諾德斯特龍百貨 (JWN) 2004 Q3 法說會逐字稿

This is the conference coordinator.

Hello and welcome to the Nordstrom third-quarter 2004 earning release conference call.

All lines will be in a listen only mode until the formal question-and-answer session.

If you'd like to ask a question, please press star, 1.

At the request of Nordstrom today's conference call will be recorded.

I'd like to turn the conference call over to Miss Stephanie Allen, Director of Investor Relations for Nordstrom.

Miss Allen, you may begin.

Thank you and good afternoon everyone.

Thank you for joining us on the call today.

On the line with me are this afternoon are Blake Nordstrom, President of Nordstrom, Inc., Pete Nordstrom, President of Full Line stores and Mike Koppel our Executive Vice-President and Chief Financial Officer.

This afternoon Mike will lead off with a review of our third-quarter results.

Blake will make a few concluding remarks and then we'll open it up for questions.

Please note that any forward-looking statements we make in our remarks this afternoon should be considered in conjunction with the cautionary statements contained in our SEC filings.

Now I'll turn the call over to Mike.

Thanks, Stephanie, and good afternoon, everyone.

This was another very solid quarter for Nordstrom.

Strong sales momentum along with well controlled inventory and expenses combined to deliver our best third quarter operating performance in over 10 years.

Net earnings for the quarter increased 71% to 54 cents per share, well ahead of expectations.

Whether we look at our performance in terms of earnings flow through, cash flow, or earning productivity what we have seen over the past six quarters is a level of consistency and fundamental improvement that clearly indicates our team is taking a more balanced and disciplined approach to operating the business.

Our planning process continues to evolve and to focus on improving operating performance as well as working capital efficiency which is achieving our goal of driving return on capital greater than the Company's cost of capital.

These results are continuing evidence of the positive momentum within our Company and the increasing confidence in which we believe are significant future opportunities.

With that, let's get into the details for the quarter.

Sales trends were strong throughout the quarter with all of our geographic regions and major merchandise categories posting same-store sales increases.

Total sales grew 9.4% to 1.5 billion and same-store sales increased 8.1% well ahead of our 1 to 3% comp plan.

We experienced healthy regular price selling throughout the quarter and our monthly performance on a multi-year basis has been accelerating despite more challenging comparisons.

Our strongest regional performances were in the southwest and southern states and our best performing merchandise divisions for the quarter were accessories, women's shoes, and designer apparel.

Third quarter gross profit increased 80 basis points or 59 million compared to last year.

About 50 basis points was the result of sales leverage on buying and occupancy expense.

The remaining rate increase primarily reflects a modest year-over-year improvement in markdown performance which is consistent with Company expectations.

Shrinkage as a percent of sales was better than planned but did not materially impact the year-over-year gross margin comparison.

Operating expenses for the quarter improved 90 basis points primarily as a result of good expense control and leverage on better-than-expected sales.

Credit card revenue, the service charge and other income line of the P&L increased 2.4 million for the quarter primarily due to higher total receivables.

Bad debt expense was lower than last year due in part to lower proprietary receivable balances but bad debt levels also reflect improving delinquency and write-off trends.

We monitor both closely and make adjustments to our reserve as needed.

Since we're on the subject of the credit business, I'd like to provide a quick update on the resolution of the Office of Thrift Supervision or OTS matter that we disclosed in last quarter's 10-Q.

As you may recall, we had received a letter from the OTS which regulates Nordstrom federal savings bank directing us to change the accounting treatment for a portion of our receivables portfolio.

We felt that a change was not warranted as our current practice conforms to generally accepted accounting principles and our outside auditors agreed.

We asked the staff of the SEC to weigh in on the matter, and we are pleased to report that they confirmed our accounting treatment to be correct.

As of the end of the quarter we have just over 1 billion in receivables on our balance sheet.

Net interest expense was 13.5 million for the quarter, in line with expectations.

The interest expense reduction from one year ago reflects lower overall debt levels as well as the fact that we incurred about 8 million in additional interest expense during the third quarter last year related to debt retirement.

Total debt as of the end of the quarter was about 1 billion and total capital was just under 3 billion resulting in a debt to total capital of about 36% down from 45% this time last year.

At the end of August, we announced a $300 million share repurchase program.

During the third quarter we repurchased about 2 million shares for a total of 75 million which leaves 225 million remaining on the authorization.

The resulting reduction in weighted average shares outstanding was not significant enough to materially impact earnings-per-share for this quarter.

At quarter end the total inventory balance was 1.2 billion which is about flat with last year.

Total inventory per square foot declined 1%.

Comp store inventory was flat on both an absolute and per square foot basis.

We continue to manage inventory levels such that total sales growth outpaces total inventory growth which has been the case for the past 6 consecutive quarters.

Our current expectation is that comp inventory will be flat with last year at the end of the year.

We ended the quarter with approximately 335 million in cash on the balance sheet.

Preliminary capital expenditures for the quarter net of developer reimbursements totaled approximately 52 million and depreciation and amortization was 64 million.

We recently completed our preliminary 3 year capital plan for 2005 through 2007.

Total budgeted CapEx for that time period is approximately 850 to 875 million with about 300 million planned for 2005.

The allocation of spending over those 3 years is about 35% on new stores, 30% on remodels, and 15% on technology.

The remainder is primarily for general maintenance.

With regard to our outlook for the fourth quarter we are forecasting earnings in the range of 90 to 95 cents per share based on the following assumptions.

Same-store sales are expected to increase 1 to 3%.

Given challenging comparisons and our desire to prudently plan our business we believe this is an appropriate plan.

Should we exceed our sales expectations, we fully expect to leverage incremental seas to the bottom line.

Gross profit is expected to improve 25 to 35 basis points for the quarter primarily as a result of lower buying costs as we are expecting lower incentive compensation in the fourth quarter this year as compared to last.

As a percent of sales SG&A is expected to decline over 120 to 130 basis points, again the degree of decline is primarily the result of lower incentive compensation expense this year versus last year.

In fact, as we stated in our last conference call, SG&A dollars are expected to be flat to down 1%.

Credit revenue is expected to increase 2 to 3 million and interest expense decline 4 to 5 million.

Recent valuation of our current and deferred tax liabilities led to the conclusion that our fourth quarter effective tax rate should be adjusted to 38.4% from 39%.

Lastly the estimated share count for the fourth quarter is 142.2 million.

In combination with our year-to-date actual earnings this would yield a full EPS range of $2.68 to $2.73 up from our previous forecast of 2.46 to $2.50.

Compared to 2003, of $1.76 per share, this forecast represents an earnings increase of over 50% for the full year and a pretax margin of almost 9% well ahead of our medium term goal of 7.5 to 8.5% we shared at the beginning of this year.

We still have a lot of work to do, and we're confident that our entire team is ready to capture the opportunities that lie ahead.

Now I'll turn the call over to Blake for some closing remarks.

Thanks, Mike, and good afternoon, everyone.

We've just completed another outstanding quarter.

Our top-line results suggest that our merchant team is interpreting fashion appropriately across our various life sale departments and delivering more of the right merchandise to our customers.

In addition, our expense and inventory performance clearly demonstrates that the organization is continuing to operate in a controlled and disciplined manner.

For the past few years we've been taking steps to ensure the long-term success of our Company.

To that end, we have made appropriate and necessary infrastructure investments and work hard to improve overall operating efficiency.

All the while continuing to deliver a unique shopping experience to our customers.

Rather than look at each quarter in isolation, I'd like to make some longer term observations.

Over the after the 6 quarters, two very important trends have begun to emerge.

First, the pattern of steady ongoing improvement across key operating metrics such as sales, margins, expense, and inventory turnover.

Second is a level of financial consistency that suggests our business is being managed in a balanced and disciplined manner.

Both trends indicate that the fundamental health of our business is strong and getting stronger.

As a Company, our value proposition has always been an unwavering focus on providing an exceptional shopping experience through superior service and compelling fashion merchandise.

So as we look ahead all our efforts aim to distinguish Nordstrom in the eyes of our customers and deliver best in class operating performance.

To enhance service levels we invested in new point of sale and personal book technologies.

The roll-outs were successfully completed during the third quarter past bland.

We are sensitive to our customer's time and our new point of sale reduces transaction time which we believe improves the quality of the shopping experience.

It also offers a variety of features such as gift receipts and debit card processing that we believe customers value.

Personal book is a dynamic tool that will strengthen customer relationships by helping our salespeople better anticipate and respond to customer needs which represents a meaningful opportunity to build customer loyalty and drive additional sales.

When it comes to fashion, our goal is to develop the best merchandising organization in the industry.

That means being a leader in the marketplace with product and trends and having an updated offering for all Nordstrom's customers.

It also means being disciplined and efficient in the planning and execution of our merchandising strategies.

We believe that one of the strengths of our merchant team is their ability to select the right product and interpret trends appropriately for the variety of customers and geographic regions that we serve.

In addition, we are continuing to make progress building analytical capabilities to make sure that we have the right mix of merchandise in the right sizes and quantities in all our stores.

Replenishment, markdown management, assortment and allocation planning are all areas of opportunity for our Company and we expect to drive meaningful sales, margins, and inventory productivity improvements in the coming years by continuing to refine our capabilities in these areas.

To deliver best in class operating performance requires developing and implementing best practices throughout the Company.

In our view, there will always be room for improvement in this area but we are making steady progress as demonstrated by successive years of expense reduction, meaningful improvement in operating margin, and most importantly return on capital.

Much of our recent success simply boils down to better execution and better discipline.

Disciplines that once required constant monitoring have gradually become part of our everyday rhythm.

Here today we are executing the plan and actively managing all aspects of the business which is improving fundamentals and delivering consistent financial performance.

As we look ahead, we continue to believe that the key to our success will be good execution and intense focus on driving continuous improvement across every dimension of our business.

We are increasingly focused on solidifying our competitive position and delivering industry-leading performance.

We believe the opportunity before us is significant and we are confident and committed to furthering our progress.

Now I'd like to open it up for questions.

We're ready to take some questions.

OPERATOR INSTRUCTIONS Your first question comes from Deborah Weinswig of Smith Barney.

Good evening.

Congratulations on a great quarter.

Thank you, Debra.

Thanks, Debra.

Blake you talked about having opportunity in terms of replenishment, markdown management, and assortment and allocation planning.

Do you have the technology in place to do that now or is that something that you're looking to do in the future and is that part of the CapEx budget going forward?

We do believe for the most part that the platforms or the systems are in place.

There are additional upgrades when it comes to the markdown optimization that we are looking at but now we're at a point, as we've talked in the past of utilizing these tools properly and executing it throughout our business so we fully expect over the next couple of years continuous improvement in these areas and the bulk of the CapEx has been spent on these projects.

In light of the strong quarter from a comp perspective can you help us understand what might appear to some of us to be conservative comp guidance for the fourth quarter?

Well, that's something that we talked about prior to the call and I think we've been consistent throughout the year talking about that first of all, the fourth quarter was a significant quarter for us last year so we're sensitive to that.

We also have tried throughout the year to be realistic or practical in our planning and we have felt that it's helped our flexibility to be able to react with some upside potential, but, again, given our best estimates, we feel very comfortable with that guidance of the 1 to 3% range.

Okay.

Great, thanks so much.

Thank you.

Your next question comes from Jennifer Black of Jennifer Black and Associates.

Good afternoon, and great job.

Thanks, Jennifer.

You're welcome.

I wondered if there were any categories that have been strong that you've been able to allocate more space to?

I wondered -- I guess my question really is how agile can you be be going forward, for example, accessories which is I know has been a real strong category for you.

Can you dedicate more space in those areas or pull back on space and is that something you're looking at?

This is Pete.

Oh, hi, Pete.

Hi.

We are not that nimble when it comes to space.

I mean, I guess it's a relative thing but to react to space issues based on any given trends that may last a month or two or three we're not particularly nimble.

So I think with regard to what you're talking about accessories that is true, it's been a really good area for us.

We're definitely building that into some of our future new stores and the renovations that we have, you're looking at the updated performance that we're getting but in terms of how we react to space on the near term, you know, I think it's just an issue of seeing if we can flow merchandise in more quickly, more efficiently and speeding up the turn and keep the newness going.

That's really been most the focus.

Okay.

And then also can you update us on how the personal books are working and if you're starting to you think to see a return on your investment.

I mean your merchandise is great.

I think it's a little early to tell we've got it rolled be out to everybody now, and we're utilizing it -- we're trying to find the most effective ways of measuring it and holding people accountable to realistic expectations but I think it's fair to say that it has made an impact, and it will continue to make an impact and that's kind of the fun of what we've got to look forward to is to see where it can take us but so far, so good.

I think we'll have more to report on that as this next year goes on and we have some ways of being able to measure that more accurately.

Great, good luck, thank you.

Thank you.

Thank you, your next question comes from Emme Kozloff of Sanford Bernstein.

Hi.

Mike, the first question I have goes back to your comments on your credit card accounting.

I understand that the SEC has agreed with your approach but I thought the issue was that the OTS did not.

So I guess what I'm curious about is was there any follow up by the OTS with the SEC such that these groups have spoken, and we're not going to see any of this resurface and then secondly just can you give us some color on the lower incentive comp dynamics for the four quarter?

Thanks.

Thanks, Emme.

In terms of the OTS question, the SEC has come back and said that our treatment is consistent with GAAP and that we're not going to be required to change it.

And at this point the OTS has not come back to us and pushed us any further on that particular issue.

In terms of the fourth quarter,, as you recall last year, we achieved over 90% of our earnings increase in the back half of the year and, as a result, we incurred the majority of our incentive costs in the fourth quarter last year.

This year we're anniversarying that which is why our overall expenses look like they're going to be flat to slightly down.

So we expect for the year what's going to happen you've seen some acceleration in expenses but by the end of the year you're going to see our expenses in the range of 28.2 to 28.3% which is going to be about 110 or 120 basis point increase over last year.

Not to beat a dead horse, but should we expect the OTS back on the credit question to resurface at any point or is that pretty much already settled?

I think in terms of the accounting question that's been resolved.

If the OTS -- with their continued involvement with our bank business there could be other conversations but as far as the accounting we believe that's resolved.

Great, thank you.

Okay.

Thank you.

Your next question comes from Barbara Wyckoff of Buckingham Research Group.

Great quarter.

Thank you,.

Couple of questions.

First of all, could you talk about what's going on in your core sportswear business that's bridged a better price points, what's working, not working, classifications, trends, resources, and then how has private label stacked up versus market goods and then I have a follow-up question.

Okay.

This is Pete.

Hey, Pete.

Hi.

I think in women's there's been a lot of things that have worked for us.

There's a lot of newness in the market that we've been able to capitalize on you've seen the whole trend with jackets in particular it started off with the tweed kind of Chanel influence that you've probably seen quite a bit of and it's really applied in all different categories where we do business and at different price points and it's now continued to go on in terms of other treatments and textures that continued to work for kind of that fitted jacket that can be wore with a lot of different things, so it speaks well not only to the career side of what we're doing but it also applies to the casual side of the business.

That's been good.

We still have had really robust business with fashion denim.

What I would think are kind of high prices.

But it's just it keeps going and we sell a lot of it.

It's been really great and it's not like working in women's it's working in men's as well.

Sweaters have been good.

And I think we'll find a way to capitalize on that hopefully here in the next month and a half.

What else?

If you're talking about specifically about sportswear, I'm trying to think.

The kind of return to femininity and all that and the skirts that've go with that has worked well for us and then I guess lastly what I would say is that we continue to sell the fashion part the newness really well.

I think where we give the customer a reason to buy something new and make it compelling we do well.

In terms of private label, we've had some pretty good success with Caslon and Classiques.

Both those areas are doing well and they're big businesses for us so that's my report.

Now anything not working in particular?

Well, there are some things working better than others.

As usual.

The good news for us is that we've been able to keep our inventory real efficient.

We've been making ourselves an inventory plan so the things that we do have that aren't working they're not creating a disproportionate burden for us we're able to identify quickly, move on and not be bogged down with it.

So there's nothing really I could call out that's creating an overburdensome problem.

Okay.

Great.

Thanks,.

The second question is I'm just wondering if you're expecting a big uptake in sales in the Seattle area stores as Microsoft shareholders receive their one time dividend checks as many of those shareholders are located in the Seattle area.

Well we would be happy if that happens, I don't think we're building that into plans or anything.

We'll take it as it comes.

I think that's great.

I don't know how we would be able to quantify that.

We're just preparing to have a good holiday season everywhere.

Great, thanks, congratulations.

Thank you.

Thank you.

Your next question comes from Theresa Donahue of Neuberger Berman.

Hi, guys.

Hi, Theresa.

I've got a couple of questions, if I may.

First of all the CapEx 300 million next year that's up quite a bit from the run rate.

I'm wondering if you could give us some insight and secondly the incentive comp I just want to make sure I understand that so a person absolute level will obviously be up, would obviously be up year-over-year.

But that is more than offset in the back half by the fact that you had such a back end weighted accrual last year.

Theresa, thanks.

This is Mike.

In terms of the 300 million next year, part of it is that next year we're going to be opening 4 stores.

This past year we only opened 2 and in addition over the next three years, we've made a strategic decision that we wanted to step up our investment and remodeling our stores and so that's the other component that is driving that number up.

Other than that, you know, our overall spending on a technology side is leveling off over the next three years.

In terms of your question on the incentives, I'm not sure I fully understood that.

I'll follow up with you offline.

It's late in the day.

I was also wondering if you could give us any hints as to what the intermediate term will look like now that you've passed what you told us you would at the beginning of the year for the margins.

Yeah, Theresa, we're planning on updating everybody on that in February when we talk about next year if that's okay.

Okay.

Thanks.

Thank you.

Thank you.

Your next question comes from Christine Augustine of Bear Stearns.

Thank you.

I'd like to ask about the vendor preticketing initiative now that the POS roll-out is complete.

The price look up technology.

What have you found through your early testing and what are you thinking about in terms of that roll out.

Kristine, this is Mike.

We actually have been testing vendor preticketing and the resultant cross stocking in a number of areas and it's working successfully.

We have a ways to go, and it's going to take several years before that gets up to enough scale that it's going to have a significant impact on our results.

But right now the up front testing and things that we've learned have been promising.

Is there any more detail that you would be willing to provide on that, in other words, are you doing tests regionally.

Are you looking at just specific divisions where you can test it like men's where you did the perpetual inventory first.

What you have to do is test it within a distribution center and by vendor, and that's how we're going through the testing.

Okay.

Great, thanks very much.

Thank you.

Your next question comes from Rob Wilson from Tiburon Research.

Thank you.

Mike, can you help me understand your accounts receivable retain interest, when I look at your Qs have gone up this year, how would I best evaluate that and also has there been a change in your store level payroll costs or maybe there're bonuses at the store level.

Sure.

Rob, in terms of the retained interest, that's our co-branded Visa card and that has been growing at an accelerated rate.

A couple years ago, we added an incentive program to that and our customer has been attracted to using that card at I would say a rate that's a lot faster than our proprietary card so that's what you're seeing there.

That card also has the ability to charge not only at Nordstrom but at places outside of our Company which is why it's been attractive.

Has it been growing at a faster rate this year maybe.

No, I would say that growth has been pretty consistent in the last couple of years.

Fair enough.

Thanks.

Okay and the next question was on the store level.

You know, all of our store level in terms of selling-related costs are directly tied to our sales.

Our salespeople are 100% commission and so any increase in costs would be commensurate with growth and sales.

Have you changed the bonus structure or commission?

No, we haven't.

Okay.

Thank you.

Thank you.

Your next question comes from Gregory Fowlkes from Morgan Stanley.

Couple questions.

First off coming back to CapEx it looks like the 35% attributed to new stores that looks like about 4 or 5 a year.

Is there anything that would make you change your thinking in this regard or are we looking at 2 to 3% square footage growth long term?

Yeah, I think those numbers, Greg, still represent approximately a 3% growth rate over the next several years so no, we're not changing that overall direction at this point.

Okay.

And secondly, to the extent that you've been beating your sales plans pretty handily and likely chasing some merchandise categories, first, are you running into any year end quota issues and secondly, have you experienced any delays in getting merchandise through the port systems at this point??

Well, we really, this is Pete, we haven't had any issues like that.

And I think you're looking on any kind of big or measurable way there's nothing to lead us to believe that we've got anything to be concerned about there.

We've been he paying closing attention to it and there certainly has been a lot of conversations not only in our own product group but with the vendors we work closely with.

We anticipate that we're going to get most everything we ordered and we should be in good shape.

You're all set for holiday.

Yeah, I think so.

There's stuff that continues to come in and it's a real big season for us and you can never phone it in and imply that it's going to be handled.

There's a lot on the line for us here and we still have to execute so we're pretty focused right now.

Terrific, thanks.

Thank you, your next question comes from Katherine Galligan of Aperion.

Yeah, Hi.

I just wanted to follow up on an earlier question about other categories that might not be doing well or that I just haven't heard you talk about very much and one of them is the home -- your home category and I was wondering if that was something you were planning to maybe embellish going forward or just how well it's been testing so far?

Well, you know, as we talked about at the beginning of the year, it's such a new concept for us that I think it would be unfair for us to draw any kind of conclusions until we get through this year so I'm really not going to talk about that until we get into next year.

We've definitely made progress and there's a lot, that's going to happen obviously here in the fourth quarter.

It's a big time for that department.

It's still a relatively small percentage of our overall business so whether it does super well or not very well it shouldn't have a real large meaningful impact on our overall results.

I guess what I could say in general is that we've made progress we're pleased with where we're going and we definitely think it's a category we can continue to build upon.

Okay great and then what about your children's business?

Children's business actually been improving a little bit, last month in particular was getting a little bit better for children's and I think we've made some positive progress there.

We are a benefiting from the fact that we've had a pretty solid line up of leaders there executing.

I think we're focused on a strategy that's going to work well for us and serve the Nordstrom customer.

We've made some improvements but we still have upside to go, but we're definitely on the upswing in kids.

Great.

Actually kids shoe business have been really, really strong for us recently.

Great.

And then the 4 stores that you're planning to open next year, is that 1 per quarter or what is the schedule?

For new store openings.

We're opening up a Skits plaza in Atlanta, Georgia in March.

We're opening up in San Antonio in September, we're opening up in Irvine, California, in Southern California in September, the end of September and then we're opening up at North Park in Dallas in mid-November.

Great, thanks so much.

Thank you.

Your next question comes from George Strachan of Goldman Sachs.

Hi, actually it's Adrianne Shapira.

Congratulations, Mike you had mentioned that you're not updating margin targets until February but it does seem as if double digit margins are within reach.

I'm just wondering could you help us think about what sort of sales per square foot levels we should be thinking about to achieve that type of margin?

The type of margin that you just suggested?

Yes.

All right.

Well, right now Adrianne it looks like this year we will get up to about the mid- to high 3.45 to 3.47 a square foot in sales which is off of what had been a low two years ago about 3.19 but certainly a ways from our high of over 3.90.

We certainly believe that if we can continue a low comp increase over the next several years, we can leverage that performance and potentially achieve some of the margins that you're suggesting.

Thank you.

Okay.

Thank you.

Your next question comes from Daniel Barry of Merrill Lynch.

Good afternoon, my congratulations as well.

Thank you.

Two related questions.

Your -- if you could just update us on the focus store initiative and also you mentioned your stepping up your remodels.

Are they at all related.

Are you remodeling the lower volume stores?

Well, we're continuing on the focus store initiative which has us just really taking a handful of stores every year.

We kind of bring all the resources to bear and we had good progress with that.

There's a couple things have happened.

Initially it was really a focus on smaller volume stores but we've opened it up to be any store we believe we have opportunity to do more business.

We also have a initiative underway where we're really focusing on the stores that are kind of the lower volume stores for us and where we can do a better job of creating expense structure that allows us to be more profitable in those stores because as you know we have a pretty wide variance and the volume of our stores so we need to make sure that we're managing them accordingly.

We're going to continue on with that and what was the other question?

The remodels?

The remodels have mostly to do with the age of store than they do with the specific size of the store.

Clearly we won't be opportunistic if there's categories Jennifer spoke to it a little bit in terms of areas that are really doing well and if we happen to be under sized or based on the fact that store's 10, 15, 20 years old we're going to react to that but it starts with us looking at the age of the store and we take it from there.

But you say you stepped up the remodels.

What was behind that decision?

Go ahead, Mike.

Yeah, Dan, this is Mike.

It was primarily, well, it was a couple things.

Number one, we have a store base that had started to age out beyond a period that we're comfortable with and we felt that it was appropriate to keep the stores looking fresh and compelling.

And so we looked at our entire store base and we laid out our game plans for 2010 and allocated capital accordingly to satisfy that game plan.

Thank you.

Yep.

Thank you, again, if you have a question or comment please press star, 1 on your touchtone phone.

All questions and comments will be taken in the order they are received.

Again if you have a question or comment, please press star, 1.

One moment .

Your first question comes from Linda Kristiansen of UBS.

Hi, I was just noticing in the stores it seems to me that there are some more, while you've always had a distinctive assortment that there seems to be a little more even increased focus on unique product.

Is that accurate or are you doing anything different this year with product particularly in the fall season?

Well, we haven't been prescriptive in terms of what amount of product we have that's completely different or exclusive, we're really just trying to be responsive to what's happening out there in the marketplace but as you heard me talk about the last few quarters we're still on this path where newness and fashion is selling and so, you know, I don't know that it means it has to be completely different but I think the key to success is again giving customers a reason to buy something new every time they come in even the things that we use that are kind of core type items being able to update those with color or texture or pattern, something that again makes it new is what's worked well for us.

On the merchandise margin I know you don't want to give out any specific numbers but looking ahead and thinking about where the pretax margin can go, I assume it's more skewed to the expense rate but is there also room for merchandise margin improvement in your opinion?

Linda, this is Mike.

You're right.

Going forward over the long-term the opportunity for us is going to be more in SG&A but we certainly see some modest opportunity in the merchandise margins but the majority is going to come from SG&A.

Okay.

Thank you.

Thanks, Linda.

I think we're going to wrap it up with that.

Okay.

Thank you for participating in our conference call this afternoon.

If you have additional questions, or need further information, I can be reached at 206-303-3262.

The replay number for this call is 866-415-2343.

There is no pass code required and the replay will be available for 48 hours.

There's also an archive version of the webcast available on the investor relation section of our website for the next 30 days.

Thank you for your interest in Nordstrom .