諾德斯特龍百貨 (JWN) 2013 Q1 法說會逐字稿

Hello and welcome to the Nordstrom 2013 first quarter 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)

I will now introduce Rob Campbell, Treasurer and Vice President of Investor Relations for Nordstrom.

You may begin, sir.

Hello, everyone and thank you for joining us.

Today's earnings call will last 45 minutes and will include about 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 first quarter performance and outlook for fiscal 2013.

During the Q&A session, we will be joined by Pete Nordstrom, President of Merchandising, and Erik Nordstrom, President of Stores.

Before we begin, I want to mention that Blake and Mike will be using slides that can be viewed in the Investor Relations section of our website.

If you are listening to this conference call as a webcast, you should already see the title slide.

If you are listening by telephone, you can view the slides by going to Nordstrom.com and the Investor Relations section.

And now, I'll turn over the call to Blake.

Thanks, Rob.

And good afternoon, everyone.

The first quarter for us reflected continued progress on our strategic priorities of improving the customer experience, enhancing our merchandise offering, increasing relevance with existing and new customers, and driving online growth.

From a top-line perspective the increase was at the lower end of our expectations, with particular softness in more seasonal merchandise categories and in several geographic markets.

Sales trends showed improvement in April and throughout the quarter, we were disciplined in our management of expenses and inventory.

We remain positive about the balance of the year as we stay focused on our efforts to deliver the kind of customer experience across all channels that build loyalty and drive sales.

As we've discussed over the last 12 months, we have multiple growth opportunities underway to improve the customer experience -- in our stores, in e-commerce, and in the multi-channel synergies between them.

This quarter we opened five Rack stores, with an additional three stores open today in Maryland, Alabama, and Maine.

We plan to open 14 more Racks over the balance of 2013 and have over 230 Rack stores by the end of 2016.

During the quarter, we also announced our plans for a second full-line store in Toronto to be located in the Yorkdale Shopping Centre, bringing our announced full-line store total in Canada to five thus far.

One of the ways in which we increase our relevance with customers is through product innovation.

Within the Women's Apparel area which continues to perform above our multi-channel average, we repositioned our Savvy department during the quarter to maintain its trendy fashion appeal but at more accessible prices.

It's too early to evaluate its overall performance, but we are excited about this important strategic change to further enhance our product offering and build on the learnings from our partnership with Topshop.

The Topshop merchandise has performed well online and in the 14 stores where we currently carry it.

Based on its success, we plan to expand its distribution to additional stores in the fall.

As a functionality of our mobile point-of-sale devices continues to expand, it is allowing our full-line store salespeople to spend more time with customers and offer a more seamless shopping experience.

In the Rack, we've been able to improve the service level through using mobile point-of-sale devices to reduce and often eliminate the checkout line.

The next step, which we took in the first quarter, was to remove some of our fixed cash registers and capture over 20,000 square feet of incremental selling space.

This is meaningful because of the high sales productivity we achieve in the Rack.

In e-commerce, our focus has been on strengthening the customer experience through a focus on selection, convenience, and experience.

We've expanded the breadth of our online merchandise offering so that today it virtually is at parity with our store offerings and we'll continue to grow.

In terms of convenience, during the quarter, we added well over 100 new features to the website, made improvements to our mobile app's, and increased the speed of fulfillment and delivery.

We're still in the early stages in the area of personalization, in essence, customizing the experience on our site, providing product recommendations, and building tools that help with fit and style.

We're also making substantial investments in the infrastructure of our systems to support our accelerated pace and growth.

Our Fashion Rewards Program continues to grow, with new accounts running ahead of last year.

We now have 3.5 million active members, up from 2.9 million at this time last year.

We have long recognized the program's ability to attract and deepen relationships with new and existing customers.

And we're pleased that our customers are taking advantage of it.

During the second quarter, we'll offer customers the ability to open a Fashion Rewards account online and have immediate shopping access, including participation in the early access portion of the Anniversary Sale.

The second quarter is a particularly high-volume period for us, with our Men's and Women's Half-Yearly Sales followed by the Anniversary Sale that begins on Friday, July 19.

These events bring strong traffic into our stores and online and give us meaningful opportunities to establish and strengthen our relationships with customers.

In closing, we remain positive about the balance of the year.

We're motivated by the strategic growth opportunities we're pursuing, and we're on track in terms of our progress.

We'll continue to update you as we go throughout the year.

And now I will turn over the call to Mike.

Thanks, Blake.

Consistent with what we've shared with you in recent quarters, we continue to focus on the execution of our long-term growth strategy that encompasses multiple channels and in expanding geography.

To date, we are on track in terms of our progress with respect to our planned entry into Canada, our accelerated store expansion in the Rack, our aggressive growth in e-commerce and ongoing full-line store growth.

The potential these initiatives offer in terms of expansion of customers we serve and the differentiated experience we provide is significant, both individually by channel and in the synergy created across channels.

Our confidence and commitment to the successful execution of these initiatives remains strong.

Turning to the results of the current quarter, I'd like to offer a few comments.

Our sales performance resulted in year-over-year growth, although lower than anticipated.

As Blake mentioned, we experienced softer sales trends early in the quarter in both seasonal merchandise categories and geographically in the Northeast, Mid-Atlantic, and Midwest regions.

That being said, we did see improvement in April sales trends and our outlook for the balance of the year remains positive.

For the first quarter, earnings per diluted share of $0.73 came in at the lower end of our expectations, which was fully attributable to lower than planned sales volume.

We delivered a same-store sales increase of 2.7% while going up against last year's 8.5% improvement.

The direct business showed continued momentum, generating 25% sales growth on top of last year's 44% growth.

Additionally, total Rack sales grew by 10%.

Women's Apparel achieved same-store sales increases above the multi-channel average.

The strength in our regular-price selling continued, reflecting our customer's preference for newness in fashion.

The percentage of regular-priced sales matched last year's recent historical high for the first quarter.

Overall operating disciplines were very encouraging.

We began the year with inventory in good shape and we were able to exit the quarter in a great position, which sets us up well for the high-volume second quarter.

This includes the incremental merchandise investment to support Rack growth.

On the expense side, our variable costs were well-controlled and our overhead was in line with plan.

Earnings before interest and taxes, or EBIT, were $275 million, representing a decrease of $5 million, or 2% from last year.

While we achieved the sales increase of 4.8%, it was offset by planned expenses related to our growth.

These included incremental expenses attributable to our strategic investments in Rack, Canada, e-commerce, and our loyalty program.

We previously shared with you estimated costs of $20 million to $25 million for 2013 associated with our entering into Canada and accelerated Rack expansion, and we incurred roughly $6 million in the first quarter.

Next, I'd like to provide some additional color on our long-term growth investment.

As mentioned in our fourth quarter call, we are planning capital investments of $3.7 billion over the next five years.

75% of our plan consists of investments in stores, reflecting their importance in building and supporting our brand while leveraging our multi-channel presence.

The remaining 25%, or roughly $900 million, represents e-commerce and technology initiatives.

Approximately one-third of that $900 million relates to our fulfillment capabilities, largely through expanding capacity.

The remaining two-thirds represent technology investments to improve the customer experience and to strengthen our infrastructure to support the growth of the business and the accelerated pace of change.

We continue to believe our level of investment is appropriate, positioning us to serve more customers and deliver on an ever-changing experience, consistent with what customers expect from our brand.

Our five-year capital plan represents approximately 5% of sales, which is in line with where we have been historically and consistent with what has been the spend level over time for growing and adapting companies in our sector.

We remain committed to our long-term financial goals of mid-teens ROIC along with high single-digit sales growth.

In 2012, our ROIC of 13.9% was the highest over the last five years, a period in which we invested nearly $2 billion in our business.

Our first quarter ROIC was 14%, 90 basis points higher than a year ago.

With our investments continuing in 2013, we expect ROIC to continue to grow.

We are in a strong financial position.

For some time, we've applied a balanced approach to capital allocation, which takes into account strategic investments combined with returning value to shareholders through dividends and share repurchases.

In the first quarter, we repurchased 3 million shares for $166 million, and we have $1 billion remaining under current authorizations.

During the quarter we also replaced two credit facilities, having a combined capacity of $800 million, with a single five-year $800 million borrowing facility.

Now, I'd like to address our current outlook for the year.

We recognize that it is still early, with the first quarter typically representing the lightest sales volume.

While we did experience slightly softer sales than expected, we believe that our plan for the remainder of the year is appropriate.

As such, we are maintaining our view of 2013 earnings per diluted share of $3.65 to $3.80, which includes the impact of first-quarter share repurchases of approximately $0.05.

Our top-line view has been adjusted to reflect the lower-than-planned volume in the first quarter.

In closing, we continue to be excited about the many opportunities we have to serve more customers with great product and an unmatched customer experience through our expanding channels and new geographies.

With that, I'll turn the call over to Rob.

Thank you, Mike.

Before taking the first question, we want to ask that each person ask one question and if necessary one follow-up in order to give as many of you as possible an opportunity to ask a question.

If you have additional questions please reenter the queue.

Ed Yruma from KeyBanc.

On the slides, you had a -- I think it was a Rack inventory slide, maybe it was a full business slide, and you had something called Packaway Rack Inventory.

Could you talk about that and whether that's a new strategy or not?

Sure, Ed.

This is Mike.

Thanks for your question.

Yes, the pack and hold is a strategy that we began last year.

The idea there is to be more assertive in the market to get the best product we can as we transition out of the season.

With the continued growth in our Rack business and the improvement in our partnership across all our channels, we're just getting more scale and more leverage and we're able to get more inventory.

That increase in inventory represents that investment.

Got you.

One quick follow-up.

Thank you for the table to help us with the quarterly trends due to calendar shift, but I was wondering if you could maybe give us a little bit more quantification in terms of the magnitude of difference between 2Q and 3Q based on the week shifting.

Thank you.

Ed, we're not giving specific direction by quarter.

I think we did talk a little bit about the second quarter would be higher than average and the back half would be lower.

(Operator Instructions)

Deborah Weinswig from Citigroup.

Can you comment on traffic versus ticket in the quarter and just how should we think about things as they progress throughout the quarter?

Traffic versus ticket?

Is that the question?

Yes.

Well, there was certainly a softness throughout the quarter.

April was better, more return to normal.

We had more softness in the first two months of the quarter regionally, and our Northeast, Capital or the Mid-Atlantic, and our Midwest regions.

So there was definitely some softness there.

It does seem like the Nordstrom Rack definitely bucked that trend.

Can you comment on that business specifically?

Deborah, this is Mike.

I just want to just make one more comment on that.

In terms of the average ticket in the first quarter, our regular-price selling was as good as it's ever been.

The average ticket was up.

So we continue to see good progress there.

And then the second part was the Rack?

Second question was the Rack?

I said The Rack definitely seemed very strong in the quarter.

I just wanted to see if you could comment on that business specifically?

Deborah, this is Blake.

Our Rack business continues to perform well, but it also mirrored to a degree, the full-line stores from a comp store point of view.

But we're very pleased overall with it, and its strategy, and the new store growth is going on plan and in some cases, exceeding our plan.

So we still feel good about that, but it was interesting that it's had a healthy trend for some time and it came down a notch during the quarter.

But a similar trend or a reflection of the full-line stores.

Great.

Thanks so much.

Congratulations.

Paul Swinand from Morningstar Investment Research.

We keep talking about the regular-price selling and how it's getting better.

Just feels like you keep reaching new highs.

Is there any reason that, that would not continue, or that eventually you might not want to have that high a level or something that could reverse?

Or should that just continue to get stronger as you keep getting smarter about business?

This is Pete.

It's really just reflective of what customers are interested in buying from us.

I -- we -- it actually serves us really well when we have a good full-priced business that's reliant on newness and all that.

We've geared everything that we do in terms of how [unintelligible] inventory to be along those lines.

We don't have the same margin pressures given the markdowns, which is a good position for us to be in, and frankly, served us well when dealing with customers, too.

We're in the position we have to match prices, and that sometimes affects it, because most of our peers are more promotional than we are, as we know, that you know.

But all in all, it's been a good positive trajectory for us to be on.

We've just been trying to follow our customers' lead with what they're most interested in Nordstrom.

Is it equal of Rack to full-line stores?

It's a little bit different.

I mean, obviously, there's a different agenda happening at the Rack, that where the whole premise is around markdowns, what have you.

But we -- I think relative to that, we have good sell-throughs at our first marked price there.

Blake, if you could expand on that?

I would concur with Pete.

It's a little bit different of a different animal full-line versus Racks, but in terms of the regular-price selling, particularly as we understand amongst the peer group, we have one of the highest regular-priced business within the Rack, and that first markdown, hopefully, we're pricing it accordingly, is moving well.

So that helps.

Given their flow and their margins, and there's a similar story, if you will, at the full-line stores.

You know there's some -- there's a different model there slightly.

Bob Drbul from Barclays.

It's Joan Payson on for Bob today.

If could you speak more to the Fashion Rewards Program, given the penetration today, just maybe what your long-term plans are and when you think that growth and penetration will begin to slow?

Then is there any difference in behavior for rewards customers?

Sure, Joan.

This is Mike.

In terms of the program, we're still enjoying the momentum that was built last year when we introduced what we call Fashion Rewards 2.0, which was the next level of our offering, where we enhanced the benefits and we made it more accessible to more customers.

That momentum continues.

We did, this past fall, do some testing on a non-tender based program, and we're learning from that.

And we're going to continue to move forward and see ways that we can reach more customers through loyalty.

In terms of their behavior, those customers spend several times more on the average than non-Fashion Rewards customers, and clearly, their loyalty has a very high lifetime customer value.

So those customers continue to be a core for us.

With the expansion into Rack, we're acquiring new customers at a younger stage of their buying cycle, and so those are all positives.

So we're going to continue to learn from it and find ways to grow it.

Thank you.

Dana Telsey from Telsey Advisory Group.

Dana, your line is open.

Please check your mute feature.

I apologize.

Dorothy Lakner from Topeka Capital.

I wondered if you could give us a little bit more color on some of the things that you're doing in Women's Apparel?

Obviously, at Savvy, you've changed the pricing there.

Some of the departments seem to have moved around.

I think if I'm not mistaken, TBD is not there anymore.

It seems like denim is moved within the department.

So, I wondered if you could just talk a little bit more about the changes you've made there and how customers are responding?

Hi, this is Pete.

I feel like I've got to run down to the floor and make sure TBD didn't fall into the ocean or something because we haven't moved that one.

That's been business as usual there for the most part.

If anything, we've pretty much expanded our offer there.

We did make a change with Savvy, and it was mostly just around trying to be more competitive, with what's happening out there in the landscape of being able to buy a trend-right clothes at lower prices than what we were offering.

So we dropped our average price point considerably, and that has made a -- really, an interesting difference for us.

In total, it's really benefited Women's Apparel.

We're still trying to gain traction on this change.

I think, to your point that some stuff has moved around.

That's been somewhat unsettling to some customers.

We've been through this before.

So we know it's going to take a little bit of time.

But I'd say the early indications of this has been a good thing to do.

It's going to enable us to attract more new customers.

So I'd say with the success of women's, that's part of it, but there's a couple of things that happened there.

First of all, we've done a much better job of prioritizing and editing around disproportionate spend on key brands.

Obviously, that's how customers tend to be able to navigate our stores based on these brands they expect to find from us and we've invested more heavily in them with more inventory.

We've given them more prominent locations and merchandising features on the floor and the business has gone up quite a bit.

That's been a good move for us.

We've also had a lot of improvement with our own labels what we call NPG, or Nordstrom Product Group.

We've had really good success with our private label brands in Women's and really excellent growth, which has not only been great for the top line, but is very good for our margins, as well.

Thank you.

Lorraine Hutchinson from Bank of America.

(technical difficulty) Topshop and maybe any productivity metrics?

Could you repeat that question, please?

Sure.

Topshop, can you give us any more details on your store roll-out?

How many do you think you'll have this year and maybe next year, and then any details you can share on productivity?

Yes, this is Pete.

We're planning on opening some new stores this fall.

It's been successful so far with the 14 stores we started out with.

It's got to happen in some kind of measured pace, because there's a lot that goes with this, and not the least of which is the amount of investment and effort it takes to give it the proper identity, and location on our floors.

So we're working closely with the Topshop people to identify the stores, locations, and the specific merchandising elements it needs.

So we're planning on -- I think late September or October to add 28 stores at this point.

That's what we've agreed upon.

And we're working through those details with them.

And presuming it will go as we all think it will continue to go, that we would be able to follow up with another approximately 30, the next season, when I'd say is more like January, February.

I think it behooves both Topshop and us to, once we've decided and figure out that this is good and worth doing to get it going as quickly as reasonably possible.

So that's --- we're aligned on that.

I would say in general, it's been productive and more productive than an average department in Women's.

So when you combine that with the fact that it attracts a lot of new customers as well, it's been a good thing for us.

Great, thanks.

Then maybe can you just elaborate more on what exactly the investment looks like from a dollar perspective?

Yes, I'm not going to get into the details of that.

But it's fair to say that it's not trivial.

To do this right and do it well in a way that they're happy and we're happy, we don't want to do this in a temporary-looking way.

We want to do it in a way that looks like we're serious about the business.

As those details get worked out, we have a great partnership with Topshop that we share a lot of those costs.

This is Mike.

It's also, I think fair to say that the expectations of the returns on whatever we're investing in are very high.

This is a significant opportunity for us.

Thank you.

Neely Tamminga from Piper Jaffray.

Mike, I wanted to talk a little bit more about Fashion Rewards, if we could.

I know that you guys have been testing that non-tender based card.

I'm just curious from those tests, if you could be a little bit more specific as to how you tested it and what you found?

Did you test it at full-line and Rack or both or just one of them?

And then related to that, is there going to be an additional roll-out of this around pre-shop?

Is that what you guys were talking about being able to sign up for the Fashion Rewards online during pre-shop?

Is that the connector there?

Then just one tiny little additional, if I may.

In terms of mobile iPhone functionality, you guys have definitely been ahead of the curve.

We've been tracking it pretty closely.

It does seem to me though that there's opportunity, there's always endless opportunity, but there's opportunity to really put more information around Fashion Rewards in your customer's hands.

What's the timeline for something like that on the docket?

Thank you.

Well, Neely, thank you.

I tried to write down all those questions.

I'll do my best to address them.

The first is the test.

The test we did was primarily full-line and in Cosmetics.

That was an area that we felt certainly was an opportunity to enhance loyalty and repeat business.

I'm not going to get into too many specifics in terms of what we learned, other than the fact that we do see opportunity down the road to have more of a non-tender offering.

We are currently in the process of building and investing in the technology that would give us a better platform, not only with the Fashion Rewards on our tender program but also non-tender.

So, we learned enough to validate that I think there's opportunity to move forward.

In terms of the pre-shop, I think what we were talking about, in Blake's comments, was the fact that we're going to have the functionality to apply for a card online and get immediate approval so then you can turn around and shop online.

As you know, for our Anniversary Sale, the pre-shop is only open for Fashion Rewards customers.

So the fact that you can go on, apply, get approval, you can pre-shop online at that point, and so we see that as another opportunity, not only to get more customers in the program but also to offer them the convenience of the pre-shop for Anniversary.

And then the mobile iPhone, did you want to cover that?

Yes, this is Erik.

Mobile, we're not going to get into our exact rollout schedule, but you are right.

There's a big opportunity to utilize mobile to get relevant information in the hands of the customers and Fashion Rewards is certainly high on the list for us.

It's a program that our customers that respond really well to.

And the more we can engage in, the better it is for us.

So I'll tell you, it's on our list it, along with other features, to get relevant information into our customer's hands.

Thank you.

Jennifer Black from Jennifer Black & Associates.

Congratulations.

You guys have made great success with Women's.

So, I have questions on two different departments.

One, I wondered if you could talk about Encore.

It appears the performance is improving after underperformance for what seemed like many years.

And I wondered if you're eliminating Encore in some of your stores and spreading plus sizes throughout other departments?

That's my first question.

Yes, this is Pete.

Encore, we actually have had some improvement in the last eight months or so, largely it's been because our online business there has grown disproportionately fast to everything else.

We've had big increases online with the Encore department.

It's been more -- closer to flat in the stores.

But that's where we've had the growth.

I think because of that, we've learned that perhaps it doesn't have to be in every store.

I mean, every store is different based on the space constraints that we have and the customers that we have in the store, but if we can serve that customer well online, we're anxious to do that.

I think every store, we have to evaluate and prioritize.

I think the worst thing that we can do is to try to do a bunch of departments in a mediocre way rather than doing fewer in a really good way.

I think oftentimes, the Encore department might get squeezed a little bit in terms of the space that it needs to do it successfully.

So we can offer much more breadth of assortment online and again, that seems to be working well for us.

Great.

And then my second question is about Activewear as a category for both men and women.

It's a category -- it seems like a tremendous opportunity, and retailers are clamoring to get into the space, and Zella looks amazing.

So, I just wondered if you could talk about that as an opportunity, and would you consider Zella or another private label brand for men?

It's another really good question.

Active has been successful for us, and Zella has been a huge catalyst for that, and given that we own that brand and manufacture it and design it ourselves.

It's something we're really proud of.

We've not really come close to the full potential of that brand in Women's area.

In terms of how that's going to translate to Men's, we have had those conversations about that line specifically, or maybe another label that we might be able to do in Men's through NPG, but right now, what we're doing is try and expand on the big athletic brands that we have already.

The challenge there is not dissimilar from the Encore conversation where we have to prioritize it, edit, make the space that we need to be able to do it well rather than doing it in a mediocre way.

So the good news for us is we have a lot of stores that we can try different iterations of how we lay out Men's, and this is something that we are working on currently and will have them for the remainder of the year as we try to figure out the best go-forward plan.

Thank you.

Dana Telsey from Telsey Advisory Group.

I wanted to touch -- Thank you.

I wanted to talk a little bit about Fulfillment, as obviously, there's more dollars being allocated to Fulfillment.

How do you see ultimately with online with the stores, how does the Fulfillment equation work, and what do you think of the margin opportunity once you get Fulfillment to where you want it to be?

Hi, Dana, it's Blake.

On the fulfillment subject, it's really evolving.

If you go back, it's about in bulk, just getting it to our stores, and then with full catalog, starting but really the e-commerce business having one large efficient facility.

As the customers' expectations and really terrific choices have evolved, we're looking at our supply chain from a customer point of view of how do we deliver single items in a much more timely manner?

And so that's going to mean -- and we've been on this journey, we've been utilizing our stores' inventory and services better.

And we have an opportunity in all aspects of our Business, off price, as well as regular-priced, but it will require more, smaller centers to be able to deal on a more timely way with our customers.

So we will be, over time, making more investments and evolving there.

And technology plays a huge role in it, too.

Because the old days of Fulfillment, it was a big cement building, and in bulk going through that.

Now it's really technology of ensuring that the allocation is proper to where the customer and the demand is, to be able to, in a timely way, get it in their hands.

So you talked about margin, lastly.

Where the efficiencies occur, is that we're able to, again, maximize that inventory and turn it better and flow it better, and through this multi-channel strategy then, that creates a more higher percentage of regular-priced selling which improves our bottom line.

So we're encouraged by that, and we're -- we've made good progress but there's a lot to do and we look forward to, in the future calls, communicating with all of you about what our plans are there.

Dana, this is Pete.

What I would add to that is, that the challenge that we've had in the last couple of years of trying to catch up with all the demand we've had online.

The most efficient way to allocate inventory is to put it where the demand is coming from.

So, I think we've done a much better job in this last quarter of getting the inventory in the right place, but it's all based on having really good information and good flexibility.

And this is just an ongoing challenge for us to continue to try to put the inventory where the demand is getting generated.

Erika Maschmeyer from Robert W. Baird.

Could you provide any sense for the magnitude around how trends picked up in April, or the weakness for seasonal, or how warmer regions outperformed?

Essentially, any metrics that help give you confidence in the 3% to 5% comp guidance for the rest of the year?

Yes, Erika, this is Mike.

We're not going to get into that level of detail, but suffice it to say, we did see measurable change in terms of improvement in those regions that we called out, and we have seen a more normalized pattern of selling in the seasonal goods.

Our practice has been, as we've said in the past, is that we will replace the actual that we've incurred with the plan that was there.

And we'll use the plan the remainder of the year unless there's something materially different.

At this point in time, we don't see anything materially different from that plan.

Okay.

That makes sense.

Just a follow-up.

How big are your private label brands today?

Yes.

Well, what exactly do you mean?

Like --

What proportion of sales or --

Well, we don't give that exact information.

I would say it's at a fairly similar level as it's been in total, but we have some places where it's really grown quite a bit, and we mentioned Women's, in particular, and I think that's just been good for us all the way around.

The good news there is that there's a great example to be able to follow, and all our merchants are nothing, if not competitive.

They like seeing that example out there and feeling like there's an opportunity for them to expand with private label, as well.

Most of it's happening along the -- what we would consider the better price points.

That's where most of the opportunity is.

And we are trying to enhance that, make it bigger and better, because we're encouraged by what we've been able to achieve of late.

Thank you.

Paul Lejuez from Wells Fargo.

Thanks.

It's Tracy Kogan filling in for Paul.

I was wondering if we can assume, just based on what you said about full-price selling, that your merchandise margin was up in the quarter?

If so, could you give us the magnitude?

Then wondering how much the shipping hurt you there?

Then secondly, if you could just talk a little bit about the new store performance of your recent Rack openings?

Thanks.

Yes, Tracy this is Mike.

In terms of merchandise performance, actually, we continue to see somewhat of a down trend in our total merchandise margin because of the growth of the Rack is becoming a larger percent of total and Rack, just by its inherent nature, has a lower margin.

That being said, the individual businesses relative to their plan and expectations, did very well for the quarter so we were happy with the merchandise margin performance.

And then the second question, excuse me was --?

On the Rack, (multiple speakers) the new store performance this quarter and I made -- this is Blake.

I made brief mention of that in my earlier question.

We've been really pleased with our new store performance throughout 2012, and that's continued in 2013 in Q1.

So I think we made mention that we've opened eight stores to date.

You're going to have one or two that vary a little bit, but overall it's been exceeding our plans, and that team is executing those openings well to date.

Thank you.

Michael Exstein from Credit Suisse.

A quick question for you.

Can you just give us a sense about non-seasonal goods, how they did versus seasonal goods?

This is Pete.

I think -- well, for example, we had a good coat season.

(laughter) I think that's part of what the same thing.

Our coat business for the quarter was up considerably.

But most of it was -- how we traced it, was along the lines of the seasonal goods being spring or summer goods, from T-shirts to shorts to sandals, was measurably down, and that has improved.

Again, as everyone has mentioned, as the quarter went on, and we feel like we're in a much more normalized place.

But that is definitely how we measured it and looked at it.

And so just following up, so the businesses that are less seasonal -- seasonally impacted, was their rate of sale relatively unchanged throughout the quarter, or was the lack of seasonal goods really hurting traffic in the front end of the quarter?

Yes, maybe the best way to look at that is Cosmetics, which had a good quarter.

So if you were to look at that, you would get the sense that things had really been unchanged for them, so I think that would speak to what you're talking about.

The traffic has generally been good, that our businesses continue to go at the same momentum it has gone for quite awhile.

So, yes, I think that would probably be a good example to demonstrate what we suggested here.

Thank you.

Rob Wilson from Tiburon Research.

Mike, you've mentioned in the past you've had this higher regular-priced metric that you've discussed I think for many quarters now, yet I'm looking at a gross profit margin that's in decline.

So can you help me reconcile the two?

Sure.

Well, there's a couple things in there outside of the merchandise margin.

One is what I just discussed, and that's the growth of the Rack business.

The off-priced business, the economics of that business has a lower merchandise margin.

Rack is becoming a larger percent of the total.

So it's bringing the average down.

The second thing, which is something else we've also shared, is the growth of the Fashion Rewards program, the accounting requires that the cost of the benefits get reflected in the gross profit line, and so that's also having an effect.

But in terms of the actual merchandise margins and the health of the inventory and our ability to sell things at a regular price, that continues to be a positive.

Can you help me -- can you define regular price?

Are you talking about all three channels -- the Rack, the full-price, and the Internet?

We're primarily talking about our full-line stores and our direct channel, not the Rack.

Thank you.

Howard Tubin from RBC Capital Markets.

Can you provide us any update on HauteLook and how that business trended in the quarter and whether you have anything new going on with that business?

Sure.

Well, actually, HauteLook had a very good quarter.

Its comps were actually higher than our direct channel and for the first time, we had operating profitability.

So, that business has shown some good legs.

We're making some progress in terms of leveraging our ability to get product, and some of the things we've done operationally to improve fulfillment.

So, we actually made some very good progress in the first quarter.

Thank you.

Richard Jaffe from Stifel.

A couple of just housekeeping questions and then a bigger picture issue.

Number of square feet at the end of the quarter, if that -- if you could share that with us for modeling purposes?

I don't have in that front of me, but I'm sure we can get that to you, Richard, off-line.

Okay.

And the Anniversary Sale, given the shift in the fiscal calendar this year, will that be the same year-over-year, or apples-to-apples on a quarterly basis?

No, actually, it will be different.

You may recall last year the last week of the Anniversary Sale fell into the third quarter.

This year, it will all be in the second quarter.

So our second quarter sales will be higher as a result of that.

And 3Q might suffer a little bit.

3Q would be down, that's correct.

All right.

And then just a bigger question on the Men's business and what's been a source of success for you?

I'm wondering if would you comment on that, and how that's performing, and what's making it work?

This is Pete.

Men's has been a solid performer for us, and it's been that way for over a year now.

We've had pretty good strength, really across the board.

In particular, our clothing department, with suits primarily, has been really strong.

I think that our Men's team has done a good job of evolving our offer to feel more modern and relevant and give a guy a reason to buy something new.

It's a -- you've got to keep moving forward and make sure that you're really grounded in what the customer deserve.

What's motivating the customer to buy and lifestyle, evolving change.

I mean, Jennifer even spoke to a little bit in terms of active trend, as an example.

But, I think that our Men's team has done a really nice job of continuing to evolve our offer and be there for our customers.

Thank you.

Dorothy Lakner from Topeka Capital Markets.

Just to get a little bit of color on the Credit business, it seems to be continuing to improve, although the Credit revenues were lower than last year, so I wondered, Mike, if you could just add a little color there?

Yes, sure.

Our Credit metrics continue to be very strong, and matching and sometimes better than where they were pre-recession.

Write-offs are in the low 3%s.

Our delinquencies are 1.7% right now.

So that's very positive.

In terms of the Credit revenue, I thought the Credit revenue was relatively even with last year.

So we haven't seen a significant growth in our receivables, because the trend we've seen over several years is improving payment rates.

So, the efficiency of that asset continues to get better, and so that's why we've seen relatively flat credit revenue year-over-year, just because of the growth of the receivables.

And, by the way, we have a large percentage of our customers who don't revolve.

Right.

So, they're paying off as opposed to actually using the credit.

That's exactly right.

Thank you for joining us today for our first quarter earnings call.

As a reminder, a webcast replay of this call, along with our slide presentation, will be available for one year on the Investor Relations section at Nordstrom.com under Webcast.

In addition, an overview that summarizes today's discussion is included at the end of our slide presentation.

Thank you for your interest in Nordstrom.

Good-bye.

Thank you.

And this does conclude today's conference.

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