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Operator
Hello, and welcome to the Nordstrom's fourth-quarter and fiscal year 2011 conference call.
At the request of Nordstrom, today's conference call is being recorded.
All lines will be on a listen only mode until the question-and-answer session.
(Operator Instructions)
And, I would now like to introduce Rob Campbell, Treasurer and Vice President of Investor Relations for Nordstrom.
You may begin, Sir.
Rob Campbell - Treasurer and VP, IR
Hello, everyone, and thank you for joining us.
Today's earnings call will last approximately 45 minutes and will include roughly 30 minutes for your questions.
As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions discussed due to a variety of factors that affect the company including the risks specified in the company's most recently filed forms 10-K and 10-Q.
Participating in today's call are Blake Nordstrom, President of Nordstrom Inc., and Mike Koppel, Executive Vice President and Chief Financial Officer, who will discuss the company's fourth-quarter and full-year performance and outlook for fiscal 2012.
During the Q&A session we will be joined by Erik Nordstrom, President of Stores, Pete Nordstrom, President of Merchandising, and Jamie Nordstrom, President of Direct.
Before we begin, I want to mention that Mike will be using slides that can be viewed within the investor relations section of our nordstrom.com website.
If you are listening to this conference call as a webcast you should already see the title slide.
With that, I will turn the call over to Blake.
Blake Nordstrom - President - Nordstrom, Inc.
Thank you, Rob, and good afternoon, everyone.
As we've communicated in the past, we recognize that customers have a growing number of options regarding the shopping experience.
The consistency of the customer experience, both in store and online, and things like selection, multi-channel capabilities, personalization, speed, convenience, and price, all are becoming more important.
Simply stated, we want to be the retailer of choice whenever, however, wherever customers choose to shop by providing a superior customer experience.
As we continue our efforts to improve the level of service in our stores, we also have accelerated our investments to elevate the customer experience in e-commerce.
This is where we saw the highest year-over-year sales increase in 2011 and it's where we expect the strongest growth in the future.
There were a number of highlights in 2011.
For the full year, our company achieved an all-time high in sales which exceeded $10 billion.
We ended the year with same-store sales up 7.2% on top of the 8.1% increase that we achieved in 2010.
Our regular price selling remains at historically high levels.
Which is indicative of the integrity of our pricing and the fashion and newness in our offering.
We continue to challenge ourselves on inventory turn.
In 2011 we reached 5.6 times.
Matching our all-time best in 2010 and a tribute to the high level of execution of our merchants.
Our company performance reflects the progress we've made in many parts of our business.
Full Line grew same-store sales of 6% while opening new stores in Delaware, Nashville, and a second store in St.
Louis.
We continued our efforts to connect sales people with more customers to make the shopping experience better.
Over the last three years we've roughly tripled the number of personal stylists in our program and now have close to 1,300.
They represent some of our best salespeople and are leading our efforts in building one-on-one relationships with our customers and improving the overall customer experience.
We enhanced the ability of our salespeople to serve customers with the rollout of mobile point-of-sale devices and e-receipt capabilities.
Part of our effort in connecting and deepening relationships with new and existing customers is through our fashion rewards program.
With over 2.6 million active participants, a month ago we announced a number of enhancements which give customers more control over how and when they can earn rewards and extends more benefits to our card holders.
Our Direct business grew close to 30% in 2011.
We took a number of steps during the year to raise our level of service and accelerate overall e-commerce growth.
We launched online free shipping and free returns in September.
Which had a significant impact on Direct sales and generated incremental profit.
We followed that with a small pilot of same-day delivery for online orders.
And, we are continuing to build the knowledge in this area.
We implemented a Nordstrom app for iPhones and Androids, upgraded our website while enhancing our mobile website to make both easier to use, and improved the speed and quality of the delivery of merchandise to customers.
We are also adding close to 400 employees with e-commerce expertise and experience to complement our existing Direct team giving us the combined capabilities necessary to drive growth in the space.
At this time last year, we announced our acquisition of HauteLook.
It gives us access to an emerging, growing channel and allowed us to partner with a talented team.
The business, as a stand-alone, generated a sales increase of roughly 60% during the year while nearly doubling its membership to over 7.5 million today.
We anticipate robust growth in this business to continue with ongoing opportunities to share learnings that benefit us across channels.
Several years ago we accelerated the expansion of our Rack business.
And, over this period our market share has grown significantly.
The Rack crossed the $2 billion threshold in 2011.
We opened 18 stores during the year leading a 21% total sales growth.
Our Rack business also generated growing increases in same-store sales throughout much of the year.
Reflecting ongoing initiatives to get the best product at the best price.
As far as initiatives for 2012 we are planning the following -
- Adding to the functionality of mobile point-of-sale devices and expanding their usage in Full Line and Rack stores.
- Enhancing the overall web and mobile web experience.
- Building out our IT infrastructure to fuel our e-commerce growth.
- Beginning implementation of enhanced tools to improve the initial allocation and assortment of inventory.
- Expanding online merchandise selection and developing a more customized approach to all aspects of our engagement with customers.
In closing, though we are moving faster than we ever have, we remain committed to the level of discipline and execution that have served us well.
We are encouraged by the benefits we are already beginning to see from the investments we are making.
From the positive response we are getting from our customers and the strength of our top line performance.
We are confident that our heightened focus in e-commerce, coupled with ongoing opportunities in our stores, will enable us to further enhance our ability to serve and remain relevant with customers.
In doing so, we are enhancing what we believe is a terrific foundation to best serve our customers today and in the future.
I would now like to turn it over to Mike.
Mike Koppel - EVP & CFO
Thanks, Blake.
Our fourth-quarter results illustrated our continued execution of our operating plans along with an aggressive strategy to grow our business.
During the year, we not only achieved record sales but completed back-to-back years of almost 13% growth in total sales.
We also realized a double-digit increase in earnings before interest and income taxes, or EBIT, for the second consecutive year.
And, we achieved this while making significant investments to build on our platform for growth.
Whether it's increasing sales across channels or the initiatives underway to improve the customer experience and grow our customer base, we believe we are on track to achieve our overall financial goals of mid-teen total shareholder returns.
For the full year, our earnings per diluted share were $3.14 and our EBIT totalled $1.2 billion.
This is an increase of 14.2% in diluted earnings per share and an increase of 11.7% in EBIT compared with the fiscal year 2010.
For the fourth quarter, our earnings per diluted share were $1.11, and EBIT totalled $417 million.
This was an increase of 6.7% in diluted earnings per share and an increase of 2.8% in EBIT compared with the same period in 2010.
Same-store sales in the fourth quarter were up 7.1%.
Nordstrom same-store sales, which includes results from our Full Line and Direct businesses, were up 8.4% with the South and Midwest as our top-performing regions.
Handbags, Designer, and Cosmetics were our top-performing merchandise categories.
Sales in our Direct business grew 35% in the fourth quarter.
Nordstrom Rack net sales grew 17.7% in the fourth quarter with same-store sales up 2.2%.
As Blake mentioned, we opened 18 Nordstrom Rack stores this year and anticipate 15 openings in 2012.
The sales productivity and return on investment continue to make expansion of this concept a compelling opportunity.
Fourth-quarter gross profit, as a percentage of net sales, increased 12 basis points to 37.7%.
The improvement was driven entirely by leveraging, buying, and occupancy costs.
Total sales per square foot increased 8.4% while inventory per square foot increased 13.3%.
We believe this is appropriate given the anticipated growth in our business and recognizing that last year's inventory level was lower than planned.
We ended the year with inventory turn of 5.6, in line with our 2010 record high, attributable, in part, to an increase in the percentage of regular price sales and reflective of the ongoing benefits from our multi-channel capabilities.
Retail SG&A increased $121 million compared to last year's fourth quarter.
The increase was driven by various e-commerce initiatives and investments including HauteLook and by higher volume from existing and new stores.
We continue to leverage SG&A expense in our stores with improvements of approximately 35 basis points over last year.
Now, I will turn to our performance in Credit.
Positive trends continues as our customers are spending more in our stores and using our tenders as convenient methods to transact rather than building revolving credit.
This is reflected in our delinquency, write-off, and payment rates, each of which experienced favorable trends.
As a result, we have reduced the reserve for bad debt by $10 million.
This is in addition to $20 million of reductions taken earlier this year.
We ended the quarter with bad debt reserves, as a percentage of ending credit card receivables, of 5.5% down from 6.9% last year.
Our performance during the year added to the strength of our financial position.
We generated free cash flow of $432 million.
We have $1.9 billion of cash and total liquidity of approximately $2.7 billion.
Our adjusted debt to EBITDAR of 2.4 times is well within the range of investment grade.
During the quarter we completed a secured, five-year $325 million debt transaction, at a fixed interest rate of 2.3%.
We have $500 million in securitized notes that mature in April 2012.
With the financing noted above, in addition to a $500 million, 10-year unsecured debt transaction completed in the third quarter of 2011, we are well-positioned to address this maturity.
Now, I would like to take a few moments to step back from the quarterly and annual performance to discuss our business model as we go forward.
To do this, I would like to refer you to slides that we have made available on our website, in the Investor Relations section at nordstrom.com.
Referencing the slide entitled Investing for Growth.
It reinforces our overarching goals of sustainable, top line growth and mid-teens ROIC as drivers of value creation.
This is consistent with what we've shared with you over the past year.
Historically, we built value from improved operating disciplines in efficiencies, technology tools, and physical store growth.
As we continue to drive growth at an accelerated pace in e-commerce, we expect that this model will evolve.
E-commerce investments are expected to generate high dollar growth in sales and EBIT, as opposed to EBIT margin, supported by a highly productive capital base.
We believe that our business model will shift to a blend of these approaches as the majority of our growth comes from e-commerce while the vast majority of our sales will come from brick-and-mortar.
With that, I will now turn your attention to comments on our capital plan.
From a capital allocation standpoint we're planning for $480 million to $520 million in net capital expenditures in 2012, with depreciation and amortization of approximately $370 million for the full year.
It represents an increase relative to 2011 with a greater emphasis in e-commerce.
In 2012 we plan to spend over $140 million in e-commerce, representing approximately 30% of our capital expenditures compared to spend of almost $100 million or approximately 20% last year.
We plan to open one Full Line store and 15 Rack stores this year along with a greater number of store remodels.
Our current five-year capital plan is approximately $3.3 billion.
About 60% of our plan is for new stores and remodels.
Approximately 30% will fund e-commerce growth, which is double the amount we had in our five-year plan last year.
Now, I will focus on the 2012 guidance, which is provided based on a 53-week fiscal year.
We expect to achieve 2012 earnings per share of between $3.30 and $3.45, with same-store sales between 4% to 6%.
As has been our practice, these expected results align with our operating plans reflecting the investments we are making and appropriate sales expectation.
This plan will deliver our third straight year of increasing sales by over $1 billion.
Our plan for the 53rd week will increase our annual sales and earnings per share by approximately $160 million to $170 million and between $0.03 and $0.05, respectively.
Our 2012 gross profit rate will range from 5 to 35 basis points lower than last year.
This primarily is a function of the near-record performance of merchandise margin in 2011 along with the unfavorable gross profit impact from an increasing mix of Rack stores, the reduction of shipping revenue, and the introduction of our enhanced fashion rewards program.
We anticipate Retail SG&A to be $265 million to $330 million higher than last year.
The increase primarily is due to the growth in volume from existing and new stores along with the previous mentioned acceleration in e-commerce investments.
Credit card revenue is expected to be flat to up $10 million, with no anticipated growth in credit card receivables due to increased sales volume being offset by higher payment rates.
Our Credit SG&A expense is expected to be $10 million to $20 million higher compared to last year primarily due to the absence of planned reductions in our reserve for bad debt.
EBIT, as a percent of sales, is planned to be in the range of 11.4% to 11.6% for the year.
This is a slight decrease from last year and is a function of the increased level of investments we've described.
Interest expense is anticipated to increase $25 million to $30 million largely due to increased borrowings and higher interest rate relative to last year.
Free cash flow is planned to be approximately $400 million for 2012.
This reflects our continued ability to generate cash from operations and adequately fund our aggressive growth plan.
As we've stated in the past, the highest and best use of our cash is to invest profitably in our business.
Beyond that, while maintain adequate liquidity and flexibility, we look to return value to shareholders through dividends and share repurchase of which $310 million remains in our existing authorization.
In 2012, we will include in our quarterly earnings reporting a breakout of same-store sales for Nordstrom Full Line stores, Nordstrom Rack, and Direct.
This is a change from the last several years in which we reported Full Line and Direct comp sales on a combined basis due to the substantial integration between these two channels.
We continue to believe this is an accurate means of capturing the synergy between these two businesses.
However, given the incremental investments we are making in our Direct business, greater transparency regarding this part of our business is warranted.
As you can tell from our remarks, we are excited about the strength of our core business, the growth opportunities that lie ahead, and the health of our financial position.
Overall, we believe this supports our relentless desire to offer superior customer experience and increase shareholder value.
With that, I'll turn the call over to Rob.
Rob Campbell - Treasurer and VP, IR
Thank you, Mike.
Before taking your first question we want to ask that each person limit himself or herself to one question and if necessary a follow-up, in order to give as many as possible an opportunity to ask a question.
If you have additional questions, please return to the queue.
Operator, we will take the first question.
Operator
Charles Grom, Deutsche Bank.
Charles Grom - Analyst
Hi, thanks, good afternoon.
If I look at your slide that you put on your website, it looks like you are anticipating EBIT dollar growth of high single digits in 2012 and then low double digits in the out years.
Should we interpret that as thinking about your investment cycle as 2012 being a peak year in terms of dollar commitment and also SG&A compression?
Mike Koppel - EVP & CFO
Sure, Charles.
This is Mike.
Thanks for your question.
I think, based on what we know today, 2012 is a pretty significant step change for us relative to building up our capabilities and a number of initiatives in the Direct channel.
We also believe that going forward we are going to get more leverage out of the topline that's going to help that.
Now, keep in mind what this does also say is that we are going to continue to grow the return on invested capital.
And, that is our focus along with the topline sales growth.
Thank you.
Charles Grom - Analyst
Okay.
Then if I could just sneak one more in just on the upcoming technology initiatives can you shed a little light on exactly what you guys are going to be doing?
I know you've been testing Geofencing in some of your stores.
Can you elaborate on that initiative?
Jamie Nordstrom - EVP and President, Nordstrom Direct
Yes, this is Jamie.
I can't speak directly to the Geofencing, I can tell you a number of the things that we're doing are around the mobile space.
We've got a number of different initiatives to improve the service we're giving through mobile devices both in our store and outside the store.
We are improving the speed and quality at which we can get merchandise to customers.
We think we've got a big opportunity there.
A lot of the tools and, frankly, the talent we need to be able to improve the service we are giving through our online efforts are some of the things we are investing in this year.
Mike Koppel - EVP & CFO
Charles, this is Mike.
I will just add one other thing, that's very important.
And that's the work we are doing in planning and allocation.
Which is something we've been working on several years.
And this is the year we are going to start to implement those technologies.
Operator
Edward Yruma, KeyBanc Capital Markets.
Edward Yruma - Analyst
Hi, thanks so much for taking my question and congrats on a great year.
Mike Koppel - EVP & CFO
Thanks, Ed.
Edward Yruma - Analyst
Can you talk a little bit -- I think you highlighted the e-commerce piece of the CapEx as being roughly $140 million.
But you also cited some of these investments as being one of the reasons for down EBIT margin on a year-over-year basis.
How much of that investment are you actually expensing to the P&L versus capitalizing?
Mike Koppel - EVP & CFO
Sure.
Well, Ed, overall you can count that as for roughly every dollar of capital that goes into technology there's roughly 30% to 40% that hits the P&L in that current year.
So, as we've talked about in the past, when we accelerate these technology investments it is a more rapid reflection in the P&L.
But then, long-term does reflect a more proficient capital base.
Edward Yruma - Analyst
Got you.
And one follow-up if I might.
I just want to confirm that your higher interest expense is a result of the debt raising that you did and there's no other reasons for that.
Mike Koppel - EVP & CFO
Yes.
Primarily, that's it.
Edward Yruma - Analyst
Great.
Thanks.
Mike Koppel - EVP & CFO
Thanks, Ed.
Operator
Jennifer Black, Jennifer Black and Associates.
Jennifer Black - Analyst
Congratulations on a great year.
Mike Koppel - EVP & CFO
Thanks, Jennifer.
Jennifer Black - Analyst
Hi.
I wondered if you could talk about conversion now that you've had free shipping for a quarter?
What are you seeing with the average order size?
And do you find most people are shopping multiple departments due to the time-saving nature, as far as shopping those departments in store?
And then, I also wondered, is the information you're obtaining helping you to be more accurate in your planning and allocation for merchandise in your Full-Line stores?
Thanks.
Jamie Nordstrom - EVP and President, Nordstrom Direct
Hi, Jennifer, it's Jamie.
Jennifer Black - Analyst
Hi, Jamie.
Jamie Nordstrom - EVP and President, Nordstrom Direct
We talked about the last couple of quarters since we've launched free shipping that we've seen improvements in just about every customer metric we have that we can measure online.
Conversion is up, as you would expect it to be.
And we also look at things like average order size, and units per order, and cross-shopping across the website.
And clearly our free shipping offer has helped.
And customers have been telling us through their purchases that they really enjoy having that offering.
I couldn't tell you much about cross-shopping.
Those are things that we don't talk about publicly.
But I can tell you that we are seeing great customer behavior and they like it.
As far as the planning and allocation, maybe, Pete, you want to take that one?
Pete Nordstrom - EVP and President Merchandising
I think it's been part of our ongoing initiative that we want to have better, more actionable information.
And particularly given the fact that we've been able to have more efficient inventories, to speed up our turn, means it's more important that we can allocate appropriately and correctly up front.
So we've got access to better information.
I think we have a good sense of where the sales are coming from and, therefore, where the inventory needs to be.
There's a lot of effort being made, to make sure we are getting inventory in the right place up front.
So that should continue to help improve our results as we go forward.
Operator
Lorraine Hutchinson, Bank of America.
Lorraine Hutchinson - Analyst
Thank you, good afternoon.
Given your focus on e-commerce, can you talk a little bit about longer-term store count goals for both the Full-Line and the Rack concept?
Erik Nordstrom - EVP and President of Stores
Sure, this is Erik.
For Full-Line stores we're at 117 right now and we think there is an opportunity around 125 in the United States.
So our store count -- new store count is dropping.
We have one new store planned for this year.
And a couple stores in the works after that without a firm date attached to it.
So that is going down.
For the Rack, we continue to be in that around 15 stores a year.
We've a much shorter window with Rack planning.
So we don't have to commit as far in advance.
So for the foreseeable future, we're comfortable with that range.
Lorraine Hutchinson - Analyst
And then, any thoughts on expanding into Canada?
Erik Nordstrom - EVP and President of Stores
Do you want me to?
Blake Nordstrom - President - Nordstrom, Inc.
Go ahead.
Erik Nordstrom - EVP and President of Stores
We've been looking at Canada for over a year now and it is an attractive market for us.
We like it for several reasons.
We have a lot of customers there being as close as we are to the border.
And the markets are pretty attractive.
It's just a very healthy retail environment there.
The challenge, as you can probably guess, is the real estate.
It's a tough real estate market given the -- mainly the dense urban areas where the population is.
So we have an interest in there and we think we could learn a lot that could inform us for other expansion after that.
But right now, it's really a real estate question and at this point we haven't answered that one.
Operator
Paul Lejuez, Nomura.
Paul Lejuez - Analyst
Thanks, guys.
Can you talk a little bit about the drivers behind your comp assumption for '12 just in terms of transactions versus ticket.
And I guess, more specifically your AUR assumption for next year?
Thanks.
Mike Koppel - EVP & CFO
Sure, Paul, this is Mike.
We usually don't break out those factors in terms of how we come up with our forward looking numbers.
But I will share with you that in general, we planned our stores meaning both the Full-Line, the Rack in the 3% to 4% increase range.
And the balance was in our Direct business.
And that's how we came up to the 4% to 6% range.
Paul Lejuez - Analyst
Got you, thanks.
And how should we think about inventory throughout the year?
In terms of a year-over-year increase?
Pete Nordstrom - EVP and President Merchandising
Well, this is Pete.
I think it's our ongoing quest to make sure that we are trying to grow sales as fast as we're growing inventory.
That's what you've seen with our improving turns.
And our ability to be able to leverage all these channels up one base of inventory enables us to do that.
And again, with better information.
So, I think you should expect to see us try to continue up with those efficiencies and have sales grow faster than inventory.
That's how we are planning it.
Operator
Barbara Wyckoff, CLSA.
Barbara Wyckoff - Analyst
Hi.
Could you talk about HauteLook in some detail?
What was the drag on earnings, actually, last year?
What is the projected drag on earnings this year?
And then, could you just give me also some more specifics on what will the new planning and allocation system do that the system you have now doesn't do?
Mike Koppel - EVP & CFO
Okay, Barbara.
This is Mike.
Regarding HauteLook, the overall impact on the year was roughly $0.23.
I think when we went into the year we estimated roughly $0.20.
As far as next year, it will be roughly half of that in terms of the impact to the P&L.
We expect the Company to continue to grow.
And we're looking at repeating that roughly 60% growth rate in 2012.
And we are going to continue to invest in that business.
And hopefully over the next few years see some more profitability there.
Barbara Wyckoff - Analyst
And the planning and allocation?
Mike Koppel - EVP & CFO
And the second part of the question in terms of the planning and allocation, I think the biggest -- the biggest advantage there is we are going to use the data that we have been accumulating through our multiple channels to develop better ways to allocate and to sort our inventory plans on a store level.
Currently, we are doing a lot of that with a lot of manual tools and I think some data tools.
And we're going to be able to use some technology that will more efficiently help us do that through our purchase order system.
Operator
Dorothy Lakner, Caris and Company.
Dorothy Lakner - Analyst
Thanks, good afternoon, everyone, and congratulations on a great year.
Mike Koppel - EVP & CFO
Thank you.
Dorothy Lakner - Analyst
I was wondering -- just two questions.
One on the Rack business.
You saw some really strong performance throughout much of the year, a little bit more muted in the fourth quarter.
So I wondered if you could address that.
And then, just secondly if you could give us a little bit more color on what you're planning in terms of the mobile POS unit?
Thanks.
Blake Nordstrom - President - Nordstrom, Inc.
Dorothy, this is Blake.
I will address the Rack.
We were really pleased with the team's efforts this last year.
Not only with successfully opening all those new stores but continuing to grow the comp.
And there were a number of initiatives on that.
It is true that there was about a six or seven month trend of pretty consistent comps and it softened slightly in the fourth quarter.
Some of that was due to a pretty strong promotion that happened the year before in the month of December that we didn't anniversary.
So we still had gains through it but it muted that performance a little bit.
But we're encouraged about that team and its contribution to the Company and expect that through 2012.
Erik Nordstrom - EVP and President of Stores
This is Erik.
On the mobile POS devices, we started about halfway through last year with about 6,000 devices in all of our Full-Line stores.
And that includes some testing in the Rack stores as well.
We've had a very strong response to them.
Our plan for this year is to continue to increase the functionality of those devices.
Currently about 75% of what our fixed point-of-sale devices can do, we can do on a mobile device.
By the end of year that will be 100%.
And we will increase the number of these devices both in the Full-Line stores and in the Rack.
We believe even more strongly today that those devices just help provide a better customer experience, especially around personalization and speed.
Operator
Michelle Clark, Morgan Stanley.
Michelle Clark - Analyst
Great, thanks and good afternoon, everyone.
Mike Koppel - EVP & CFO
Hi, Michelle.
Michelle Clark - Analyst
Mike, I had a question for you.
Earlier in the Q&A section you said that you expected to get more leverage out of the topline.
Can you just remind us where you are in your leverage points today and your buying and occupancy and SG&A?
And then, how we should think about those leverage points go forward?
Mike Koppel - EVP & CFO
Yes.
Well, in terms of our leverage points, right now, particularly the period we're going through, we're much more focused again on driving that topline and sustaining and growing the return on capital.
Because part of what is going on is we are going through what we believe is a real, I would say, an incremental step up in terms of the activity in the investment to take advantage of this e-commerce growth channel that we're seeing.
And so, it's tough right now because we really don't have a stable point of view and a stable model in terms of where that's settling down.
And so, we believe that the continued investment and being there where our customer wants to be in a moment is the more important thing.
And we're going to continue to invest in that.
Operator
Neely Tamminga, Piper Jaffray.
Neely Tamminga - Analyst
Great, good afternoon.
The housekeeping question -- hi, congratulations again.
So housekeeping question is going to be on just the change in reporting.
So I hear what you are saying about the comp on Full-Line, Rack versus Direct.
Have you guys done anything internally to actually change the way that you compensate your people, since compensation is kind of a big deal.
And the big picture question is you guys are definitely tossing around some fun stuff over in St.
Louis and Nashville in terms of store formats and flows, just wondering what are you learning in those new formats?
How do you plan on applying some of those learnings?
And give us a sense as to what that could do, maybe, to the remodels and how many remodels?
That would be helpful, thanks.
Mike Koppel - EVP & CFO
Okay.
Neely, this is Mike.
In terms of the compensation, no, we haven't made any changes to the way our folks are compensated as a result of where the sales are going in the various channels we're selling.
Erik Nordstrom - EVP and President of Stores
As for the new stores.
Our new stores last year performed pretty darn well, ahead of our plans.
And there's, like all of our new stores, you apply learnings as we go along and they are all a bit different.
I think the stores last year all had more of an integrated Women's Apparel area that were less department divisions that flowed, I think, a little better.
And we've had good response to that.
A little better Women's Apparel business as a percent of our total.
We are certainly investing in remodels.
We think there's big opportunity there.
We've seen particularly good results when we've invested in our flagship stores.
Our biggest, best stores where we can invest, and often a big part of that investment is expanding our Designer offering.
To have a full Designer offer with an enhanced environment in our best locations where there's a lot of customers, a lot of tourism, has really paid off for us.
We will continue to focus on those areas in particular.
Operator
Robert Drbul, Barclays Capital.
Robert Drbul - Analyst
Hi, good evening.
Just two quick questions.
First, when you look at the '13 and '14 targets on the EBIT dollars that you put in the chart, what are the profitability assumptions around the e-commerce piece of the business?
In the low double-digit growth that you're targeting for those out years?
Mike Koppel - EVP & CFO
Bob, this is Mike.
We haven't really disclosed individual profit goals for the business.
And I think an important part of that, too, is it's not just about the profit that comes from e-commerce, it's the overall value that we create for our customers through all channels.
And so, it's tough to look at that in a silo and make some sort of assumption about that.
We're really not breaking it out.
We'd like to think of this as a combined and collective offering.
Robert Drbul - Analyst
Got it.
And then, my second question if I could, Mike, on the inventory, the levels of inventory, are there any pockets of inventory you guys are concerned about as you look to the beginning of this year?
Mike Koppel - EVP & CFO
No, Bob, the answer is no.
We feel that we transitioned out of the fourth quarter very well.
We did what we needed to do to assure that going into the Spring we had current and healthy inventories.
Some of the growth you're seeing is reflective of the continued growth and the assortment in the online business as well as anticipated volume levels that we anticipated in the month of February.
Operator
Paul Swinand, Morningstar.
Paul Swinand - Analyst
Good afternoon, thanks for taking my question.
Mike Koppel - EVP & CFO
Sure.
Paul Swinand - Analyst
Just along those same lines with the inventory.
Obviously, you've got industry-leading turns.
I'd assume as e-commerce grows that would make turns go even faster.
But maybe I don't understand it and maybe there are different things about the business as it grows that would maybe not make it turn as fast, right?
Pete Nordstrom - EVP and President Merchandising
Yes, this is Pete.
I think in general it's made it go faster because we have a shared inventory that we've used.
So, we're just -- it's more efficient.
What's going to change, though, is as we work to do a better job of gaining topline that's going to probably imply us having some more offer and selection online.
And we've got to invest in that.
I think there's going to be a period of time where we really understand how that inventory works for us.
We are trying to gauge how far we can go in terms of the breadth of our offer online and still have it be efficient.
Paul Swinand - Analyst
So, I guess short-term it's accretive, but long-term, maybe, neutral?
Mike Koppel - EVP & CFO
We have to learn.
I mean, this is, in the scheme of the life of this channel we're in very early stages.
And I think we have a lot to learn about how to do that.
But all that being said, is that we see it as a significant growth opportunity and we'll fund it appropriately.
Operator
Deborah Weinswig, Citigroup.
Deborah Weinswig - Analyst
Thanks, so much, and once again congratulations on a great year.
Mike Koppel - EVP & CFO
Thanks, Deborah.
Deborah Weinswig - Analyst
Two questions.
Number one, Blake, in your prepared comments you spoke about expanding your online merchandise selections.
Does that mean your online offering will differ from what's in stores?
Blake Nordstrom - President - Nordstrom, Inc.
Deborah, we just talked about it in the previous question.
And both -- Pete was talking about it and Mike a little bit.
I think we've prided ourself as merchants to try to have an edited buy, a balanced buy within the confines of our customer demand in the store, and space constraints, and flow, and a number of issues.
And so, as we've applied that from our roots to online, to date that served us pretty well.
But as we continue to listen to our customer they are expecting and demanding even more selection.
And they want that search engine to be that efficient means to quickly go to the item or items that they're hoping to have.
So that means more SKUs for us.
And whether that's leveraging what we have in our stores, whether that's our facility at Cedar Rapids or down the road the possibility of another facility, whether that's drop ship, we have to execute on what the customer is looking for.
And we think, at this point, selection is really important online.
And so, as Mike said, we are on a steep learning curve there.
We're going after it and we expect to succeed there.
Pete Nordstrom - EVP and President Merchandising
I would just say to add to it, this is Pete, that you would expect to find the same brands and classifications, but we might be able to go with more selection in those brands than we could typically offer in a store.
So the selection will grow in some regard.
Deborah Weinswig - Analyst
Okay, and then on January 20, I think, it was announced that Obama was easing the visa rules to boost US tourism.
Obviously, with the -- as you mentioned, you were increasing your Designer merchandise selections.
And obviously have a lot of stores on the West Coast that could easily benefit from this.
Can you talk about if you've incorporated any of that into your comp estimates for 2012?
And how you're thinking about that in terms of your merchandise selection?
Mike Koppel - EVP & CFO
Yes, Deborah, we have not assumed anything in our comps as it relates to that change.
Hopefully, we'll get some benefit but we didn't bake anything in.
Operator
Liz Dunn, Macquarie.
Liz Dunn - Analyst
Hi, can you hear me?
Mike Koppel - EVP & CFO
Yes.
Liz Dunn - Analyst
I guess -- I have so many questions.
But I will start with what's -- can you give us an update on Women's after the departure of Loretta Soffe, what's going on with that business?
And then I thought you said that the capital plan was $3.3 billion for -- over five years which, if you just straight-line it, is a little bit more than the CapEx that you've guided to for 2012.
So could you just help reconcile that?
Pete Nordstrom - EVP and President Merchandising
This is Pete, with regards to Women's it's been a challenging year for us.
And that has prompted some changes, as you mentioned, with our leadership there.
I think that we expect that we should be able to do better and we should be able to do better right away.
There's a lot of things we've tried this last year, both related to what we're carrying and how we merchandise it in the stores.
And I think we are getting to a place where we are able to draw some conclusions from that that we can apply across more stores and, obviously, in the spirit of being able to grow the business.
So I don't really have anything to announce there right now other than clearly we weren't satisfied with the results we had.
So we're making changes to improve those results.
Mike Koppel - EVP & CFO
And, Liz, this is Mike.
Regarding your question on the $3.3 billion plan.
Included in that plan in the tail end of those five years is roughly $600 million that relates to potential opportunities in the Canada market as well as Manhattan.
Operator
Richard Jaffe, Stifel Nicolaus.
Richard Jaffe - Analyst
Thanks, very much, guys.
My congratulations as well.
A question we've talked -- or you've talked a lot about return on invested capital and your long-term objective.
Could you talk about how you guys internally view HauteLook?
If you are holding them to the same ROIC standards as you hold the other divisions?
Or is it really a skunk works kind of operation where you think it as a test and learning experience rather than an ROIC driven kind of investment?
Mike Koppel - EVP & CFO
Sure, Richard this is Mike.
I mean, our goal is that we want to grow businesses to create value.
And I think clearly we took a high risk by going into an early-stage business that tends not to have the same operating metrics as more mature businesses do.
Long-term, we do have those kind of expectations.
We also believe it's going to create value, return value for the greater enterprise.
So that being said, the learnings we're getting from it and the accelerated topline growth we're getting we hope that, over time, will help us deliver the kind of return goals we have.
Richard Jaffe - Analyst
Okay, thank you.
Operator
Erika Maschmeyer, Robert W.
Baird.
Erika Maschmeyer - Analyst
Thanks, and congratulations.
Mike Koppel - EVP & CFO
Thanks, Erika.
Erika Maschmeyer - Analyst
Do you think 2012 is going to be another year where we see Accessories continue to outperform Apparel?
And could you talk a little bit about the trends that you saw for boots over the holidays?
We've heard that prices on some brands are going to be going up fairly substantially for next year.
Do you think that can continue?
And we can continue to see nice increases in units there?
Pete Nordstrom - EVP and President Merchandising
What -- in regards to the question on Accessories, we've had, I don't how many years in a row where we've had outpaced growth there, but it's been several.
So I certainly don't see anything in the business that would indicate that that's slowing down.
We've got good traction in those classifications.
We have good leadership and good merchandising strategies.
And our plans are that we will continue to grow that business, at least fast if not faster than the rest of the total business as it all rolls up.
The other question was about boots, specifically.
We had a great boot season this last year.
Our shoe division just had a really excellent year across the board.
And in large part because they planned well around the demand for boots, not only in the fourth quarter but really all throughout the year as it applied across fashion.
And I think that that will continue to evolve.
But for us, that meant we had some average higher unit retail prices and that worked out well for us.
But I don't think it's fair to assume that that will continue to go on an upward trajectory.
I know that our group is really looking at other ways to tap into new growing markets.
So I don't think there's going to be a big seismic shift away from boots to something else.
But I think that should probably flatten out some and we'll see other categories emerge that we can grow with.
Erika Maschmeyer - Analyst
Then just a follow-up.
What was the gross margin impact from free shipping in Q4?
Mike Koppel - EVP & CFO
We didn't really comment, but it's been, and we said in Q3, roughly 10 to 15 basis points to the total Company.
Operator
Michael Exstein, Credit Suisse.
Michael Exstein - Analyst
Thank you.
Just a couple quick points of clarification.
Number one, when you talked about the loss from HauteLook that is not an incremental $0.10 -- $0.12 or $0.15 but a reduction year-over-year?
Mike Koppel - EVP & CFO
That's correct.
That's correct, Michael.
Michael Exstein - Analyst
Great.
And then, in terms of -- how come depreciation is growing at a lower percentage rate than CapEx this year?
Mike Koppel - EVP & CFO
Well, because it's still catching up to the CapEx rate.
The growth this year, and the way, Michael, that the CapEx is coming on the books it's just the relative timing of when that's happening.
To assume that all that capital is going to come on in the first day is probably not likely.
Thank you.
Rob Campbell - Treasurer and VP, IR
Thank you for joining us today for our fourth quarter earnings call.
As a reminder, the webcast replay of this call will be available for one year on the investor relations section of nordstrom.com under webcasts.
Thank you for your interest in Nordstrom.
Goodbye.
Operator
Thank you, and this does conclude today's conference.
Thank you for participating.
And you may now disconnect.