Q3 2023 Nordstrom Inc Earnings Call
Okay.
[music].
Greetings and welcome to the Nordstrom third quarter 2023 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.
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As a reminder, this conference is being recorded.
At this time I'd like to turn the call over to Jamie.
Julie head of Investor Relations for Nordstrom. Thank you 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 Cathy Smith, Chief Financial Officer, who will provide a business update and discuss the company's third quarter performance.
And now I'll turn the call over to Eric.
Thank you Jamie and good afternoon, everyone. Thank you for joining us today.
I'll start with our Q3 performance.
For the third quarter, we delivered revenue of 3.3 billion earnings per share of <unk> 41, and adjusted earnings per share of <unk> 25.
Our teams executed against our priorities adapted quickly to shifting sales trends and delivered year over year profit growth, despite lower sales and a challenging macroeconomic environment.
We managed our inventory well as evidenced by the positive sales to inventory spread while leaning into pockets of demand.
As we entered the holiday season, our teams have worked hard to deliver the right assortment and engaging experiences for our customers.
In the third quarter, we continued to make progress on our three priorities.
Improving Nordstrom rack performance.
Creasing inventory productivity and optimizing our supply chain.
We will continue to focus on these areas in the quarters ahead in order to drive growth profitability and an improved customer experience.
Based on our year to date results, we remain confident in our outlook expect to deliver full year results within our updated guidance range.
Turning now to our priorities.
Our brand purpose is to help our customers feel good and look their best.
At Nordstrom rack, we know what works and believe in our strategy delivering great brands at great prices, expanding our reach and convenience with new rack stores in key markets and driving greater engagement and profitability and Nordstrom rack dot com.
Throughout the quarter, our team stayed focused on our assortment and move quickly to meet shifting demand.
Providing a compelling flow of new and relevant products for our customers.
In the third quarter, we continued to grow the most desirable brands, which had over 300 basis point higher sell through than other brands in our rack assortment and feel good about our offering as we head into holiday.
We also know that our rack customers value convenience and we believe our stores are Underpenetrated, we opened 11, new rack stores during the third quarter and one early in the fourth quarter, bringing the full year total to 19 new stores we.
We saw strong customer response at each opening and have received positive feedback from customers.
Rack stores continued to be a great investment for us delivering returns well in excess of their cost of capital with a short payback period.
They also continued to be our largest source of new customer acquisition. The scale of our digital off price business is differentiated and unique allowing us to serve our customers via omnichannel offerings in a way that other off price retailers do not in.
And while we still have work to do on our digital offering for the rack, we're making progress as we've reworked the business model to ensure sustained profitability.
The rack digital channel is now profitable on a year to date basis, and we expect it to continue to be profitable for the full year.
This digital channel plays an important role for the rack and serving customers across stores and digital.
Turning to our next priority increasing inventory productivity is critical in providing our customers with a consistent flow of the most relevant merchandise when and where they want it.
Total inventory was down 9% in the third quarter and resulted in a positive sales to inventory spread.
This lower level of inventory required fewer markdowns than last year and helped to drive expansion in our gross margin by 180 basis points in the third quarter.
We're also pleased with the traction that our Nordstrom private brands are gaining.
As a retailer of the best brands in the World, We believe our own brands will play a critical role in our overall mix as they have higher margins and lower return rates.
Additionally, our investments in RFID technology continued to deliver improvements enhancing the integrity of our inventory by providing improved stock accuracy, and creating operational efficiencies across our stores and supply chain.
Thanks to the hard work of our teams all year long our overall inventory position is healthy heading into the holiday season.
We also continued to make good progress on our third priority of optimizing our supply chain capabilities.
Following four consecutive quarters of reductions in variable supply chain costs of more than 100 basis points, we were able to drive another 50 basis points reduction in the third quarter.
Looking ahead, the absolute level of cost savings will stabilize as we've now been focused on this priority for over a year. However will continue to seek out additional efficiencies and flow and improve productivity through inventory management initiatives.
Our efforts to improve our supply chain have also contributed to increased productivity in store fulfillment for online orders at the Nordstrom banner and better inventory positioning and flow across the company.
Q3 marked our seventh consecutive quarter of year over year improvement in click to deliver times.
We've been able to improve click to deliver times by nearly 20% over the last couple of years all of this translates into a better experience for our customers and cost savings for us through faster delivery lower cancellation rates and increase accuracy of inventory.
During the quarter, we announced some key leadership changes and welcomed a new member to our board of directors.
Jamie Nordstrom was appointed Chief merchandising officer.
Jamie has worked across nearly every aspect of our business and has held broad base leadership roles, including in merchandising store operations and across our digital channels.
When you Chandler was named President Nordstrom stores.
She has held several leadership positions most recently, serving as senior Vice President and regional manager of the southwest region.
Jimmy Lee Anello was appointed the role of President Nordstrom rack.
She has served in numerous executive positions, including in both merchandising and stores and she spent 11 years working with enter Nordstrom rack business.
And Lisa price rejoin Nordstrom as chief Human Resources Officer.
He most recently served as a C. H R O a a large U S. Consumer company. These understands that the success of our business starts with our people.
All four have proven track records of leading successful teams, while maintaining a relentless focus on our customers and we look forward to what they will accomplish in their new roles.
We also welcome Guy peso to our board of Directors Guy Who's a senior leader at Procter and Gamble.
In closing, we are well positioned for the holiday season, as we navigate near term macroeconomic headwinds, while continuing to advance our long term strategic priorities and remain focused on improving the customer experience.
Before I hand, it over to Pete I'd like to recognize the teams throughout our company that have been instrumental in driving our progress this year, despite a challenging environment across the retail landscape.
Their focus on and passion for our customer is what makes our success possible.
That I will turn it over to Pete.
Thanks, Eric and good afternoon, everyone I'll focus my remarks on our category performance and inventory position and provides some highlights of the actions. We are taking to drive holiday sales starting with category performance. The majority of our categories improved sequentially from the second quarter in terms of year over year trends with active beauty and <unk>.
Accessories, leading active sales growth was led by footwear, driven by new balance HOKA and on running and in apparel Fiori Butte.
Beauty was strong at both banners as well driven by designer brands in fragrance beauty has been a consistently solid performing category for us and continues to be a top trip driver. This quarter. The introduction of a new beauty five X points promotion for our Nordic Club loyalty program members supported category growth in stores and online.
In anticipation of holiday our in stock rates at Nordstrom are above last year's levels, and we have a strong gift selection and beauty the.
The accessories category also posted positive growth in the quarter led by sales at the rack, where handbags as well as jewelry and watches were strong as Eric mentioned, we are gaining traction with our Nordstrom private brands, which are more profitable with lower return rates, which suggests strong content at a good value.
Consistent with trends all year designer remains pressured primarily in shoes, and handbags, and we continued to rightsize our inventory to meet that demand looking ahead, we expect to end the year with an improved inventory position in this category.
Heading into holiday, we are optimistic and pleased that our offerings strikes the right balance of newness and relevant that our customers want.
We've launched a number of efforts to drive sales and create memorable experiences.
From a merchandise perspective, we're offering more newness than we had at this time last year and we're investing in hot brands and products. For example, we've stepped up our investment in holiday favorite hug and we've leaned into beauty gift sets cashmere sweaters at affordable stocking Stuffers. We've also teamed up with Disney to celebrate its 100th year anniversary.
Not only are we offering Disney merchandize from over 80 brands. We're also hosting events and immersive in store experiences to celebrate the Disney merchandize featured and twenty-five Nordstrom stores and is also available online.
We're taking a differentiated approach to connecting with customers. This holiday season based on customer feedback, we are providing new ways for customers to discover gifts for everyone on their list, including more than 20, inspirational gifting guides and curated gift categories.
We're also leveraging our data and analytics to show more relevant and personalized content on Nordstrom Dot com and in our App based on shopping behavior to further our key differentiator and that is serving customers. We've also positioned the rack as a holiday destination and we're prepared to welcome customers with an enhanced assortment. We're excited that our teams took a sharp folk.
Surround gifting to enhance the customer experience ahead.
Ahead of the holiday season, we've announced actions designed to not only drive sales in store and online but to also improve the customer experience, we're expanding free two day shipping to all north some dot com customers in our top markets as we know that customers will be more likely to make additional purchases and remain endorsement customer if they're competent their purchases.
Will arrive quickly and given the success that we've already seen with our new loyalty beauty promotion, we will continue to offer it throughout the holiday season.
Looking ahead, we're excited to serve our customers. This holiday season and into 24. Our teams have worked hard all year to provide a curated and diverse assortment of brands and products that balances relevance and inspiration we've made meaningful improvements to the customer experience that will help our customers shop seamlessly across both of our banners both in stores and.
Online by doing this work, we're fulfilling our brand promise to help customers feel good and look their best and with that I'll hand, it over to Cathy to discuss our financial results.
Thanks, Pete I'll start with our third quarter results and then discuss our outlook for the remainder of the year.
For the third quarter, we reported earnings per share of 41 cents compared to a loss of 13 cents per share in a year ago quarter.
After excluding a favorable true up related to the wind down of our Canadian operations third quarter adjusted earnings per share was 25 cents.
Last year's adjusted earnings per share was 20 cents after excluding an asset impairment charge.
We are pleased with the year over year gross margin and EPS increase despite lower net sales.
Net sales and gross merchandise value or GMB, both decreased 7% in Q3.
Net sales included a negative impact of 270 basis points from the wind down of Canadian operations.
It also reflects a positive impact of approximately 200 basis points from the timing shift of the anniversary sale with about one week falling into the third quarter. This year.
Excluding the impact of these two items net sales would have been down about 6% versus last year.
Nordstrom banner sales N G N V decreased nine and 10% respectively versus last year, the wind down of Canadian operations had a negative impact on Nordstrom banner net sales of 410 basis points.
Andy anniversary timing shift had a positive impact of approximately 300 basis points.
Nordstrom rack sales decreased 2% the.
The decision to eliminate store fulfillment of rack digital orders starting in the third quarter of 2022 had a negative impact to this year's Q3 sales of approximately 100 basis points.
And we've now lapped that change.
As Erik said, new rack stores continued to be a bright spot.
New rack stores performed well during the quarter.
Digital sales decreased 11% in the third quarter. This includes an approximately 100 basis points negative impact from eliminating store fulfillment of rack digital orders last year and an approximately 400 basis point positive impact from the anniversary timing shift.
Gross profit as a percentage of net sales increased 180 basis points, primarily due to lower markdowns increased inventory productivity and lower buying and occupancy costs, partially offset by deleverage on lower sales.
Ending inventory decreased 9% versus last year compared to a 7% decrease in sales as Pete said, we are continuing to work through some aged designer inventory. However, we're pleased with our overall inventory position as we enter the holiday season.
Looking ahead, we expect to continue to benefit from improved inventory management routines and disciplined while meeting customer demand.
Reported SG&A as a percentage of net sales of 36.3% declined five basis points versus Q3, 2022.
Compared to adjusted SG&A in the year ago quarter, SG&A increased 200 basis points, primarily due to deleverage from lower sales and higher labor costs, partially offset by improvements in variable costs from supply chain efficiency initiatives.
Adjusted SG&A expenses as a percentage of net sales of 34.3% in the third quarter last year excluded an impairment charge.
We have been pleased with the results that our supply chain initiatives have delivered over the last year as Eric mentioned following four consecutive quarters in which we were able to deliver over 100 basis points of savings each quarter, we were able to drive another 50 basis points reduction in variable supply chain costs in the third quarter.
Order.
EBIT margin was 3.2% for the third quarter.
After excluding the $25 million favorable true up related to the wind down of Canadian operations, and this year's third quarter and the impairment charge in the third quarter a year ago, adjusted EBIT margin improved 25 basis point to 2.4% despite lower sales leverage this quarter.
We continue to maintain a solid balance sheet and financial position ending the third quarter with $375 million in cash as well as the full 800 million dollar available on our revolving line of credit.
Turning to our outlook for the rest of the year I'll start by discussing the current environment and related assumptions underlying our guidance.
Regardless of external impacts we expect to make continued progress on our key priorities, which will help drive sales improve our profitability and mitigate inflationary cost pressures.
We continue to see a cautious consumer and it remains to be seen how changes in inflation higher interest rates and the resumption of student loan repayments will affect discretionary consumer spending during the holiday season.
Considering these factors and the consistent execution all year long, we are maintaining our full year revenue guide and narrowing our EPS guidance range.
I'll highlight a few factors that shape our outlook for the rest of the year starting with revenue.
We continue to expect full year revenue to decline, 4% to 6% versus 2022.
This outlook includes an approximately 2.5 percentage point negative impact from the wind down of our Canadian operations, which delivered sales of approximately $400 million in 2022.
It also includes an approximately 1.3 percentage point positive impact from the 53rd week in fiscal 2023.
Which we expect will add approximately $200 million in sales to the fourth quarter.
Year to date credit card revenues have increased 9% versus last year, primarily as a result of our credit card partner agreement. This improvement has come despite credit card losses, which have risen at a slower pace than expected as.
As we mentioned last quarter, we have seen delinquencies rise gradually and they are now above pre pandemic levels. However, delinquencies remain below industry levels and are contemplated in our guidance.
Turning to EBIT, we now expect adjusted EBIT margin of 3.8% to 4.1% for the full year versus three 3% in 2022.
Our forecast assumes that adjusted EBIT margin expansion would be driven primarily by gross margin improvements in the fourth quarter from our focus on inventory productivity when compared to the elevated markdowns. We took in 2022, we are updating our outlook for adjusted EPS for the full year.
Our GAAP earnings per share outlook is now 74 cent to 94 cents for the full year, which includes the Canadian wind down charges and related tax impact excluding the impact of these charges. We now expect adjusted earnings per share of $1 90 to $2.10 for the full year.
Shifting to capital allocation our priorities remain the same the first is investing in the business to better serve our customers and support long term growth.
We continue to plan for capital expenditures of 3% to 4% of net sales.
Our second priority is reducing our leverage we remain committed to an investment grade credit rating through a combination of earnings improvement and debt reduction and continue to target a leverage ratio below two five 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.
Our third quarter results along with the progress we've made on our priorities of improving Nordstrom rack, increasing inventory productivity and optimizing our supply chain capabilities position us well to drive profitable growth in the fourth quarter and over the longer term.
We are navigating through near term uncertainty, while remaining laser focused on delivering shareholder value over the long term with that Jamie we're ready for questions.
Thank you Cathy before we get started with the Q&A, we ask that participants please limit themselves to one question and one follow up we'll now move to the Q&A session.
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Thank you. Our first question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Good afternoon, everyone and as we're getting to the end of the year with the fourth quarter and the guidance that you provided the rack better improve the touch in the third quarter as compared to the second quarter and then taking a look at the Nordstrom batter also improved to touch what are you seeing in the different categories with some of them.
The same like active in like beauty, what does it step with it it is a pick up in terms of the categories. What were the components of the same store sales that drove that that improvement and then as you think about the EBIT margins in the work on the supply chain that you've done how are you initially thinking about framing two.
24, thank you.
Hey, Dana its Pete.
I think what really drove the improved sales.
<unk> improvement, we have in the balance and the content and quantity of our inventory.
We've right sized our inventory, we definitely got it in the right place in terms of the aging in the categories that matter.
As the years gone on and particularly in the lab.
Few weeks as is always the case this time of year, you're waiting for the weather to change. So you can flip the switch to selling more sweaters boots and coats what have you and Scott.
We've gotten a little bit better.
But.
Yes, I think in terms of the stuff that's performing well generally a beauty is a good example of that that's kind of working across the board, but I would say in general if youre looking for reasons why we've had sequential improvement and it actually had to have actually have had better inflection. Most recently, it's just the quality and content of our inventory and then.
Good afternoon, Dana's, Kathy nice to hear you again.
With regards to triangulate for obviously, we haven't given guidance yet we do look forward to sharing our our 2024 guidance next time, we're together.
But a couple of things you should expect to see which is we're going to continue to see the strength of our rock strategy great brands at great prices is continuing to work.
You'll see us continue to lean into those trends that Pete just noted like active and beauty clearly that's resonating with the customer.
And we'll continue to refine our inventory productivity to enable us to be agile as we respond to our consumer demand so more to come in 'twenty 'twenty four but that's what we're thinking about.
Thank you.
Next is Blake Anderson with Jefferies. Please proceed with your question.
Hi, Thanks for taking my question wanted to ask on <unk>.
G&A initiatives, you've obviously done a good job of improving the supply chain. There as you think about marching towards your medium term margin goals for EBIT.
What are the other drivers that you can deploy to improve SG&A.
And on top of that.
Maybe how much sales leverage do you feel like you need to.
Also maybe improve more.
Leverage there.
Good afternoon, Blake, it's Cathy so.
So with regards to SG&A as you noted.
We've seen great progress. This year first with are really driven by our supply chain initiatives. The four quarters of 100 basis points improvement and then back up again this quarter with another 50 basis points, so seeing great strength, there and continuing to drive and SG&A.
Offsetting some of the other headwinds that we've seen so.
Cost of inflation coming through some of the SG&A category.
Which we've been offsetting each year, though as we go into planning, we tasked ourselves with offsetting inflation with productivity improvement. So we would expect to see that same challenge coming into next year pretty much across all of our categories in SG&A. It's a an extreme focus of ours right now.
Got it and then the follow up would be more of a high level question, but if you look at.
The gap between the Nordstrom banner sales decline and Nordstrom rack, what do you really attribute that to and as we think about next year are there any puts and takes your thoughts on if that gap could close or what banner might be positioned better than the other thanks. So much.
Hi, This is Eric.
Yeah, a lot of ways. The banners are independent there is certainly a synergy turf business and our rack stores are our number one source of new customer acquisition, and we get good migration between the brands but.
They do.
Have a very separate and distinct business model.
So it'd be hard pressed to predict.
It would depend a lot on the external environment.
First what's driving the results.
We came into the year.
Very focused on Iraq business, and we saw opportunities.
And it really goes to last year, where.
The supply chain challenges, we had our most acute in our Iraq business.
And it really disrupted our flow at our mix from being what we want it to be so that's been a big focus of the team this year and.
That's where we're seeing sequential.
Sequential improvement as we've had the quality right to where we can be more aggressive in responding to.
What we're hearing from the customer.
And we can.
Bring in.
A bigger mix of these strategic brand.
We don't really make the difference in customers coming to Nordstrom rack.
Sure the erosion banner business.
Yeah.
Stores have been.
I think youre seeing around there's been a bit of a return to stores. This year digital business has been.
A little more pressured and that for us.
We really don't look at the separate bat the separate channels much.
We want to be there for other customer wants to.
To shop with us.
And so our inventories are in great shape as Pete mentioned.
And we're set up well for the holiday business in both banners.
Thanks, so much.
Thank you next.
Next is Michael Binetti with Evercore. Please proceed with your question.
Hey, guys. Thanks for taking our question.
I wanted to zero in on you might have said something to Dana.
What youre seeing in the current quarter, just because I think the.
There's a little bit of wood to chop through some of the normalization here for the 53rd week in Canada, but I think it embeds a little bit of an acceleration in the underlying rate I wanted to see if.
That was something you are seeing today, you might have mentioned that there was something related to that.
Are you feeling better about the content of inventory heading into the holiday. If you wouldn't mind, just talking about that for a minute and let us know what youre seeing and then.
I just wanted to ask one zero in on the SG&A.
100 basis point run rate kind of rolling off you said you got another 50 in this quarter.
It didn't sound like you were suggesting that that kind of level that 50 basis points would go forward.
Is there any reason that wouldn't the 50 that you saw this quarter wouldn't continue for the next few quarters and maybe just a few comments on what the new 50 basis points from what you guys are actually.
Able to do as you did you work on the on the supply chain.
Good afternoon, Michael So on the first one a sales driver as we shared we are please first off to drive more profitability on on fewer sales year over year. So I'll start there with just the quality of the earnings continues to see strength and it's really around all of our initiatives we have been driving.
But with regards to the drivers of the sales it's clear that customers are responding to newness and promotion has shared in the prepared remarks, and we're seeing it in a couple of things the actions like our five X beauty to our nor any club member and the free today.
Shipping as we move into the holidays is really.
Resonating I think with our customers so.
Great great.
Great progress, there with newness and promotion on SG&A.
50 basis points I'd like the way you asked that so.
The supply chain has continued to drive improvements now for a number of quarters, it'll just be more and more challenging guests to lap those improvement and so I would expect those to start to moderate.
Over time, we're seeing you know.
Good progress across every element of the supply chain, but those will start to moderate and we will continue to work to offset the other lines of SG&A with productivity initiatives.
Thanks, a lot probably help kindred congrats and good luck in the holiday.
Thank you.
Thank you. Our next question comes from the line of Oliver Chen with TD Cowen. Please proceed with your question.
Hi, Eric Peterson Kathy.
Regarding the two banners as you think about full lines as well as rack what would you say are key aspects to positive comping and returning to growth.
Just more generally or specifically and also as we think about the E com channel and Cathy as we.
As we look at the credit card income just what are some key variables you're assuming in terms of the next quarter and also perhaps like the framework from which that may differ if you have any thoughts. Thank you.
Hey, Oliver this is Erik.
I'm not sure on the rack banner.
We definitely see rack as.
A growth vehicle for us.
And a couple of ways.
And I want just to kind of our core strategy here that I touched on of great brands, great prices getting that assortment right.
And that's.
Yeah, that's an evergreen subject, we always have opportunities to get that mix better and better and our teams have done that.
I would say when we were reporting the gas on there is having more and more dedicated roles there.
Saar announcement of Jamba as rack president.
That follows earlier that really are built out.
Separate rack buying team there so.
We think were.
For a better position to be more agile in and really get the product mix right.
The second part rack growth would be around new stores, we see a lot of opportunity to add.
Profitable new rack stores.
Yeah.
We've been opening up more of the share we have more plan for next year.
And we're getting really great returns out of those investments there.
We see lots of runway there to keep out new store.
The other piece.
Is there is really around the digital part in the Omnichannel capabilities that.
Rack dot com affords us.
As you know, there's really not many players in the online off price space.
It's a hard business to be profitable at our rack dot com business is profitable.
And that was really the first step.
Leveraging that asset is to get the profitability.
We're there.
We see more opportunity.
Profitability, but we see opportunity to leverage that capability too.
To engage with customers more and more.
So we have a path forward a lot of omnichannel capabilities that we are.
We feel good about driving some growth there.
And the notion of banner.
I really would start with our digital business there, we see opportunities that are well underway.
Having different inventory models that allow us to bring greater selection.
On the digital journey.
Whether we own the merchandise or not so having other models to bring selection to our customers.
Just kind of step one step two is then using.
The.
David capabilities, we've been building out.
To cure rate.
Larger offer for our customers in the end, it's about winning on the discovery journey for customers and having a.
Flow of newness.
As important, but having that that selection and being able to offer up.
The right curated offering for customers on their journey is a super important as well.
And then Oliver I'll answer on the credit card revenues, just remembering that first and foremost there are part of our loyalty program and they're part of our most loyal customers and.
As we think about the credit card revenues for Q3 they were up.
Year over year.
And.
That's really was driven by higher customer balances higher interest rates, a little bit of benefit from the new relationship with our TD partner, and then offset a little bit by increased losses as we move into Q4, I'd expect them to be around the same level around that 3% or so of sales so about the same level.
As we clear out the rest of the year.
That'd be holidays best regards nice work on the marketplace model. Thanks.
Thank you next is Matthew boss with J P. Morgan. Please proceed with your question.
Great. Thanks.
So Eric maybe could you just elaborate on the continued softness at the full line business.
Maybe how much should we attribute it to the macro backdrop relative to company specific execution and then Pete just.
Maybe to tie in to that from a category perspective could you touch on trends in women's apparel relative to the above average performance that you cited in active and beauty.
Hey, Matthew up Yeah, I'll start with.
We feel good about our execution in that.
<unk> with having.
The right inventory level that allows us to be responsive to the customer and get our mix right.
And our merchandise merchandising teams have done a great job on that.
Really pleased with our inventory levels.
And the jewelry, that's affording us we still have some designer inventory to work through.
But outside of that.
We feel very good about that execution.
<unk>.
Scott.
I think our execution is good now that being said.
Sales is a controllable for us.
That is the scoreboard and on how we're serving customers.
And we see lots of opportunity to.
To continue to do things within our control in particular around traffic traffic has been soft.
R. R R.
Average order size has gone up.
Traffic has been down a bit so.
We've done some things.
Of late.
Like we.
We have a buyback.
Buybacks beauty rewards promotion going on right now through holiday, that's how we're getting good response from and that is.
Driving.
Extra traffic and conversion.
And.
000, we also expanded our free two day shipping.
We've had we've built out free two day shipping capabilities as part of our loyalty program and it really leverages are closer to you Arca strategy capabilities that we've talked about for a while.
That's spelled out the point that we're able to expand that for the holiday season and get customers.
Faster delivery, which we know is always a good thing both for conversion and and for return rate.
So again.
Again in short I think that the execution has been really solid and put us in a good position to.
Respond to the customer through the holiday season.
And this is Pete relative to women's apparel, you talked about look it's a big and important category for us and.
It's got a lot of our attention.
We've been making improvements, we're not where we need to be but it's definitely got momentum and moving in the right direction. We spent a lot of time in the last couple of months in our own stores and actually the competition too and I think.
What's been good about this whole process is a real return to the merged and stuff that's super important that just being close to what customers.
Are asking for what their choices are there in the marketplace.
We've got some some areas of strength, we're going to invest into one of them is our own label programs, you've heard us talk about that.
And it's an opportunity for us to grow and that is true.
Our sell throughs are.
And the Nordstrom product group, our own label is up 30% year over year, we have strong growth in that a lot of that is in women's apparel is why as I bring my I'm, bringing this up we have strong growth planned in 'twenty four.
You can get that right that's going to have a lot to do with the overall health of our women's apparel business. The other thing I'd say is being out in the stores that call out we tend to get is about.
The things that we can bring in that field special with elevated aspirational relatively.
Every store that we serve in a lot of that ends up in the kind of advanced contemporary space and so we're doing a good job of editing down and prioritizing and focusing on brands I would say one of the things that hurt us in the last couple of years, we probably were a little too wide with the breadth of our selection, therefore, probably werent, making strong enough.
Statements on this stuff that matter most.
We haven't up to improve that and we've been working on it so I'm going to have to give us a little bit of an incomplete here, but we'll definitely be circling back with you as time goes on to let you know about our progress but there is a lot of reason to believe that we have good improvement to make there and women's apparel.
Thank you Arne.
Our last question comes from Brooke Roach with Goldman Sachs. Please proceed with your question.
Good afternoon, and thank you for taking our question I was hoping we could get a deeper update on what you're seeing in the designer business is that kind of starting to stabilize versus the softening trend that you had seen earlier in the year either on a one year or a four year stock basis, and then for Cathy can you elaborate on how you.
We're planning markdowns for the year, particularly what's embedded for promotional recapture in your fourth quarter outlook relative to last year's outsized pressure.
Thank you.
Yes, I'll start on the designer part I think relative to what's.
And the trend is normalizing and stabilizing.
And if you look at it over the multiyear stack that you talked about it but we're still doing more business in designer now year to date 23 than we did year to date and 19 for example, so well it has come back from some of the heights that we had in the last couple of years I guess, we would view that really more it's normalizing.
And I think Thats natural given the big run up we had there for a while.
An important part of our business, we continue to invest in and I think for US is making sure we get the inventory levels.
And a good spots. So we can have that flow of newness I think particularly in that business. It's important that we keep having.
Having new things to show customers and we're getting it.
Healthier position in that regard every month that goes forward with.
With regards to markdowns, maybe I'll take it to a little bit bigger perspective, which is gross margin first and that is we're really pleased with the gross margin improvements. We've delivered this year for the whole year, and that's really been largely driven by our inventory productivity priority.
Our Q3, 35% gross margin rate is a historically healthy rate for the third quarter and then as we think about going into the fourth quarter with regard to the gross margin rate and then obviously the embedded assumption around markdowns is given that we're going into the fourth quarter and the holidays with a healthy inventory place.
You would expect us to be favorable to last year really driven by those improved year over year markdowns, just given the strength of our inventory.
We're pleased with our performance all year, the inventory productivity has been driving it.
Probably always room to continue to improve but I am really pleased at where we are starting up.
Great. Thank you so much.
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