Nordstrom, Inc.

Greetings and welcome to the Nordstrom third quarter earnings conference call. At this time, all participants are in a listen only mode. We will begin with prepared remarks followed by a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I'll turn the call over to Trina Sherman, head of investor relations for Nordstrom. You may begin.

Good afternoon, and thank you for joining us. Today's earnings call will last 45 minutes and will include approximately 30 minutes for your questions. Before we begin, I want to mention that we'll be referring to slides which can be viewed by going to the investor relations section on Nordstrom.com. Our discussion may include forward-looking statements, so please refer to the slides showing our safe harbor language. Participating in today's call are Eric Nordstrom, Chief Executive Officer and Anne Braman, Chief Financial Officer, who will provide a business update and discuss the company's third quarter performance for 2020. Joining during the Q&A session will be Pete Nordstrom, President of Nordstrom, Inc., and Chief Brand Officer. With that, I'll turn the call over to Eric.

Good afternoon, and thank you for joining us today. Before diving into the details of the quarter, I'd like to highlight our priorities as we continue to navigate through this dynamic environment. Since the founding of our company, our focus has always been on the customer. Fast forward over 100 years, that's never been more important. In this moment of retail disruption, the key to success is moving with speed and flexibility to adapt to the rapid changes in customer expectations. We're thankful for our team's ability to quickly pivot to serve customers in new ways positioning as well to capture market share and generate value for our shareholders in the years to come. To that end, we will continue to amplify the potential of both Nordstrom and Nordstrom Rack brands with an emphasis on accelerating growth and improving returns. To achieve these goals, our focus is on fulfilling our customers' needs for both convenience and connection by offering a seamless and personal experience everywhere they shop. As we look across the business, we prioritize three areas where there is significant potential for growth. First, we're building on the success of our market strategy, which we now consider our company blueprint and how we operate to better serve customers on their terms, gain market share, and increase inventory efficiencies. By linking our digital and physical assets at the market level, we're able to offer customers up to seven times more merchandise selection with two-day delivery or next-day order pickup. We have now reached scale in 10 of our top markets, which account for more than half of our sales, and we'll continue to roll out our strategy across our top markets. Another component of our market strategy is to provide customers with more convenient access to our services. We know that when customers engage with us through order pickup, alterations, or styling, their overall spend increases by up to five times. In October, we expanded our capabilities so customers can now pick up their Nordstrom.com, NordstromRack.com, and Hotlook orders at nearly 350 Nordstrom and NordstromRack locations in the United States. In addition, we recently opened a fourth local Nordstrom neighborhood service hub in the Los Angeles market, with a fifth location opening later this year. Second, we're continuing to leverage digital and physical assets to fuel growth of our Nordstrom Rack brand. Making up one-third of our business today, we have further opportunities to meet the needs of a broader customer segment. There are significant synergies between our two brands. The rack serves as an important pipeline to our Nordstrom full-price business, bringing in 7 million new customers in 2019. Additionally, more than one-third of our rack customers cross-shopped to Nordstrom, which leads to higher overall customer spend. We're also competitively positioned as the only off-price retailer with a significant digital platform. In the third quarter, online represented 40% of Nordstrom rack sales. Since 2019, we generated nearly 3.5 million downloads of our Nordstrom Rack app, our highest converting channel. Another point of difference is our end-to-end approach to leveraging our strong vendor relationships across our ecosystem to provide customers with the best brands. In fact, more than 80% of our top 200 brands in Nordstrom are also carried at the Rack. There are two main efforts underway to capitalize on the growth potential we see at the Rack. expanding our price points, particularly for lower prices, and better connecting our online and our physical stores, which will significantly increase selection. For more than 10 years, our Nordstrom full-price business has been able to use all sources of inventory across stores and fulfillment centers by having a single view of inventory. In October, we launched these capabilities in Nordstrom Rack, enabling online order pickup expanded selection, and store fulfillment. We added 30,000 more customer choices online, and nearly one quarter of our online orders are fulfilled from stores. Additionally, we're already seeing strong customer response with more than 10% of online orders being picked up at RAC stores. Our third driver of growth is to increase the velocity of our digital business. In 2019, 54% this year. We view this as a fundamental shift in shopping behavior and we are well positioned to support our customers across both Nordstrom and RAC with a scalable platform that has been built to support many years of growth. We also know that we must translate the heritage of service that defines us more effectively in this digitally connected world. This means delivering personalization at scale by creating greater linkages between the digital and the physical experience. During the quarter, virtual styling accounted for roughly 30% of all styling appointments, and sales from personalized looks created by our salespeople tripled in volume from the second quarter. Going forward, we see opportunities to further leverage these digital capabilities to increase the connection between our salespeople and customers. At the heart of our value proposition is this principle of closer to you, which is how our market strategy comes to life in helping customers feel good and look their best. It describes not just who we are, but also where we are going and how we will continue to set the standard for product, service, and loyalty in this digital-first world. It's how we will ensure that we offer more than just product and convenience when shopping with us, but also true and meaningful connection which for us is the differentiator between good service and great service. Against this backdrop, we're pleased with our results in the third quarter. Our ongoing inventory and expense discipline combined with the immediate actions taken early in the pandemic have set us up well heading into the holiday, and most importantly, positions us for a strong performance in 2021 and beyond. enabled us to deliver positive EBIT in the third quarter of more than 100 million, earnings per share of 34 cents, and operating cash flow of more than 150 million, all of which exceeded our expectations. We also improved merchandise margin trends and continue to see benefits from rebasing our cost structure. We exited the third quarter with a high-quality mix of inventory. positioning us well to serve customers for holiday and heading into the new year. Our focus remains on providing the best brands that our customers want, combined with the high level of service they expect. We continue to leverage the close relationships we have with our strategic partners, including leading brands like Nike and Tory Burch, global luxury partners like LVMH, and emerging brands like Good American. While we're continuing to amplify categories that are relevant with customers during the pandemic, we believe that over the medium to long term, there will be pent-up customer demand, particularly around occasions like travel or in-person social events. We're well positioned to meet their needs and capitalize on the opportunity to gain market share. Our brand promise of getting closer to you is the guiding principle of our growth plans going forward. Our direction is clear, and our team is dedicated to executing on our strategy to support profitable growth across our three areas of highest priority. Owning our most important markets, viewing the growth of Nordstrom Rack, and increasing the velocity of our digital business. We are confident that we will successfully emerge from this pandemic in an even stronger position to serve our customers and generate value for our shareholders. Our team looks forward to discussing our plans with you in more detail at our virtual investor event planned for February 4th. With that, I'll turn it over to Ann to discuss financial performance in more detail.