like we're really advantage that way is there is some stuff that of vendors really look to for US first of all of its our customer. We've got a lot of customers that are very attractive to both separate brand we do business with.
The cases these customers.
Don't go to them directly.
Like Nordstrom, Inc. So.
That's a big win for US I think our capabilities investments that we've made over the years in terms of our ability to.
Confused.
The digital part of the business with the physical assets in the stores and the people, we're pretty far along on that journey and I think of those capabilities are attractive.
Of our service experience and the trust that they have with our brand.
Guys can sell to customers directly and so they're just not going to sell to anybody that doesn't really elevate their brand for at least executed consistently with their vision and.
We take a lot of pride in care of making sure that we're working with brands to bring their assortments for life and wonderful service in our stores of our people and the function of that we have online and then lastly, I would say at the consistency of our approach.
We've got a really talented merchandizing team.
Our leaders of a fair amount of longevity of being in the business and.
There's a lot of really good relationships there and so there's a lot of trust that's been built up over the years, particularly at all the changes happening around us.
That consistency I think has been really helpful. So in the last for 18 months. We've spent a lot of energy really trying to.
Worked with and through our vendors to kind of for a new place to go and I think that openness and willingness of both sides is going to serve us well.
That's great color best of luck.
Thank you.
Next is mark at <unk> with Robert W. Baird.
Hi, good afternoon, Thanks for taking my question.
Just wanted to follow up on the market strategy topic for a moment.
And any metrics you can share.
Excuse me.
Any metrics you can share on trends in some of your key markets, where the market strategy has been in place the longest.
The broader fleet curious what youre seeing in terms of customer engagement and the local stores at the reopening has progressed.
And then Relatedly just what are some of the key learnings from the rollout over the past couple of years that you think can help accelerate the results as you move to day new markets in 2021. Thank you.
Thanks Mark.
I guess, a couple of data points for share with it.
As we mentioned.
Mark of strategy is now at our top 20 markets.
Which is about 75% of our sales.
We.
<unk> rolled out in.
October November of last fall.
<unk> our racks in that.
And that's.
Led to a significant uptick in.
And order pickup and ship to store to all of our racks, there and our market strategy regions.
Our order pickup has more than doubled versus 2019.
Nearly 1 third of Nordstrom Dot Com purchase next day pickups in these market strategy markets are picked up at rack stores and I think thats a real important 1.
It goes to.
Again. These at these assets, we have are physical assets for Nordstrom stores, and Nordstrom rack stores, we've got about 250, Nordstrom rack stores.
And they provide very convenient.
Points for customers and.
And we really didnt have to market it.
Lighting up that capability.
To have about a third of our Nordstrom dot com purchases go to be picked up at rack stores.
Our next day pickups is significant.
<unk>.
And.
It's.
The other.
Factoid share Theres, just as our salespeople at stake.
Can engage with customers to take advantage of our capabilities.
Over half of our salespeople are now using our remote styling tools, which is up from 10% just in Q4. So we've gone from 10% of our sales people in Q4 over 50% in Q1.
And so we see that that trend continuing end part of it is the digital tools at our salespeople out but for the other part of the access to merchandise for their customers in a debt provides greater selection.
And faster delivery.
You mentioned locals.
Locals, we actually saw a recovery of our locals.
Service has to be faster than our stores.
In both New York and Los Angeles.
And I think it makes sense.
Yes.
In the context of of pandemic, where customers may be.
More uncomfortable coming into a big store to have a neighborhood service hub.
They can do in order of pickup to of return doing alterations.
We saw that traffic come back.
At the fastest.
Thank you.
Next is Steph wissink with Jefferies.
Thank you good afternoon, everyone. We wanted to focus on anniversary sale of it more if we could I think you mentioned choice counts up double digits, but can you talk a little bit about the level of fashion in this year of sale of relative to maybe the last few years are you able to take more risks without the inventory risk as you leverage some of your vendor partnerships.
And at new and different way. Thank you.
As Pete that's a great question.
Thanks for the thing that's made that will go more complicated is just how much things of change relative to consumers' demand given the macro conditions that we've been in.
We plan this event quite of bit out in the future and if youre thinking about what was really important for customers 6 months ago, it's a little bit different than what we know today and we put out of buying decisions as most of the kind of commitments knowing that business evolving so.
I'd like to think of that we're going to nail it right on the head.
I think it's going to be challenging again, just knowing that theres. This tipping point about people resuming social occasions activities were to work back to campus and Thats and so again 6 months ago at wasn't abundantly clear so.
We do know that there is part of that CLS about people replenishing things that they would expect from Nordstrom, but usually the thing that really drives it as a reason to buy something new so that's always true and I think that the best orientation to it at.
At all times, so we feel good about at there has been some increased flexibility and choice given the drop ship.
We went into a relatively conservatively knowing that we need to sell through at well to put us at a good position, perhaps 2 and ultimately I think as we've been talking at all along we got us at the table for a really strong out 2 of them, we feel really good about that relative to anniversary.
Thank you.
Next is Chuck Grom with Gordon Haskett.
Hey, a question for Ann.
We're forecasting operating margins of 3% in 'twenty..1 I think you said that there is potentially going up for 3.5%, but bigger picture can you hold our hands on when do you think you'd come back can get back to the 5% to 6% level that you were a few years ago and also as a follow up but with all of the cost reductions you've made what the top line needs to look like to get there.
Yes, so when we.
We think about the recovery end.
Yes.
I refer you to some of the information we share with you at our Investor event back in early February So theres a lot of puts and takes in this and I think what we tried to do was.
Not knowing the pace of recovery, both from a customer demand, but also from a cost environment.
We will continue to to think through of Washington, and for your help and deliver on some of these things as well so as far as the pace. We're very confident we're going to deliver at just the timing and pace at once.
At go through this the thing that I would draw your attention to is at we ran some scenarios.
<unk> laid out for those for you in February debt with the cost reductions we took in.
And our overhead expenses, we require about a million dollars less in top line in order to deliver of similar margin.
Profile that we had in 2019 and similarly, you had the same sales level from 2019 at would well exceed 6% EBIT margin. So it's really about the demand recovery as well as some of the macro.
Cost wins that we're seeing right now that we're working to offset so you'll have a finite number timeframe.
Timeframe for you, but I would just say that we're working actively to get to that point.
Next is Lorraine Hutchinson with bank of America.
Thanks, Good afternoon.
Just focusing on <unk> for a moment.
Or are you will you be able to move through the carryover products for the fourth quarter completely and then are you happy with the level of content of inventory at risk as you move into the spring and summer season.
Yes sure.
1 of those of some pretty good shape.
We continue to work through some of the clearance of <unk>.
Our typical.
And then processes at work through what we might have of Nordstrom store as it works its way through debt.
We're in good shape relative to our IRAK inventory levels, I think, especially considering the improving sales trends that are happening there. So the way that we look at inventory.
It's not based on the moment in time at all we ended last quarter.
Quarter, but.
We have the amount of supply we need going in to Q2 and I'm sorry. The second part of your question of Iraq as well correct.
I was just curious about.
We're happy with the level and content of inventory as you enter spring and fall.
Yes.
Again, I think it's the same thing we're working through all of that and the thing thats going to advantages over time of HCA to work on as a theme of February of speed agility, and when we can shorten our lead times around commitments and inventory, particularly in that channel, we're going to be advantaged in each of the things that we are consciously working at.
Increased flexibility at customers' needs of demands of all in.
Just to add to that when we look at the rack inventory levels as far as what's coming through from a transfer from from our Nordstrom brand versus what we're going through on clearance. It is.
Really clean and versus what we started with <unk>.
Q1, and when we look at at compared to pre Covid levels. It is exactly in line with what we had seen prior to Covid happening.
And now we'll take 1 more question.
Our last question is from Simeon Siegel with BMO capital markets.
Thanks, Hey, good afternoon, everyone.
Just quickly to clarify on the outperforming markets how are those southern market store reps relative to their own 2019 levels and then and can you just just a follow up is there a difference or how do you think of the difference in profitability that you book for drop ship versus year end inventory sales and then any way to think about how large you expect that to get as part of the business. Thanks.
On the.
At the outperforming markets, yes, we haven't we haven't broken out our <unk>.
Regional performance by 2019.
We still have a bit of a GAAP there, but it's.
We have a number of stores.
Right now for who are exceeding their.
19 levels.
The trends all of the right direction.
As far as the drops of Peter.
We frame it up a little bit differently and refer you see some of the investor of materials that we have laid out overtime over the next 3 to 5 years, we think for mix of our assortment is going to be moving to be about 50% wholesale model about 20% of our Nordstrom branded goods are private label and the remainder of being alternative partnership of which.
<unk> with the drops will be part of that so this is kind of our this is our first phase of the alternative partnership component to it.
What I would say is the profitability journey on that particular customer journey.
It's pretty much in line and a bit of an above the average of what we look at for some of the other.
Fulfillment journeys.
Great. Thanks, a lot of guys best of luck for the rest of year end.
Thank you.
Yes.
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