Q2 2022 Nordstrom Inc Earnings Call
Greetings and welcome to the Nordstrom second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
We will begin with prepared remarks, followed by a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad.
If 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 will 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 it in the investor Relations section on Nordstrom dotcom.
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 second quarter performance.
Now I'll turn the call over to Eric.
Thank you Heather and good afternoon, everyone. Thank you for joining us today.
We delivered solid results in the second quarter with topline growth increased profitability and continued progress toward our long term strategic and financial goals.
We delivered these results despite customer demand decelerating significantly in late June .
Predominantly at Nordstrom rack and in our lowest income customer cohorts.
So our second quarter was consistent with our previous guidance, we are updating our outlook for the balance of the year to reflect the softening trends and actions we are taking to reduce our inventory levels.
In the second quarter customers continued to shop for occasions, while also refreshing their wardrobes, which drove demand for our core categories and services.
We know customers look to us for the occasions that matter, most and we were well positioned to serve them with our differentiated product offering the convenience of our interconnected model and our commitment to customer service.
Total sales increased 12% over last year, which includes a benefit of approximately 200 basis points from one week of the anniversary sales shifting into the second quarter total digital sales grew 6% Nordstrom banner sales and gross merchandise value or G. M. B each increased 15% over last.
At year end sales showed sequential improvement over pre pandemic levels correct.
<unk> sales grew 6%.
Before I discuss the second half of the year I'll share our perspective on spending and behavior within our customer base.
As we discussed while reporting our first quarter results at the time, we did not see macroeconomic pressures adversely impact customer spending, which we attributed to the higher income profile of our customer base.
This continued through most of the second quarter until late June when demand began to soften mostly in Nordstrom rack compared to the first two months of the quarter July sales decelerated nine percentage points in the rack banner.
Across both banners the softening trend was more significant in customer segments with the lowest income profiles, while we saw greater resilience in the higher income statements.
For example, in the Nordstrom banner items with lower Aur's underperformed higher AUR.
Within our designer business higher price luxury products significantly outperformed lower priced product customers sought newness and responded very positively to the fall assortment overall, but were less responsive to our private label product and clearance items.
Taking all this into account we are updating our 2022 financial outlook to reflect the deceleration at the end of the quarter as well as anticipated margin pressure from clearing through excess inventory.
And we'll provide more detail on those updates.
We are prioritizing actions in the short term to position our business for success in a rapidly evolving environment.
This means adjusting our plans for the second half aligning expenses to those plans, reducing inventory levels and exiting the year in a clean and current inventory position.
At the same time, we continue to focus on improving rak performance, increasing profitability and optimizing our supply chain and inventory flow.
We are making progress in these initiatives and while they will not fully offset the gross margin impacts of our inventory reductions. This year, we expect them to benefit our performance in 2023 and beyond.
While we take action to address these short term headwinds, we will continue to build additional capabilities to better serve customers and drive profitable long term growth with a focus on winning in our most important markets advancing our digital capabilities and improving Nordstrom rack performance.
A fundamental component of our closer to use strategy is winning and our most important markets.
Our strategy provides customers convenience connection and access to the best product selection through a strong store fleet, two unique banners and omnichannel capabilities linked at the market level.
For example, during this year's anniversary sale as customers utilize the convenience of our integrated touch points.
Pick up in stores increased 9% compared to last year's event.
Building on our progress this quarter, we scaled our closer to use strategy by expanding next day order pickup capabilities to more than 60 additional rack stores in our top 20 markets.
And our top 20 markets outperformed our other markets by seven percentage points.
We also continued to advance our digital capabilities working to further extend our heritage of customer service and personalization to a digital world.
We are scaling our styling program and offering a range of digital services, including Stylus inspired looks virtual style boards and online styling appointments.
While we still see the highest number of customers engage with our in person styling.
We are seeing rapid growth within these digital services.
Digital styling customers are also highly engaged spending five times more than an average nordstrom customer.
Finally, we continue to focus on improving Nordstrom rack performance by increasing our supply of premium brands, improving our assortment and growing brand awareness we.
We're making progress and have driven sequential improvement in sales growth versus pre pandemic levels. The last three quarters since initiating these work streams.
We're also encouraged by the positive customer response to our growth initiatives. For example, we are seeing strong early results from our Iraq Beauty program expansion.
Despite this progress at rack in the first half of the year demand trends decelerated significantly in late June .
The deceleration was more pronounced in the lowest income customer segments, which represent a greater proportion of for X customer base than at Nordstrom.
We also have more work ahead to fully optimize our rack assortment as.
As we've said before 90% of the top brands in Nordstrom are sold at Nordstrom rack.
Premium brands are a differentiator for the rack and we're focusing on having the best brands at the best prices at each of our locations.
This quarter sales of our top 100 brands with Iraq increased 17%, which underscores the opportunity from increasing our supply of premium brands.
In addition to improving penetration of premium brands, we are shifting away from the lower price point items that have not resonated with rack customers.
As Pete will describe later, we are taking aggressive action to clear through this inventory in the second half of the year.
We believe that increasing the penetration of top brands with Iraq will differentiate our offer and fuel our growth in closing, though we face uncertainty as the consumer shifts we have a seasoned team that has successfully managed through a range of business cycles. We have continued to build on our legacy of being a market leader in customer service that is always a.
Result of our teams putting the customer at the center of everything we do we are fortunate to have so many people with us who truly care about the customer.
We have a strong balance sheet and cash position and through investments in our closer to use strategy and digital assets, we are well positioned to capture pockets of demand.
We are taking the necessary steps to navigate the short term, while also continuing to invest in capabilities to better serve our customers drive long term profitable growth and increase shareholder value.
With that I'll turn it over to Pete.
Thanks, Eric I'll begin by talking about our category performance in the anniversary sale, then I'll discuss the actions were taken to clear through excess inventory in the second half of the year. Finally, I'll update you on our work to improve supply chain and inventory flow and increased gross margin.
Starting with the category performance, we were pleased to see customers shopping for events and updating their closets this quarter driving double digit growth over last year in both men's and women's apparel sales of occasion based items, such as suiting and dresses were particularly strong.
Both our shoes and beauty categories also had double digit growth this quarter with shoes, performing well across dressy and casual styles.
These results were supported by our expanded offering at the rack.
Designer also posted double digit growth, although growth trends decelerated as Eric indicated higher priced premium product significantly outperformed lower priced product.
Turning now to our anniversary sale as always the anniversary sale rewards and engages our loyal customers as we offer new product from the best brands at reduced prices for a limited time each year, we use a data driven process to evolve and improve event performance. This quarter total anniversary event sales increased 5% overlap.
Last year, including one day that fell in the third quarter. Despite softening customer trends that began in late June .
We were pleased to see customers responding positively overall to new fall product during the event. However, private label product underperformed, leaving us with a portion of that inventory to clear in the third quarter.
While our sales to inventory spread improved in the second quarter, we are reducing our sales plans and inventory levels in the second half of the year. We are taking action to align our inventory with current demand trends and improve the balance of our offering by clearing through product that customers are not responding to and focusing on the fashion and newness they want.
Our right sizing efforts are focused in the following areas first.
<unk> customers have been less responsive to clearance product in the second quarter, we had to take deeper markdowns than anticipated to move clearance inventory and we expect that dynamic to continue in the second half of the year.
Second we are disappointed in the performance of our private label product. We have brought in new leadership at our resetting our strategy to deliver more compelling product to our customers.
Third, though designer category sales are still posting double digit growth trends have decelerated. We are anticipating increased markdown pressure based on current sales trends.
And finally, we are clearing through lower price point items at Nordstrom rack to make room for the premium brands at great prices that drive the rack business.
We expect that this clearance activity and associated markdown pressure will reduce second half gross profit by approximately $200 million, which were reflecting in our updated outlook.
We estimate that approximately half of this additional markdown pressure reflects actions, we're taking to improve our assortment.
The other half is related to external factors, such as softening demand and our expectation that the promotional environment in retail will become more competitive in the second half of the year.
We are taking aggressive action to clear through excess inventory and plan to have inventory clean and current by the end of the year.
While this clearance activity exerts pressure on gross profit in the near term it is necessary to align with consumer shifts and implement strategies that will drive our longer term growth and profitability.
We are also taking action to deliver operational efficiencies through our supply chain optimization work and we're making good progress we realized initial benefits from our improved supply chain capabilities and this year's anniversary sale with better inventory flow, we deliver product to our customers three days faster on average reduced order.
Churn rates and decrease handling cost per unit.
In the second half of the year, we expect to deliver more significant customer benefits and operational efficiencies by accelerating our work on the following four initiatives first improving the consistency and predictability of unit flow through our network.
Second increasing productivity in our distribution and fulfillment centers.
Third accelerating delivery speed and finally, expanding the market level selection for in store shopping as well as same day and next day pickup.
Beyond supply chain improvements, we remained focus on expanding our merchandise margins over the long term using advanced analytics to better understand customer needs identify opportunities to improve assortment increased promotional effectiveness and optimize markdowns. Most importantly, we know that managing our inventory levels conservatively.
[noise] will allow us to be more agile in responding to a rapidly changing business environment.
In closing, we're taking action to rightsize, our inventory improve our sales to inventory spread and enter 2023 in a clean inventory position, we're confident in our ability to deliver long term benefits from our supply chain optimization work and improved merchandising capabilities I'll now turn it over to Ann to discuss.
Our financial results.
Pete I'd like to start with a review of our results then take you through our outlook for the remainder of the year.
Earnings for the second quarter were 77 cents per diluted share after excluding charges related to the wind down of trunk club adjusted EPS was <unk> 81 cents.
Overall net sales increased 12%, which includes a benefit of approximately 200 basis points from one week of the anniversary sale shifting into the second quarter.
Nordstrom banner sales and GMB grew 15% with sales exceeding pre pandemic levels.
Nordstrom rack sales increased 6% in the second quarter.
Digital sales increased 6% and represented 38% of total sales during the quarter.
Gross profit as a percentage of net sales increased 65 basis points, primarily due to leverage on buying and occupancy costs, partially offset by higher markdown rates on clearance product.
Ending inventory increased 10% versus a 12% increase in sales.
Total SG&A as a percentage of net sales decreased 15 basis points due to leverage on higher sales, partially offset by higher labor expense.
Inflation cost pressures were consistent with our expectations since last year, we've been making progress on our supply chain optimization initiatives to provide offsets to labor and fulfillment cost pressure.
We expect that these initiatives will deliver more significant benefits in the second half of the year.
EBIT margin was five 1% of sales for the second quarter.
After excluding charges related to the wind down of trunk club adjusted EBIT margin was five 3%.
We maintained a strong financial position ending the second quarter with $1.3 billion in available liquidity, including $494 million in cash and the full $800 million available on our revolving line of credit.
Now turning to our updated outlook for fiscal 2022.
In the first quarter, we were encouraged by the momentum in our business as customers updated their wardrobes and prepared for occasions.
As we described on our Q1 call we had not seen an adverse impact on customer spending from inflationary pressures.
That continued until late June when demand begin to soften predominantly at Nordstrom rack and in our lowest income customer segments.
We reacted quickly to this shift by managing expenses and aligning staffing schedules.
As Pete described we are right sizing and rebalancing our inventory in the second half of the year to address customer demand shifts and improve our assortment.
Taking all these factors into consideration we are updating our 2022 financial outlook to reflect deceleration at the end of the second quarter reduced topline growth expectations for Nordstrom rack and increased markdown pressure.
For fiscal year 2022 we now expect revenue growth of 5% to 7% versus 2021 supported by high single digit sales growth in the Nordstrom banner.
We expect adjusted EBIT margin of approximately 4.3% to 4.7% for the full year.
Up from three 4% in 2021.
Our forecast assumes that EBIT margin improvement for the year will be driven by SG&A leverage, though first half gross profit margin improved by 115 basis points over last year, we expect gross profit to be roughly flat for the full year.
Our revised outlook reflects approximately $200 million of incremental markdown impact in the second half relative to our previous outlook.
Despite our lower sales outlook, our SG&A leverage assumptions for the year remain unchanged.
Though we are facing inflationary expense pressures, we contemplated that pressure in our outlook at the beginning of the year along with the offsetting benefits of our supply chain optimization initiatives.
Our effective tax rate is expected to be approximately 27% for the fiscal year.
We now expect adjusted EPS of $2 30 to.
<unk> to $2.60 or.
Our outlook excludes the impact of any future share repurchases.
I'd also like to provide some additional detail on our forecast for the third quarter.
At the beginning of the year, we expected that third quarter year over year sales growth would decelerate versus the second quarter given tougher prior year comparisons in the anniversary sale shift.
Due to the demand deceleration we saw in the latter part of the second quarter. We now expect a mid single digit decrease in revenue in the third quarter versus the prior year.
Our projections include the impact of one week of our anniversary sale shifting out of the third quarter.
Which reduces revenue growth by approximately 200 basis points.
We anticipate that third quarter EBIT margin will be approximately 200 basis points below last year's third quarter.
Our forecast assumes that the $200 million of incremental markdown pressure in the second half of the year will be split relatively evenly between the third and fourth quarters.
Turning to capital allocation, our first priority is to invest in the business to better serve our customers and support long term growth.
We are planning capital expenditures and normalized levels of 3% to 4% as we continue to invest in supply chain and technology capabilities.
Our second priority is reducing our leverage we are committed to an investment grade credit rating and expect to decrease our leverage ratio below 2.9 times by the end of 2022.
We continue to target a leverage ratio below 2.5 times.
Our third priority is returning cash to shareholders.
Last week, our board of directors declared a quarterly cash dividend of 19 cents per share in.
In the second quarter, we also repurchased approximately $35 million of our stock at an average price of $23 per share.
We had approximately $465 million remaining on our share repurchase authorization.
We will continue to take a measured approach to share repurchases. This year aligning with our cash flow and market conditions in closing, though customer demand decelerated at the end of the quarter. We are encouraged by continued demand for occasion based apparel and wardrobe refreshes as well as big ticket items within Nordstrom rack.
Despite a recent softening of demand customers are responding well to our growth initiatives and we are actively working to improve our supply of premium brands.
Though clearance activity in the second half of year will pressure gross profit, we still expect to derive SG&A benefits from our supply chain optimization work and expense management.
And we still plan to increase our year over year profitability.
We remain confident in our ability to navigate the current environment and deliver on our long term strategic and financial goals.
With that Heather we're now ready for questions.
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.
If you 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 he would 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 comes from the line of Edward <unk> with Piper Sandler. Please proceed with your question.
Hey, good afternoon, guys. Thanks for taking the questions two from me I guess first you.
I know you guys had kind of opened up the aperture on on rack price points, particularly at the lower end.
A couple of years ago really indicating he thought you could gain an incremental consumer I guess is the commentary around reducing some of the lower price offering backing away from that strategy or their doors that are now probably not productive given that and then as a follow up.
That's what got too fine a point on it but you know a lot of companies indicated at the end of July got better.
I guess did you see any kind of stable stabilization of trend in either Iraq or full line. Thank you.
Yeah. Thanks, Eric do you want take that.
First couple questions there.
So yes, there are.
Right.
Uh huh.
Highlighted having some lower price points and as we talked about last year, our inventory got a little out of balance from.
Having some of that product and the difficulty in obtaining the level of premium brands.
We'd like so we really entered this year with a singular focus of having.
Great brands at Great prices that is what differentiates us.
Brands, we carry in rack are unique in the off price.
<unk> and its what customers come to rack for.
So that.
That is our strength and tier two to your question.
The lower price point product, we brought in some of it performed well, but in general we're looking to rebalance our inventory to have a greater proportion.
Of those premium brands in our inventory.
And a.
Lessen the amount that's in those lower price points.
That's the end of July .
Yeah.
We did as we mentioned.
Clear deceleration at the end of June .
Alex to around a bit.
From ended June to the end of the quarter.
And I think it's.
All right not a shock to say that it is a volatile environment. So.
I don't think it's appropriate to make too much out of a week or two one way or the other.
We saw.
A change and particularly lower income customer segment.
And we think the prudent thing is to change our plans accordingly.
And thank you for that.
Yeah.
Then in July , particularly in Iraq with the meaningful.
Deceleration of track.
And the Nordstrom banner.
5% in the anniversary sale and really where we saw softness within our private label that Pete talked about in his comments as well so in general you know.
The core categories for the Nordstrom and are performing well.
We had a pocket with the private label that wasn't performing well, particularly in anniversary sale in July .
This collaboration with Allergan.
Thank you.
Next is Omar Saad with Evercore. Please proceed with your question.
Thank you.
Couple of quick questions overall, maybe your learnings and satisfaction level with anniversary sale you guys are pretty optimistic going in and then maybe.
Talk a little bit about private label.
<unk> got some initiatives to underway to get that back on the right course, but maybe talk a little more detail what went wrong with the offering and private label with it too much too little too much fashion.
Wrong type of inventory a little color there would be great. Thank you.
Great. Thanks for everything once at the University of Southern Pete maybe follow up on that.
Yes.
So Dan stated our anniversary sale.
Turned in a 5% increase overall.
And that was all within our plans and off our trend.
Year to date at that point.
That's kind of a mixed bag.
Let's say, we saw strong sell throughs and.
<unk> of our products in general.
Higher AUR products.
That did better or branded products did better.
The softest callouts I'd make two callouts are one is our private label business virtually cut up your second question.
And also we've seen a softness in clearance business well anniversary is not a clearance event.
Clearance is always a portion of our inventory and an important portion.
We've seen.
That.
There is a softness in demand for <unk> product that customers are more interested in newness than they are in reduced prices our clearance merchandise. So.
For.
Is it private label and clearance both.
Our drivers of some of the softness.
We saw an anniversary.
Yes. This is Pete.
The double click into private label I think the biggest challenge there is the fact that it's the longest lead time of anything that we do and if you think about the last couple of years in the way.
Customer demand has shifted and changed given the macro environment.
That's put added pressure and stress on just.
Execute well.
That's probably not unique to us.
I think it also is.
Revealed from the vulnerability that we have.
And that part of our business in that.
Talk about what's working what's not.
Largely what it has been a a glass ceiling in terms of the level.
Achieved over the years as we've tried to.
Buy into more private label, you've heard us talk about the importance of that we've not been able to execute that successfully so we're really taking a scrub of all that we can change our leadership there and we're looking at this guy we're looking at the person we're looking field of play in the categories, where we think we have the chance to be successful I mean.
All of it is really on the table to consider.
Working on that right now so it's still something it's a category that we want to get better at is important to our future. We're investing in it. We have every reason to believe we will do better at it but we've got to clear out some of the underperforming inventory. So that we can get ourselves in a position.
Probably a year from now really kind of mid 23, where you will see us bending the curve private label.
Yeah.
I would add is you know how much.
Execution perspective on anniversary sale.
Across the board our team.
Nominal job.
We had.
Great site traffic and volume on the site.
And great service on our inventory flows as it really well, we shorten the number of days to deliver to customers from our supply chain.
And of course, our our selling teams that's happening and engage our customers and so from an execution perspective, we couldn't be prouder of our team in delivering a greater back to our customers.
Thank you best wishes.
<unk>.
Okay.
Next is Matthew boss with J P. Morgan. Please proceed with your question.
Great. Thanks, So Eric on the 900 basis points of sequential softening that you cited at the rack how much of the trend change do you attribute to larger picture macro pressure versus more company specific product assortments or inventory and then at full line are there any merchandising initiatives in play.
Just a stabilized spending at the lower income customer customer cohorts that you cited.
Thanks Matthew.
What we've what does stand out.
The softness that we've seen has been looking at.
Customer segments by household income.
And our customer household income is higher than average.
But within the range of our customer segments.
Lower income customer segments.
Significantly more pullback.
Is that the higher income Iraq is more exposed to that customer that customer makes up a bigger portion of our customer base and it does the Nordstrom banner.
So there is a.
Pretty clear correlation there, which leads us to believe that.
Significant part of the pullback is this macro.
As far as the full line stores focusing on.
Stabilizing the.
Lower.
Income customer segment.
Uh huh.
What we think we're best served out of work really cuts across I want you to take away from what Youre hearing here is we're in volatile times and that it seem that way for a while but the uncertainty moving forward.
Is significant and now there is there is cases to be made that.
Things could get better pretty quickly and then theres credible cases to be made that it's going to be tough.
We think we're well served by.
Sure.
Having plans that give us flexibility and allow us to be agile and responsive.
And I say that because for for responding to customers, we need to be able to respond not only.
Customer income segment category to category, you've seen a significant shift in demand by category over the last two years.
And we think we need to.
Deal to be Super responsive to that so what do we do about that.
First thing, we do is bring inventory levels down.
They're not Super high right now.
We really want to give ourselves that flexibility and we have segments of our inventory that are.
R.
Our less productive, which there always is.
But that gap and I mentioned clearance earlier, the softness there that gap between.
That less predictive part of the inventory and the more productive part is.
Unusually high.
Which are.
The nice part about that is there is a.
Customer is spending there is product that customer is responding to.
The pressure that puts on US is we have segments of our inventory.
That are preventing us from being a responsive to the customer as we want to be so.
That's our message here is get our inventories down to where we can be really responsive.
No matter, where it goes.
Regardless of what I say here today, how it plays out the rest of the year.
More likely its going to be a little different than I think anyone would say so.
That's what we're looking to do to really address those less productive parts of our inventory clean that up get us in a position, where we're flexible and can be agile to respond to whatever the customer demands are.
Okay.
Thank you next is no is that skin with Keybanc. Please proceed with your question.
Hi, Thanks for taking my question.
I think last quarter you mentioned.
You were about 80% of the way there in terms of brand mix at the rack.
Where do you think you were ending this quarter and how should we think about.
Kind of the right writing of the brand mix moving forward.
You mentioned using the Rep is kind of a clearance channel for some of the private label items that didn't sell through well and full line. So just trying to think about the timeframe for the brand mix to be.
Thank you.
Yeah. Thanks Noah.
Yeah, we.
The share of premium brands to our total mix.
It has steadily grown this year, we still have a ways to go we're not at 100%.
But the availability of that product has improved and we expect that that will continue.
And we have more confidence than ever that that's the right direction.
Data point, we shared with you for.
The last quarter.
If you take the top 100 brands and our rack business. Both brands grew 17% over last year, so significantly outperformed.
The business overall.
So we're not there to where we need to be we still have some pockets of our inventory.
Our performance down a bit we have clearance in both banners that.
We need to clean up and.
For Iraq in particular, it's particularly important and it's a particularly opportune time to have open to buy dollars in our inventory to be able to get the great buys that are out there and we think we're going to be out there that there is excess inventory.
And the industry.
So.
Still a ways to go in and we would expect that that portion of premium brands.
To continue to grow as a proportion of our inventory.
Thank you.
Next is Chuck Grom with Gordon Haskett. Please proceed with your question.
Hey, Thanks, good afternoon.
On the third quarter guide for a mid single digit decline should we think about that pace at both banners and then as we look ahead to the fourth quarter. It looks like Youre expecting a big improvement on our one and three year basis.
Order to hit the new full year sales range. So that's what's driving that assumption for the improvement in the fourth quarter.
Yeah sure. So a couple of things when we gave the guide for the second half when you talked about the fact that it will shift and anniversary sale on a year over year basis, which were impacting Nordstrom banner.
A couple hundred basis points.
And so for the full year, we expect the north shore banner could be mid single digit.
Growth and so we do believe that that will that will come.
So what.
What I would also say that the WAC.
Ration.
Talk about we are anticipating.
Continuing trends in that.
In the <unk>.
In the second half.
When we look at the total year sale.
And we're still seeing the customer respond really well to our core categories in the northern banner. So it is a bifurcated approach to the sales component to it.
And I think for the Q4 piece to it.
<unk> anniversary last year.
I would say Theres a couple of things in Q4 to think about why.
Why can't we have supply chain issues in Q4 last year, we got late deliveries for holiday, which we had pulled forward actually will start receiving quite a bit of that in Q3 as you prepare for Q4 and then the second component, particularly as it impacts our store business at last year you guys have.
You may recall, we had.
And without the impact of the Omnicom variant.
Particularly in the December timeframe.
I would say, it's a little bit easier to lap as you think about year over year.
Okay. That's helpful. And then the pace of credit revenue really slowed in the quarter Macy's and Kohl's had similar developments over the past couple of days.
Help us think about that line item in the second half of the year.
Yeah, so from a credit perspective overall would you say it is.
Absolutely in line with what we were expecting to see throughout the quarter, we had a.
Gradual increase in customer payment rates, but overall the payment rates remain.
Elevated above what we saw pre pandemic.
We saw you know a.
Very different shifts in the last few years, we're seeing a little bit of a different trend, but it's still much better than we saw in 2019 I think the other thing I would just say is in general.
We have not this has not translated to losses impacting our credit card revenue in the quarter.
And we'll continue to see a very healthy portfolio, we're very pleased with our portfolio.
Okay, great. Thanks, Dan.
Hmm.
Yeah.
Next is Katie Halberg with Cowen. Please proceed with your question.
Hi, there. Thanks, so much for taking our question.
The first one is sort of if you're seeing any sort of sign of trade down either in Iraq or the Nordstrom businesses.
Just in terms of maybe more towards clear answer other basic basic items.
And then second is just.
On the sort of different channels and how did the channels performed versus your expectations specifically.
The digital performance that would be great. Thank you.
Eric do you want to take the first piece.
He's on the tradeoffs.
Sure.
The quick answer is we have not seen a lot of evidence of trade down as I mentioned earlier clearances actually.
In a real soft part of our inventory.
An example that we're not seeing customers looking.
It's really driven by price.
That's the main driver.
What we're seeing from our customers.
They want what they want they want newness.
And lowering prices on what doesn't sell a regular prices.
Is it tougher it's taking.
More markdowns to clear out older product so.
No signs of trade down.
Yeah, I would just add on the on the pricing piece of it and as Eric mentioned is kind of the opposite.
It is reflected in the fact that we're having a great deep remarks, and clearer than we normally would cause a little bit different pattern and the sell through on our higher priced items is actually quite strong.
Freshness and newness the fashion component to this where customers are really responding to on your question on channel I would just say in general the channel performed in line with our expectations.
Okay.
Okay, great. Thank you.
Next is Tracy Kogan with Citi. Please proceed with your question.
Thank you I was wondering if you guys could give any more color on the slowdown you mentioned didn't designer I was wondering if it was across all designed our categories and indeed, the slowdown correspond with the slow down and.
In Iraq, given it's at the end of June and I'm, just wondering any more color you can give there. Thanks.
Yes. This is Pete.
Kind of a nuance steel because we've been talking about gosh quite some time that the design of our business is growing the strongest part of the business and we're still having really good growth in revenue double digit growth.
Is there has been some deceleration so.
Our what we bought in some of our plans that were generated.
Were those planned happened before we saw this acceleration so we were buying into an elevated plan compared to what the actual consumer demand trend.
That's about I think if you want to parse it.
See exactly what's happening what we're tending to see.
As in the range of what happens with.
Some of the lower price or item oriented parts of those businesses.
Note down some compared to.
What we really need to hire in the luxury part of SSE.
So.
We're continuing to work through that and look at it.
Hello, and newness, that's always good but it's really just a quantity issue here that I think are uncertain.
Parts of the business.
We're taking a cautious approach on and just being prepared.
We don't see a change in that customer sentiment.
We should be prepared for perhaps promotional activity that would happen later on this year.
So the possibility of that.
So would you say when you when you noted that kind of the lower price points I guess the entry price points of somebody's designer brands are slowing is it is it more that that may be aspirational customer is kind of trading out of the true luxury brand or is there not enough evidence of that.
I think that could be I don't know that we know that specifically, but I think thats a reasonable assumption to make I mean, if you look at the breadth of our customer base.
That very well could be what we're seeing we're learning more all the time.
Trying to stay close to that.
Great. Thanks very much.
And we have time for one more question.
Our last question comes from Simeon Siegel with BMO capital markets. Please proceed with your question.
Thanks, Hi, everyone Hope you've had a nice summer.
Within that 17% if I heard correctly, the 500 brands any way to think through what that is between AUR and units and then and if I can just ask three quick ones on inventory.
Inventory I was the inventory change between rack and full price and then maybe the change in units versus dollars and then just any update on how youre thinking about inventory and pack away Alright got you.
Hey, Matt.
Yeah, So Eric do you want to start with a 17% France.
It's about both.
We're not going to break it out specifically its stomach.
We are.
What we're encouraged about is as we increase.
The proportion of our inventory in these premium brands, so adding units.
A portion of our inventory and dollars.
We're seeing increased sales.
17% with both AUR and units increased.
Yeah. So on the inventory piece, we really don't split out the.
The imitrex.
What I would say is that we're working to get through.
Inventory increased in both banners.
And were taking markdowns in both banners as well in our attack can be very clean.
Really on the current inventory that we own by the end of Q3 and I think what you see in the guide.
It's 50 50, Mark down between Q3, Q4, Q4 really contemplate anticipate to be a.
Continued highly promotional environment in Q4.
It's really baking in what we think could be a.
Continued pressure on promotional buying our inventory at that point.
Okay.
The attack can be added.
To reduce current inventory to plan and be thoughtful have powder dry in Q4 and exiting 'twenty three very very clean.
Responding to customer in a volatile environment.
Great. Thanks, so much best of luck for the rest of the year.
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.
This concludes today's conference you may disconnect your lines at this time, we thank you for your participation.
Okay.
Oh.
Perfect.
[music].
Okay.
Yeah.