Q4 2021 Nordstrom Inc Earnings Call
Greetings and welcome to the Nordstrom fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. We will begin with prepared remarks, followed by question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded 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 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 slide with our Safe Harbor language participating in today's call are Erik Nordstrom, Chief Executive Officer.
Pete Nordstrom, President and Chief brand Officer, and Anne Brennan, Chief Financial Officer, who will provide a business update and discuss the company's fourth quarter performance and now I'll turn the call over to Eric.
Good afternoon, and thank you for joining us today for.
Our fourth quarter results were marked by sequential sales improvement strong digital growth.
Route profitability and continued progress in executing on our long term strategy.
Looking back on the fiscal year revenue increased 38% versus 2020, and we delivered an EBIT margin of three 4% in line with our guidance.
Importantly, we've made progress on our strategic initiatives and have line of sight to achieving in the coming year. The financial targets, we presented at our 2021 investor event.
Our team continues to work with urgency to build additional capabilities to better serve customers.
Span market share and deliver greater profitability.
We are laser focused on the three key areas, we outlined in the third quarter.
Improving nordstrom rack performance, increasing profitability and optimizing our supply chain and inventory flow.
Starting with Nordstrom rack last quarter, we undertook a thorough analysis of the business and develop prescriptive plans to optimize the customer experience and improve our performance as.
As we raised inventory levels and improved average price points in our stores, we posted a sequential sales improvement of 320 basis points in the fourth quarter, though we are in the early stages of implementation the rack results and improving store customer satisfaction scores reaffirm our confidence in the plans we have outlined.
Nordstrom rack has a unique mix of brands with limited distribution in the off price sector.
Customers are drawn to the rack to purchase sought after brands had a terrific price.
Rack faces a unique challenge as off price procurement at the same top brands. We carry at Nordstrom is particularly difficult in the current environment with production constraints and lower levels of clearance product.
As a result, we are executing a multi layered plan to both expand our offerings are the most coveted brands, we carry as well as source from new vendors to ensure we have the selection our customers want.
In Q4, we improved our in stock position at the rack by increasing the flow of inventory.
More frequent deliveries to our stores partnering with brands to prioritize rack deliveries and focusing our sourcing efforts our core categories that matter most to customers such as shoes and apparel.
We're also increasing our opportunistic use of pack and hold inventory, allowing us to buy larger quantities of select relevant items. When available then hold a portion of it to deploy in periods with high demand tight supply our system constraints.
As we improve our supply of premium brands and fine tune, our assortment to better align with customer needs, we expect to achieve a better balance of price points with Iraq.
Finally, we are taking action to strengthen racks brand awareness and drive traffic. We are pleased with the results of our more reasons to rack marketing campaign, which showed a meaningful increase in future purchase intent.
Through this comprehensive set of actions, we anticipate continued improvement in rack performance throughout fiscal 2022.
To be clear, we are confident in our ability to profitably grow our rack business and won't be satisfied until we do so.
Turning to profitability, we delivered significant improvement in merchandise margin this quarter.
Pete will take you through our progress to date and our plans to deliver incremental improvement in 2022 through strategic pricing and category management.
Within SG&A, we rationalized our overhead cost structure in 2020 and remain committed to sustaining our expense discipline.
Given the significant macro related pressure in fulfillment and labor costs that we're facing currently the team is taking action to mitigate the overall impact from those pressures, including optimizing our supply chain to drive efficiencies.
We expect that the supply chain optimization work streams, we began implementing this quarter will enhance the customer experience and drive topline growth, while also driving efficiencies in labor and fulfillment in 2022.
Pete will provide more detail on our plans for supply chain improvement in a moment.
Turning to fourth quarter performance. In addition to sequential improvement in Iraq banner, we saw strong enterprise digital growth of 23% versus 2019 and increase utilization of the interconnected capabilities delivered by our market strategy.
Nurturing banner sales were flat, while gross merchandise value or G. M V increased 2% in the fourth quarter versus 2019.
We continued to see significant disparity in geographic performance to.
The southern U S, where 44% of our stores were located was a source of strength for the Nordstrom banner outperforming the northern U S by approximately seven percentage points.
Notably suburban locations outperformed our urban locations by 10 percentage points in the fourth quarter, our city centers have been disproportionately impacted by the effects of the pandemic.
In addition to the three focus areas that Ive discussed the team continues to make progress in the key strategic growth priorities, we laid out at our investor event last year.
Winning in our most important markets and increasing our digital velocity.
Starting with our priority to win in our most important markets. We are leveraging a strong store fleet that positions us physically closer to the customer.
Our strategy links our omnichannel capabilities at the local market level, allowing us to drive customer engagement through better service and greater access to product no matter how customers choose to shop.
This platform is a unique differentiator delivering unmatched convenience and providing customers with four times more product available for next day pickup a one day reduction in average shipping time and the ability to pick up orders at the Nordstrom Nordstrom local our Nordstrom rack location of their choice.
We continue to scale the enhanced options, we launched in 2020 like the expansion of order pickup and ship to store to all Nordstrom rack locations with order pick up reaching a record high of 11% of Nordstrom Dotcom sales this quarter.
And one third of next day Nordstrom Dotcom demand was picked up at rack stores, demonstrating the power of integrating capabilities across our two banners and across our digital and physical platforms.
We are encouraged by increases in order pickup demand, a leading indicator of future growth as customers utilizing in store pickup have higher engagement and spend three and a half times more than customers, who don't utilize the service increasing buy online pickup in store utilization is advantageous at is both our highest satisfaction customer experience.
And most profitable customer journey.
Customers clearly value the strength of our omni channel model as evidenced by a dramatic increase in spend when they engage across our multiple channels banners and services.
For example, the average customer that shops across both banners in store and online spend over 12 times more than a customer utilizing a single channel and banner.
We also continued to evolve our approach to get closer to our customers than ever before building deeper connections through our loyalty program and differentiated service model.
Our Nordic club loyalty program is a powerful engagement driver with 67% sales penetration in 2021 our core customers remain highly engaged with loyalty customer accounts exceeding 2019 levels. We're also pleased to see customers responding well to our assortment and services.
With new customer acquisition activity, returning to 2019 levels, we continue to advance our digital tools, including virtual style boards and style links to allow our salespeople to offer our customers highly relevant recommendations both in store and digitally.
This year remote selling sales volume increased 63% versus last year.
We're encouraged by the results of this program with very high customer satisfaction scores and average customer spend over six times that of an average nordstrom customer.
With regard to increasing our digital velocity, we maintained strong growth at Nordstrom, Dotcom and Nordstrom rack dot com this quarter with digital sales, increasing 23% over the fourth quarter of 2019 with.
With continued growth in digital our total penetration has increased by nine percentage points over the past two years to 44%.
In the fourth quarter. We also saw a record high mobile app usage with mobile users representing approximately 70% of total digital traffic.
Do we still have much work to do on our transformation progress. We've made gives us confidence in our strategic plans and business outlook for 2022.
We believe there is a meaningful opportunity ahead for us to better serve customers by improving rak performance and transforming our supply chain, leading to increased profitability and shareholder value creation. We have line of sight to achieving the financial targets outlined at our 2021 investor event, while building the capabilities to profitably grow.
Sure beyond that we look forward to sharing our continued progress in the quarters ahead.
As we look back on the year and look forward to 2022 we'd like to thank our outstanding team for their tireless dedication to serving customers building new capabilities and evolving our company.
Our people are truly our greatest asset.
With that I'll turn it over to Pete.
Thanks, Eric and good afternoon, everyone I'd like to talk about our category performance. During the fourth quarter, then follow with an update on our initiatives to increase gross margin improved supply chain and inventory flow and transform our merchandising model.
Starting with the category performance.
We were pleased to see continued strength in our luxury categories in the fourth quarter with designer and fine jewelry posting strong double digit growth over 2019 beauty also had a double digit increase driven by strong growth in our Nordstrom banner and the launch of an expanded offering in the rack and pandemic related categories continued to outperform.
Particularly home and active with sales up 52, and 22% respectively compared to 2019 levels, our core categories in apparel and shoes, which collectively make up more than 70% of our business are not quite back to 2019 levels.
But they are recovering we saw signs of renewing customer interests in post pandemic occasion based categories with improving trends in dresses men's sportswear outerwear and women's shoes.
Now onto our initiatives.
We believe we have a meaningful opportunity to improve both the customer experience and our financial outcomes through our efforts around merchandising and inventory flow.
This quarter, we made significant progress improving our merchandise margins versus 2019, as we entered the holiday season, our team focused on driving sales and engaging customers through our compelling holiday offering while also increasing profitability.
Leveraging advanced analytical tools, we identified opportunities to expand holiday gifting and increase our promotional effectiveness by optimizing the pace and depth of markdowns were very encouraged by the results with merchandise margins up 235 basis points over 2019, and we see more opportunity to drive additional mark.
Improvements in 'twenty two to.
To provide the best possible assortment for our customers. We are also using a data driven customer centric approach to optimize our category management.
Through this work we are defining the role of each category at Nordstrom and Nordstrom rack, and then optimizing our assortment for the role each category place. Our goal is to attract new customers increase share of wallet with existing customers and improved merchandise margins by focusing on the most highly sought after items women's denim is.
A great example of the potential in our category management work.
<unk> has always been an important category for our customers at a strong performer for us too, but our analysis highlighted an opportunity to lean into it as more of a destination category and.
In response to our analysis, we have increased inventory depth for the most highly sought after genes to ensure that we are in stock for our customers.
Related are dedicated in store women's denim shop to better highlight our extensive selection and make it easier to shop and plan to campaign align with April's Earth month to showcase a curated group of denim brands with a focus on sustainability.
We are very pleased with the initial results we've seen with our category management initiative and plan to build on this momentum in 2022.
While we continue to develop these merchandising capabilities, we're simultaneously focused on improving our supply chain and inventory flow.
We've all been dealing with global supply chain disruptions for a while now with product scarcity order cancellations and shipment delays entering the fourth quarter. We took an aggressive approach to securing product for the holiday season in early spring. This helped to ensure that we're in stock for our customers. However, these supply chain challenges have recently.
Gun to improve a bit in order cancellations weren't as significant as we anticipated as a result, our ending inventory was higher than planned, but we expect to cut our sales to inventory spread in half by the end of the first quarter.
We've learned a lot from her experience navigating pandemic related supply chain disruptions and we're evolving our network processes and capabilities across several fronts first improving the consistency and predictability of unit flow through our network.
Second improving velocity and throughput in our distribution and fulfillment centers.
Third increasing delivery speed and finally, expanding the selection for in store shopping as well as same day and next day pick up these actions will improve the customer experience increased sell through and reduce markdowns by allowing us to place the right assortment with the right depth closer to the customer they'll also help us improve.
Our expense efficiency.
We expect to see benefits from these actions beginning in the first half of fiscal 2022 with more to follow in the second half.
As we look ahead, we're excited about the ongoing transformation of our business and our plans to deliver enhanced experiences to our customers and value to our shareholders.
We continue to scale, our Nordstrom median network, which allows our brand partners to directly connect with Nordstrom customers through on and Offsite media campaigns to increase traffic sales and engagement. We grew the concept in 2021 with some of our best brands and we're pleased with the value it brought to our customers and partners.
We look forward to expanding this program over the next two to three years. We are also delivering newness selection and inspiration to our customers by partnering with brands and new ways. Our alternative partnership models have gained approximately 300 basis points as a percent of Nordstrom banner G. M V. Since 2019, reaching 10.
[noise] percent today.
We launch over 300, new brands and partnerships this year, including open edit farmer Yo fanatics and Asos design. We also grew and scaled top brands through 2021, including Nike.
UGG Tory Burch, Adidas free people and Lazard ACA. We've also scale brands that started out as direct to consumer partners such as skins on running L. L Bean, good American and vre.
And we continue to grow our business in designer and luxury brands, including Chanel, Gucci, Saint Laurent Dior and Burberry.
After growing choice count by 50%. This year, we enter 2022 with record high selection will continue to significantly expand our choice count leveraging our category management process and enhanced analytics to deliver a curated relevant assortment that attracts new customers, while expanding wallet share with their.
Our existing customers.
In closing as we enhance our capabilities the customer remains at the center of our work we are transforming our approach and leveraging deeper insights to give the customer more choices, while increasing relevance and profitability as we improve our supply chain and merchandising ecosystems will deliver a better experience through faster and more.
More flexible fulfillment, providing newness at the right price with the right quantities, where and when our customers want it.
All while improving our agility and productivity with that I'll turn it over to Ann to discuss our financial results.
Thanks Pete.
Again with a review of our results and take you through our outlook for fiscal 2022 .
Overall net sales increased 23% in the fourth quarter compared to the same period in fiscal 2020 and decreased 1% compared to the same period in fiscal 2019.
Total revenue finished the year up 38% in line with our guidance.
From this point forward I'll speak to comparisons versus 2019, unless otherwise noted.
In the fourth quarter Nordstrom banner sales were flat, while G&A increased 2%.
As alternative vendor partnership models had becoming more significant portion of the business G. N V provides an additional measure of our topline performance.
Nordstrom rack sales declined 5% in the fourth quarter, a sequential improvement of 320 basis points over the third quarter as we raised inventory levels and improved average price points in our stores.
And as Eric mentioned, we are executing a multilayer plan to improve fracs performance and capture market share in the off price sector. Our digital business continues to grow with fourth quarter sales increasing 23%.
Gross profit as a percentage of net sales increased 340 basis points, primarily due to increased promotional effectiveness fewer markdowns and less.
Leverage in buying and occupancy costs, ending inventory increased 19% with approximately half of the inventory increase due to planned investments to ensure in stock merchandise availability.
As Pete indicated we plan to reduce our sales to inventory spread by half by the end of the first quarter.
Total SG&A as a percentage of net sales increased 340 basis points in the fourth quarter. As a result of continued macro related fulfillment and labor cost pressures.
We made purposeful investments in both store and fulfillment center staffing as we prioritize serving our customers and navigating the continued COVID-19 related disruptions.
These increased expenses were partially offset by continued benefits from resetting the cost structure in 2020, and the $32 million noncash asset impairment charge in 2019.
EBIT margin.
<unk> was six 8% of sales for the fourth quarter, an improvement of 10 basis points for.
For the year EBIT margin was 3.4% toward the high end of our guidance.
We continue to strengthen our financial position ending the year with $1.1 billion in liquidity, including $800 million fully available on our revolver and our leverage ratio of 3.2 times.
Now turning to our outlook for fiscal 2022 .
I'll begin by outlining the macroeconomic assumptions underlying our projections.
We expect that wage growth and higher employment levels will support consumer spending in 2022.
Potential headwinds include the impact of inflation, which could reduce overall discretionary income and geopolitical risks to the economy and financial markets. We are seeing encouraging early signs of a resumption of activities such as travel in person social events and returned to office after being delayed by the omicron variant.
At the same time, we continue to be prepared for the potential of further pandemic related disruptions and consumer behavior and global supply chains.
Taking all these factors into consideration we are assuming a roughly even balance of upside and downside macroeconomic risk relative to current conditions and are planning accordingly, our 2022 outlook reflects our plans to drive topline growth through our interconnected digital and physical assets and delay.
Continued improvement in Nordstrom rack performance.
As we drive more benefits from our pricing and category management improvements as well as planned mid single digit average retail price increases we expect continued merchandise margin improvements.
Finally, we plan to partially offset inflationary freight and labor costs with greater productivity from the actions, we are taking to optimize our supply chain.
Today, we are providing our fiscal 2022 business outlook with comparisons to 2021 .
For the fiscal year 2022 we expect revenue growth of five 7%.
We anticipate that seasonality between the first and second halves of the year will be consistent with pre COVID-19 levels, resulting in higher year over year growth rates in the first half as we lap softer comparisons from early 2021.
We also expect the year over year sales growth will be roughly consistent between Q1 and Q2 with the anniversary sale shifting back to the second quarter.
We expect EBIT margin of approximately 5.6% to 6% for the full year.
We anticipate the EBIT margin improvement will also be consistent between the first and second half of 2022 .
As a result of increased operating leverage improvements in gross profit margins and greater expense efficiencies.
Our plan assumes that first quarter EBIT will be slightly better than breakeven our effective tax rate is expected to be approximately 27% for the fiscal year, given solid topline growth coupled with progress on our productivity initiatives, we expect diluted earnings per share of $3.15 to $3.50 for the year.
Which excludes the impact of share repurchases if any.
Turning now to capital allocation, our first priority is investment in the business to serve our customers and deliver the highest quality experience.
We are planning capital expenditures at normalized levels of 3% to 4% primarily to support supply chain and technology capabilities. Our second priority is reducing our leverage.
We are committed to an investment grade credit rating and remain on track to decrease our leverage ratio to approximately 2.5 times by the end of 2022 our third priority is returning cash to shareholders subject to completion of our year end audit and the related certification process with our bank group, we expect to be in a position to resume Rita.
Turning cash to shareholders in the first quarter.
We anticipate completing that process by mid March and discussing with our board. Shortly thereafter, the resumption of a quarterly dividend at an appropriate rate.
As you've heard today, we delivered results in line with our guidance and demonstrated progress against our strategic initiatives.
We now have a clear line of sight to achieving our investor that targets in the coming year.
Though there is more work ahead. The early indicators, we're seeing with improving Rak performance and increased merchandise margin give us confidence in our plans.
We also made significant progress on our merchandising strategies throughout 2021 .
Choice Count is now at an all time high with more than 300, new brands launched last year and growth in alternative partnership models.
All of which position us to grow sales by delivering newness selection and inspiration to our customers.
Our stores and fulfillment centers are fully staffed and ready to serve customers no matter, how they want to shop.
We continue to act with a sense of urgency to achieve greater profitability and cash flow as we optimize across platforms and drive scale.
In closing we remain excited about the future of our business. The work ahead, and our ability to deliver significant shareholder value over the long term.
I'd like to now turn it over to Heather for Q&A. Thank you Anne before we get started with Q&A, we ask that participants limit their responses to one question and one follow up.
We'll now move to the Q&A session.
Thank you I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys.
<unk>.
Thank you. Our first question comes from the line of Omar Saad with Evercore ISI. You May proceed with your question.
Good afternoon, and thanks for taking my question nice job, especially on the profitability, it's great to see.
I had a question my first question on the guidance.
Sales were I think kind of little slightly down versus pre COVID-19 in the quarter you're guiding for.
Mid single digits slightly better what are the key kind of building blocks that give you comfort in that kind of acceleration you can see in 'twenty. Two is it kind of the are there already signs of this kind of post January omicron acceleration is it the.
Seeing the return of occasion.
Demand.
Is there something in the customer data, you're seeing maybe some of the older customers or maybe some of the more northern markets that had been impacted by Covid more coming.
Coming back strongly loved to kind of get more flavor for some of the underlying color behind your expectation for that acceleration then I have a quick follow up thanks.
Hi, Mark Hi, Mark.
With the conversation on the guidance and then.
Eric can weigh in if they have any.
Incremental thoughts on that so first of all our guidance its really on the top line.
5% to 7%.
'twenty, one versus 'twenty and it's really.
And I think if you're already starting to see the progress in Q4, as we're coming out of the quarter.
The guidance is based on.
I think the top line going to be driven by improved performance at the Nordstrom rack and steady growth at Nordstrom.
It's really leveraging our market strategy and all the advancements we havent merchandising.
Some of the marketing category management and supply chain.
Across the board.
We expect that.
We're continuing to see progress in our customers coming out of Amazon.
And.
We are encouraged by what we're seeing.
On a macro basis as well.
Customers.
Consumers in general coming back there things like travel and socializing occasions have returned to work and we did balance all that out with me.
Headwind tailwind.
And a part of it really just kind of equal each other out from the top and bottom line.
Yeah Omar this is Eric I would just add.
Vic.
And comment on external factors, we see kind of balancing each other out it's really about our internal efforts and.
We continue to see kind of slow steady consistent progress quarter to quarter and we have continued signs.
Currently we have a <unk>.
A lot of effort going on in Iraq business.
While we.
We saw some improvement last quarter.
Yeah, we have a ways to go and we're hard at work on that and we like our plans and believe there's opportunity for continued improvement there the Nordstrom banner business.
Yes.
Been steady.
And very healthy and that the two geographic.
Data 0.3.
We continue to see which give us encouragement about.
The whole country opening up is number one that the difference between north and south.
Our southern.
Nordstrom stores outperformed our northern rock, northern Nordstrom stores by seven percentage points.
And then the more urban stores versus suburban stores.
Our urban stores or 10 percentage points behind and.
It's.
It's pretty obvious when you're in these locations.
The majority of workers and these really dense employment areas have not come back.
And that's.
That's just starting to happen and we expect that.
Not only will that help these locations. These locations are some of our biggest stores.
So we see some opportunities.
When we do a lot of scenario planning.
Prepared belt prefer volatility but.
The direction of travel does give us confidence.
And then my second question, Yes. Thanks quickly you guys are.
I, obviously have a really big digital footprint at this point in a lot of traffic it sounded like a lot of it's on mobile maybe talk a little bit about three P. Slash marketplace advertising services ways, you can leverage that traffic and you know when you know what's the kind of timeline to see those types of items be more impactful on the bottom line.
Thanks.
Yeah I'll start.
For our.
Nausea media or.
Our advertising platform, we started that and.
<unk> had a good response, there so again a way of.
Monetizing our the traffic on our site and the.
The scale of our business, which.
I think it is the most important thing to look at additional businesses.
Yes.
It's a big chunk of our business.
And gets a lot of traffic.
It is one of the key attributes that allow us to.
B the softer partner for a lot of up and coming brands, especially digitally native brands.
Exposure branched out to a lot of people that wouldn't see them otherwise.
Yeah, we've talked about alternative models for a while and.
I've seen a lot of growth there.
We think thats going to continue and grow quite a bit more.
So we're focused on our platform technology platform to enable more ways to bring product to our customers and support different models.
Sure.
We'll continue to see that area grow for us.
I'll just add you're already starting to see that when we talk about our GMP, particularly with the Nordstrom banner.
We're up 2%.
Sales of the R&D credit in that so we're already starting to see.
And at this time.
Yeah.
Next is Oliver Chen with Cowen <unk> co. Please proceed with your question.
Hi, Thank you regarding the rack division as we look ahead what are your thoughts about the good better best and the pricing architecture down what are the big opportunities than we.
As you know roughly what what inning are you on in terms of what's underway.
And then also on the inventory composition now.
Would be just curious about categories, where you may not have had enough and then the nature of categories, where you had too much as well as how youre thinking about processes to do your best to manage supply versus demand on that sustainable value creating basis going forward. Thank you.
Yes.
Welcome to the <unk> opportunity as you know we've tried some different things that start up it's really broadening the aperture of our pricing strategy, there and offering some lower prices in an attempt to gain new customers in.
That works I think but what we've also learned is you cant do that at the expense of the existing stuff that we have that customers really truly value our existing customers and that's kind of the more premier type brands that we have somewhat unique access to so I think what we've confirmed ourselves as well.
Have a really good situation with our existing customers the people that love Nordstrom rack and we need to build upon that by expanding what we do not trading off what we do and so I think theres a lot of opportunity for us to improve the balance of our offer and to be more surgical about how we apply it geographically.
We have better ability to do that through better insights and just the learnings that we've had over this last year or so.
So what inning, it's in I don't think that game ever and keep going into extra innings because it can.
He used to evolve we continue to learn.
We're investing a lot of energy.
Working on that.
It is important for us to improve our rack business.
We have certainly sharpened our resolve and our rigor over this last year with what we've learned and have a lot of confidence about where we're going.
In terms of the inventory composition.
Yes.
The headline number don't really tell the whole story, because a big part of what we lived through this last year.
Just kind of trying to chase into and react what was happening in real time with Covid and so you've heard US talk about for example are big improvements in categories like home and an active.
And Thats all true.
The same time, while that was a really good business and some other businesses work.
Things came back quicker than we could have anticipated largely last summer and fall and then we found ourselves in a position of chasing into inventory and stuff that traditionally.
We have been pretty strong at any occasion types.
That's everything from travel to return to work to any kind of social occasions, and so what we're seeing now really over the last several months has strong momentum on our return to those types of franchises categories that we traditionally have done well with but it's also true that we built up.
Yes.
Success with.
Those expanding categories. Two so again, it's somewhat like the rack thing I think it's looking at it across the entire spectrum and focusing on the balance of where we need to go.
Volatility.
December is down a little bit because I'm not sure it's pretty pretty lumpy.
It gives us a lot of confidence.
We have.
The broad assortment.
That it's going to be really good and effective for us.
Theres a lot for us to be focused on.
In terms of where we're going to invest going forward.
Thank you very much best regards.
Next is Chuck Grom with Gordon Haskett, you May proceed with your question.
Hey, Thanks, very much good afternoon, and I was hoping you could help bridge the gap.
For us from last year's three 4% operating margin to the 5% to 6% to 6%.
Operating margin guide for this year between gross margins and SG&A and and also if you could elaborate on why you are expecting in the first quarter to be close to breakeven. That's my first question.
Hi, Kevin Let me Yeah, let me give you a little bit of context around it. So while we don't guide to specific lines in our P&L, what I can share with you is that really we talked about we have got mid single digit price increases that are basically offsetting the inflationary cost pressures that we've seen.
Our supply chain fulfillment as well as the.
The labor costs, which I'll run through our SG&A line just as a reminder, the biggest piece of the improvement over half of it is really coming from the leverage that we're getting from top line growth and the remainder of that branch is really coming from the initiatives that Pete and Erik talked about in the script.
Opening comments.
Merchandise margin work that we've been doing with category management.
Nice progress and early success in the fourth quarter that are going to continue into next year as well the efficiencies that <unk> talked about in his comments.
Guarding fulfillment and supply chain efficiency. So that's really how do you get a high level can you forgot that isn't really the components.
The bridge.
For Q1, that's always been very small quarter for us in general our wallet.
We did guide to the.
Our sales growth first half second half of it being more weighted growth.
Rate perspective in the first half given the comps that we have the comparison Patrick to 'twenty. One it's always been a really soft quarter for us and with that just to get a little bit less deleveraging.
Okay. That's very helpful. Thank you and then you touched on my My second question you referenced this in the mid single digit AUR and Chris can you can you remind us I guess, what Youre able AUR was in 2021 or maybe in the fourth quarter and I guess, how do you test of that have you seen any demand destruction and just your degree of confidence in raising.
Retails.
To that degree.
Yes in general I would say really split between the two banners from the Nordstrom banner, it's really.
With our brand partners.
Great.
Iraq is really we had a little bit more.
Brands to look at price elasticity.
We did do some testing in Q4, primarily Iraq, and we haven't seen a customer pull back on purchases or any resistance.
So that gives us a lot of confidence because we haven't this year.
Youre hearing us talk about what we're seeing in the market and hearing from our brand partners, but also send them to walk that we got in the quarter as well heading into next year.
Okay, great. Thank you.
Next is Simeon Siegel with BMO capital markets. You May proceed with your question.
Thanks, Hey, everyone congrats on quarter.
The alternative brand story is just really exciting congrats on the progress. There just can you speak to where you think the delta between <unk> sales should go over time and what the margin impact should be through that evolution and then just my follow up any way to quantify the inventory growth between units versus cost and to the earlier point what percent of inventory as pack and hold thank you.
Eric do you want to talk with you about where we're seeing the JMP go in there.
Was that a question.
Yeah.
Yes.
I really don't have precision to verify on whats <unk> versus sales.
Actually.
Andrew to your point <unk> is going to continue to be.
A bigger gap between that and failed.
That model.
It will be.
A bigger chunk of our total business.
That's what we're working on and we've seen really strong results.
From that then.
I would.
Step back and also the financial model to it but its also super important of what the brands are so being.
A coveted retail partner for the best brands that World is something that is super important for our business for for many years.
It continues to be a there is.
Real good story that we continue to see and have proof points with our brand partners.
Being able to grow the pie for both of US are so then it becomes.
Negotiation, how you split up that pie and and that's gone gone really well so.
That's having the right brand partners big part of it but there is a.
Our platform capability.
Part of it that we continue to.
Two to really work out.
I would say the.
The direction should not be a linear on that it says that we build out our capabilities.
It greatly enhances our ability to scale more.
More choice in the example, we've had recently has been with fanatics.
And be able to add I believe it's almost 50000 customer choices.
Onto our site.
In a much more accelerated way than we were able to previously.
As a good example, where we're trying to go where we can.
Take a coveted brands take adjacent categories to what our what we sell it and really drive some incremental business.
By adding significantly more customer choice.
Yeah.
And then on the I would just say in general.
<unk>, how we're thinking about our inventory positioning as Pete talked about we're really focused on making sure that we've got the right assortment. We're leaning in on areas that were seeing customers really starting to come back and respond to vacation base for things and part of our strategy and what Youre seeing as far as the guide for 'twenty, two it's really based on getting that inventory closer to the customer.
Because it does help reduce.
Our cost to serve customers as well if it gets the a bigger assortment in front of customers with more quickly for same day and next day delivery in particular for specific markets and as we think about the overall guide as well.
Everything from price points to inventory because they are anticipating that should drive more I'll say profitability per unit I think is through the year as we continue to balance and have more eager forever.
Try and connect.
Thanks, and so just one thing about the inflation any delta between inventory.
<unk> versus that cost.
So just how you think about it you see.
Hum.
I don't think it's a meaningful piece of what youre going to see as far as sales to inventory spreads.
Certainly.
Everyone's seen increases in freight costs Atlanta costs that type of thing, but in general Thats part of it as we talked about the mid single digit pricing changed it really contemplate some of those components in that.
Got it.
Great. Thanks, a lot guys best of luck for the year. Thank.
Thank you.
And now we'll take one more question.
Our last question comes from Tracy Kogan with Citi. You May proceed with your question.
Hey, Thank you and I was wondering if you could talk about your EBIT margin guidance.
Seems for rack versus full price.
Wondering if the EBIT margin improvement is more driven by a recovery at rack and if that's the case, where do you assume rockettes to relative to historical levels.
And then secondly, I was wondering if you could just give us a little more detail on your overall SG&A dollar growth expectations for F. 'twenty two.
Yeah. Thanks for the question Tracy I would just say, we don't typically guide by segment.
EBIT margin of bunkers give some further context around our top line, how we're thinking about the growth in general.
Both of our both our Nordstrom rack and our National Division.
In general operated at parity around eat it clearly as Iraq continues to improve and we get more top line growth, we will see more leverage in our expense base, which would help drive more profitability, but what I would just say in general as we think back on this.
We're still expecting to see topline growth both in rack as it continues to recover and also steady growth in our Nordstrom banner, which will contribute to our bottom line EBIT rate.
And then the SG&A dollar growth.
Yes, we typically don't give guidance on specific line items, but we did try to do is give you a bridge on where EBIT rate for and how we're thinking about efficiencies both in our merchandise margins throughout the year and we're also continuing to see.
I was working on efficiencies and.
Productivity in our supply chain component of SG&A, which will help offset some of the inflationary pressures, we're seeing on wages and freight costs.
Great. Thank you. Thanks.
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.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation during the rest of your day.
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