Nordstrom, Inc.

Greetings and welcome to the Nordstrom Fourth Quarter 2023 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 Jamie Dewis, Head of Investor Relations for Nordstrom. 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, and Kathy Smith, Chief Financial Officer, who will provide a business update and discuss the company's fourth quarter performance. Please note that when discussing our results and outlook, we will be referring to them on an adjusted basis for EBIT, EBIT margin, and earnings per share. Reconciliations to the most directly comparable gap measures can be found at the end of this presentation and our Q4 2023 earnings press release both of which are available on our website. And now I'll turn the call over to Eric.

Thank you, Jamie, and good afternoon, everyone. Thank you for joining us today. I'll start with our fourth quarter performance, then discuss our 2023 priorities and cover what we're focused on for 2024. We delivered a strong fourth quarter with net sales of $4.3 billion and earnings per share of $0.96. For the full year, our results were within or better than the guidance we laid out, and we accomplished what we set out to do, enhance the customer experience and drive better financial performance. Ahead of the holiday shopping season, our teams worked hard to deliver the right assortment as well as provide engaging experiences for our customers. As a result of these efforts, we achieved sequential improvement in net sales, profitability, number of customers, and purchase trips in the fourth quarter. Throughout 2023, we remain focused on three priorities intended to drive better financial performance while keeping the customer at the center of everything we do. Our first priority was to improve Nordstrom Rack performance. One way that we did that was by opening 19 new stores in 2023. New Rack stores continue to be an excellent investment as they deliver well in excess of their cost of capital with a relatively short payback period. However, it's not just the new stores that drove the rack's impressive net sales growth in the fourth quarter, as rack-comparable store sales also grew by high single digits. Our rack digital business also improved in traffic and conversion in the fourth quarter, enabling sales which contributed to Nordstromrack.com's full-year profitability. From a merchandise standpoint, we focused our efforts to improve our offering at the rack as we know that delivering great brands at great prices is what our customers want. Our second priority in 2023 was to increase inventory productivity. We continued to focus on managing inventory effectively, as evidenced by the positive sales to inventory spread in the fourth quarter, which sets us up well from a merchandise standpoint as we start the new fiscal year. Additionally, our efforts to reduce the overhang of designer inventory met our target, and our overall newness of inventory is stronger than it was a year ago, given we had fewer aged items to clear through. Our third priority of 2023 was to optimize our supply chain capabilities, a continuation of efforts that began in 2022. In Q4, for the sixth consecutive quarter, the team delivered another 50 plus basis points of improvement in variable supply chain expense savings, while at the same time improving our click to delivery speed. Building on the momentum of our efforts to optimize our supply chain, we've made the strategic decision to relocate operations from our fulfillment center in San Bernardino, California to our West Coast Omnichannel Center just 25 miles away in Riverside. WCOC has been scaling for several years now and is well positioned to serve our customers across Nordstrom, and Nordstrom Rack banners following the investments we have made to enhance capabilities at the facility. It is our newest, most automated facility, offering a substantially lower processing cost per unit. We record a 32 million asset impairment and related charge due to this relocation. We're pleased with the results of our efforts against our three priorities for 2023, as not only did they drive better financial outcomes for the company, but also supported our efforts to improve the customer experience. Next, I'd like to take a moment to discuss merchandise performance in the fourth quarter as PETA is away in market and unable to join us today. We came into Q4 at a much healthier inventory position than in the prior year, resulting in fewer markdowns during the quarter, which helped to drive an expansion of our gross profit margin by 125 basis points. Active, Beauty, and Women's Apparel were our best performing categories in the fourth quarter with strong growth versus the prior year. The Active category was led by shoes with strength from brands like On Running and Hoka as well as apparel brand Viore. We leaned into Beauty with a strong gift selection for holiday as well as a five times point promotion for our Nordic Club members. This offer drove incremental trips and conversion while creating a halo effect in other categories. Fragrance was the top performer in beauty at both banners, highlighted by brands such as Burberry, YSL, and Marc Jacobs. At the Nordstrom banner, designer makeup drove strong growth from Chanel, Tom Ford, and Dior, while the skincare category improved compared with the previous year. At the RAC, the rollout of an expanded offering of hair care products supported our outsized growth. The improvement in women's apparel was supported by seasonally relevant newness in addition to our turnaround with the young customer, which is an area we have a multi-year plan to improve. We are pleased with progress in this area in Q4, which was led by our Nordstrom private brands. At the Nordstrom banner, dressier categories were the best performing. Brands such as Vince, Veronica Beard, and Sinkaset delivered solid growth. Overall, we exited 2023 with improved inventory levels versus the prior year, which provides us the opportunity to have a consistent flow of relevant product as we move towards spring. Turning to 2024, we're confident in our plan for the year. Building upon the work we did in 2023, we've refreshed our three key priorities for 2024, driving Nordstrom banner growth, optimizing operationally, and building on momentum at the rack. The first priority is to drive growth at our Nordstrom banner. Our customers value the relevance and inspiration that we offer. We aim to provide that by offering a compelling product mix, along with creating an environment where they not only shop their favorite brands and products, but also discover new ones. We will focus our Nordstrom banner efforts on digital-led growth supported by our stores. One thing we're excited about is the launch of our digital marketplace on nordstrom.com starting in April. By reimagining the way we work with our brand partners, we'll grow our curated online assortment to serve more customers on even more occasions through increasing our use of unowned inventory. Marketplace will allow customers to shop more products and sizes from their favorite brands while providing them more access to new and emerging brands. As we do this, we're also creating a more personalized digital experience that makes it easy for our customers to navigate our growing assortment. Expanding our assortment through unowned inventory has the potential to drive GMV growth in addition to providing compelling economics. We'll also drive Norsham growth by amplifying the brands that matter most to our customers, along with ensuring we have the depth in these brands consistently across our stores and online. Beauty will also continue to play a prominent role in our assortment and growth. Our efforts are designed to create more engagement in addition to improving retention while serving customers on more occasions with the breadth of assortment that they expect from us. Our second priority for 2024, operational optimization, builds upon the success that we've had in optimizing our supply chain capabilities. This entails a focus on driving faster fulfillment and delivery for our customers, as well as maximizing our inventory value through its lifecycle. We will continue our efforts to improve inventory integrity and optimize inventory positioning, along with increasing the speed of product to the customer. We are making investments in systems and technology enablers to standardize and streamline our inventory processes, expanding the scale of our RFID utilization, and improving the inventory movement within our business, all with the end goal of enhancing the customer experience and improving our cost position. Our third priority for 2024 is building on the momentum at the RAC. Opening new RAC stores is a profitable investment as well as a key way to reach more new customers and drive RAC banner growth. As we're opening more new stores, we're finding our performance and efficiency continues to improve. Expanding our network of stores brings our omnichannel services closer to the customer, giving them more reasons and opportunities to engage with us. We consistently hear how customers enjoy the convenience of shopping between our banners, taking advantage of the services we offer, including cross-banner in-store returns, buy online, pick up in-store, and alterations. In 2023, we opened 19 new stores, and our intent is to open 22 new stores in 2024. Rack stores continue to be a growth engine for our company, as they are our largest source of new customer acquisition accounting for over 40%. Growing our store count also supports long-term customer retention. In fact, roughly a quarter of retained rack customers migrate to the Nordstrom banner within four years. We aim to deliver top-line rack growth led by stores and supported by enhanced digital capabilities in 2024. To that end, in addition to growing the number of rack stores, we also intend to continue the profitable momentum at nordstromrack.com. By leveraging our digital assets, our suite of omnichannel offerings will enable us to grow our selection online as well as enhance the customer experience as we strive to deliver great brands at great prices for our customers, regardless of how they choose to shop. Before I turn it over to Kathy for a review of the financials, I want to thank our teams for their focus on exceptional service to our customers and execution of the day-to-day business while remaining steadfast on our priorities. We're proud of the efforts that we undertook in 2023, as well as the outcomes that enhanced the customer experience and drove improved financial results. Through a clear set of priorities, we're confident that we'll end 2024 as an even stronger company. And with that, I'll hand it over to Kathy.