Nordstrom, Inc.

Greetings and welcome to the Nordstrom Fourth 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 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 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 Northam.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 fourth quarter performance and outlook for 2021. 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. Looking back at 2020, we're deeply grateful for the way our entire team navigated through these challenging times. We made meaningful progress to better serve customers, benefiting from multi-year investments that supported our transformation into additional first business. The aggressive actions we took throughout the pandemic to increase our financial flexibility has enabled us to generate operating cashflow of more than 425 million over the past three quarters. We're confident in our ability to successfully emerge from this pandemic in a stronger position than before. We're encouraged by the continued sequential improvement in our top-line trends, including a 600 basis point increase from the third quarter when normalizing for our anniversary event shift. We saw momentum build throughout the quarter and continuing into 2021. We had broad-based improvement across our two brands, Nordstrom and Nordstrom Rack, both in-store and online. Enabled by our market strategy, trends in our top 10 markets outpaced our average by 200 basis points. During the holidays, customers responded positively to our gift selection, which represented 67% of sales, up 600 basis points over last year. While we're pleased with our improving top line trends, we are not satisfied with our bottom line results. Since reopening stores in June, we faced inventory constraints throughout most of the year. Heading into the holidays, we increased our receipt plans to meet anticipated customer demand. However, we experienced delays in inventory flow that resulted in higher inventory levels at the end of the year. Additionally, higher COVID-related labor and shipping costs contributed to earnings flow through coming in below our expectations. We are currently taking actions to realign our inventory position, and Anne will go into additional detail on our execution and action plans. An important component of our strategy is to increase convenience and create personal connections with customers. During the holiday season, we continue to scale digital and physical capabilities to offer greater access to our services. With pickup options at roughly 350 Nordstrom stores, racks, and Nordstrom locals, about 10% of online orders were picked up in stores. Additionally, roughly 30% of online orders were fulfilled from stores, including racks, which were recently enabled with this capability. These capabilities allow us to increase delivery speed, customer spend, and inventory efficiencies. We're increasing our connections with customers by strengthening our digital capabilities to offer them discovery and inspiration. Remote selling options, such as looks created by our salespeople using style boards, are resulting in outsized customer satisfaction scores, conversion, and average transaction size. And we know that when customers engage with us through order pickup, alterations, or styling, their overall spend increases by up to five times. During the fourth quarter, we saw a significant improvement in customer acquisition trends. improving sequentially by roughly 15 percentage points from the prior quarter. We gained 1.8 million new customers online, a 40% increase over last year. We did this without losing sight of our existing customers, where we have seen improving retention trends over the past two quarters. Encouragingly, our Nordic Club customers continued to shop with us during the pandemic. Approximately 40% of customers are in our loyalty programs, contributing two-thirds of sales. This gives us growing confidence in our ability to sustain momentum in 2021 as our Nordic Club members shop with us more frequently and spend more than our average customer. As we laid out in our investor event last month, our brand promise of getting closer to you is the guiding principle of our growth plans going forward. Heading into 2021, we are committed to significantly expanding the breadth of who we serve and where and how we serve them. We're doing this by unlocking the full power of the digital-first platform we have built to capture market share gains, drive profitable growth, and create significant value for our shareholders. As we head into 2021, our team is dedicated to executing our strategy across our three areas of highest priority. First, winning in our most important markets. We're continuing to scale our market strategy by doubling our exposure from 10 to 20 markets by the end of March, making up 75% of our business. This includes key markets such as San Diego, Houston, Minneapolis, and Miami. Second, broadening the reach of Nordstrom Rack, which we see as a $2 billion incremental sales opportunity over time. We're focused on growing our share of the price-oriented customer segment. Our efforts are underway as we recently repositioned 70 stores by reimagining the merchandising offering and store experience. And third, increasing the velocity of our digital business. We're focused on more effectively translating the heritage of service that defines us in this digitally connected world. This means delivering personalization at scale by creating greater linkages between digital and physical experiences. As an example, we are currently migrating Nordstromrack.com to the JWN e-commerce platform to enhance the customer experience while creating efficiencies in our infrastructure and operations. These strategic priorities are enabled by our digital-first merchandising approach. We are extending beyond our traditional wholesale model to increase selection, reduce risk, and share in the benefits with our strategic brand partners. For instance, yesterday we announced our partnership with Tonal, the smartest home gym and personal trainer, to expand their retail footprint to 40 Nordstrom stores this month. In terms of other partnerships, We also see meaningful opportunities to deepen our relationship with ASOS and Topshop to broaden our distribution and drive growth. We're grateful for our team's efforts to strengthen our financial flexibility and accelerate our strategic priorities to serve customers in new and differentiated ways. These actions have put us in a strong position to capitalize on our market share opportunity as customer demand recovers. While the timing and pace of demand recovery remain uncertain, we see potential to reach $17 billion in revenues at expanded EBIT margins of more than 6% over the next three to five years. In closing, we have two powerful brands, Nordstrom and Nordstrom Rack, as well as highly integrated digital and physical assets, fantastic brand partners, and employees who are truly unmatched when it comes to their commitment to the customer. We're confident in our direction and look forward to sharing our progress in the quarters ahead. With that, I'll turn it over to Ann to discuss our financial results in greater detail.