Q2 2021 Nordstrom Inc Earnings Call
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At this time I'll turn the call over to Heather Hollander head of Investor Relations 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.
And on Nordstrom Dot Com. Our discussion may include forward looking statements. So please refer to the slide 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 Companys second quarter performance joining.
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 Eric.
Good afternoon, and thank you for joining US today, we delivered strong second quarter results driven by broad based momentum across banners regions and merchandising categories and the performance of our anniversary sale in which sales exceeded 2019 levels and important milestone.
We capitalized on improving customer demand with solid execution healthy inventory sell through and continued expense management.
Our performance demonstrates the power of our interconnected brands and the potential of our transformation as we execute our closer to use strategy.
As consumer spending recovers, we are well positioned to capitalize on a significant opportunity to take market share and drive profitable growth with our expanding product offer increasing customer engagement and integrated digital and physical assets.
We've now had four consecutive quarters of sequential improvement in sales trends for both our Nordstrom and Nordstrom rack banners with active customer accounts, continuing to recover and approaching 2019 levels.
Customers are increasingly engaging with us both in store and online as evidenced by continuing improvements in our store traffic and sales along with robust digital growth. Our loyalty program remains a powerful engagement driver with loyalty club members contributing 70% of our Q2 sales.
Up 500 basis points from 2019.
We are very pleased with the performance of our anniversary sale with total event sales, increasing 1% over 2019, including the final week of the event, which fell in the third quarter.
As always our anniversary sale rewards and engages our loyal customers with brand new product at reduced prices for a limited time.
With well time to serve increasing customer demand for wardrobe refreshes as they return to activities outside the home.
This year, we worked to further enhance the customer experience during the anniversary sale, adding new virtual and in store events to drive engagement, while building on successful components of last year's event, including digital catalogs with personalized editorial content and product recommendations online wish.
List functionality and remote selling and styling tools.
Our anniversary performance with an encouraging example of our evolution of our merchandising capabilities.
By leveraging a more data driven approach along with our evolving partnership models with our vendors, we were able to increase event selection by 12% and reduced the rate of items sold out by 35% versus 2019, while at the same time, maintaining a comparable sell through and finishing with a healthy position in <unk>.
Owned inventory as we exited the event.
We are encouraged by the customer response to anniversary with record volumes on Nordstrom Dot com and continuing improvements in store traffic.
Customers also leveraged the convenience of our integrated touch points with order pickup in stores, increasing 52% during the event compared to 2019.
Our merchandising and supply chain teams, along with our brand partners executed well ensuring that we have the right assortment in the right place at the right time to serve demand.
Overall, our outstanding employees delivered an excellent customer experience and we would like to take a moment to thank them for their contributions to a successful event.
In addition to strong topline and event performance, we made meaningful progress towards margin recovery this quarter with reduced markdowns and solid sell through as well as disciplined expense management.
Our second quarter performance reflects our steady execution and commitment to the strategic priorities, we shared at our investor event when in our most important markets broaden the reach of Nordstrom rack and increase our digital velocity.
As we work to win in our most important markets. Our market strategy is a powerful enabler for the business, allowing us to better serve customers and provide greater access to product by linking our assets at the market level.
We've seen a positive customer response to the enhanced capabilities, we launched with our market strategy in 2020, including the extension of order pickup and ship to store to all Nordstrom rack locations in.
In fact during the anniversary sale nearly 40% of next day pickup orders for Nordstrom were picked up in a rack store evidence of the power of integrating capabilities across our two brands.
Our market strategy delivers incredible convenience that provides customers with four times more product available for next day pickup and a one day reduction in average shipping time.
Our second growth priority is broadening the reach of Nordstrom rack and.
In the quarter total rec sales declined 8% compared to 2019 and nearly five percentage point sequential improvement from the first quarter.
Despite challenges with inventory flow, we are encouraged by the early results of our merchandize repositioning efforts with price oriented offerings and active home and kids delivering a combined double digit sales increase in those categories.
And in mid 70 rack stores that have been repositioned for a price oriented offering new to Nordstrom customer accounts increased 16% over 2019.
Going forward, we are committed to building on this progress by continuing to expand our rack offering and delivering an assortment that appeals to a wider set of customers, while deepening our offering for our core customers.
Our third priority is increasing our digital velocity across Nordstrom and Nordstrom rack.
This quarter digital sales increased 30% over last year and 24% over the second quarter of 2019.
We continued to drive growth at Nordstrom Dot com and rack dot com, even if store traffic improved a testament to the power of our interconnected digital and physical assets.
We also completed the integration of rack dot com onto the Nordstrom Dot com platform, delivering a more seamless shopping experience and improved reliability, while positioning us for more profitable growth as we continue to scale, our rack dot com business.
During the quarter, we took another step in transforming our merchandising approach with our acquisition of a minority interest in four asos brands Topshop Topman, Miss Selfridge and hit.
We believe this partnership will give us new opportunities to lead digitally and extend beyond our traditional wholesale model, we're happy to partner with Asos, a world leader in fashion for the 20, something customer and offering a broader assortment to better meet their needs.
We look forward to updating you on new initiatives under this partnership in the second half of the year.
As we look ahead, we are excited about the opportunity that lies before us our transformation is gaining momentum and positioning us to capitalize on the significant opportunity to profitably grow our business as demand improves.
So there is uncertainty regarding the future of the pandemic, we are closely monitoring impact from the customer and supply chain, while prioritizing the health and safety of our teams and customers.
We have demonstrated our ability to navigate a rapidly changing macro environment with agility and flexibility and we will maintain that focus as we move through the year.
While we're pleased with our continued progress this quarter, we remain committed to the work ahead to better serve customers capture market share improve our profitability and create value for our shareholders with that I'll turn it over to Ann to discuss our financial results in greater detail.
Thanks, Eric.
With our continued progress in the second quarter.
<unk> of our closer to your strategy and performance of our anniversary sale and continued financial discipline are evident in our results.
Improving sales trends a gross profit increase from healthy inventory sell through and continued benefits from our reduced cost structure drove strong earnings this quarter.
We also generated over $900 million of operating cash flow.
To further strengthen our balance sheet.
Beginning with our topline performance net sales were down 6% in the second quarter compared to the same period in fiscal 2019.
Representing a sequential improvement.
From the first quarter.
The timing shift in the anniversary sale with roughly one week falling into the second quarter at 2021 negatively impacted second quarter sales by approximately 200 basis.
Adjusting for this impact sales trends improved approximately 900 basis point sequential improvement in each month of the quarter.
Sales improved across both of our banners with Nordstrom sale, improving 800 basis points sequentially or 1100 basis points after adjusting for the timing shift of the anniversary.
Nordstrom rack sales improved 500 basis points sequentially.
We saw strong balanced growth across both digital and stores.
Our digital sales increased 24% over 2048% after adjusting for the timing shift of the anniversary sale.
Digital traffic increase for both Nordstrom and rack and.
And Nordstrom digital conversion reached a record high.
Digital sales were 40% of total sales during the quarter Covid.
Lower than the first quarter as store traffic and sales trends improved across all regions.
Southern region stores continue to outperform our fleet average.
GAAP narrowed relative to the first quarter.
As Eric said, our anniversary sale performance contributed to our momentum this quarter with total net sales up 1% compared with 19.
In addition to strong top line performance.
We're pleased with the profitability supported by a compelling assortment and drove sales higher margin not event merchandise.
As consumer spending and mobility increased we were well positioned to respond to pent up demand.
As evidenced in the performance of our core category.
We saw customers refreshing their wardrobes driving improvement in shoes apparel and accessories compared to the first quarter.
Our designer offering performed well across the business with sales increasing over 2019.
We also continue to see strength in pandemic growth category, particularly active in home, where our sales increased over 50% compared to 2019 level.
In the second quarter gross profit as a percentage of net sales was flat compared with the same period in fiscal 2019 as.
As lower markdown enabled by healthy inventory sell through.
Offset deleverage on lower net sales.
Ending inventory increased 13% compared with the same period in fiscal 2019 versus a 6% decrease in sales.
Inventory levels were impacted by the timing shifted the anniversary sale and.
In our effort to pull forward receipts to address continuing supply chain backlog.
In support of improving sales trends.
New deliveries and in transit product represented the majority of our inventory increase in the quarter.
Our inventory is current and well positioned in key category as we move into the back half of the year.
Looking ahead, we are anticipating continued global supply chain backlog through the balance of the year and we are proactively managing our receipts.
And mitigate potential disruption and continue to meet customer demand.
Total SG&A as a percentage of net sales increased 170 basis points compared to the same period in fiscal 2019 as a result of continued freight and labor cost pressures.
Partially offset by continued benefits from resetting the cost structure in 2020.
We further strengthened our balance sheet retiring $500 million in senior unsecured notes that were set to mature in October.
This will reduce our annualized interest expense and $20 million beginning in the third quarter.
Now turning to our outlook for the remainder of the year as.
As you've heard today, we're pleased with our performance in the second quarter and the progress we're making on our strategic commitment.
Consumer demand and engagement can be quite healthy.
Our momentum exiting the quarter has continued into August giving us confidence in the outlook for the balance of the year.
That said there remains uncertainty in the external environment.
We continue to prepare for a range of scenarios.
Our second half outlook assumes that consumer spending will continue to be supported by economic improvement and increasing consumer mobility.
Given these macro assumptions, our first half performance and plans for continued progress in the second half of the year for fiscal 2021, we now expect to deliver revenue growth of more than 35% versus fiscal 2020.
Depending on the pace of revenue growth and the evolution of macro related cost pressures.
We now expect to deliver EBIT margin of approximately three to three 5% for the full year.
As for the second half cadence, we expect the following quarterly progression versus 2019.
We are projecting slight sequential improvement in sales trends Q3 to Q4.
We also anticipate the EBIT margin improvement will be weighted to Q4 as gross profit increasingly reflect the benefits of tighter inventory management and reduce promotion.
We expect SG&A pressures, primarily related to freight and labor costs.
Continue in the second half.
Resulting in SG&A deleverage similar to what we experienced in the first half.
We remain committed to our ongoing capital allocation priority with our first priority being investment in the business.
We are planning capital expenditures at normalized level of 3% to 4% of sales primarily to.
To support investments in technology and supply chain capabilities.
Our second priority is reducing our leverage.
It was a combination of earnings improvement and debt reduction we are on track to achieve our plan to decrease our leverage ratio to approximately three times by the end of this year and approximately two five times by the end of 2020.
Our third priority is returning cash to shareholders and we expect to be in a position to do so by the end of the year.
Overall, we are pleased with our continued progress against our strategic priorities and we remain focused on the work ahead to drive market share gains improved profitability and cash flow generation and drive shareholder value.
I would like to now turn it over to Heather for Q&A.
Thank you Anne before we get started with Q&A, we are limiting participants to one question at a time to allow everyone. A chance to ask Wayne will now move to the Q&A session.
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Thank you.
Our first question comes from Edward <unk> with Keybanc capital markets. Please proceed with your question.
Hey, guys. Thanks for taking the question I guess really on SG&A I understand you guys had some cost pressures as it relates to labor and shipping wondering if those are more transient in nature and then I guess when you did the headquarter reduction and took out that SG&A has any of that had to come back or are there have been areas of incremental investment along the way. Thank you.
Hi, Ed. Thanks for your question as far as SG&A is concerned we are anticipating headwinds on.
In supply chain, primarily in freight costs as.
As well as some of the disruption, we're seeing globally as well as some we've had some labor.
<unk>.
As well.
And so we've baked that into our guidance for the second half of the year and we're looking for constantly looking for offsets to that.
A number of examples that can provide and in order to achieve that as far as the fixed cost piece to it as you recall in 2020, we took out about $400 million of expenses of which 75% with permanent and we're continuing with that after this year. We at the beginning of the indicators that we have reduced our fixed cost expense by about 15% and that.
Holding true.
Making investments in certain markets.
Labor certainly from a wage increase.
With some investments in our supply chain capabilities as well, but we think that that really helps us in the long term as far as making sure that we've got the right teams and elaborate level staffing to ensure to direct to customer.
Thank you.
Next is Chuck Grom with Gordon Haskett. Please proceed with your question.
Hey, Thanks, a lot you guys called out sequential improvement in each month of the quarter and some gains here in the month of August just wondering if you guys could quantify that.
As a follow up just with regards to category performance, just curious whats, which areas performed better in the second quarter relative to the first quarter.
Thanks, Scott I'll, let Pete talk to you about the category performance and then I'll circle back and talk about the sequential improvement.
Yes.
It really was an interesting quarter because it showed a lot of change and improvement as things stabilize out there in the macro environment and the thing that we saw that had the biggest categories. We saw the biggest improvement.
Towards the end of the quarter, where things related to cages and events because people were out there more often than they were before and so.
Things like dress for the occasion wear mens sportswear things like that we had.
Some real positive momentum and when you add that to the fact that we had some categories that were really good at during the pandemic times, namely active and home.
Several areas pretty much all areas, where we were seeing improvement in some stability there.
As far as the sales cadence.
As we talked about in the opening comments just to provide a little bit more color on that we did see sequential improvement throughout the month throughout the quarter certainly leaving July into August was our strongest month and we're continuing to see.
Positive results out of that gives us confidence in the second half.
I would say as far as the calendar for the second half and while we're not providing quarterly guidance I think it's important to note that we expect to see slight sequential sales improvement from Q3 to Q4, but really Q4 being the momentum piece to it for a number of reasons one.
We expect to see holiday being pre typhoon inventory positioning in the marketplace. It allows I think better sell through.
Fewer markdowns.
Should deliver book sales and margin flow through and then lastly, we also expect to see reduced promotions and we're actually comping a little bit of that.
The fourth quarter from 19, we actually have an easier comp for us as well.
Okay.
Thank you.
Next is Oliver Chen with Cowen <unk> Company. Please proceed with your question.
Hi, the business momentum has been encouraging what are you seeing with inventory flows and supply chain I know you called it out.
So was curious about availability and us.
Our constrained supplies limiting limiting the topline.
And as you plan going forward and how might that bode for bat for holiday our.
Follow up on that.
It's an interesting strategic now.
Alliance would love your thoughts on what you may contemplate a longer term as you mentioned it paves the way for a wider potential partnerships.
Partnerships. Thank you.
Thanks, Oliver I'm going to have Erik address the supply chain question at holiday and then Peter if you could talk about that that'd be great.
Alright.
Thanks Oliver.
We have seen real lumpiness in our global supply chain that has led to some sort of shortages.
And more so.
Unevenness, it's been difficult to plan.
Tori flow with much precision.
We do not expect those conditions to change anytime soon.
So truly on us to find ways of mitigating that.
So we've done things like pulling forward orders expanding lead times.
We're looking to strategically use some airfreight for holiday we've also during.
During anniversary increased delivery frequency to our stores to help address the flow.
So there is some things we can do internally to mitigate some of these impacts.
But it has caused some disruption and really that the shortages have been most impacted.
Impacted.
Our most impacted our rack business, where you have some categories that Iraq business.
We're light in the second quarter.
Or looking to get caught up there in the third quarter.
And then relative to the Asos partnership is definitely a real highlight of last quarter I think represents a wonderful opportunity for us there.
Great retailers.
There are real leaders in the digital space with young fashion customers, they've got a strong point of view.
They are really.
Interesting exciting people to work with and we were thrilled when they took the lead on.
I think the investment with Topshop.
We're a big customer of Topshop ads, where we've so we have a mutual interest in having that.
Go well and it just it seemed as we were in discussions with them about that the mutual opportunity was great.
It was an opportunistic situation for us to be able to take an equity stake in that and invest alongside with them, which I think.
It really helps demonstrate that when we bought that's given the game, which creates a lot of focus and energy about what we could do and the reason that it was worth investing for us as well, but the big business. We also think there was a lot of upside and then the other fronts in the cake for us with that as Asos also.
That's a stable of brands.
Yes.
We now have access to potentially and we're working with with Nick and the team there to see how we might be able to bring some of those products to market here in North America through Nordstrom.
Theres just a lot of the wonderful things about that and so while investing in brand and Thats why our core strategy. We do have the wherewithal to do it we've done it before and we will be opportunistic about those types of things in the future.
The potential is there and so I think we should read into this is that there's a lot of essential it's exciting.
As things develop and when we make decisions on what we are doing together and net results that we will certainly inform you about it.
Thank you best regards.
Thank you.
Next is Matt boss with Jpmorgan. Please proceed with your question.
Great. Thanks, So maybe just larger picture as we think about your second quarter sales down mid single digits, and then a slight sequential improvement that you're expecting from here.
Okay.
Well, we're both encouraged about it.
Clear improvement, we're seeing not just quarter to quarter, but month to month within the quarter and have.
<unk> anniversary with an increase over 2019.
As another proof point along that journey.
There is.
While sales of our significantly improved over previous trends theres plenty of areas that are not at peak efficiency.
In particular, we just talked about inventory flow.
That's that's been a challenge.
Impacts both topline and Bottomline.
So that's a big area of focus for US is also.
Lessons from anniversary.
Both how we engage customers digitally and connecting them to our to our physical assets.
Well as <unk>.
Having a more data driven approach to our inventory mix.
That show Great results turning anniversary and.
Certainly.
We continue that through the back half of the year.
Thank you next is mark all sugar with Baird. Please proceed with your question.
Great. Thanks for taking my question, I guess and just bigger picture on the updated guidance I guess.
<unk> 50 basis point increase in your EBIT margin expectations at the high end I guess, it seems that maybe a bit modest in relation to the 10 percentage points higher sales growth expectation. So I guess could you help us unpack that a bit more.
Just on the framework outlined earlier this year and I would've thought of $14.5 billion sales run rate, we get two to EBIT margins, maybe closer to the 5% range. So maybe what are the underlying assumptions have changed with respect to the flow through the back half of the year and then just any other changes to how you're thinking about that multiyear sales.
And EBIT margin bridge versus what we've been talking about.
Earlier in this year. Thank you.
Hi, Mark Thanks for the question.
Well, we're not guiding to 2022, what I can say is that we are on track to delivering on those commitments that we laid out to our investor event, but just to remind you. The first half of the year. In particular Q1, we knew we were entering Q1 pretty heavy in inventory I needed to walk through that that certainly put some headwinds into the year.
We've come out of Q2, and then the guidance we've given for the second half.
And the progress we're seeing on that we are quite confident in our ability to continue to deliver on those commitments.
That we discussed with you as far as the you know the flow through of components to it.
You know as we talked about we can deliver at the same.
EBIT margins on $1 billion worth of sales that is still the case, we are still tracking to that and it certainly is baked into some of the guidance that we've given you for a second half having said that we are still in a very.
Challenging environment and I think the thing with this team as you've seen that we've been very agile and flexible and SEC, how things evolve in the marketplace and we've talked a little bit about some of the supply chain challenges.
We've seen and we're remaining very focused on delivering to our customers.
As you know, there's a little bit of uncertainty out there that we've baked into some of the guidance as well as we thought it was pretty prudent.
Thank you Nick is Omar Saad with Evercore. Please proceed with your question.
Good afternoon, and thanks for taking my question.
I'd love to get a little bit more insight in terms of how you and your merchant buying teams are going to plan to balance this shift to in pharma between pandemic categories like home and active in.
Some of them more reopening type categories, Dressier, REIT rat and wear to work to.
That's your fashion et cetera, and then maybe you could also include a discussion.
In terms of what youre seeing around in markets, where that RMR reopened what kind of consumer behavior on category underperforming outperformance are you seeing that balance shifts back versus those markets that are still more locked out. Thanks.
Yes. This is Pete I'll start with that.
I think one of the things that.
It makes us feel confident going forward is a little more predictability and visibility in terms of what happened and if you think about the beginning of the pandemic I mean it was.
It was so many unknowns out there.
And just how everyone's lives change so much it created opportunities in some areas and we've talked about that with active at home, but huge big parts of our business.
We're really copper price just because the customer demand wasn't therefore it now.
We've moved into a time, where there is little more stability and people are out there quite a bit more so we've seen.
Improvements in our business related to essentially closet, refreshes and talk about wardrobe refresh people not having bought close to be out there living their life of whoever vendor occasionally they may have for a while and I need to refresh their closets.
In the anniversary sale, we did well with things that are kind of like stock up and save item type business. So.
I think.
We believe that we will continue to be.
A return to.
Similar to our legacy business around the core categories shoes, the women's and men's men's apparel, but I think it's also true that some of the things that we saw pre pandemic around <unk>.
How things are evolving and changing whether it's the casuals Nation America wherever.
Is that just all got accelerated and so.
There has been a time here in the last few months, we've been chasing pretty hard back into occasion and event types of dressing, but will catch up to that.
Pretty soon and then I think again, we should have some stability there, but ultimately the key for US is to make sure that we have a relatively conservative position with inventory, we're selling through the remaining open to buy and flexible because it's just paramount I think given again the relative uncertainty that we have now.
We're really focused on.
Keeping that flexibility and that open to buy.
Any differences in the open markets versus the more closed markets.
Yeah.
Well I think what we've seen is the suburban type stores have done better than the urban stores and Thats really mostly for reasons of you think of an urban type of stores. They are three things that really drive the sales you got the people that live there you've got the people that work in that environment and come from all round and.
And then you have tourism and particularly when you think about people going into the workplace and tourism those things have really gone in some case practically zero. So those stores are slower to rebound, where it's been more of a traditional kind of suburban market for us we've seen all of the businesses recover.
Significantly and you can see that just in terms of the sales store by store and region by region in terms of like categories.
It's really more common and similar I think across north.
North America, then really regional specific.
We saw a lot of demand around things related again to occasions that events as we came into the summary of weddings and those kinds of things and that was true everywhere.
Thanks for the color.
Next is Simeon Siegel with BMO capital markets. Please proceed with your question.
Thanks, Hi, everyone. Good afternoon.
And did you guys talk about what price versus units were within that 1% anniversary sale growth over 19, and then I assume it's small but just curious if any early thoughts on the total partnership does that rollout suggest a broader opportunity for any similar type of moves.
We didn't give particular feedback between price and units.
An anniversary.
We're seeing strong customer demand, we are seeing customers spend more and engaging with us more.
I think <unk> heard commentary from all of US on the call. Today. There is just pent up demand out there and customers are looking to to refresh what they're wearing and so across the board. We're seeing really positive response to the offering.
Give them a lot of credit to our merchant team for picking and selecting the right offering for our customers their anniversary.
As far as total Pete I don't have any color commentary.
With total represents.
Our ability to react in a moment too.
Great opportunities that might be out there and anything thats of interest to our customers is something we're interested in pursuing and so in this case.
Total had approached us and we have a very large and growing active business and it felt like a really good synergistic thing to be able to try.
All for trying things like that and I think it was a great example of a partnership.
No.
There is mutual benefit there to be had and I give a lot of credit to our team to take hold but outside box on that but it's somewhat similar to the asos, saying well that's a bigger more commercial venture.
It represents the creative and innovative thinking of our merchandising teams in terms of ways of creating compelling experiences and products for customers that may not have been a traditional kind of transactional wholesale retail model and while there.
Only thing that would be a relatively small example for that again I think what you guys should be thinking about seeing there is a willingness for openness.
And the ability to be able to pursue.
Opportunities like that.
Great. Thanks, a lot guys best of luck for the year.
Okay. Thank you.
Next is Paul <unk> with Citigroup. Please proceed with your question.
Hey, Thanks, guys question on rack still running well below EF 19 sales that includes E com.
Gross I believe so just curious how youre looking at store volumes relative to 2019, the profitability of that business as we think about that three 5% margin. How does rack look relative to the full price stores and what are you thinking in terms of ultimate store potential if anything has happened over the last two quarters.
Kind of influence how you're thinking about the long term.
Thanks.
Thanks, Paul.
They are proactive through direct it start with meaningful progress.
We made good progress.
Our focus our focus across our business as mark.
Market share gains and profitable growth.
And from a from Q1 through Q2.
Full proxy in Iraq.
In particular, we've had a focus.
We've got a well researched believes that we have opportunity to widen the aperture of our business by.
Bye.
Layering on some lower priced product, we know we have customers in our stores. They are looking for that product and a real opportunity to serve them.
And two data points I'd share with you on that once category wise.
Active home and kids for Us in Iraq.
Or are ahead, and having a price oriented offering.
Three areas together showed double digit growth versus 19.
And then we took 70 store 70 of our rack stores and reposition them for more price oriented offering.
And one of the rules.
Our goals with that is to acquire new to Nordstrom customers in our new to Nordstrom customer count in those stores increased 16% over 2019.
Now that being said.
It has been lumpy in the supply chain. So we do not have a full price offering.
We want yet we're in early innings there but.
Again, some encouraging proof points, there that give us confidence in and progress.
<unk>.
So the headwind as we mentioned really has been inventory flow in particular women's apparel and shoes in Iraq business of <unk>.
We've been under inventory in and it's been more challenging there.
To get the product we need.
That's starting to turn we see some encouraging signs for Q3.
So between.
The progress on lowering our price.
And being able to address inventory flow.
We have some confidence in continued improvement out of our rack business.
And to your question on profitability just in general our rack business and our Nordstrom banner business.
Pretty much at parity from an EBIT perspective, and there's puts and takes on a P&L that typically are rapidly.
Although our gross margin.
And lower SG&A as an offset to that.
And today those businesses are typically at parity.
Does that held true and even though <unk> closed some stores and is doing sales volume in 19.
Versus 19, it's a little bit better than rock, which has opened some stores is that still holding true.
Yeah over the long term and like it's going to be it.
In a moment in time and maybe.
Puts and takes here and there but over time, it's pretty consistent yes.
Thank you good luck.
Next is Steph Wissink with Jefferies. Please proceed with your question.
Thank you we have a question on anniversary sale, if you could talk a little bit about traffic versus ticket I think you mentioned traffic improving but maybe not back to 19 levels just help us contextualize.
Anniversary sale, and then maybe how youre thinking about back half in terms of traffic.
So this isn't we don't we haven't given a lot of details around traffic and ticket pieces to this in general our traffic we've seen improvements in traffic, we're not quite at 2019 levels. We are seeing higher conversion for sure. So as customers come in they have a higher intent to purchase and typically.
Having higher.
Larger basket with that as well so as we look at the second half and there were a lot of lessons things that went really well with anniversary and some things that we learned that we're going to take into holiday as well. So I would anticipate that you'll see something similar.
As we approach the next to that.
And now we'll take one more question.
Our final question is from Dana Telsey with Telsey Group. Please proceed with your question.
Good afternoon, everyone. As you think about the rack and the price point expansion that youre doing it direct.
Is that how do you how are you moving Nashville beyond the 70 rack stores, we use position for price oriented offering and what do you see in the performance of those stores and then this year. It seems like one of the things that was different with the anniversary sales is that you got more sales of non event merchandise.
Do you think of that and positioning for go forward sales and and also for holiday. Thank you.
Thanks Dana.
Eric kind of Iraq, and then Pete maybe can talk a little about the.
The merchandise.
Yeah.
For.
Well, we're learning on the price offering.
There's certainly some we.
We believe some difference in the mix by store location.
Sure.
But it is nuanced.
Depending on the category.
But particularly our strength our historical strength in rack is brands.
We carry.
All of the brands that we carry in our Nordstrom brand business and our Nordstrom rack banner.
And customers know they can get those brands that they know and love.
And for our brands that help them.
These two new customers that that often become.
Full price customers.
So.
It's much more of a.
Our balance of a mix across price points and brands.
And again, we think a lot of it is in an story not in order story that we can continue to take care of customers.
With these big brands, while also layering in some more price points that would be new brands just in our <unk> channel.
Hey, Dana so related to anniversary.
I'm sure you can appreciate with a challenging anniversary because you think about when we bought for it if it's 5% to eight months out and we were ranked just smack Dab deepen.
The middle of a pandemic and so what we there were some things we knew were performing but we weren't sure how we're going to come out of that or what willing to expect we did feel like there was there was a reasonable chance even that far out that this could represent a moment in time, a tipping point and people kind of getting back out there a little bit that largely played out to be true, but I think.
It was difficult for us to buy in the category is that in that moment.
100% not good at all so.
I think as a result, you probably saw a fair amount of action on some stuff that was not an anniversary just because I think our ability to be able to forecast much more accurately but I can tell you we increased our event selection by 12% over 19.
We also reduced our rate of items sold out by 35% over 19 on an anniversary product, so and a lot of ways, we executed really well against our plans to make an anniversary of efficient profitable improved event.
For customers and for the bottom line too and you saw a lot of progress with that and so.
I think again I would probably best to look at last anniversary is a bit of a.
Not a one off and maybe not entirely indicative.
Of how we would.
I guess, how it would play out for future anniversary, but I can tell you that the scale of events part of it kind of the process and execution.
<unk> of it is something that we can learn from have improved upon and it should benefit us even as soon as coming off the holiday to where theres a lot of similar.
Parts of kind of a scale that timeframe that we will leverage the learnings of this class anniversary.
Thank you.
We want to thank you for joining today's call a replay along with the slide presentation and prepared remarks will be available for one year on our website. Thank you for your interest in Nordstrom.
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Yeah.