Nordstrom, Inc.

Greetings and welcome to the Nordstrom First Quarter 2022 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. Thank you. You may begin.

Good afternoon, and thank you for joining us. 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 slide with our Safe Harbor language. Participating in today's call are Eric Nordstrom, Chief Executive Officer, Pete Nordstrom, President and Chief Brand Officer, and Ann Bramman, Chief Financial Officer, who will provide a business update and discuss the company's first quarter performance. And now, I'll turn the call over to Eric.

Good afternoon, and thank you for joining us today. Our first quarter results were marked by strong top-line growth and continued progress in our transformation. We know customers look to Nordstrom for the occasions that matter most to them. This quarter, we saw customers shopping for long-anticipated in-person occasions such as social events, travel, and return to office. Beyond occasions, customers also re-evaluated and refreshed their wardrobes. We are encouraged by this opportunity because it favors the core categories of our business and the core capabilities of our service model. We were well positioned to serve this demand and deliver an excellent customer experience, powered by our unique product offering, interconnected model, and strong commitment to customer service. Our integrated digital and physical assets continue to allow us to be nimble and enable us to quickly adapt to the channel shift in the quarter as customers increasingly chose to shop in store. We were staffed, well-stocked, and ready to serve customers as store traffic increased. And our dedicated employees delivered an experience that was clearly reflected in our store-level customer satisfaction scores. Putting the customer first is in our DNA, and our teams continue to exemplify that spirit this quarter. We've always believed that service and selling go together. That was reflected in our team's improved productivity with 75% more Nordstrom salespeople reaching the $1 million sales mark in 2021 versus 2019. We cannot be more proud, and we'd like to thank our outstanding team for their unwavering commitment to serving customers and delivering results. Turning to first quarter performance. Total sales increased 19% over the first quarter of 2021. Nordstrom Banner sales increased 23% over last year and exceeded pre-pandemic levels, an important milestone. Nordstrom Banner gross merchandise value, or GMV, increased 25% for the first quarter versus the prior year. As we saw a return to occasions and customers updating their wardrobes, we experienced broad-based growth across core categories and geographies. With customer traffic and activity returning in city centers, Nordstrom urban store sales collectively rebounded and reached pre-pandemic levels. In fact, the Nordstrom Manhattan flagship store had the highest year-over-year sales growth among our stores this quarter. For the Nordstrom banner, the southern U.S. continued to outperform the northern U.S. compared to pre-pandemic levels, but the spread tightened to three percentage points. Our team remains focused on building additional capabilities to better serve customers and drive shareholder value, with particular emphasis on three key areas, improving Nordstrom RAC performance, increasing profitability, and optimizing our supply chain and inventory flow. Starting with Nordstrom RAC. Sales grew 10% versus last year, driven by increased store traffic, improved conversion, and better in-stock levels. We also built momentum, with sales increasing as we moved through the quarter. By increasing our supply of premium brands and fine-tuning our assortment to better align with customer needs, we are achieving a better balance of price points at the RAC. As we've said before, 90% of the top brands at Nordstrom are sold at Nordstrom Rack, and we believe our work to improve the availability of those brands will fuel Rack's growth. And we're pleased with the results of our More Reasons to Rack campaign, which drove improved brand awareness, affinity, and traffic. As we move through the year, we expect to see continued benefits from our multi-layered plan to both expand our offerings of the most coveted brands we carry, as well as source from new vendors, and increase our use of pack-and-hold inventory to ensure we have the right selection that our customers want. By improving inventory levels, optimizing our assortment, and driving brand awareness and traffic, we are confident that we will profitably grow our rack business throughout the remainder of the year. Turning to profitability, while we drove improvements in both merchandise margin and SG&A this quarter, we are focused on plans to deliver incremental improvements and elevated flow through as we move through the rest of the year. Within SG&A, we expect that the supply chain optimization workstreams underway will enhance the customer experience, drive top line growth, and produce efficiencies in labor and fulfillment, which will compound as we move through the year. Pete will take you through our progress to date and plans to drive additional merchandise margin and supply chain improvement in a moment. In addition to the three focus areas that I've outlined, winning in our most important markets and advancing our digital capabilities are key strategic priorities for us, and we continue to make progress in these areas. Starting with winning in our most important markets, our market strategy helps us engage with customers through better service and greater access to product, no matter how they choose to shop. By leveraging a strong store fleet and linking our omni-channel capabilities at the market level, we deliver a level of convenience and connection that our customers enjoy. Throughout our market strategy rollout, we've seen the power of offering additional pickup options. Customers clearly value our interconnected model, with order pickup comprising 10% of Nordstrom.com demand this quarter. an increase of 200 basis points versus the prior year. In Q2, we'll continue to scale our market strategy by expanding next day order pickup capabilities to over 60 additional rack stores in our top 20 markets. Customers utilizing in-store pickup have higher engagement and spend three and a half times more than customers who don't utilize the service. Buy online, pick up in store also remains our most profitable customer journey and one of our highest satisfaction customer experiences. Our styling program also continues to be a powerful engagement driver as we deliver convenience and build deeper customer connections through our closer to you strategy. As we position our styling program for further growth, We are sunsetting Trunk Club and redirecting our resources to the services that our customers tell us they value most. I want to be clear. This move reflects our belief and commitment to styling, and we are dedicated to growing and investing in these services. We have a range of styling services from low-touch outfit inspiration through our digital channels to a high touch and personalized relationship with a stylist, all of which achieve high customer satisfaction scores. We are directing our investment towards these programs to ensure that we are well positioned to serve customer needs and drive growth. Customers spend seven times more and report higher levels of satisfaction when engaging with a stylist, either in-store or online. While we still see the highest number of customers engage with our in-person styling, we are seeing rapid growth within our digital services. We continue to leverage data science and advance our digital tools, including virtual style boards, to empower our stylists with highly relevant recommendations for their customers. With more customers returning to stores this quarter, digital sales were flat versus the first quarter of 2021. Digital remains an important part of the business with 39% penetration and digital capabilities are an important part of our in-store experience. We'll continue to leverage our digital platforms to deliver personalization at scale, especially as we connect with customers through our upcoming anniversary sale in the second quarter. We're excited about our plans for the year and the progress we're making on our transformation. Investments in our market strategy and digital assets put us in a strong position to capitalize on favorable market opportunities as events and overall demand continue to recover. Beyond top line growth, we've made progress improving merchandise margin and driving SG&A efficiency, and we have specific work streams in place to drive incremental improvement in the second half of the year. We have line of sight to achieving the financial targets outlined at our 2021 investor event and remain committed to shareholder value creation. We look forward to sharing our continued progress in the quarters ahead. With that, I'll turn it over to Pete.