Q4 2023 Nordstrom Inc Earnings Call

Operator: Greetings and welcome to the Nordstrom fourth quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.

Greetings and welcome to the Nordstrom fourth quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

Operator: We will begin with prepared remarks, followed by a question and answer session. If you would 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.

Speaker Change: He will begin with prepared remarks, followed by a question and answer session.

Speaker Change: 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.

Operator: As a reminder, this conference is being recorded. At this time, I'll turn the call over to Jamie Dewis, Head of Investor Relations for Nordstrom. You may begin.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: At this time I'll turn the call over to Jamie does.

Jamie: 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.

Jamie Dewis: 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.com. Our discussion may include forward-looking statements, so please refer to the slide with our Safe Harbor language. Participating in today's call are Erik Nordstrom, Chief Executive Officer, and Kathy Smith, Chief Financial Officer, who will provide a business update and discuss the company's fourth quarter performance. Please note that when discussing our results in Outlook, we will be referring to them on an adjusted basis for EBIT, EBIT margin, and earnings per share. Reconciliations to the most directly comparable GAAP measures can be found at the end of this presentation and in our Q4 2023 earnings press release, both of which are available on our website. And now I'll turn the call over to Erik. Thank you, Jamie. Good afternoon, everyone.

Jamie: 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.

Jamie: Participating in today's call are Erik Nordstrom, Chief Executive Officer, and Cathy Smith, Chief Financial Officer, who will provide a business update and discuss the company's fourth quarter performance.

Catherine R. Smith: Please note that when discussing our results and outlook, we will be referring to them on an adjusted basis for EBIT EBIT margin and earnings per share reconciliations to the most directly comparable GAAP measures can be found at the end of this presentation and our Q4 2023.

Erik B. Nordstrom: <unk> earnings press release, both of which are available on our website and now I'll turn the call over to Eric. Thank you Jamie and good afternoon, everyone. Thank you for joining us today.

Erik B. Nordstrom: Thank you for joining us today. I'll start with our fourth quarter performance, then discuss our 2023 priorities, and cover what we're focused on for 2024. We delivered a strong fourth quarter with net sales of $4.3 billion and earnings per share of 96 cents. For the full year, our results were within or better than the guidance we laid out, and we accomplished what we set out to do, enhance the customer experience and drive better financial performance. Ahead of the holiday shopping season, our teams worked hard to deliver the right assortment as well as provide engaging experiences for our customers. As a result of these efforts, we achieved sequential improvement in net sales, profitability, number of customers, and purchase trips in the fourth quarter. Throughout 2023, we remain focused on three priorities intended to drive better financial performance while keeping the customer at the center of everything we do. Our first priority was to improve Nordstrom Rack performance.

Eric: I will start with our fourth quarter performance and discuss our 2023 priorities cover what we're focused on for 2024.

Eric: We delivered a strong fourth quarter with net sales of $4 3 billion and earnings per share of 96 cents for the full year, our results were within or better than the guidance, we laid out and we accomplished what we set out to do.

Eric: Enhance the customer experience and drive better financial performance.

Eric: Ahead of the holiday shopping season, our teams worked hard to deliver the right assortment as well as provide engaging experiences for our customers.

Eric: As a result of these efforts we achieved sequential improvement in net sales profitability number of customers and purchase trips in the fourth quarter.

Throughout 2023, we remain focused on three priorities intended to drive better financial performance or keeping the customer at the center of everything we do.

Eric: Our first priority was to improve Nordstrom rack performance.

Erik B. Nordstrom: One way that we did that was by opening 19 new stores in 2023. New Rack Stores continue to be an excellent investment as they deliver well in excess of their cost of capital with a relatively short payback period. However, it's not just the new stores that drove the RAC's impressive net sales growth in the fourth quarter, as RAC-comparable store sales also grew by high single digits. Our RAC digital business also improved in traffic and conversion in the fourth quarter, enabling sales which contributed to NordstromRAC.com's full-year profitability. From a merchandise standpoint, we focused our efforts to improve our offering at The Rack, as we know that delivering great brands at great prices is what our customers want. Our second priority in 2023 was to increase inventory productivity.

Eric: One way that we did that was by opening 19, new stores in 2023.

New rack stores continue to be an excellent investment as they deliver well in excess of their cost of capital with a relatively short payback period.

Eric: However, it's not just a new stores that drove the racks impressive net sales growth in the fourth quarter as rack comparable store sales also grew by high single digits.

Eric: Iraq Digital business also improved in traffic and conversion in the fourth quarter, enabling sales, which contributed to Nordstrom rack dot coms full year profitability.

Eric: From a merchandise standpoint, we focused our efforts to improve our offering at the rack as we know that delivering great brands at great prices is what our customers want.

Our second priority in 2023 was to increase inventory productivity.

Erik B. Nordstrom: We continue to focus on managing inventory effectively, as evidenced by the positive sales-to-inventory spread in the fourth quarter, which sets us up well from a merchandise standpoint as we start the new fiscal year. Additionally, our efforts to reduce the overhang of designer inventory met our target, and our overall newness of inventory is stronger than it was a year ago, given we had fewer aged items to clear through. Our third priority for 2023 was to optimize our supply chain capability, a continuation of efforts that began in 2022. In Q4, for the sixth consecutive quarter, the team delivered another 50-plus basis points of improvement in variable supply chain expense savings while at the same time improving our click-to-delivery speed. Building on the momentum of our efforts to optimize our supply chain, we've made the strategic decision to relocate operations from our fulfillment center in San Bernardino, California, to our West Coast Omnichannel Center, just 25 miles away in Riverside.

Eric: We continued to focus on managing inventory effectively as evidenced by the positive sales to inventory spread in the fourth quarter, which sets us up well from a merchandise standpoint, as we start the new fiscal year.

Additionally, our efforts to reduce the overhang of designer inventory met our target and our overall newness of inventory is stronger than it was a year ago, given we had fewer aged items to clear through.

Eric: Our third priority of 2023 was to optimize our supply chain capabilities.

Eric: A continuation of efforts that began in 2022.

Eric: Q4 for the sixth consecutive quarter. The team delivered another 50 plus basis points of improvement in variable supply chain expense savings while at the same time, improving our click to delivery speed.

Eric: Building on the momentum of our efforts to optimize our supply chain. We've made the strategic decision to relocate operations from our fulfillment center in San Bernardino, California to our West Coast Omnichannel Center, just 25 miles away in Riverside.

Erik B. Nordstrom: WCOC has been growing for several years now and is well positioned to serve our customers across Nordstrom and Nordstrom RAC following the investments we have made to enhance capabilities at the facility. It is our newest, most automated facility, offering a substantially lower processing cost per unit. We record a $32 million asset impairment and related charge due to this relocation.

Eric: W. C. O C has been scaling for several years now and is well positioned to serve our customers across Nordstrom and Nordstrom rack banners. Following the investments we have made to enhance capabilities at the facility.

Eric: It is our newest most automated facility offering a substantially lower processing cost per unit.

Eric: We recorded a 32 million asset impairment and related charge due to this relocation.

Erik B. Nordstrom: We're pleased with the results of our efforts against our three priorities for 2023, as they not only drove better financial outcomes for the company but also supported our efforts to improve the customer experience. Next, I'd like to take a moment to discuss merchandise performance in the fourth quarter as Pete is away in the market and unable to join us today. We came into Q4 at a much healthier inventory position than in the prior year, resulting in fewer markdowns during the quarter, which helped to drive an expansion of our gross profit margin by 125 basis points. Active, Beauty, and Women's Apparel were our best performing categories in the fourth quarter, with strong growth versus the prior year. The active category was led by shoes, with strength from brands like On Running and Hoka, as well as apparel brand Diori.

Eric: We're pleased with the results of our efforts against our three priorities for 2023 is not only did they drive better financial outcomes for the company, but also supported our efforts to improve the customer experience.

Speaker Change: Next I'd like to take moment to discuss merchandise performance in the fourth quarter as Peter's away in market and unable to join US today, we came into Q4 at a much healthier inventory position than in the prior year, resulting in fewer markdowns during the quarter, which helped to drive an expansion of our gross profit margin by 100 and <unk>.

Speaker Change: 25 basis points.

Speaker Change: Active beauty and women's apparel were our best performing categories in the fourth quarter with strong growth versus the prior year.

Speaker Change: The active category was led by shoes with strength from brands like on running an OCA as well as apparel brand Youree, we leaned into beauty with a strong gift selection for holiday as well as a five times point promotion for our Nordic Club members.

Erik B. Nordstrom: We leaned into beauty with a strong gift selection for the holiday season, as well as a 5x point promotion for our Nordic Club members. This offer drove incremental trips and conversion while creating a halo effect in other categories. Fragrance was the top performer in beauty at both banners, highlighted by brands such as Burberry, YSL, and Marc Jacobs.

Speaker Change: This offer drove incremental trips and conversion, while creating a halo effect in other categories.

Speaker Change: Fragrance was the top performer in beauty at both banners highlighted by brands, such as Burberry, YSL and Marc Jacobs.

Erik B. Nordstrom: At the Nordstrom Banner, designer makeup drove strong growth from Chanel, Tom Ford, and Dior, while the skincare category improved compared with the previous year. At the RAC, the rollout of an expanded offering of hair care products supported our outsized growth. The improvement in women's apparel was supported by seasonally relevant newness in addition to our turnaround with the young customer, which is an area we have a multi-year plan to improve. We are pleased with progress in this area in Q4, which was led by our Nordstrom private brand. At the Nordstrom Banner, dressier categories were the best performing.

Speaker Change: At the nurturing banner designer makeup drove strong growth from Chanel, Tom Ford and your while the skincare category improved compared with the previous year.

Speaker Change: At the rack the rollout of an expanded offering of hair care products supported our outsized growth.

Speaker Change: The improvement in women's apparel was supported by seasonally relevant newness. In addition to our turnaround with the young customer which is an area. We have a multi year plan to improve.

We are pleased with progress in this area in Q4, which was led by our Nordstrom private brands.

Speaker Change: But the notion banner dressier categories were the best performing brands, such as Vince for Anika Beard, and sinker set delivered solid growth.

Erik B. Nordstrom: Brands such as Vince, Veronica Beard, and Cinque Set delivered solid growth. Overall, we exited 2023 with improved inventory levels versus the prior year, which gives us the opportunity to have a consistent flow of relevant product as we move towards spring. Turning to 2024, we're confident in our plan for the year. Building upon the work we did in 2023, we've refreshed our three key priorities for 2024, driving Nordstrom Banner growth, optimizing operations, and building on momentum at the rack. The first priority is to drive growth at our Nordstrom Banner. Our customers value the relevance and inspiration that we offer. We aim to provide that by offering a compelling product mix along with creating an environment where they can not only shop for their favorite brands and products but also discover new ones.

Speaker Change: Overall, we exited 20 twenty-three with improved inventory levels versus the prior year, which provides us the opportunity to have a consistent flow of relevant product as we move towards spring.

Speaker Change: Turning to 'twenty 'twenty four we're confident in our plan for the year Bill.

Speaker Change: Building upon the work we did in 2023, we've refreshed our three key priorities for 2024, driving Nordstrom banner growth optimizing operationally and building on momentum at the rack.

Speaker Change: The first priority is to drive growth at our Nordstrom banner.

Speaker Change: Our customers value the relevance and inspiration that we offer we aim to provide that by offering a compelling product mix, along with creating an environment, where they not only shop their favorite brands and products, but also discover new ones we.

Erik B. Nordstrom: We will focus our Nordstrom Banner efforts on digital-led growth supported by our stores. One thing we're excited about is the launch of our digital marketplace on Nordstrom.com starting in April. By reimagining the way we work with our brand partners, we'll grow our curated online assortment to serve more customers on even more occasions by increasing our use of unowned inventory. Marketplace will allow customers to shop more products and sizes from their favorite brands while providing them with more access to new and emerging brands.

Speaker Change: We will focus our Nordstrom banner efforts on digital led growth supported by our stores. One thing. We're excited about is the launch of our digital marketplace on Nordstrom Dotcom starting in April.

Speaker Change: By re imagining the way, we work with our brand partners or grow our curated online assortment to serve more customers, an even more occasions through increasing our use of unknowns inventory.

Speaker Change: Marketplace will allow customers to shop more products and sizes from their favorite brands, while providing them more access to new and emerging brands.

Erik B. Nordstrom: As we do this, we're also creating a more personalized digital experience that makes it easy for our customers to navigate our growing assortment. Expanding our assortment through unowned inventory, which has the potential to drive GMV growth in addition to providing compelling economics, will also drive Nordstrom growth by amplifying the brands that matter most to our customers, along with ensuring we have the depth in these brands consistently across our stores and online. Beauty will also continue to play a prominent role in our assortment and growth.

As we do this we're also creating a more personalized digital experience that makes it easy for our customers to navigate our growing assortment.

Speaker Change: Expanding our assortment through unknown inventory has the potential to drive G. M. D growth in addition to providing compelling economics.

Speaker Change: We will also drive Nordstrom growth by amplifying the brands that matter most to our customers along with ensuring we have the depth in these brands consistently across our stores and online.

Speaker Change: Beauty will also continue to play a prominent role in our assortment and growth.

Erik B. Nordstrom: Our efforts are designed to create more engagement in addition to improving retention while serving customers on more occasions with the breadth of assortment that they expect from us. Our second priority for 2024, operational optimization, builds upon the success that we've had in optimizing our supply chain capability. This entails a focus on driving faster fulfillment and delivery for our customers, as well as maximizing our inventory value through its lifecycle. We will continue our efforts to improve inventory integrity and optimize inventory positioning along with increasing the speed of product delivery to the customer. We are making investments in systems and technology enablers to standardize and streamline our inventory processes, expanding the scale of our RFID utilization and improving the inventory movement within our business. All with the end goal of enhancing the customer experience and improving our cost position. Our third priority for 2024 is building on the momentum at the rack. Opening new Rack stores is a profitable investment as well as a key way to reach more new customers and drive Rack Banner growth.

Speaker Change: Our efforts are designed to create more engagement. In addition to improving retention, while serving customers on more occasions with the breadth of assortment that they expect from us.

Speaker Change: Our second priority for 'twenty 'twenty four operational optimization builds upon the success that we've had in optimizing our supply chain capabilities.

Speaker Change: This entails a focus on driving faster fulfillment and delivery for our customers as well as maximizing our inventory value through its lifecycle.

Speaker Change: We will continue our efforts to improve inventory integrity, and optimize inventory positioning along with increasing the speed of product to the customer.

Speaker Change: We are making investments in systems and technology enablers to standardize and streamline our inventory processes expanding the scale of our RFID utilization and improving the inventory movement within our business all with the end goal of enhancing the customer experience and improving our cost position.

Speaker Change: Our third priority for 'twenty 'twenty four is building on the momentum at the rack.

Speaker Change: Opening new rack stores is a profitable investment as well as a key way to reach more new customers and drive rack banner growth.

Erik B. Nordstrom: As we're opening more new stores, we're finding our performance and efficiency continues to improve. Expanding our network of stores brings our omni-channel services closer to the customer, giving them more reasons and opportunities to engage with us. We consistently hear how customers enjoy the convenience of shopping between our banners, taking advantage of the services we offer, including cross-banner in-store returns, buy-online, pick-up-in-store, and alterations.

Speaker Change: As we're opening more new stores, we're funding our performance and efficiency continues to improve.

Speaker Change: Expanding our network of stores brings our omnichannel services closer to the customer, giving them more reasons and opportunities to engage with us we consistently hear how customers enjoy the convenience of shopping between our banners taking advantage of the services, we offer including cross banner in store returns buy online pick up in <unk>.

Speaker Change: Store and alterations.

Erik B. Nordstrom: In 2023, we opened 19 new stores, and our intent is to open 22 new stores in 2024. Rack stores continue to be a growth engine for our company. They are our largest source of new customer acquisition, accounting for over 40%. Growing our store count also supports long-term customer attention. In fact, roughly a quarter of retained RAC customers migrate to the Nordstrom Banner within four years.

Speaker Change: In 2023 we opened 19, new stores and our intent is to open 22, new stores in 2024.

Speaker Change: Rack stores continued to be a growth engine for our company as they are our largest source of new customer acquisition accounting for over 40%.

Speaker Change: Growing our store count also supports long term customer attention in fact, roughly a quarter of retained rack customers migrate to the Nordstrom banner within four years.

Erik B. Nordstrom: We aim to deliver top-line rack growth led by stores and supported by enhanced digital capabilities in 2024. To that end, in addition to growing the number of Rack stores, we also intend to continue the profitable momentum at NordstromRack.com. By leveraging our digital assets, our suite of omni-channel offerings will enable us to grow our selection online, as well as enhance the customer experience as we strive to deliver great brands at great prices for our customers, regardless of how they choose to shop.

Speaker Change: We aim to deliver topline rack growth led by stores and supported by enhanced digital capabilities in 'twenty 'twenty four.

Speaker Change: To that end in addition to growing the number of rack stores. We also intend to continue the profitable momentum at Nordstrom rack dot com by leveraging our digital assets, our suite of Omnichannel offerings will enable us to grow our selection online as well as enhance the customer experience as we strive to deliver great brands at great price.

Speaker Change: As for our customers, regardless of how they choose to shop.

Erik B. Nordstrom: Before I turn it over to Kathy for a review of the financials, I want to thank our teams for their focus on exceptional service to our customers and execution of the day-to-day business while remaining steadfast on our priorities. We're proud of the efforts that we undertook in 2023, as well as the outcomes that enhanced the customer experience and drove improved financial results. Through a clear set of priorities, we're confident that we'll end 2024 as an even stronger company. And with that, I'll hand it over to Kathy.

Speaker Change: Before I turn it over to Kathy for a review of the financials I want to thank our teams for their focus on exceptional service to our customers and execution of the day to day business, while remaining steadfast on our priorities.

Kathy: We're proud of the efforts that we undertook in 2023 as well as the outcomes that enhance the customer experience and drove improved financial results.

Kathy: Through a clear set of priorities, we're confident that we'll end 'twenty 'twenty four as an even stronger company.

Kathy: And with that I'll hand, it over to Kathy Thanks, Eric and thank you all for joining US today, although it was mentioned in the forward looking statement at the beginning of this call when I speak to our results and outlook. It will be on an adjusted basis for EBIT EBIT margin and EPS for which the relevant reconciliations can be found at the end of <unk>.

Catherine R. Smith: Thanks, Erik. And thank you all for joining us today. Although it was mentioned in the forward-looking statement at the beginning of this call, when I speak to our results and outlook, it will be on an adjusted basis for EBIT, EBIT margin, and EPS, for which the relevant reconciliations can be found at the end of this presentation and in our earnings release, both of which are available on our website. I'll begin by covering our fourth-quarter results, then provide some additional commentary about our transition from retail to cost accounting For the fourth quarter, we reported earnings per share of $0.96, compared with $0.74 in the year-ago quarter.

This presentation and in our earnings release, both of which are available on our website.

Kathy: I'll begin by covering our fourth quarter results then provide some additional commentary about our transition from retail the cost accounting discuss our outlook for 'twenty, 'twenty, four and quarterly timing and close with our capital allocation priorities.

Kathy: For the fourth quarter, we reported earnings per share of 96 cents compared with 74 cents in the year ago quarter. We are pleased with the financial results and momentum throughout the year and that we delivered on our guidance in.

Kathy: In Q4, we finished with year over year increases in gross margin EBIT and EPS. Despite net sales that were essentially flat on a like for like basis.

Catherine R. Smith: We are pleased with the financial results and momentum throughout the year and that we delivered on our guidance. In Q4, we finished with year-over-year increases in gross margin, EBIT, and EPS, despite net sales that were essentially flat on a like-for-like basis. Net sales increased 2% in the fourth quarter, which includes a benefit of 460 basis points related to the 53rd week and 250 basis points unfavorable impact from the winding down of Canadian operations. Total GMB increased 2% in the fourth quarter. Nordstrom Banner net sales decreased 3%, including a 410 basis point benefit related to the 53rd week and a 355 basis point negative impact from the winding down of Canadian operations.

Kathy: Net sales increased 2% in the fourth quarter, which includes a benefit of 460 basis points related to the 53rd week and 250 basis points unfavorable impact from the wind down of Canadian operation.

Kathy: Total GMB increased 2% in the fourth quarter.

Kathy: Nordstrom banner net sales decreased 3%, including a 410 basis point benefit related to the 53rd week and a 335 basis point negative impact from the wind down of Canadian operations Nordstrom.

Kathy: Nordstrom banner GMB decreased 3% in the fourth quarter.

Kathy: Nordstrom rack net sales increased 15%, including a benefit of 580 basis point related to the 53rd week.

Kathy: Throughout the year, we saw steady progress quarter over quarter in the topline as we focused on this growth driver.

Catherine R. Smith: Nordstrom Banner GMB decreased 3% in the fourth quarter. Nordstrom RAC net sales increased 15%, including a benefit of 580 basis points related to the 53rd week. Throughout the year, we saw steady progress quarter over quarter in the top line as we focused on this growth driver. Although digital sales in the fourth quarter decreased 2% compared to the same period in fiscal 2022, we saw quarter over quarter sales improvement. Digital sales represented 38% of total sales during the quarter. Gross profit as a percentage of net sales of 34.4% increased 125 basis points compared with the same period last year due to lower markdowns, lower buying and occupancy costs, and leverage on higher sales. Ending inventory decreased by 3% in the quarter.

Although digital sales in the fourth quarter decreased 2% compared to the same period in fiscal 2022, we saw quarter over quarter sales improvement.

Kathy: <unk> sales represented 38% of total sales during the quarter.

Kathy: Most profit as a percentage of net sales a 34.4% increased 125 basis points compared with the same period last year due to lower markdowns, lower buying and occupancy cost and leverage on higher sales.

Kathy: Ending inventory decreased 3% in the quarter. We are pleased with the progress on inventory productivity. We delivered this year as Eric mentioned, we exited the year with improved inventory levels versus last year, which set us up well to start the new fiscal year.

Kathy: Reported SG&A expenses as a percentage of net sales increased 85 basis points in the fourth quarter, including a $32 million supply chain asset impairment and related charge.

Catherine R. Smith: We are pleased with the progress on inventory productivity we delivered this year. As Erik mentioned, we exited the year with improved inventory levels versus last year, which sets us up well to start the new fiscal year. Reported SG&A expenses as a percentage of net sales increased 85 basis points in the fourth quarter, including a $32 million supply chain asset impairment and related charge.

Kathy: Excluding the charge SG&A expenses as a percentage of net sales were in line with the year ago quarter as the impact of higher labor costs was offset by improvement in variable costs from supply chain efficiencies and leverage on higher sales our supply chain initiatives continued to deliver strong results over the last year.

Kathy: Our EBIT margin for the fourth quarter with 5.7% versus four 5% in the year ago quarter.

Catherine R. Smith: Excluding the charge, SG&A expenses as a percentage of net sales were in line with the year-ago quarter as the impact of higher labor costs was offset by improvements in variable costs from supply chain efficiencies and leverage on higher sales. Our supply chain initiatives continue to deliver strong results over the last year. Our EBIT margin for the fourth quarter was 5.7% versus 4.5% in the year-ago quarter, and we ended the fourth quarter with $1.4 billion in available liquidity, including over $600 million in cash.

Kathy: And we ended the fourth quarter with $1.4 billion in available liquidity, including over $600 million in cash our balance.

Kathy: <unk> financial position remains solid.

Kathy: Next I want to take a moment to speak about our fiscal 'twenty 'twenty four conversion from the retail method of accounting for inventory to the cost method.

Kathy: This shift to operating in units and cost lays the foundation for us to deliver on our business priorities more effectively.

Kathy: We will see profitability at the item level guiding us in executing with intention and speed.

Kathy: We anticipate that utilizing cost accounting for financial reporting purposes in 'twenty 'twenty four will result in a slight headwind in our 2024, a result more on that in a moment.

Catherine R. Smith: Our balance sheet and financial position remain solid. Next, I want to take a moment to speak about our fiscal 2024 conversion from the retail method of accounting for inventory to the cost method. This shift to operating in units and costs lays the foundation for us to deliver on our business priorities more effectively. We will see profitability at the item level, guiding us in executing with intention and speed. We anticipate that utilizing cost accounting for financial reporting purposes in 2024 will result in a slight headwind on our 2024 results. More on that in a moment.

Kathy: Turning to our outlook for the year I'll start by discussing the current environment and related assumptions underlying our guidance, we expect 'twenty 'twenty four to be a year of continued momentum toward the long term strength and durability of our business.

Kathy: We continue to see a cautious consumer that is mindful of discretionary purchases in light of inflation higher interest rates and the resumption of student loan payments.

Kathy: Regardless of the external environment, we will remain focused and expect to make progress on the three 'twenty 'twenty four priorities that Eric discussed following the solid execution against our 2023 priorities.

And 'twenty 'twenty four we expect full year revenue in the range of a decline of 2% to an increase of 1%, which includes a headwind of approximately 135 basis points from the 50 <unk> week in 2023 as a result.

Catherine R. Smith: Turning to our outlook for the year, I'll start by discussing the current environment and related assumptions underlying our guidance. We expect 2024 to be a year of continued momentum toward the long-term strength and durability of our business. We continue to see a cautious consumer that is mindful of discretionary purchases in light of inflation, higher interest rates, and the resumption of student loan payments.

Kathy: We expect revenue to follow a typical quarterly cadence.

Kathy: In 2023, our credit card revenue, representing slightly over 3% of net sales.

Kathy: We anticipate credit card revenues should be closer to 3% of net sales in 2024.

Kathy: Now that we are consistently opening new rack stores, we will be providing comparable sales data on a quarterly basis beginning in Q1 as such we expect total company comparable sales in a range of a decrease of 1% to an increase of 2% in 2024.

Catherine R. Smith: Regardless of the external environment, we will remain focused and expect to make progress on the three 2024 priorities that Erik discussed, following the solid execution against our 2023 priorities. In 2024, we expect full-year revenue in the range of a decline of 2% to an increase of 1%, which includes a headwind of approximately 135 basis points from the 53rd week in 2023's results. We expect revenue to follow a typical quarterly cycle. In 2023, our credit card revenue will represent slightly over 3% of net sales.

Kathy: It is 52 weeks in 2023.

Kathy: Turning to profitability, we expect EBIT margin in the range of three 5% to 4% with EBIT, reflecting slight pressure due to the aforementioned conversion from retail to cost accounting and modest increases in SG&A to support rack growth.

Kathy: We expect a two percentage point increase in our effective tax rate relative to 2023 to be back at our typical rate of 27%.

From an earnings per share perspective, we anticipate full year results in the range of $1 65 to $2.05 again weighed upon modestly by the accounting method change as well as the anticipated increase in our effective tax rate relative to 2023.

Catherine R. Smith: We anticipate credit card revenue should be closer to 3% of net sales in 2024. Now that we are consistently opening new retail stores, we will be providing comparable sales data on a quarterly basis, beginning in Q1. As such, we expect total company comparable sales in a range of a decrease of 1% to an increase of 2% in 2024, versus 52 weeks in 2023. Turning to profitability, we expect EBIT margins in the range of 3.5% to 4%, with EBIT reflecting slight pressure due to the aforementioned conversion from retail to cost accounting and modest increases in SG&A to support RAC growth. We expect a two percentage point increase in our effective tax rate relative to 2023 to be backed at our typical rate of 27%.

Speaker Change: Although we don't typically focus our guidance on a quarter by quarter basis, I would like to offer a few comments on our expectations for the cadence of the year.

Speaker Change: The estimated timing of markdown recognition under the retail method versus the cost method is anticipated to weigh heavier on the first half result, primarily in Q1 under the retail method of accounting last year's Q1 benefited modestly to the timing of markdown recognition in Q4 2022. However.

Speaker Change: Under the cost method, we do not anticipate that to repeat.

Speaker Change: We expect this Q1's results to be near breakeven to a slight loss in Q2 to have about one third of the year's earnings.

Speaker Change: As the year progresses with our anniversary sale almost entirely in the second quarter as one week shifts back out of Q3, the rest of the year should follow a more traditional cadence as the estimated headwind from the change in accounting method lessen throughout the year turning to capital allocation our priorities remain the same the first is investing in.

Catherine R. Smith: From an earnings per share perspective, we anticipate full-year results in the range of $1.65 to $2.05, again weighed down modestly by the accounting method change, as well as the anticipated increase in our effective tax rate relative to 2023. Although we don't typically focus our guidance on a quarter-by-quarter basis, I would like to offer a few comments on our expectations for the cadence of the year. The estimated timing of markdown recognition under the retail method versus the cost method is anticipated to weigh heavier on the first half results, primarily in Q1. Under the retail method of accounting, last year's Q1 benefited modestly from the timing of markdown recognition in Q4 2022. However, under the cost method, we do not anticipate that this will repeat.

Speaker Change: Our 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 bill.

Speaker Change: So two and a half times.

Speaker Change: We have a bond maturity of $250 million in April that we intend to retire using cash on hand.

Speaker Change: Our third priority is returning cash to shareholders last week, our board of directors declared a quarterly cash dividend of <unk> 19 per share.

Speaker Change: In closing, we made great progress against our priorities and delivered on our guidance for the year in 2023 and looking forward to the progress that we'll make this year and getting after the growth opportunities we have both at Nordstrom banner and the rack.

Catherine R. Smith: We expect this Q1's results to be near break-even to a slight loss and Q2 to have about one-third of the year's earnings. As the year progresses, with our anniversary sale almost entirely in the second quarter, as one week shifts back out of Q3, the rest of the year should follow a more traditional cadence as the estimated headwind from the change in accounting method lessens throughout the year. Turning to capital allocation, our priorities remain the same.

Speaker Change: As I mentioned earlier, we expect 2020 for it to be a year of continued momentum towards the long term strength and durability of our business.

Speaker Change: We thank you for your interest in Nordstrom and with that Jamie we're ready for questions. Thank you Cathy before we get started with Q&A. We ask that participants please limit themselves to one question and one follow up.

Catherine R. Smith: 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 three to four percent 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 and a half times. We have a bond maturity of $250 million in April that we intend to retire using cash on hand.

Jamie: We'll now move to the Q&A session.

Jamie: Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue and.

And you May press star two if he would like to remove your question from the queue.

Jamie: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Jamie: Our first question comes from the line of Ashley Owens with Keybanc capital markets. Please proceed with your question.

Catherine R. Smith: 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 closing, we made great progress against our priorities and delivered on our guidance for the year in 2023. I'm looking forward to the progress that we'll make this year and pursuing the growth opportunities we have, both at Nordstrom Banner and the RAC. As I mentioned earlier, we expect 2024 to be a year of continued momentum toward the long-term strength and durability of our business. We thank you for your interest in Nordstrom. And with that, Jamie, we are ready for questions. Thank you, Kathy.

Jamie: Hi, This is Charlie on for Ashley today, So looking at rack store openings I think you mentioned an intent to open 22, new stores in 2024.

Charlie: To the cadence of those openings throughout the year and maybe if you could help us break down how much of the rock centers growth. This year will come from new stores versus the same stores. Thanks.

Charlie: Hi, John Yes, Kathy so first off throughout the course of the year just like in 2023 we will see there'll be a spring cohort and a follow up call cohort we don't.

Speaker Change: Typically time them, one or the other but youll see that its spread through it through the course of the year.

Operator: Before we get started with Q&A, we ask that participants please limit themselves to one question and one follow-up. We'll now move to the Q&A. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.

Speaker Change: We continue to be very very excited about the rack rack opportunity. They have continued to drive a strong return on investment. They are a great source of new customer acquisition to the Nordstrom banner.

Speaker Change: And they have great economics, so well continue we continue to be excited about them as we move forward.

Speaker Change: Awesome. Thank you.

Speaker Change: Our next question comes from the line of Ashley Hogan with Jefferies. Please proceed with your question.

Speaker Change: Yeah.

Operator: And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Our first question comes from the line of Ashley Owens with KeyBank Capital Markets. Please proceed with your question. Hi, this is Kamina on behalf of Ashley today.

Ashley Hogan: Hi, Good afternoon, it's Blake on for absolutely thanks for taking our questions.

First wanted to ask on the sales guide range for 2024, just any color you can give on expectations by banner and then.

Ashley Hogan: Your expectations for AUR versus transactions and maybe if you could talk about what that was for those two items in 2023.

Catherine R. Smith: So looking at Rack Store openings, I think you mentioned the intent to open 22 new stores in 2024. Please speak to the cadence of those openings throughout the year and maybe if you could help us break down how much of the Rack Center's growth this year will come from new stores versus same stores. Hi Tanya, this is Kathy.

Speaker Change: Maybe Blake I'll start and then.

Eric can answer on as well so with regards to the guidance for revenue. So first let me parse a little bit of comp versus revenue guidance.

Speaker Change: Guidance for revenue comp guidance is a little stronger as we think about it as a 52 to 52 week impacts I just want to acknowledge the revenue guidance is versus.

Catherine R. Smith: So first off, throughout the course of the year, just like in 2023, we'll see there'll be a spring cohort and a fall cohort. We don't specifically time them one or the other, but you'll see that it spreads throughout it throughout the year. We continue to be very, very excited about the RAC opportunity. They have continued to drive a strong return on investment. They're a great source of new customer acquisition for the Nordstrom banner, and they have great economics. So we continue to be excited about them as we move forward. Awesome, Thank you.

Speaker Change: The extra week, we had in 2023 that said, though to your question. We're excited to grow where the market is growing we're going to grow with our rack and the off price channel and youre going to see us continue to lean into that.

Speaker Change: That growth.

Speaker Change: Driver for US and then you're you'll see we expect digital to grow as the market is that we're gonna be below the market growth as we move from this year into next where we're very very focused on driving digital growth, we know that things like choice count matter, there and so we're excited about the marketplace.

Catherine R. Smith: Our next question comes from the line of Ashley Helgans with Jeffreys. Please proceed with your question. Good afternoon, it's Blake on for Ashley.

Speaker Change: Just a comment that Eric shared in the remarks that'll help obviously drive.

Speaker Change: The choice Count we're focused on assortment for digital and we're going to continue to drive that lower price point like that under 100 dollar price point to drive growth there and then the overall experience and digital so we're continuing to focus on driving there and then the last place of growth would be the Nordstrom stores.

Catherine R. Smith: Thanks for taking our questions. First, wanted to ask about the sales guide range for 2024, just any color you can give on expectations by banner and then your expectations for AUR versus transactions. And maybe if you could talk about what those were for those two items in 2023. Maybe, Blake, I'll start and then Erik can answer as well.

Speaker Change: Eric talk about that in his prepared remarks.

Eric: Expect that to be a little bit more in the flattish range as you think about by the banner in the channel.

We're really excited about having the assortment in the stores that matter most for our customers. We have a concerted effort on making sure that we do that this year, having great service and experience that we're known for so that will hopefully help you with a little bit of color around each of the banners and channels.

Catherine R. Smith: So with regard to the guidance for revenue, so first, let me parse a little bit of comp versus revenue, comp guidance versus revenue. Comp guidance is a little stronger, as we think about it's a 52 to 52 week impact. So I just want to acknowledge the revenue guidance versus the extra week we had in 2023. That said, though, to your question, we're excited to grow where the market's growing; we're going to grow with RAC and the off-price channel; you'll see us continue to lean into that, that growth driver for us. And then you'll see us expect digital to grow as the market is, but we're going to be below the market's growth as we move from this year into next. We're very, very focused on driving digital growth, and we know that things like choice count matter there.

Eric: <unk> that guidance and then on AUR that one's difficult to predict where all expecting I think for AUR to start to come down.

But that's going to be a little bit more difficult to predict.

I don't know.

Eric: Yes.

Eric: Alright.

Eric: A little more detail.

Eric: Yeah.

Eric: Store traffic store traffic continues to be on the soft side, although traffic and the Nordstrom banner stores did improve sequentially throughout the year.

Eric: It is AUR that is.

And both banners, hoping to drive.

Eric:

Eric: Improved showing.

Catherine R. Smith: And so we're excited about the marketplace comment that Erik shared in his remarks, that will help obviously drive choice count, we're focused on assortment for digital, and we're going to continue to drive that. Lower price points like that under the $100 price point to drive growth there. And then the overall experience in digital. So we're going to focus on driving that. And then the last place of growth would be the Nordstrom stores. Erik talked about that in his prepared remarks. Expect that to be a little bit more in the flattish range, as you think about by the banner and the channel.

Eric: Selling prices.

Eric: Which is leading an average trip value going up digitally.

Eric: Also some soft traffic.

Eric: But again average order value and average selling price.

Both of those increased at both Nordstrom Dot com and Dot com.

Speaker Change: That's super helpful. I appreciate the color and then a follow up is on the EBIT.

Speaker Change: EBIT margins can you just elaborate on the puts and takes for those this year I know you said the accounting change and then you're investing in store growth. The guide is three five to four slightly below four this year.

Catherine R. Smith: But we're really excited about having the assortment in the stores that matter most to our customers. We have a concerted effort to make sure that we do that this year, and we have the great service and experience that we're known for. So that'll hopefully help you with a little bit of color around each of the banners and channels inside that guidance. And then on AUR, you know, that one's difficult to predict.

Speaker Change: Any more detail you can kind of give for us on the headwinds next year and then what.

Speaker Change: Would love to hear any commentary on what kind of topline you need in the future.

Speaker Change: Or any other initiatives you need to see.

Speaker Change: On the top line in order to get margin expansion.

Catherine R. Smith: We're all expecting, I think, for AURs to start to come down. But that's going to be a little bit more difficult to predict. Yeah, I guess the other color I'd add, one more detail.

Speaker Change: Yes.

Speaker Change: Thanks, where we're very focused on continuing to drive both market share gains as well as margin expansion. So now that that's where our focus is.

Erik B. Nordstrom: First of all, store traffic. Store traffic continues to be on the soft side, although traffic at the Nordstrom Banner stores did improve sequentially throughout the year. It is AUR that is in both banners helping to drive improved selling prices, which is leading to average trip value going up. Digitally, there was also some soft traffic, but again, average order value and average selling price, both of those increased at both Nordstrom.com and... That's super helpful. I appreciate the color.

Speaker Change: Inside the guide for 2024 tests to answer your question, though we've made great progress in gross margin expansion. This year in 2023 of the year, we just concluded.

Speaker Change: We would expect to continue to drive a little bit of gross margin expansion. It is being offset though by some SG&A headwinds so expense headwinds, while we continue to drive productivity in places like supply chain, we're offsetting it with it.

Speaker Change: And new rack store openings.

Speaker Change: And a little bit of inflation in things like labor that we're not fully offsetting.

Speaker Change: Got it thank you very much.

Catherine R. Smith: And then our follow-up question is on EBIT margins. Can you just elaborate on the puts and takes for those this year? I know you said the accounting change and then you're investing in store growth. The guide is three and a half to four, slightly below for this year.

Speaker Change: Our next question comes from the line of Eddie Rumour with Piper Sandler. Please proceed with your question.

Edward James Yruma: Hey, Good afternoon, guys two quick ones for me I guess first if you could give us an update on some of your kind of Citycenter Big box Nordstrom stores I know for some period of time, they were pressured by traffic trends, but we kind of love to hear any color you have there and then as a follow up.

Catherine R. Smith: What's any more detail you can kind of give us on the headwinds next year? And then we'd love to hear any commentary on what kind of top line you need in the future or any other initiatives you need to see on the top line in order to get margin expansion. Thank you.

Edward James Yruma: On some of the new Iraq scores, but love to understand maybe the return profile.

Edward James Yruma: Have they been ramping as quickly as you had expected, particularly those in new markets. Thank you.

Catherine R. Smith: So thanks. We're very focused on continuing to drive both market share gains as well as margin expansion. So know that that's where our focus is. Inside the guide for 2024, to answer your question, though, we've made great progress in gross margin expansion this year. In 2023, the year we just concluded, we would expect to continue to drive a little bit of gross margin expansion. It is being offset, though, by some SG&A headwinds.

Eric: Yes. This is Eric.

Eric: I'll take the first part of that.

Eric: And I guess the second one.

Yeah.

Eric: We have.

Eric: Really not seeing that difference between urban and suburban stores through 'twenty three like we did.

Eric: Kind of through the pandemic for a couple of years.

Eric: Some of our fastest growing stores.

Eric: This past year or our big urban flagship stores in particular in New York.

Eric: As shown real strong growth.

Catherine R. Smith: So expense headwinds. While we continue to drive productivity in places like supply chain, we're offsetting it with investments in new rack store openings and a little bit of inflation and things like labor that we're not fully offsetting.

Eric: On the rack stores the return profile to answer your question as you know.

Eric: It's kind of a new market. We started rebuilding this last year or so in 2023, Oh, we opened 19 stores are kind of in two cohorts of spring cohort in a fault cohort we took all the learnings we had.

Catherine R. Smith: Thank you very much. Our next question comes from the line of Ed Yruma with Piper Sandler. Please proceed with your question. Hey, good afternoon, guys. Two quick ones for me.

Eric: From the earlier ones into the later ones will take the learnings from both of those into this year as we continue to evolve.

Eric: A little bit around the edges, so things like the amount of investment in our new store how much we support it with inventory all of those things. They just keep getting better and better are they come out really strong as you would imagine.

Erik B. Nordstrom: I guess first, if you could give us an update on some of your kind of city center, big box Nordstrom stores. I know for some period of time, they were pressured by traffic trends, but we kind of, you know, love to hear any color you have there. And then, as a follow-up, on some of the new Iraq stores, we'd love to understand maybe the return profile. Have they been growing as quickly as you had expected, particularly those in new markets? Thank you. Hey, there's Erik. I'll take the first one.

We are working to make sure we sustain that growth throughout the duration, though we're great about supporting with lots of inventory upfront and lots of marketing and we need to make sure. We continue to do that all in though we're really really excited about the great return on investment grade acquisition of new customers for our total banner.

Erik B. Nordstrom: I guess the second one. Yeah, we have really not seen that difference between urban and suburban stores through 23, like we did kind of during the pandemic for a couple of years. Some of our fastest growing stores this past year, or our big urban flagship stores, in particular New York, have shown real strong growth. On the RAC stores, the return profile, to answer your question, as you know, it's it's kind of a new muscle.

Eric: Our total brand.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Brooke Roach: Good afternoon, and thank you for taking our question I was hoping to get an update on what youre seeing on profitability of the dot com business. It sounds like you saw some nice improvement in Roc Dot coms profitability. This year, where does that sit today compared to full line on total company margin rates and what's the opportunity for continued improvement in 2024.

Erik B. Nordstrom: We started rebuilding this last year, and so in 2023, we opened 19 stores, kind of in two cohorts, a spring cohort and a fall cohort, which took all the learnings we had from the earlier ones into the later ones. We'll take the learnings from both of those into this year, as we continue to evolve a little bit around the edges. So things like the amount of investment in a new store, how much we support it with inventory, all of those things, they just keep getting better and better. They come out really strong, as you would imagine.

Speaker Change: Maybe I'll start but.

Speaker Change: Obviously, Eric can add on as well. So it has been a distinct effort of ours to get the rack digital business profitable.

Speaker Change: Profitable as we've spoken to it is profitable for 2023, the full year really proud of the work that the team has done to drive that business improvement.

Speaker Change: The Nordstrom Dot com business, though it is actually quite profitable, it's one of our most profitable channels and.

Erik B. Nordstrom: We are working to make sure we sustain that growth throughout the duration, though. We are great about supporting it with lots of inventory up front and lots of marketing, and we need to make sure we continue to do that. All in all, we're really, really excited about their great return on investment, and the great acquisition of new customers for our total banner, our total brand. Thank you.

Speaker Change: So we'll continue to have that northern dot com digital business lead.

Speaker Change: Our growth in the north from banner.

Speaker Change: Great vehicle for us and that's how the customer is choosing to shop.

Speaker Change: Going forward, though to your question on where its maybe rack dot com versus Nordstrom dot com still growing our still expanding and margin will continue to work on that.

Some of the fundamental things we worked on in 'twenty, three where things like inventory integrity that allows us to then start turning on omnichannel capabilities more completely for our customers as they come into Iraq. So.

Catherine R. Smith: Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question. I was hoping to get an update on what you're seeing in terms of profitability for the dot-com business. It sounds like you saw some nice improvement in RAC.com's profitability this year. Where does that sit today compared to full line and total company margin rates? And what's the opportunity? Maybe I'll start, but obviously, Erik can add on as well.

Speaker Change: Where it will continue to expand rack dot coms profitability, but pleased with both of them that they are solidly in the black in north from Dot Com is is well well past that.

Speaker Change: Yes.

Speaker Change: I'd add on.

Yeah.

Speaker Change: The contracts you look our digital business first and foremost we <unk>.

Speaker Change: Look at it through the customer lens, which is a customer experience that cuts across digital and physical.

Speaker Change: Most every customer does that so we really look at how we can leverage our physical and digital assets to serve the customer better.

Catherine R. Smith: So it has been a distinct effort of ours to get the RAC digital business profitable, as we've spoken to it is profitable for 2023 the full year. Really proud of the work that the team has done to drive that business improvement. The Nordstrom.com business, though, is actually quite profitable. It's one of our most profitable channels, and so we'll continue to have that Nordstrom.com digital business lead our growth under the Nordstrom banner. It's a great vehicle for us.

Speaker Change: That being said if you look back over our bigger actions over the last couple of years.

Speaker Change: We have.

Speaker Change: Taken from made some decisions and from top ones that were really about.

Speaker Change: Reducing unprofitable sales so.

Speaker Change: Growth in Canada would be a part of that.

Speaker Change: During shutting down store fulfillment out of our rack dot com business as another example.

Erik B. Nordstrom: And it's how the customer is choosing to shop on going forward, though, to your question on where's RAC.com versus Nordstrom.com still growing or still expanding in margin, we'll continue to work on that. You know, some of the fundamental things we worked on in 23 were things like inventory integrity that allows us to then start turning on omnichannel capabilities more completely for our customers as they come into RAC. So we'll continue to expand RAC.com's profitability, but we're pleased with both of them that they're solidly in the black, and Nordstrom.com is well, well past that. Yeah, Brooke, I just, I'd add on. First, I think in the context of our digital business, first and foremost, we look at it through the customer lens, which is a customer experience that cuts across digital and physical. Almost every customer does that.

Speaker Change: Sure.

Speaker Change: As we look at it to Kathy's point of the financial model and our digital business is really strong and it scales well goes really well.

Speaker Change: We have over the last couple of years.

Speaker Change: Really address the unprofitable parts of the business.

Speaker Change: Both platforms are are very much poised for growth.

Speaker Change: And we need growth out of out of both of them.

Speaker Change: Kathy if I could just ask one quick follow up you gave some helpful color on the credit card revenue at close to 3% of sales in 2024 can you elaborate on the assumptions that are embedded within that and what the impact is of the of the late.

Kathy: Late fee changes in credit revenue based on the announcement today.

Kathy: Yeah happy to end and interesting timing on the announcement today for sure given it's our day of earnings release, So I want to start with reminding us that the average credit quality of our portfolio tends to be higher than some of our peers. So therefore late fees or a smaller piece of the overall credit Rev.

Erik B. Nordstrom: So we really look at how we can leverage our physical and digital assets to serve the customer better. That being said, if you look back over our bigger actions over the last couple of years, we have taken some tough decisions that were really about reducing unprofitable sales. So Canada would be a part of that.

Kathy: <unk> to our to our P&L, so I'll start there.

Kathy: We do expect there to be some legal challenges to I suspect as soon as the the Federal Register actually registers, the new regulation, we will see some legal challenges and we'll continue to monitor that but most importantly, the estimate our best estimate has been included in our guidance that we've given today. So we've been monitoring it we.

Erik B. Nordstrom: The shutting down of store fulfillment in our rack.com business was another example. So I think, as we look at it, to Kathy's point about the financial model in our digital business is really strong, and it scales really well. We have, over the last couple of years, really addressed the unprofitable parts of the business. Both platforms are very much poised for growth, and we need growth out of both.

Kathy: There will be continued pressure, both politically and from consumers on late fees and so we did build that into our guidance are the best estimate we have.

Speaker Change: Thanks, So much I'll pass it on.

Speaker Change: Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Dana Lauren Telsey: Hi, Good afternoon, everyone. As you just expanding on some of the merchant merchandising comments with active beauty and women's apparel being the most improved this year this quarter last quarter I believe accessories within that mix what was different this quarter from last quarter with the accessories and what are you seeing there.

Catherine R. Smith: Kathy, if I could just ask one quick follow-up. You gave some helpful color on the credit card revenue at close. Transcripts provided by Transcription Outsourcing, LLC.

Catherine R. Smith: Yeah, happy to. And interesting timing on the announcement today, for sure, given it's our day of earnings release. So I want to start by reminding us that the average credit quality of our portfolio tends to be higher than some of our peers. So, therefore, late fees are a smaller piece of the overall credit revenue to our P&L. So I'll start there. We do expect there to be some legal challenges, too, I suspect, as soon as the federal register actually registers the new regulation. We'll see some legal challenges, and we'll continue to monitor that.

Dana Lauren Telsey: And then also just following up on the merchandise margin.

Dana Lauren Telsey: The impacts on Red sea, or how you're thinking about freight costs and delivery costs for this year embedded in the margin. Thank you.

Speaker Change: Hey, Dana.

Speaker Change: Yeah.

Dana Lauren Telsey: Accessories handbags in particular.

Dana Lauren Telsey: Category and accessories for us and for everyone.

Dana Lauren Telsey: <unk> has not been as strong.

Catherine R. Smith: But most importantly, the estimate, our best estimate, has been included in our guidance that we've given today. So we've been monitoring it, and we expect there will be continued pressure, both politically and from consumers on late fees. And so we did build that into our guidance. Thank you so much.

Dana Lauren Telsey: Through the year, so we continue to see that.

Dana Lauren Telsey: That being said.

Dana Lauren Telsey: Every single merchandise category that we have did improve sequentially from Q3 to Q4.

Dana Lauren Telsey: So we're encouraged about that.

Dana Lauren Telsey: On the merch margin question, we really don't see at this point in effect from what's going on in the Red Sea in our merch margin we have.

Erik B. Nordstrom: The next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question. Hi, good afternoon, everyone.

Dana Lauren Telsey: Some portion of our goods that's delayed a bit.

Dana Lauren Telsey: But we don't see it being material effect to our results.

Erik B. Nordstrom: As you were expanding on some of the merchant merchandising comments with active beauty and women's apparel being the most improved this year, this quarter, and last quarter, I believe accessories were in that mix. What was different this quarter from last quarter with accessories, and what are you seeing there? And then also just following up on the merchandise margin. Any impacts on Red Sea or how you're thinking about freight costs and delivery costs for this year embedded in the margin? Thank you. Hey Dana,

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Our next question comes from the line of Oliver Chen with TD Cowen. Please proceed with your question.

Speaker Change: Hi, This is Neil go on for Oliver today. Thanks.

Neil: To see inventories and it's pretty well in line with sales growth what are your expectations on inventory management throughout the year.

Neil: And then how would you describe the promo environment, leading into spring summer and any implications on merch margins as we get through the fiscal year. Thanks.

Erik B. Nordstrom: Yeah, accessories, handbags in particular, which is a big category, and accessories for I think for everyone have not been as strong throughout the year. So we, we continue to see that. That being said, every single merchandise category that we have did improve sequentially from Q3 to Q4. So we're also encouraged about that.

Neil: Finally, I'll, maybe I'll give a start and then Eric can add so our on inventory growth to your point. Thank you for the comment on inventory productivity.

Speaker Change: Productivity or the management of inventory I think the team did a terrific job.

Eric: Building, some new disciplines, and really being sensitive to the trends in chasing into it I think we're poised really well as we ended the year and.

Erik B. Nordstrom: On the merchandise margin question, we really don't see at this point an effect from what's going on in the Red Sea on our merchandise margin. We have some portion of our goods that's delayed a bit, but we don't see anything that has a material effect on our, Thank you.

Eric: Inventory health as we ended the year and then begin the new year allows us to have some newness, which is always important for customers. So very very excited about where inventory is at and the progress we've made.

Catherine R. Smith: Our next question comes from the line of Oliver Chen with TD Cowan. Please proceed with your question. Hi, this is Neil Goh on for Oliver today.

Eric: Around inventory productivity as we move through the year, we'll be prudent. So we're going to continue the same disciplines are making sure. We're chasing into demands that team is really excited to be at a year, where we feel like we're on the front foot there and so that's nice.

Catherine R. Smith: Nice to see inventories manage pretty well in line with sales growth. What are your expectations for inventory management throughout the year? And then how would you describe the promo environment leading into spring, summer, and any implications on merchandise margins as we get through the fiscal year? Hi, Neil. Maybe I'll give a start and then Erik can add.

Eric: So we would expect that when you think about inventory, we're going to continue to support beauty, we're going to continue to support the new rack store. So that will continue to be a little bit of placement.

Eric: Place that will support with extra inventory.

Eric: And then on promotional environment, maybe I'll ask Eric to opine on that as we think about going forward.

Catherine R. Smith: So on inventory growth, to your point, thank you for the comment on inventory productivity or the management of inventory. I think the team did a terrific job of building some new disciplines and really being sensitive to the trends and chasing after them. I think we're poised really well as we end the year and in inventory health, as we end the year and then begin the new year allows us to have some newness, which is always important for customers. So very, very excited about where inventory is at and the progress we've made around inventory productivity. As we move through the year, we'll be prudent, so we're going to continue the same disciplines of making sure we're chasing after demands. The team's really excited to be at a year where we feel like we're on the front foot there, and so that's nice.

Eric: Yeah, I'd say, we're really are not seeing an elevated promotional environment. We didnt see a true Q4, we're not seeing it right now so as best as we can tell.

Eric: Don't anticipate and unusually elevated promotional environment.

Eric: Got it thank you.

Eric: Our next question comes from the line of Michael Binetti with Evercore ISI. Please proceed with your question.

Eric: Hey, Good evening. This is Warren Cheng on for Michael I, just had a follow up on Brooks question on the CFPB ruling. The last time you broke out credit income I think that was back in 2015 late fees were low low teens percentage of the credit card revenue stream is that still a fair benchmark to use for today's business and also I just wanted to clarify your comment that your best estimate.

Eric: The outcome is already included in the guidance today could you just elaborate on what that means.

Catherine R. Smith: So we would expect that when I think about inventory. We're going to continue to support beauty. We're going to continue to support the new Rack Store. So that will continue to be a little bit of a place that we'll support with extra inventory. And then on the promotional environment, maybe I'll ask Erik to comment on that as we think about going forward. Yeah, Neil.

Speaker Change: Yeah happy to Hi, Warren.

Speaker Change: First off I didn't know that we actually shipped applied that information in 2013. So thank you for the information there.

Speaker Change: That's been a long time ago and the business continues to evolve that said our loyalty customers are still our best customers and as you know a good portion of them hold.

Speaker Change: The Nordstrom card.

Speaker Change: The comment I assured around our best estimate of the impact of the CFPB ruling that came out today is included in our guidance. It is it's exactly what we had estimated I know there's been a ton of speculation and I don't know if we just we're fortunate there, but our team I think estimated that we knew would be coming out and there's going to be.

Erik B. Nordstrom: I'd say we really are not seeing an elevated promotional environment. We didn't see it through Q4. And we're not seeing it right now.

Erik B. Nordstrom: So, as best as we can tell, we don't anticipate an unusually elevated promotional environment. Thank you. Transcribed by https://otter.ai. Our next question comes from the line of Michael Bonetti with Evercore ISI. Please proceed with your question. Hey, good evening. This is Warren Chang. I'm from Michael. I just wanted to follow up on Brooke's question on the CFPB ruling. The last time you broke out credit income, I think that was back in 2015.

Speaker Change: Obviously all of the guidance had said, it's gonna be about where it came out of that so we tried to include that in our guidance we gave today.

Speaker Change: With regards to the amount of late fees and as a percentage of our income we haven't disclosed that but it is less than our competitors given the quality of our credit portfolio.

Speaker Change: Got it. Thanks, that's very helpful. And then I just had a follow up on the rack business I was wondering if we could focus for a second on the new rack stores that have opened in the last 12 months, how does the productivity stack up against the base and then can you also discuss the ramp behavior.

Catherine R. Smith: Late fees were a low teens percentage of the credit card revenue stream. Is that still a fair benchmark to use for today's business? And I also just wanted to clarify your comment that your best estimate for the outcome is already included in guidance today. Could you elaborate on what that means? Yeah, happy to. Hi Warren.

Speaker Change: For these stores relative to prior cohorts and also versus your expectations.

Catherine R. Smith: So first off, I didn't know that we actually supplied that information in 2015. So, thank you for the information there. Obviously, that's been a long time ago, and the business continues to evolve. That said, our loyalty customers are still our best customers. And as you know, a good portion of them hold the Nordstrom card. The comment I shared around our best estimate of the impact of the CFPB ruling that came out today is included in our guidance. It is. It's exactly what we had estimated. I know there's been a ton of speculation.

Eric: Sure This is Eric.

Eric: Our new stores' productivity.

Eric: <unk> is a little above our average on a sales per square foot basis.

So they do tend to be smaller volume stores.

Eric: Jim.

Eric:

Eric: Our portfolio to date has been and we start with the first locations in.

Eric: But the average size of our stores is a bit smaller than what we had previously so productivity.

Eric: It is real good the ramp up.

We do see an opportunity for us to.

Catherine R. Smith: I don't know if we just were fortunate there, but our team estimated that, you know, we knew it'd be coming out. And there's going to be, you know, obviously, all of the guidance has said it's going to be about where it comes out. So we tried to include that in the guidance we gave today. With regard to the amount of late fees and as a percent of our income, we haven't disclosed that, but it is less than our competitors given the quality of our credit portfolio.

Eric: Build upon the excitement we get it at a rack opening.

Eric: Particularly we go to new markets.

Eric: Well, we get really strong traffic and a lot of energy in the community.

Eric: For some of those can be there, where we don't have a nordstrom store.

Eric: No.

Eric: The first entry of our company and into that market.

Eric: So we do think we have opportunities to.

Eric: Build upon that knowledge of the second year of the first year and continue.

Eric: Continue to drive that growth.

Catherine R. Smith: Got it. Thanks. That's very helpful. And then I just had a follow-up on the rack business. I was wondering if we could focus for a second on the new rack stores that have opened in the last 12 months. How does their productivity stack up against the base? And then can you also discuss the ramp behavior for these stores relative to prior cohorts and also versus your expectations? Sure. Any more on this, Erik?

Eric: So I think that's kind of the main takeaway.

Eric: Correct businesses.

Eric: The focus on our key strategic brands.

Eric: It really cuts across all aspects of the rack business, the new stores comp business our online business.

Eric: We think there is still lots of opportunities there for us to really leverage which we think is a competitive advantage. These access to this coveted brands that come.

Erik B. Nordstrom: Yeah, our new stores' productivity is a little above our average on a sales per square foot basis, so they do tend to be smaller volume stores. As you imagine, we've, our portfolio to date has been in, we start with the best locations and But the average size of our stores is a bit smaller than what we had previously. So productivity is really good.

Eric: Customers are associate with Nordstrom.

Eric: And as we continue to focus and emphasize the strategic brands. It really is lifting all boats.

Speaker Change: Thanks, Good luck.

Speaker Change: Thanks.

Speaker Change: Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Lorraine Corrine Maikis Hutchinson: Hi, Thank you good afternoon.

Erik B. Nordstrom: The ramp, you know, we do see an opportunity for us to build upon the excitement we get at a RAC opening, particularly in new markets. We get really strong traffic and a lot of energy in the community for some of those communities there where we don't have a Nordstrom store.

Lorraine Corrine Maikis Hutchinson: I wanted to ask about the supply chain initiatives are they've been.

Lorraine Corrine Maikis Hutchinson: Very successful in reducing your distribution costs, what inning would you say we're in them.

Lorraine Corrine Maikis Hutchinson: That program and where do you see the expected benefits on a go forward basis.

Erik B. Nordstrom: It's, you know, it's the first entry of our company into that market, so we do think we have opportunities to build upon that knowledge of the second year and of the first year and continue to drive growth. And I think that's kind of the main takeaway for RAC businesses. The focus on our key strategic brands really cuts across all aspects of the RAC business, new stores, our comp business, our online business, and we think there's still a lot of opportunities there for us to really leverage, which we think is a competitive advantage, access to these coveted brands that customers associate with Nordstrom. As we continue to focus on and emphasize those strategic brands, it really is lifting all boats. Thanks, goodbye. Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question. Hi, thank you. Good afternoon.

Speaker Change: Yeah I'll start.

Speaker Change: Can chime in if I leave something out.

You may have noticed we changed our wording a bit from optimizing supply chain optimizing operationally in the point with that really is internally that it's not just about technically our supply chain network that.

Speaker Change: We see opportunities.

Speaker Change: In addition to.

Speaker Change: Continuing to drive.

Speaker Change: Productivity out of our network to managing our inventory throughout its lifecycle you look at our model.

Speaker Change: So it is unique.

Most retailers have stores in hot have additional business. We also have two banners in the banners are connected.

Speaker Change: Life cycle of our product for a lot of it starts in the Nordstrom banner and it ends up in the rack so.

Speaker Change: There is a lot of choices for us to make.

Catherine R. Smith: Wanted to ask about the supply chain initiatives. They've been very successful in reducing your distribution costs. What inning would you say we're in of that program, and where do you see the expected benefits on a go forward? Yeah, I'll start. If you can chime in, if I leave something out.

Speaker Change: In pricing and placement of that inventory.

Speaker Change: And we see opportunities to.

Speaker Change: To gain value and better managing product through its entire lifecycle. So.

Speaker Change: I'd say the supply chain.

Erik B. Nordstrom: You may notice that we changed our wording a bit from optimizing the supply chain to optimizing operationally. And the point with that really is internally that it's not just about our supply chain network that we see opportunities. In addition, we continue to drive productivity out of our network to manage our inventory throughout its life cycle. You look at our model, and it is unique. Most retailers have stores and have additional businesses. We also have two banners, and the banners are connected. The life cycle of our product, for a lot of it, starts in the Nordstrom banner, and it ends up on the rack. So there are a lot of choices for us to make in pricing and placement of that inventory. And we see opportunities to gain value in better managing products through their entire life cycle. So I would say the supply chain. You know, we really have a strong team in supply chain.

Speaker Change: We really have a strong team and supply chain and.

Speaker Change: Bye.

Speaker Change: Leveraging them beyond the narrow loss of supply chain change of really leveraging.

Speaker Change: Across.

The whole operational sides of our business.

Speaker Change: We see continued.

Speaker Change: Opportunities.

Speaker Change: To drive productivity.

Speaker Change: Thank you.

Thank you we have reached the end of our question and answer session and with that I'll turn it back to Jimmy does for closing remarks.

Jimmy: 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. Thanks again for your interest in Nordstrom.

Jimmy: This concludes.

Speaker Change: Todays teleconference. You may disconnect your lines at this time, thank you for your participation.

Speaker Change: Okay.

Erik B. Nordstrom: And by leveraging them beyond the narrow walls of supply chain to really leveraging across the whole operational sides of our business, we see continued opportunities to drive productivity, Thank you. Thank you. We have reached the end of our question and answer session. And with that, I'll turn it back to Jamie Dewis for closing remarks. 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. Thanks again for your interest in Nordstrom. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. I'll never be enough for you, oh, I don't wanna die My baby, it's good to know that we're in this together All we've been through, all we're going through, and all we will go through Knowing that you're down with me, oh wow, you look fantastic All we've been through, all we're going through, and all we will go through Knowing that you're down with me, oh wow, you look fantastic All we've been through, all we're going through, and all we will go through, ?? ?? ??

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