Nordstrom, Inc.

Greetings, and welcome to the Nordstrom Second Quarter 2021 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 Heather Hollander, 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 in the Investor Relations section on Nordstrom.com. Our discussion may include forward-looking statements, so please refer to the slides with our safe harbor language. Participating in today's call are Eric Nordstrom, Chief Executive Officer, and Ann Braman, Chief Financial Officer, who will provide a business update and discuss the company's second quarter performance. Joining during the Q&A session will be Pete Nordstrom, President of Nordstrom, Inc., and Chief Brand Officer. And now, I'll turn the call over to Eric.

Good afternoon, and thank you for joining us today. We delivered strong second quarter results. driven by broad-based momentum across banners, regions, and merchandising categories, and the performance of our anniversary sale, in which sales exceeded 2019 levels, an important milestone. We capitalized on improving customer demand with solid execution, healthy inventory sell-through, and continued expense management. Our performance demonstrates the power of our interconnected brands and the potential of our transformation as we execute our closer-to-you strategy. As consumer spending recovers, we are well positioned to capitalize on a significant opportunity to take market share and drive profitable growth with our expanding product offer, increasing customer engagement, and integrated digital and physical assets. We've now had four consecutive quarters of sequential improvement in sales trends for both our Nordstrom and Nordstrom Rack banners, with active customer accounts continuing to recover and approaching 2019 levels. Customers are increasingly engaging with us both in-store and online, as evidenced by continuing improvements in our store traffic and sales, along with robust digital growth. Our loyalty program remains a powerful engagement driver, with loyalty club members contributing 70% of our Q2 sales, up 500 basis points from 2019. We are very pleased with the performance of our anniversary sale, with total event sales increasing 1% over 2019, including the final week of the event, which fell in the third quarter. As always, our anniversary sale rewards and engages our loyal customers with brand-new product at reduced prices for a limited time. The event was well-timed to serve increasing customer demand for wardrobe refreshes as they returned to activities outside the home. This year, we worked to further enhance the customer experience during the anniversary sale, adding new virtual and in-store events to drive engagement. while building on successful components of last year's event, including digital catalogs with personalized editorial content and product recommendations, online wish list functionality, and remote selling and styling tools. Our anniversary performance was an encouraging example of our evolution of our merchandising capabilities. By leveraging a more data-driven approach along with our evolving partnership models with our vendors, we were able to increase event selection by 12% and reduce the rate of items sold out by 35% versus 2019, while at the same time maintaining a comparable sell-through and finishing with a healthy position in owned inventory as we exited the event. We are encouraged by the customer response to Anniversary with record volumes on Nordstrom.com and continuing improvements in store traffic. Customers also leveraged the convenience of our integrated touchpoints, with order pickup in stores increasing 52% during the event compared to 2019. Our merchandising and supply chain teams, along with our brand partners, executed well, ensuring that we had the right assortment in the right place at the right time to serve demand. Overall, our outstanding employees delivered an excellent customer experience, and we would like to take a moment to thank them for their contributions to a successful event. In addition to strong top line and event performance, we made meaningful progress towards margin recovery this quarter, with reduced markdowns and solid sell-through, as well as disciplined expense management. Our second quarter performance reflects our steady execution and commitment to the strategic priorities we shared at our investor event. Win in our most important markets, broaden the reach of Nordstrom RAC, and increase our digital velocity. As we work to win in our most important markets, our market strategy is a powerful enabler for the business, allowing us to better serve customers and provide greater access to product by linking our assets at the market level. We've seen a positive customer response to the enhanced capabilities we launched with our market strategy in 2020, including the extension of order pickup and ship-to-store to all Nordstrom rack locations. In fact, during the anniversary sale, nearly 40% of next-day pickup orders for Nordstrom were picked up in a rack store, evidence of the power of integrating capabilities across our two brands. Yet our market strategy delivers incredible convenience that provides customers with four times more product available for next day pickup and a one day reduction in average shipping time. Our second growth priority is broadening the reach of Nordstrom Rack. In the quarter, total rack sales declined 8% compared to 2019, a nearly five percentage point sequential improvement from the first quarter. Despite challenges with inventory flow, we are encouraged by the early results of our merchandise repositioning efforts, with price-oriented offerings in active, home, and kids delivering a combined double-digit sales increase in those categories. And in the 70 RAC stores that have been repositioned for a price-oriented offering, new to Nordstrom customer accounts increased 16% over 2019. Going forward, we are committed to building on this progress by continuing to expand our RAC offering and delivering an assortment that appeals to a wider set of customers while deepening our offering for our core customers. Our third priority is increasing our digital velocity across Nordstrom and Nordstrom RAC. This quarter, digital sales increased 30% over last year and 24% over the second quarter of 2019. We continued to drive growth at Nordstrom.com and Rack.com, even as store traffic improved, a testament to the power of our interconnected digital and physical assets. We also completed the integration of Rack.com onto the Nordstrom.com platform, delivering a more seamless shopping experience and improved reliability, while positioning us for more profitable growth as we continue to scale our Rack.com business. During the quarter, we took another step in transforming our merchandising approach with our acquisition of a minority interest in four ASOS brands, Top Shop, Top Man, Miss Selfridge, and Hit. We believe this partnership will give us new opportunities to lead digitally and extend beyond our traditional wholesale model. We're happy to partner with ASOS. a world leader in fashion for the 20-something customer in offering a broader assortment to better meet their needs. We look forward to updating you on new initiatives under this partnership in the second half of the year. As we look ahead, we are excited about the opportunity that lies before us. Our transformation is gaining momentum and positioning us to capitalize on a significant opportunity to profitably grow our business as demand improves. Though there is uncertainty regarding the future of the pandemic, we are closely monitoring impacts on the customer and supply chain while prioritizing the health and safety of our teams and customers. We have demonstrated our ability to navigate a rapidly changing macro environment with agility and flexibility, and we will maintain that focus as we move through the year. While we're pleased with our continued progress this quarter, We remain committed to the work ahead to better serve customers, capture market share, improve our profitability, and create value for our shareholders. With that, I'll turn it over to Anne to discuss our financial results in greater detail.