諾德斯特龍百貨 (JWN) 2006 Q2 法說會逐字稿

Hello, and welcome to the Nordstrom second quarter 2006 earnings release conference call. [OPERATOR INSTRUCTIONS]

I will now introduce Mr. R. J. Jones, Manager of Investor Relations for Nordstrom.

You may begin.

Thanks, Melissa.

Good afternoon, everyone, and thank you for joining us on the call today.

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

This afternoon, Mike will lead off with a review of our second quarter results, Blake will make a few additional remarks, and then we'll open it up for questions.

Please note that any forward-looking statements we make in our comments 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, R.J., and good afternoon, everyone.

We are pleased to report another quarter of continued progress in operating performance.

For the second quarter, earnings per share increased 26% to $0.67 versus $0.53 last year and ahead of expectations.

Our pretax margin rose to 12.9%, 140-basis points higher than last year.

Topline results outpaced our low single-digit same-store sales plan, which in turn drove incremental leverage on the fixed expense line of the P&L.

Net income for the quarter increased 20% to $178.8 million compared to $148.9 million last year.

Unlike most retailers, our second quarter sales are an important contributor to our annual results and match roughly 90% to 95% of our fourth quarter sales volume.

Like other retailers, we experience clearance activity in June with our women and kids and men's half-yearly sales.

In July, our anniversary sale is our biggest event of the year, offering new fall season merchandise before the season begins.

Our highest sales volume days of the year occur during these events.

We are pleased to share that each of our events delivered positive same-store sales increases.

In addition, regular priced business continued to demonstrate strong trends during the quarter, both inside and outside the sale event periods.

Total sales grew 7.8% to $2.3 billion and same-store sales increased 5.7%.

In the full-line stores, the strongest regional performance was in the Northwest. and key merchandise categories performing ahead of plan were men's apparel, cosmetics, accessories and intimate apparel.

Our Rack division extended its streak of double-digit same-store sales increases to 24 months.

Gross profit margin increased 26-basis points for the quarter over last year.

Merchandise margin was above plan and beat last year's results.

Strong regular price selling during the quarter across major categories offset pockets of overplan clearance markdown, which were primarily in women's apparel.

Sales leverage on buying and occupancy expense also created rate expansion.

The rate improvement over second quarter last year was partially offset by this year's inclusion of $2.6 million in stock option expense, which had a 12-basis point impact on our gross profit margin.

As for SG&A, we gained 64-basis points of rate improvement versus the prior year.

Variable expenses tracked in-line with sales growth.

Rate improvement was primarily driven by leverage on above plan sales against our on plan fixed costs.

This year's SG&A also included $4.2 million in stock option expense, which had an 18-basis point impact on the SG&A rate.

The other income line of the P&L increased $15.9 million for the quarter, which was ahead of our expectations.

Approximately $10.3 million of the increase came from credit card trust income as a result of growth in our co-branded Visa card program.

In addition, a one-time gain of $5.6 million was recorded in other income from the Visa-MasterCard settlement.

Net interest expense of $12.8 million was $1.9 million higher than last year, primarily due to an increase in our average interest rates combined with lower interest income.

We repurchased 9.7 million of stock during the quarter for a total of $350 million.

The resulting reduction in weighted average shares outstanding had a $0.01 impact on our diluted earnings per share this quarter.

Inventory levels were on plan for the quarter.

Total inventory per square foot was flat versus last year.

In addition, the work in transitioning our women's apparel strategy resulted in better than plan inventory levels and improved aging versus last year at the end of the quarter.

Total debt at quarter end was was $933 million and total capital was $2.8 billion, resulting in a debt to total cap ratio of 33.6% compared to 31.5% at this time last year.

The increase in the ratio versus the prior year was driven primarily by share repurchases, which reduced our shareholder's equity.

The current figure remains within our 25% to 40% target range.

As we have previously discussed, our current dividend policy aims to maintain a payout ratio of 18% to 20% and a yield that is approximately 1%.

Our quarterly dividend of $0.105 is unchanged from last quarter and currently meets these target ranges.

Our return on invested capital on a rolling 12-month basis was 18.5% compared to 14.7% at this point last year.

We continue to maintain a positive spread between our return on capital and our cost of capital.

In considering our options for optimizing our sources and uses of capital, we remain in a position of flexibility.

You may recall at the end of the first quarter, we discussed that our $300 million private label securitization will be maturing in October of this year and our $200 million Visa securitization matures in April of 2007.

Overall, our goal is to combine these borrowings into one on-balance sheet program in the first quarter of 2007.

This will provide us with greater financing flexibility and consistent reporting of our asset-based borrowing programs.

We would like to take a moment to review our financing activity that took place during the second quarter.

We invested $150 million in a prefunding account for the upcoming debt payoff.

Also, we used our variable funding note facility to obtain $300 million of cash.

The balance sheet and cash flow impact for these activities are reflected in our financial statements and will be further explained in our upcoming 10-Q.

The overall impact to our second quarter P&L is essentially neutral.

We'll continue to provide updates on our progress.

Our updated earnings outlook for the year is $2.31 to $2.39 per share, up from $2.24 to $2.32 per share.

Despite the $0.06 per share impact of stock option expense in this year's results, we expect our EPS to increase 17% to 21% year-over-year.

Our low single-digit same-store sales plan is unchanged for the remaining two quarters of the year, which in turn yields a mid single-digit estimate for the full year.

We continue to expect expansion in gross profit margin of 10 to 20-basis points and SG&A expense rate improvement of 50 to 60-basis points versus last year.

Other than income for the year is anticipated to increase $30 to $35 million.

Income from the Visa trust will decline due to our reduced holdings and asset-backed securities.

Interest expense is assumed to improve $1 to $3 million versus the previous range of seven to nine.

We expect to receive lower interest income from our short-term investments, as we allocate more of our available cash to share repurchases.

For the third quarter, we are planning a low single-digit same-store sales increase and expect earnings per share in the range of $0.40 to $0.45 versus $0.39 last year.

Due to a shift in some operating expenses, we are expecting relatively lower earnings in the third quarter and higher in the fourth quarter.

This does not impact our plan for the year.

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

Before opening it up for questions, I'd like to make a few comments about recent progress and discuss the areas we continue to focus on.

Second quarter's results were encouraging to us.

We ended the quarter with our inventories in line and as Mike mentioned, we completed an important part of the year for the Company.

Overall, our team took meaningful steps toward achieving our goals of increasing same-store sales and improving operating efficiencies.

We continue to experience positive momentum, as we seek new ways to improve our offering and serve our customers better.

Our top priority remains to gain market share by earning a greater portion of our customer's spend on apparel, footwear, cosmetics and accessories.

In addition, we are steadily building new customer relationships to our stores and to our website.

Supporting our strategy is our ongoing commitment to continuously enhance the experience that each customer has with us.

Every day and with every customer, we have an opportunity to extend ourselves in a manner that creates a reason for the customer to shop with us.

Our ability to continually evolve by offering the customer new, exciting products, coupled with exemplary personalized service is what allows our salespeople to shine with their customers.

This offering of compelling fashion merchandise and superior service remain the two tenets that will always determine our success.

One trend we continue to see is that many of our customers today shop with us for the first time through our website and then later migrate to our stores.

Our Direct channel has become a source of substantial growth potential.

The Direct team supported by Jamie Nordstrom is committed to building a $1 billion within four to six years.

Though we can't help get energized by that, it's important to keep a long-term perspective.

Success will be measured over the course of years for our multi-channel offering.

At this time we are engaged in a three-year process to install an entirely new technology platform, which will bring our direct and full-line store inventory systems together and help us create a more seemless shopping experience for our customers.

This back-end system will allow inventory visibility across our channels and enable new service capabilities, all focused on the customer experience.

Results from our anniversary sale reflect an exciting development in our integration effort.

In our full-line stores, we had a 2.1% comparable store increase for the sale.

When combined with the website results, we had a 4.1% increase.

We are optimistic about the future, as our internet sales growth rate exceeds the industry average.

This tells us our customers want access to Nordstrom anytime, anywhere.

When we provide a consistent experience across channels, customers shop more often and spend more.

Our women's business continues to evolve and there's excitement about its up side of potential.

The women's team is making progress in addressing our customer's style, price, fit, and occasion needs.

Customers responded positively to the improved offering during the anniversary sale, especially in career wear.

We are beginning to see some traction from our cohesive approach in women's apparel.

As we move into the fall season, we have a lot of work ahead of us and we remain focused on offering the most relevant selection of merchandise to our customers.

As the retail landscape continues to transform, we are positioned to benefit.

The number of attractive opportunities keeps growing, and we look forward to sharing any new developments as they unfold.

Upcoming on October 6, we will be relocating our Topanga store in Woodland Hills, California.

We have high expectations for this 200,000 square foot site in the same mall where we've had a presence since 1981.

The new store will contain the very best we have to offer across all merchandise categories.

With that, we'd like to answer any questions you may have.

[OPERATOR INSTRUCTIONS] Jennifer Black with Jennifer Black & Associates, you may ask your question.

Good afternoon and congratulations on a great quarter.

Thank you, Jennifer.

I have a couple of questions.

First question is, anniversary sale catalog, some people didn't get it from credit card holders, and I wondered if you'd heard that and are you sending it to all of your credit card holders?

And also just your monthly catalog, I wondered if you're still sending that out?

This is Pete.

If there were any oversights in mailing out the catalog to credit card customers, that was an oversight, purely that.

I mean we intend to send those things out to as many people as we can, and sometimes we make mistakes.

But I don't know of any big blocks of people that were missed, but if you have anything, offline, I'd sure like to know about it and maybe we can look into it.

In terms of the monthly catalog, we've been doing that as part of the evolution of -- the integration of our Direct business with our full-line stores and we're continuing to evolve that and I think we will -- whether it's one per month, that'll probably evolve as we go forward in finding the best way to be able to deal with it, to show new merchandise and have that be a catalyst for people who shop both online and in the stores.

So you are still sending one a month?

Yes, we are.

Okay.

And my second question has to do with a recent -- it seems like the employees are really aggressively going after customers to switch to the Nordstrom Visa, and is that because of the travel option and it's a fee-based card?

Jennifer, this is Mike.

That goes back to our desire to want to continue to give the customer more reasons to shop with us, and that card does offer more options to create a better experience.

We also find that the more that we can connect with a customer on those various features, the more they end up spending, so that's our thoughts behind that.

Okay.

And then lastly, it seems as though -- I've noticed just recently that the merchandise has improved in the missy area.

It seems like Eileen Fisher has really updated -- that brand is updated and you've got newer brands like Courtney Washington and I know that's an area you've been really focused on improving.

Do you have any further comments about that?

Well, thanks.

This is Pete again.

We are really probably in the early stages of being able to get our women's business back on course.

I think what's been encouraging for us is while we're certainly not all the way there, we've got signs of improvement in a lot of categories across women's, and part of what you mentioned is part of that.

We're encouraged and we think it gives us a real positive direction going forward.

All right, well, good luck.

Thank you.

Thank you.

Thank you.

Our next questions comes from Bob Buchanan with A.G. Edwards.

Please go ahead.

Good afternoon and congratulations.

Thirteen quarters in a row of improvement on the turns, so congratulate you on that.

Just wanted to ask you first of all on your Denver opening in Cherry Creek, what is the timing on that?

The current schedule is for next fall, Bob, fall of '07.

Okay, okay.

I see.

And with regard to women's, you've talked about some of the progress you've made there.

I'm assuming -- or hoping that the comps have turned from negative to at least less negative if not positive.

The anniversary sale overall in the stores up 2.1% was a little bit disappointing to me. so I'm just trying to reconcile the improvement in women's that you saw during the anniversary sale with what overall were some numbers that were, I guess, okay in my opinion.

When you talk about Women's, it's a broad spectrum, and so we never quite have all those ball up in the air at the same time.

There were some area that really improved, mainly our Narrative and Studio areas had good success on the sale.

Where we had some challenge over the last quarter or two is in V.P., women's juniors, and as you know, that's a big part of our business, particularly during the anniversary sale.

So when that isn't particularly healthy on an event like that, it drags the total down.

That's where we have the most opportunity right now.

And the POV, is that progressing like you'd like it to, Pete?

Yes, we've made nice improvement there.

We are on a positive track.

Sounds good.

And last question.

Heavenly Bed, I saw that was part of the anniversary sale.

How is Heavenly Bed doing for you?

We've done very well.

There was a difference this year compared to last year, though, on how we were able to ring it up, which I don't think I really need to get into now, ut it's -- it's a lot of detail about that.

But if you just look at the units we were able to sell, it's still a very important part of that department and very robust.

And just finally on Heavenly Bed and the whole domestics area, real key there is having the entire assortment in stock.

How did you do -- how have you been doing in terms of having the entire assortment for a bedroom in stock?

We're doing better, but that department continues to be in a bit of transition.

We've tried a lot of things in that home and the bed and bedding part of it has been some of the most positive parts of what we've tried over the last two years.

So I think what you'll see is our continued improvement in more depth and breadth of the selection of what's available for the bedroom.

And I think catalogs for that has been the bed but to your point, we need the other things to go with it to maximize on the potential and we're getting there.

Okay, thanks so much.

Thank you, Bob.

Thank you.

Our next question comes from Bob -- excuse me, Bob Drbul with Lehman Brothers.

Please go ahead.

Hi, good afternoon.

Good afternoon, Bob.

Two questions.

The first one is, could you comment a little bit about -- elaborate a little bit on accessory category and the performance of the handbag business and your thought process going into the fall period?

And then the second question is, just wondered if you could just talk a little bit -- if you have any comments on the strength of your consumer and if you're seeing any concerns whatsoever around the thought process behind your consumer at this point in time?

Okay, this is Pete.

I'll try that.

With the handbag business, it's been strong for a while and it continues to be strong.

We've made some pretty significant investments there with inventory, but really as it only is helping us keep up with the sales trends that we've had.

I think the trend continues to be for us is that we're selling luxury extremely well.

Whenever we've been able to upgrade our offering with luxury vendors, we've done well there.

So we see that continuing.

There's no reason that should slow down for the fall.

That's a very strong part of the business and continues to be.

In terms of the consumer, I think in terms of the target consumer we're going after, they're a little less impacted by some of the macro issues that may be happening in the economy, but it's hard for us to get all wrapped up in some of those things we don't have control over.

I think what we do have control over is we've got a much better grip on exactly who it is we're trying to appeal to.

We actually know these people a lot more intimately than we used to with our personal book and we're able to reach out to them.

So I think we have a lot of confidence that, if we can continue to bring newness and fashion to the customer that they're going to respond to it and that's been consistent for us for a couple of years now.

Great, thank you.

Thank you.

Our next question comes from Stacy Turnof with Merrill Lynch.

Please go ahead.

Good evening, everyone.

Going on Bob's question, talking about where the luxury spending is coming from.

Have you looked to see how the customer who is is a member of your award's program is spending versus your aspirational customer to see if there are any trends across income levels?

Stacy, this is Mike.

I don't think I could comment specifically that we've seen any trends versus the two segments that you discussed. but that being said, our loyalty program continues to grow in strength and what we do see in the aggregate is that the customer is using it actively and that we are getting uplift on the redemption of those notes.

It's been very positive for us.

Okay.

My second question is, as we walk through the store this fall, is there anything that you could point out that we should notice that's different in women's apparel?

This is Pete The changes are fairly subtle.

Where we've had a lot of success over the last couple of years, I'm sure like other retailers we've done well with the more modern, contemporary segments, and particularly as it relates to casual clothes and premium denims.

And while that continues to be strong, what we found is that it's an opportunity for us to do a better job with wear-to-work clothes.

And we really -- the first time in the last couple of years were able to improve that offering starting with the anniversary sale, and we had good success there.

So I think what we'll see going forward is the ability to do a better job appealing to that career customer.

Great, thanks so much.

Thanks, Stacy.

Thank you.

Our next question comes from Dana Cohen with Banc of America.

Please go ahead.

Hi, guys.

A couple questions.

Just coming back on the women's issue, I just want to make sure I'm clear.

It sounds like parts of women's are getting better but juniors is not, so net-net, is it gaining momentum?

This is Pete.

Definitely, it's definitely gaining momentum.

Really across -- the only area that we're not gaining momentum is in juniors.

But is that enough to drag the whole thing back?

No.

Okay.

So net-net it is gaining momentum?

Net-net it's gaining momentum, but juniors, as you know, is a big part of our business, so we're not content with where we are right there and we need to get that thing moving in the right direction if we want to achieve our goals totally in women's, so --

And at the anniversary sale -- and that's commentary with respect to the anniversary sale, correct?

I'm sorry?

Is that commentary particularly related to the anniversary sale or is that general towards the end of Q2?

It's a bigger issue than just anniversary.

It's been going on a little bit longer than that.

Okay.

The good news with anniversary, though, what I would add to that is we beat our sales plans there and we managed our inventories well, so while it's nice to have the sales results from that month, maybe more than anything else, being able to come out of that time period with your inventories in-line is a great indicator of what's possible for us in the fall and winter seasons, because we're just -- we're in a very healthy spot in terms of our inventory position and it's encouraging.

It really should bode well for our markdown in margin performance.

Okay.

And then on the system's initiatives, can you just go into a little more detail about when they're going to be implemented and the benefits from them?

Hi Dana, this is Mike.

In terms of where we are with some new systems, this fall we will be implementing new merchandise planning tools that will be rolling out in a variety of different phases over the next couple of years.

The benefits from those are going to be around, hopefully, better sell-throughs and possibly incremental improvement in margins.

That will play out over a multi-year period.

It's tough the to say exactly when and how much that's going to be.

In terms of Direct, we're currently about to embark on Phase 3 on getting all our Direct inventory on the same platform as full-line, which will then give us the transparency across all the channels to see all our SKUs, and then, over time, that'll help us with our control and our ability to cross-sell between the channels.

That will be rolling out over the next year and a half, and ultimately, all the technology changes in Direct should be complete sometime early '09.

Okay, the merchandise planning system is fall of this year, though?

Yes.

Okay, great.

Thanks so much.

Thanks, Dana.

Thank you.

Our next question comes from Christine Augustine with Bear, Stearns.

Please go ahead.

Thank you.

Could you give us anymore detail on anniversary sale?

You mentioned the comp was 2.1, but including the website it was a 4.1% comp.

So I was kind of curious about if you saw any variation in terms of the categories that were sold online versus at the stores?

I'll take that.

This is Pete.

Not really.

What we've learned over the last 18 months or so is that the best items in the store are the best items online, so if you were just to look at the top sellers, they would be very similar-looking.

And just to add to that, part of what we've been working on over the last year is to get our offering on Direct more consistent with full-line.

So because of that, there was a lot more -- I guess you could use the word synergy in terms of the offering between the two channels.

Just to clarify, you have already done a restatement of comps so that they have -- they do include Direct, correct?

Yes, they do, Christine.

Okay.

The other two questions I had were on California and what the trends are looking like in that region, and then the finally was, if you could give us any color with regard to number of transactions versus the size of the transaction in the second quarter?

This is Pete.

In terms of California, it's such a big part of our business, I think anytime you can see us with a total result that's positive, you have to assume that California's part of that.

It's just too big for it not to be.

We've had success over the years and we continue to have very strong business.

You know, particularly when you look at the anniversary sale and the amount of business that's done in that region compared to most others, it's pretty staggering.

I probably didn't ask the question right.

I'm really trying to get at the trend there, if it's directionally up or down?

The trend in terms of the regional performance?

Yes.

It's up.

Okay.

And then how about just transaction and number of transactions versus size of transaction?

Is it mostly the size of the transaction that's driving the comp?

Yes, it is.

And within that, are you seeing anything -- is there anything happening with average unit retail, going up or down?

The only thing that we've seen in particular is because of some of the softness in Brass Plum, which is a very high unit, low retail business.

We've seen a little bit of drop in units.

But as far as the other businesses, it's been pretty consistent year-over-year.

Which would be more -- more on average unit retail?

Pardon me?

So that would mean more coming from the average unit retail?

Well, the average unit price has gone up somewhat because we've done a better job of meeting the demand of the luxury product and that brings it up.

And we've had success at higher price points really across the board in every merchandise category.

Also, we do a lot less -- not a lot less, but we're doing progressively less business on sale than we used to.

The markdown part of our business is really not driving the sales nearly as much as the newness and the flow.

And even when we go to a half yearly sale, where the crux of that is about clearance, what tends to drive the business is when we can get the flow of the new product in as a result of opening up inventory dollars from this other stuff going out, so that -- I think that bodes well for our average price points.

Great.

Thank you very much.

Thanks, Christine.

Thank you.

Our next question comes from Debora Weinswig with Citigroup.

Please go ahead.

Good afternoon.

In terms of -- Mike, you talked about, if we thought more in depth on whats happened with the gross margins, that there was over planned clearance markdowns.

Could you provide some additional color on that?

Well, I think what we said is that the markdowns in some areas of women's apparel were a little higher than planned.

The rest of the Company was better than planned.

So we were able to come off the quarter, our merchandise margins were better than last year, but within that, we had a few pockets where it was higher and those were the couple areas in women's apparel.

So the areas that outperformed does that more than compensate for women's, or is there a net-net negative impact?

No, it more than compensated.

And then, in terms of your penetration of your proprietary credit card can you update us on that and what you seeing in terms of performance, not only from the consumers, but also in terms of write-offs, et cetera?

Well, you know, we actually coming out of this quarter saw some improvement in our market share on our proprietary credit card and we got a lot of that from the anniversary sale period, because of the quality of our loyalty program and our ability to promote the card more.

So we've seen -- we've finally seen some progress in terms of improving our market share there.

In terms of write-offs and the quality of the portfolio, our write-offs continues to be -- to improve.

Our agings are flat, if not slightly better than they were last year.

And within that portfolio, we haven't seen any signs or any preindicators that there's any weakness.

So bottom line, would you say your market share is better than you would have expected?

Our market share coming out of the quarter was a little better than we would have expected, that's fair.

Okay, great.

Thanks again.

Congratulations.

Thank you.

Our next question comes from Adrianne Shapira with Goldman Sachs.

Please go ahead.

Thank you.

Could you talk about -- again, following up on the women's turnaround efforts, as we understand it, the problem areas have been more on the bridge and better parts of that area.

And I'm just wondering, as Macy's goes through this big rebranding push in the back half, how do you think that might impact the turnaround efforts?

This is Pete.

Actually, we've had in the last handful of months pretty good improvement in the bridge price points, particular.

It's kind of a theme that's been happening with us for a while.

That's been the stronger parts of the business.

Where we're the most challenged in women's, again, right now is in the juniors.

So I don't think it's fair to say that bridge is stronger or better.

In terms of better, the Narrative department, for example, would be in the better category and they has a very strong anniversary sale.

So I don't know.

It's probably not quite as simple as being able to segment it that way.

It's a little bit specific in each department.

Okay, so maybe if you just talked about --

In terms of Macy's, you know what, I -- we're really just trying to stay focused on what we do.

There's always opportunity being created out there somehow.

Obviously we pay attention to what they have going on, but our primary focus is on our customers and with what we're doing.

Okay, but would you say some of the areas, there might be a little more overlap with Federated as a customer base versus sort of your more higher-end, luxury customers that is obviously still quite strong?

We've always overlapped with Federated and we've always overlapped with Neiman's, and there's a percentage of it that happens on both ends.

I don't think it's really any different than it's ever been, if that's what you're asking.

Okay.

And then, Mike, maybe just talk about if we're looking for in the back half low single-digit comps for both the third and fourth quarter, just maybe clarify what is shifting to make it seem a little bit more of a back-end loaded year?

Well, first the low single-digit is consistent with our internal plans, which is how we have shared our outlook with you in the past.

In terms of the shifting, primarily in the third quarter, it's some expenses related to some new store activity, as well as some cost related to some IT projects.

On a relative basis, the year is the same, but we felt that we needed to call out those shifts because of the impact it had on earnings.

Okay.

And then, just lastly, this past quarter I understand there was some variable cost implications in the quarter, but just wondering, given the comp was so much better than your low single-digit plan, would you have expected a little bit more SG&A leverage than you got, or was this pretty much as you would have expected?

No, I think our SG&A leverage if you take into the account that we had stock option expense as well, we have some pretty good leverage this quarter.

Our fixed expenses were basically on plan and the only increase in dollars was variable, so I think as a Company, we performed very well.

Great, thank you.

You're welcome.

Thank you.

Our next question is from Dorothy Lakner with CIBC World Markets.

Please go ahead.

Thanks and good afternoon, everyone.

I had a question about the accessories area and some of the areas where you've been bringing in some of these better luxury brands.

Are you done rolling this out across the stores where you want to put that product and are there still brands that you want that you don't have yet?

And then secondly, on the Brass Plum business, is there any sense that, with denim in several places in the store right now, could that be taking some traffic or business away from the juniors area?

Thanks.

This is Pete.

With the accessory part of the business, we're not done.

We've got a long ways to go, and I think we can just see it by the customer's demand for the product.

If we're able to bring in the things -- the coveted brands they like, they sell, again price really doesn't seem to be a barrier as much as the desirability and the fashion element.

So we're going to continue to grow that part of our business, and yes, there are lines that we either don't get or don't get as much of.

That's just an ongoing pursuit for us and I think it always will be.

That's just the nature of the game in this business.

But you definitely want more of it?

Well, sure, yes.

Particularly when it's performing like this.

With Brass Plum and the denim question, that's probably a pretty fair assumption.

What makes BP different from the other departments is based on fit and style and price, and that really speaks more to the junior customer.

But if the junior customer's willing to spend a lot more money on a pair of premium denim jeans, which in many cases they have been over the last couple of years, then obviously that would affect BP's denim sales a little bit.

But that's really not the reason we've had challenges with BP.

They're more to our doing and it's our ability to be able to get the items right, both in terms of timing, fabrications, colorations.

There's a fair amount of issues, but isn't quite as simple or specific about denim.

That's really not the challenge we're having.

Okay, so you're addressing those other areas?

You bet.

Great.

Thank you.

Thanks, Dorothy.

Thank you.

Our next question come from Michelle Tan with UBS.

Please go ahead.

Congratulations.

Thanks, Michelle.

Just a couple of questions.

First looking at the women's apparel business, it seemed to pick up across the industry and I'm wondering if you've seen anything in the way of trade-ups for other categories?

I know footwear at some haven't -- hasn't been that strong, maybe because of lower price points this season.

This is Pete.

We really haven't seen trade-ups that way, but again I think we're still in the early stages of the women's business.

You know, it's not like it's so robust that it's coming at the expense of anything else.

So I don't -- that would not be the accurate to say for us.

If we can get that customer in the store, our challenge is more how to be able to sell them all the different categories, not assuming that if they're going to spend on just one trend, they wouldn't on another.

That typically hasn't been how it goes for us.

It has more to do with each category have something to offer that women so she can buy the entire outfit in our store.

And then, also one last question.

Looking at -- you mentioned the anniversary sale, if you included the online portion was up 4.1%.

Now that you've realigned the online to be more similar to what the merchandise being carried in the store is, did you see more customers purchasing online this year than you have in the past at anniversary?

Yes --

-- ratio change?

Yes.

So if we -- I mean, can you give us some sense of what the anniversary would have looked like last year if you included online?

Well, one thing is important to know, it's not at the expense of what we're doing in the full-line stores.

I mean, really it's incremental what we're able to gain here.

And the statement that was made earlier on by either Blake or Mike is that we found that a lot of customers end up getting their introduction to Nordstrom's through the catalo -- excuse me, through the Direct channel.

That has been helpful in developing customers of our full-line for our business.

So, again, the whole appeal that it does create synergy and at this point, it really isn't -- one is not at the expense of the other.

They're much more complementary.

Okay, great.

Thanks, guys.

Thanks, Michelle.

We have time for one more question.

Thank you.

Our last question comes from Dan Geiman with McAdams, Wright, Reagan.

Please go ahead.

Good afternoon.

Can you update us on the real estate search at this point, and also where things stand in Manhattan?

Also, with regards to women's apparel, how does Women's apparel factor into your comps guidance for the rest of the year?

Are you counting for improvements over prior quarters in that area?

This is Pete.

I'll start with the women's apparel part of that.

Yes, we're counting on it improving over last year.

That is part of our plan for fall.

And Dan, this is Mike.

In terms of the real estate, you know I think we've been pretty clear as of late to state that the pipeline for opportunities has never been better for us and we're very active in evaluating everything that's out there.

And as we get more clarity as to exactly what kind of opportunities are going to play out for us, we'll let everybody know, but we're very, very -- we're putting a lot of resource into looking at that.

And in terms of Manhattan, again, it's a very desirable location.

It's the number one market that we're not in that we'd love to be in and we're still evaluating opportunities there.

As of yet, we haven't been able to come -- get close on opportunities that makes sense for us financially and ones that have presented themselves.

So we'll keep you up to date on that.

Thank you.

Thanks, Dan.

Thank you for participating in our conference call this afternoon.

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Thank you.

That concludes today's conference.

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