EarningsCall · JWN Q1 2024

spk25: Greetings and welcome to the Nordstrom first quarter 2024 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. Thank you. You may begin.

spk29: Good afternoon, and thank you for joining us. Before I begin, I want to mention that we'll be referring to slides which can be viewed in the Investor Relations section on nordstrom.com. Any 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 Kathy Smith, Chief Financial Officer, who will provide a business update and discuss the company's first 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 in our Q1 2024 earnings press release, which is available on our website. As we begin, I want to acknowledge the company's April 18th announcement of the Board of Directors' exploration of potential avenues to enhance shareholder value and formation of a special committee to evaluate any proposal that may be presented by Eric and Pete Nordstrom to take the company private. The special committee will carefully evaluate any proposal that may be received and consider whether it is in the best interest of Nordstrom and all shareholders. We do not have an update to share on this topic and will not be speaking to it during our call today. I'll now turn the call over to Eric.

spk11: Thank you, Jamie, and good afternoon, everyone. For the first quarter, we delivered net sales of $3.2 billion and a loss per share of 24 cents. We are pleased with the strength of our top-line growth across both Nordstrom and Nordstrom RAC. Our business is performing well as we delivered net sales growth in excess of 5%, with double-digit growth at the RAC a positive top line contribution from our Nordstrom Banner stores, and continued sequential improvement in our digital business. Due to a host of factors that Kathy will discuss in a moment, our profitability was below our expectations, with roughly half of the first quarter impact related to timing. Although our earnings were held back, we remain confident in our outlook for the year. We are reaffirming guidance, building on the revenue strength that we have delivered in Q1, benefits of timing reversals, and actions already taken. In the first quarter, we delivered year-over-year increases in customers and purchase trips. We managed inventory effectively, ending the quarter with double-digit positive inventory spread. At both banners, our customers responded to the inspiration and relevance of our customer strategy. Regular price sales as well as sell-through also improved against the first quarter of last year. Our Nordy Club loyalty program events and offerings have been well received by customers. During the first quarter, sales to Nordy Club members grew at both banners with loyalty sales reaching nearly 70% of our total sales. Our digital business continues to trend in the right direction with its fourth consecutive quarter of sequential improvement. The primary drivers of the results included an improved balance across the spectrum of price points, faster shipping, as well as a clear focus in our offering of the brands that matter most to our customers. Turning now to the three priorities that we set out for 2024, we are driving Nordstrom Banner growth, operational optimization, and building upon the momentum at the rack. I'll discuss the progress we made in the first quarter. The first priority is to drive Nordstrom Banner growth. Our strategy is rooted in enhancing the customer experience by offering high-quality service as well as a compelling selection. Our teams work diligently to offer inspiration as well as relevance with an emphasis on breadth and depth of the brands that matter most to our customers. We are working to ensure this consistent and premium offering is not just at our largest stores, but across our entire full-line store fleet. While we still have more work to do, the return to growth for the Nordstrom banner provides evidence that our efforts are resonating with customers. As we outlined last quarter, we're focusing our Nordstrom banner efforts on digital-led growth supported by stores, aiming to further enable our customers to shop when and where they want. In our digital business, Nordstrom.com, we implemented improvements around the search and discovery experience and worked to optimize the balance of our price points across our merchandise selection while focusing on in-stock rates. We also launched our digital marketplace at the end of April. taking a measured approach in order to ensure a seamless customer experience, one that feels uniquely Nordstrom. Marketplace allows customers to shop more products and sizes from their favorite brands while providing more access to new and emerging labels. As Marketplace scales, we'll grow our online assortment to serve more customers on more occasions through unknown inventory over time. Our next priority for 2024, operational optimization, is intended to further build upon the success we've had the last couple of years in optimizing our supply chain capabilities. Efforts in this area resulted in an over 5% faster click-to-delivery speed and an improvement in variable fulfillment costs in the first quarter. We continue to see meaningful improvements in the movement of product throughout our network. We are getting merchandise through our network to our stores and our customers faster at a lower cost. This helps to drive better outcomes like higher conversion and lower return rates. Additionally, as we mentioned on the last call, the transition of operations from our San Bernardino Fulfillment Center to our West Coast Omnichannel Center is underway and expected to be complete in the second quarter. The West Coast Omnichannel Center is our newest, most automated, and lowest cost fulfillment center. It has been scaled to serve our customers across the Nordstrom and Nordstrom Rack banners. Our final priority for 2024 is to build upon the momentum at the RAC. With first quarter net sales growth of 14% and comparable sales growth of 8%, we are pleased with our efforts to continue its trajectory. Driving the RAC's growth in the first quarter were increases in trips, conversion, and customers as we invested in merchandise to support the business. Customers responded well to our product offerings of great brands at great prices in the first quarter. resulting in continued regular price sales strength with a year-over-year improvement in sell-through. We have opened nine new rack stores since the beginning of this fiscal year, which places us on track to open a total of 22 new racks this year. Our new stores are performing well as we've improved our planning with better data and insights, as well as a team fully dedicated to new store openings. New Rack stores continue to be a growth driver and excellent investment for us, as they deliver well in excess of their cost of capital within a relatively short payback period. Before I turn it over to Pete, I want to recognize and thank our team across the organization for their dedication and hard work. I also want to make a few comments about the passing of our dad, Bruce Nordstrom. Many people have reached out to us to share their memories of our dad, likely including some of the folks on this call today. Much of what you've shared has been quite moving, especially stories from employees who spent time working and interacting with him throughout the years. A few themes have jumped out to me from what folks have shared. The lasting impact of his genuine kindness, how quick he was to smile, his humility, and his servant leadership. Thank you to everyone who has taken the time to share a memory or impression from their time spent with him. Our dad was a values-driven person his whole life, and his values played a big role in defining what our company is today. There's no doubt that he was a great retailer and leader. And I'll tell you, he was an even better dad, and we'll miss him. And with that, I'll hand it off to Pete. Thanks, Eric, and good afternoon, everyone. I'll focus my remarks on our category performance, discuss a few in-store events, and provide some commentary on our upcoming anniversary sale. Starting with category performance. In the first quarter, our team sustained the momentum from Q4 with a year-over-year improvement in regular price sales. Our top performing categories were active, kids and women's apparel, and beauty. The active category, which includes apparel and shoes, led the growth with sustained strong momentum across both banners, led by recognizable brands. At the Nordstrom banner, the growth was led by Viore, Hoka, and Adidas. Kids Apparel continued its year-over-year improvement as we increased the depth of merchandise selection while improving sell-through. Nordstromrack.com digital sales of Kids Apparel grew notably in the first quarter. Sales of Women's Apparel grew in the mid-teens, representing its fourth quarter of sequential improvement. Our focus on the brands that matter most to our customers is driving momentum across both banners. In the first quarter, our customers responded to more casual offerings driving a strong regular price business led by tops and dresses. At the Nordstrom banner, contemporary brands such as Veronica Beard, Mother, and Vince were the top performers. We relaunched the Nordstrom private brand for women in the first quarter with a focus on modern, high-quality, and on-trend products. The Nordstrom brand is our most popular private brand, and customers have responded positively to the relaunch, driving improvement in sales, sell-through, and margin in our women's apparel category. At the Rack, our strategy and focus on the brands that matter most to our customers continue to deliver results, particularly in women's apparel. Our merchandise offering is differentiated and unique in the off-price space, as we aim to provide our customers access to great brands at great prices every day. The strength of the beauty category continued in the first quarter across both banners, driven by new brand launches and engaging customer experiences. At the Nordstrom banner, we introduced 30-plus new brands in the first quarter, most notably Prada Beauty, Pat McGrath Labs, and Pattern Beauty. At the RAC, beauty sales were supported by prestige and new brands. Before I move on to what's planned for our anniversary sale, I'd like to provide a bit of perspective on some in-store events that are inspiring customers and driving sales. Our Make Room for Shoes campaign that began in February is delivering results in our Nordstrom banner. This campaign features exclusive merchandise from one of our customers' favorite brands each month. Featured brands in the first quarter included On Running, Sam Edelman, and Birkenstock. On the heels of the campaign launch, we delivered year-over-year and sequential improvements in shoes. We also amplified in-store events around the beauty category in the first quarter, driving incremental trips and sales. From happy hour beauty parties to fragrance week to trend show programs that provide customers with an educational and entertaining experience around beauty products, our teams brought fresh ideas that resonated with our customers. These personalized events helped invigorate customers' excitement to shop in store and have a positive impact on sales. With the positive sales to inventory spread in the first quarter, our inventory position is healthy heading into our anniversary sale. Building upon the success of last year's event, we are increasing the depth of offerings and grounding our assortment in highly coveted brands. We're excited about the expanded catalog this year that highlights our assortment. Every year, We work hard to include the best brands that people expect as well as new ones too. This year's anniversary sale is shaping up to be a great event. In closing, our merchandise performance was solid and we ended the quarter with healthy inventory levels. We're focused on providing an exceptional anniversary sale this year, led by the brands that matter most to our customers. Before I turn it over to Kathy, I'd like to say a few words about the recent passing of our father as well. I want to start by saying how much we appreciate all the kind feedback and the condolences we've received. The memories of our dad remind us of the impact he made as a business leader and reaffirm what we know to be true about him. Our dad was a person of action, someone who focused on walking the talk. When it came to the business, he was serious. He was driven by firmly held and consistently referenced values, and he saw the company's reputation as an extension of his own reputation. He taught us that successful retailing required humility. While he was a merchant and a retail legend, he proudly saw himself as a shoe dog at his core. He earned respect because he was respectful of others. He believed in others so that they would believe in themselves. He had high expectations for himself, and in turn, he had high expectations of others. We carry on both grateful to and inspired by our dad and the company he was so proud of. And with that, I'll turn it over to Kathy to discuss our financial performance.

spk19: Thanks, Pete, and thank you all for joining us today. I'll begin by covering our first quarter results, then discuss our outlook, and close with our capital allocation priorities. As Eric mentioned, our first quarter net sales growth exceeded our expectations in both banners, reflecting strength in our business. Regular price sales were strong and showed an improvement from Q1 of last year. These factors provide us with confidence in our outlook and reaffirmed guidance today. Our outside sales came with strong sell through supporting our gross margin. Relative to our expectations for Q1, volume related expansion was more than overshadowed by pressure on our gross margin. Roughly one half being timing related and the other half from operational factors. Both drove profitability below our expectations. The timing-related impacts were largely due to a higher-than-expected increase in our reserves as we grew our inventory throughout the first quarter off the seasonal low at the end of Q4, ahead of our anniversary sale. We expect this first quarter headwind to moderate and partially reverse in future periods as inventory levels and corresponding reserves change. With this being our first quarter operating and cost accounting, we are learning to better plan and forecast these elements. The other timing-related impact is due to our better-than-expected growth in sales to our Nordic Club members, resulting in additional loyalty-related deferred revenue that will drive sales and profit in future periods. Operational factors also impacted our gross margin in the first quarter. The primary drivers were external theft in our transportation network and inventory cleanup in our supply chain. We have taken swift actions on these factors to mitigate risks going forward. The timing-related and operational factors that held back our profitability in the first quarter masked the underlying strength that we are driving in the business. Moving on to other elements of our first quarter performance. Total company net sales increased 5% in the first quarter, which includes a 75 basis point unfavorable impact from the wind-down of Canadian operations in the year-ago quarter. Comparable sales increased 4%. GMV increased 5% in the first quarter. Nordstrom Banner net sales increased 1%, inclusive of a 110 basis point negative impact from the wind-down of Canadian operations in the year-ago quarter. Comparable sales increased 2%. And Nordstrom Banner GMV was flat in the first quarter. Nordstrom RAC net sales increased 14%, with comparable sales increasing 8%. Digital sales in the first quarter were flat compared to the same period last year, with Q1 representing the fourth consecutive quarter of sequential improvement. Digital sales represented 34% of our total sales during the quarter. Gross profit as a percentage of net sales of 31.6% decreased 225 basis points compared with the same period last year as discussed previously. We are pleased with our continued inventory health and management. Ending inventory decreased 6% versus Q1 of last year, resulting in a positive sales to inventory spread. SG&A expenses, as a percentage of net sales, improved 20 basis points in the first quarter, as leverage on higher sales and improvements in variable costs across the business were partially offset by higher labor costs. Loss before interest and taxes was $21 million in the first quarter. We ended the first quarter with $1.2 billion in available liquidity, including over $400 million in cash after retiring $250 million in notes in April. Our balance sheet and financial position remained solid. Turning to our outlook for the year, the macroeconomic environment continues to be uncertain. Even with higher interest rates, inflationary pressures, and overall concern about the economy, the consumer continues to be resilient and selective. We are reaffirming our full year guidance based upon the revenue strength that we delivered in Q1 and the gross margin related timing issues that I discussed, as well as actions already taken to mitigate further risks from the operational factors. Our guidance includes full year revenue in the range of a decline of 2% to an increase of 1%, which includes a headwind of approximately 135 basis points from the 53rd week in 2023's results. We continue to expect revenue to follow a typical quarterly cadence. As a reminder, the timing shift of our anniversary sale with one day falling into the third quarter this year versus eight days in 2023 is expected to have a positive impact of approximately 200 basis points in our second quarter net sales this year. We also continue to expect total company comparable sales in a range of a decrease of 1% to an increase of 2% in 2024 versus 52 weeks in 2023. As our full year 2023 included a 53rd week, we calculate our 2024 comparable sales using a realigned 52 week 2023 period for comparability. Turning to profitability, we expect a full year EBIT margin in the range of 3.5% to 4%. We continue to expect our effective tax rate to be approximately 27% for the full year. From an earnings per share perspective, we continue to expect full year results in the range of $1.65 to $2.05, excluding the impact of any share repurchases. Turning to our capital allocation, Our priorities remain the same. The first is investing in the business to better serve our customers and support long-term growth. We continue to plan for capital expenditures of 3% to 4% of net sales. Our second priority is reducing our leverage. As I mentioned, we paid off the $250 million bond that matured in April with cash on hand. Our third priority is returning cash to shareholders. Last week, our board of directors declared a quarterly cash dividend of 19 cents per share. In closing, we are encouraged that our focus and priorities are resonating with customers and driving top line strength. We remain optimistic. The momentum in our top line provides us with confidence in our full year guidance. I continue to look forward to the progress that we'll make this year with the growth opportunities we have, both at the Nordstrom banner and the RAC. We thank you for your interest in Nordstrom, and with that, Jamie, we are ready for questions.

spk29: Thank you, Kathy. Before we get started with Q&A, we ask participants please limit themselves to one question and one follow-up. We'll now move to the Q&A session.

spk25: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tab will indicate that your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question will come from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

spk24: Good afternoon and thank you for taking our question. Eric, can you speak to the sustainability of the stronger comp momentum you saw across both banners this quarter? How did the trend sequence by months throughout the quarter And are you seeing comparable trends quarter to date?

spk15: Sure. Hi.

spk11: Sales were positive each month during Q1 at the JWN level. There were some timing changes with Easter that caused some change throughout the quarter. Quarter to date, our positive trends continue. They have softened a bit. I would point out, though, for our second quarter, the first three weeks of May aren't much of an indication.

spk15: Our second quarter is really driven by our performance during anniversary, which comes at the end.

spk24: That's really helpful. And then for Kathy, given a strong start to the year, can you provide some color on the drivers that led you to reaffirm the full-year sales and comp guide? rather than passing this through to the full year outlook. What factors in your cost and margin outlook are helping to offset some of that growth margin headwind from timing headwinds that you're seeing this year? Thank you.

spk20: Thanks, Brooke. So first, I'm going to reiterate the strength of the top line gives us a lot of confidence first, just to see the sequential improvement we've been seeing across those banners and then obviously in the Q1 gives us a lot of confidence that our strategy is resonating with our customer. So that's the first basis that we start that with. With regards to the rest of the flow through, though, to profitability, you already noted some of the impact we saw or the headwind we saw in gross margin in the first quarter is timing related. You know, a couple of factors. First, strength in our loyalty or Nordic Club sales is a good thing. It's just a little bit of a reserve this quarter, but we'll see that strength continue to come back. The strength we're seeing across our loyalty sales was great this quarter. So that's a positive kind of in disguise. It'll impact us this quarter, but it'll come back to the remainder of the year. And then the other impact that was timing related is just as we're learning, it's our first quarter in cost accounting, our first year in cost accounting. And frankly, we had a planning miss. We didn't appreciate the need for the inventory reserves as you sequentially move coming out of a low in Q4 into a build quarter into Q1. We'll learn. We'll take those learnings into the remainder of the forecast. But all of that basically will cycle through in an inventory turn. Think about that for timing. So that gives us confidence around the timing factors. The non-timing factors, the operational ones we talked about for gross margin impacts, We've already taken swift action, so we did a quick deep dive on root cause corrective action, and we're committed to offsetting that given that Q1 is our smallest quarter, and we've got a lot of the year in front of us.

spk22: Great. Thanks so much. I'll pass it on.

spk25: Our next question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question.

spk03: Thanks. Good afternoon, everyone. I first just want to extend my condolences for the long list of those directly, indirectly impacted by your dad. I mean, what an amazing legacy and the impact he left as a retailer and a person. So just wanted to extend that. Would you guys speak to the margins at Nordstrom versus RAC? How you think about the opportunity there? Maybe how we should think about the current, but also the future P&L impacts of RAC growth versus Nordstrom? Thank you.

spk20: Yeah, so, Simeon, I'll start. First off, I should let Eric and Pete acknowledge the condolences. Sorry.

spk05: Yeah, thanks, Simeon. We appreciate your condolences.

spk20: On the margin impacts between RAC and Nordstrom Banner, we don't typically talk to those. There's not as big a difference as one might suggest, but we use the exact same supply chain. We use the same technology. So there's so much that we leverage in our business. We love the uniqueness of our strategy and offerings of two banners and four channels to allow a customer to interact with us any way they want to. And so that's the way we think about that business, not necessarily individually.

spk13: Okay, great. Thanks a lot, guys. Best of luck for the rest of the year.

spk25: Our next question comes from the line of Oliver Chen with TD Cowan. Please proceed with your question.

spk21: Hi there, this is Katie on for Oliver Chen. Thank you so much for taking our questions. And of course, our deepest condolences to the Nordstrom family and team. Just first on inventory availability at the RAC. You know, you've made a lot of effort around the selection, offering the top brands. How are you feeling about that selection now versus your target? Is there a lot more investment to be made around the brands in this section, and then I have one more follow-up. Thank you.

spk05: I'm going to have Pete take that. He's actually at a Rack store opening in Elk Grove, California. So you want to take that, Pete?

spk10: Yeah.

spk11: We typically have not had much challenge getting the best brands to be represented in the Rack. There's product out there to be had, and a lot of that stems from the relationship we have with these brands and the full price channel and the access that provides us. I think our biggest issue in the rack is you can rationalize selling a little bit of almost anything. For us to be successful there requires a degree of focus, and the more that we've created focus around our top brands and have done a best thing, that has helped us. So that's really more of what it's about, I think, is the discipline about all the different ways that we can source goods for the rack and make sure that we're being – we're creating a level of priority for what's most important. And you can really see it show up. I mean, I saw it this morning just being at this new store opening and talking to a lot of customers, and they all said a version of the same thing, is what they like about the rack is they love the brands that we have and the great prices, and it feels –

spk09: like just an amazing deal for them. And you can tell we have a lot, 700 customers in line for a new store opening. And it certainly reaffirms, I think, the path we've been on and gives us confidence for the future.

spk21: Thank you so much. And just a real quick follow-up is on some of the events that you've been planning around. Is that incremental to the marketing budget? Are you sort of reprioritizing the marketplace? marketing budget, just how is that flowing through? Thank you.

spk11: Yeah. Um, you know, Eric and I talked a bit about commenting about events and a lot of it is just stuff that we do all the time. It's not necessarily things that are built in as a big marketing push. It's just the activities that we do that some might be rather small, but they're, they're just a consistent way of how we approach the business. And that's, uh, encouraging and empowering people at the store level in particular to create reasons for customers to come in to do something new. A lot of that revolves around our styling efforts and the one-to-one relationship and connection we have with customers. That engagement really helps us a lot. I wouldn't look at it as much as some kind of overt, top-down action around marketing spend. It's really more about the initiative and the empowerment of our people closest to the customer.

spk30: Thank you so much.

spk25: Our next question comes from the line of Michael Bonetti with Evercore ISI. Please proceed with your question.

spk02: Hey, good evening. It's Warren Chang on for Michael. Thanks for taking our question, and condolences to you, Pete and Eric, and to the whole NerdStream team and family. I wanted to ask a question on the contribution of the new stores at RAC. You almost got six points of sales from new stores in the quarter. I think that's a pretty big step up from what you've been seeing So maybe just a comment on the reason for the step up there and looking forward. Is that one Q level? Is that a fair way to think about the contribution going forward?

spk20: So thanks, Warren. The new stores for the RAC continue, and Pete shared today that he's at an opening, and the strength of the customer's excitement for it. But the new stores continue to perform according to or better than our plans. And so I'll start there. They continue to be a great source. return on investment for us, and it's a great source of customer acquisition in giving us roughly 20,000 new customers to every new store. So I'll start there that our enthusiasm for the RAC banner continues, so you'll see that. With regards to the strength you're seeing this quarter, remember coming off of Q4, we saw some strength as well. So we've been building momentum for, gosh, five quarters or so now in RAC. And this quarter was yet another quarter. What you're getting right now, though, are the benefits of the RAC stores we opened at the end of last year and the RAC stores we're opening in the first part of this year. They're still not in comp stores because they haven't cycled 12 months. We move them to comp when they're in their 13th month. So you're getting a little bit of that, the back end of the 19 stores we opened last year and the front end of the 22 this year.

spk02: Got it. That's really helpful. And then for my follow-up, I just wanted to make sure I understood the gross margin headwinds in the first quarter. So when you say half from timing, half from operational issues, do you mean half of the year-over-year compression? And in other words, X of these issues, the underlying performance is flattish?

spk20: Yeah, so we saw about 200 basis points of gross margin pressure versus what we'd expected. There was 225 basis points versus last year. So we had expected a little bit, which we had talked about previously with the timing of moving to cost accounting. So about 200 basis points, think about it that way, versus last year. And about half of that was due to timing and half of that was due to operational factors.

spk14: Got it. Thank you. Good luck.

spk25: Our next question comes from the line of Carla Casella with JP Morgan. Please proceed with your question.

spk18: Hi. I was wondering if you could just give us a little more color on the credit card expectations for the year and if you've changed your view. How much do you expect the delay in the ruling? Does that change your view and your credit card income for the year? And how much of it's built into your forecast?

spk20: Thanks, Carla. So first off, as you know, which we've shared before, the credit quality of our credit card holder tends to be a little higher than maybe other department stores or other retailers. So that helps us with lesser impact on potential late fee changes. So I'll start there. You are, I'm sure, aware, too, that the CFPB late fee regulation is still on hold. We continue to watch it, monitor it like everyone else. But that was contemplated in our guidance. So we'll see how it unfolds. Right now, we're on probably a month's delay so far, but we'll see how it continues to move forward. In aggregate, our Credit revenue will be about 3% plus or minus for the year, which is what we've shared. It'll be a little bit lower than 2023. Okay, great.

spk18: And then I had one question follow up on the gross margin on the factors. How big was the inventory reserve portion of it related to the cost of counting? Like, could you give us a basis point or a dollar amount? And then Does that roll through as that merchandise sells, meaning will it be done in 2Q, 3Q, 4Q? How should we think about that roll through?

spk20: Yeah, so I would think, first off, to try to dimensionalize it, roughly 200 basis points of gross margin pressure we saw in the quarter versus our expectations. About half of that was due timing. That's really split between that loyalty sales and that inventory reserve. The way to think about both of those, though, is those come back through the next couple of quarters. The inventory reserves would be You would typically get that through a turn of inventory, but you'll be always setting up additional new ones and then relieving them. That's how cost accounting will work for us. But that one in particular comes back and then, you know, within an inventory turn. The loyalty deferred revenue that we saw in the quarter will take a couple of quarters usually.

spk18: Okay, great. And then any comments on just underlying merchandise margins and how those trended?

spk20: We saw really good strength, and it really goes to what Pete and Eric have already shared, that we saw year-over-year regular price sales that were increased. And so we're seeing some really good strength in the fundamentals, which is why we're so, I think, optimistic, is the strength in sales across both banners, And then the strength in regular price sales and good sell-throughs give us the optimism and confidence that you're hearing.

spk18: Great. Thank you.

spk25: Our next question comes from the line of Tracy Cogan with Citi. Please proceed with your question.

spk16: Hi. Thank you, everyone. I was hoping you could comment on your view of the current promotional environment. and what you're expecting for the remainder of the year. And then my follow-up is just on what you're seeing in the designer category and some of the other categories that have been weaker in recent quarters, and if you've seen any improvement. Thanks.

spk15: Hey, Tracy. I'll take the first part, and Pete can take the designer part.

spk05: In short, the promotional environment seems pretty normal to us, and we don't anticipate it changing much. Keith, do you want to take a designer question?

spk11: Yeah, I want to make sure I got the last part of the designer part of the question there. What was the last part of that?

spk16: I was just asking about designer and some of the other categories that have been weaker in recent quarters and if you've seen any improvements in either designer or other categories that have been weak. Thanks.

spk11: Yeah, and I think the designer part of that's pretty well documented out there of what's happening from the designer brands and the competitors and what have you. And it's certainly... been more challenged on the top line. What's good for us, though, is that we've got our inventory levels in the right position to be commensurate with that demand. And so you're going to see a lot healthier margins from us as we go forward. Now, there has been a sales drop-off there, but to put that in context, I mean, we're still up over about 20% from where we were in 2019 in sales. So it's really more of a normalization, I would say, in terms of what's happened in designer categories. We went through a very robust couple of years there that were unusual. I mean, great in a lot of ways, but it's normalized a bit. And we're where we want to be, I think, with our inventory levels and prepared to chase into it as it improves again. These things are somewhat cyclical, but it's still a very big and important part of our business. And as I mentioned, it will be a healthier part of our business this year than what you've seen in the last couple of years in terms of the flow through.

spk16: Great. Thank you. And are there any other categories that have been weaker that are a call out?

spk11: No, not really. I mean, that's the one that stands out. I mean, there's a relative difference between the very best and the others. And you heard us talk about it. But I think probably the biggest thing for us is getting some growth in women's apparel and having some consistency around that is a big lever for us. And it should be a good signal to you when we talk about women's apparel as being one of our best growth categories. So that's something we've worked pretty hard at and created a lot of focus around best brands and what have you. We're in a healthy place there, and we think there's still a lot of headroom.

spk17: Great. Thanks very much.

spk25: Our next question comes from the line of Bob Drupal with Guggenheim Securities. Please proceed with your question.

spk27: Hi. Good afternoon. This is Ariane Rezaif for Bob. We send our condolences to the Nordstrom team as well. nice thing sequential improvement in digital trends could you please spend a couple minutes on the marketplace I know it's been only a month but can you share early early read to the customer acceptance with the Reb going forward on this initiative and how significant will the contribution be the digital sales overall thank you yeah sure yeah we launched marketplace late April and

spk11: I thought they could start. It's been a successful launch. We're getting good feedback from customers and from brands. It's a relatively small launch at this point, and we're going to learn and grow it and really position for growth for next year.

spk05: We don't see this having a big material effect on 24 results. We see scaling it in 25. I would just add it is

spk11: The bigger story to Marketplace is really a key part of two objectives we have.

spk05: One is to bring more customer choice to our digital shoppers. When we do that, over the years that we've had our e-commerce business, we've seen a positive impact from that.

spk11: But the second piece is as important, which is the discovery piece.

spk05: So customers not only have more choice, but they're able to discover brands and items that really resonate with them. So we've made investments in the customer choice part with Marketplace. We've also made a lot of investments in the discovery piece, the navigation piece. We've made improvements in search and browse that we're seeing good response to.

spk11: So we invest a lot in both those areas. Again, I

spk15: For material impact, I wouldn't say you're going to see it in 24, but we are optimistic for its impact in 25.

spk14: Got it. Super helpful. Thank you.

spk22: Thank you.

spk25: And our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

spk28: Hey, guys. This is Ryan Bolger on for Chuck here. I just want to ask on the long-term margin equation for the company, is there anything structural that would prevent Nordstrom from getting back to double-digit EBIT margins? And if you were to kind of ramp this as you get there towards like a high single-digit margin, what would the biggest factors for that be? Thanks very much.

spk20: Thanks, Ron. Before we get to double-digit margin, I would say we have to pass our way through probably our next waypoint, which is we're kind of focused on 2019. We're at 6% EBIT margin. That seems like a reasonable next target, which is what we've been working on. And so structurally, I would say, you know, the businesses are very, very different today than they were, you know, 10 years ago or something today. And that's the work we have to do, as most omni-channel retailers have. So we've invested significantly, like we should, and have in supply chain capabilities and technology to continue to serve our customers. And those are where we need to continue to see some improvements or productivity, which we are. So before I say, are we going towards double-digit, don't know that answer. We're kind of focused on driving productivity even margin growth over the next couple of years and kind of focused on where we were in 2019, which was 6%, and then we'll go north of that.

spk14: Thanks very much.

spk25: Thank you. And our final question comes from the line of Blake Anderson with Jefferies. Please proceed with your question.

spk07: Hi. Thanks for taking our question. So I wanted to start off with RAC. That's really accelerated. Can you talk broadly about just how much that customer is seeking value versus a newness? And then are you seeing any kind of change or growth in this last couple quarters, how much growth you might be seeing from new customers?

spk31: Yeah.

spk11: You know, it's really hard to separate out value versus newness. It's really essential for us that boat. And as you've heard us talk a lot about it, in particular, it's these really coveted brands, brands that customers associate with our Nordstrom brand. And as we've leaned into those brands more, it's been more purposeful in allocating more open to buy to those brands, as well as featuring them more in our stores. Our stores showcase these brands more and

spk05: We really do lead with brand first on there.

spk11: Now, the price is super important, but having that mix of brands, that does separate us. Our mix is unique in the off-price space. Having the depth of these coveted brands is a point of difference.

spk05: And having it in an off-price environment is really our secret sauce. And that's what we've been focused on. And as we've executed on that, we continue to see better business. And we think there's still runway there to improve our mix there and to improve the shopping experience to where these brands really jump out to customers.

spk20: And then maybe I'll finish, Blake, on the new customer acquisition. Yes, we're seeing what we would expect and more with each of the new store openings.

spk07: Got it. And then just lastly, can you quantify at all how much full price sales you have and how that's changed over the last few quarters? And maybe if you could point to one or two things, what would you attribute that to? and how much room left you have to go there for more full-price sales.

spk10: Yeah.

spk11: You know, without getting into much detail about that, I think what you can see when you look at the health of the margin, you have to draw a straight line to full-price sales. I mean, I think we're at our best when we're selling things at first price. You know, obviously, clearance is part of the business, but particularly in the Nordstrom banner, that is not typically where we tend to shine as much as where we have a bunch of distressed clearance merchandise. The flow of new merchandise and the sell-through of that is what really drives the margin, and it's how we look at it. When we look at the different levers of margin, we tend to focus a lot more on that than, for example, the markup or something. Let's get the first price right. Let's sell it through at regular price. And that's philosophically how we approach it. And it works that way in the RAC, too. And I would put a finer point on one of the things that Eric said about brands versus value in the RAC. The reason we get recognized for great value is because we have great brands. The brands create an obvious benchmark because people know what the value is of a brand they recognize out of something they've never heard of. So you can tell that that's really a terrific value. And again, just being there today and seeing it in person at that opening was just, I mean, it was really uplifting for all of us that were there. Not that we don't know this, but it's reaffirming because it's, You can see it really play out, and it's why people show up. Before the stores even opened, we had a woman there. It was at 5 a.m. with a lawn chair waiting to get inside, and she talked about the brands. So, yeah, it's hard to separate what those are, but I think they are, to Eric's point, they're really linked, the price and the brands.

spk07: Well, great to hear about all the progress. Thanks again, and best of luck for the rest of the year.

spk31: Thank you.

spk06: We want to thank you for joining today's call. A replay along with the slide presentation and prepared remarks will be available for one year on our website. Thank you for your interest in Nordstrom.

spk25: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. See you next week.

spk23: Good to know that we're in this together All we've been through you Thank you. Thank you. Thank you. Thank you. Thank you. music music

spk25: Greetings and welcome to the Nordstrom first quarter 2024 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 all I'll turn the call over to Jamie Dewis, Head of Investor Relations for Nordstrom. Thank you, and you may begin.

spk29: Good afternoon, and thank you for joining us. Before I begin, I want to mention that we'll be referring to slides which can be viewed in the Investor Relations section on nordstrom.com. Any 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 Kathy Smith, Chief Financial Officer, who will provide a business update and discuss the company's first 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 in our Q1 2024 earnings press release, which is available on our website. As we begin, I want to acknowledge the company's April 18th announcement of the Board of Directors' exploration of potential avenues to enhance shareholder value and formation of a special committee to evaluate any proposal that may be presented by Eric and Pete Nordstrom to take the company private. The special committee will carefully evaluate any proposal that may be received and consider whether it is in the best interest of Nordstrom and all shareholders. We do not have an update to share on this topic and will not be speaking to it during our call today. I'll now turn the call over to Eric.

spk11: Thank you, Jamie, and good afternoon, everyone. For the first quarter, we delivered net sales of $3.2 billion and a loss per share of 24 cents. We are pleased with the strength of our top-line growth across both Nordstrom and Nordstrom RAC. Our business is performing well as we delivered net sales growth in excess of 5%, with double-digit growth at the RAC, a positive top line contribution from our Nordstrom Banner stores, and continued sequential improvement in our digital business. Due to a host of factors that Kathy will discuss in a moment, our profitability was below our expectations with roughly half of the first quarter impact related to timing. Although our earnings were held back, we remain confident in our outlook for the year. We are reaffirming guidance, building on the revenue strength that we have delivered in Q1, benefits of timing reversals, and actions already taken. In the first quarter, we delivered year-over-year increases in customers and purchase trips. We managed inventory effectively, ending the quarter with double-digit positive inventory spread. At both banners, our customers responded to the inspiration and relevance of our customer strategy. Regular price sales as well as sell-through also improved against the first quarter of last year. Our Nordy Club loyalty program events and offerings have been well received by customers. During the first quarter, sales to Nordy Club members grew at both banners with loyalty sales reaching nearly 70% of our total sales. Our digital business continues to trend in the right direction with its fourth consecutive quarter of sequential improvement. The primary drivers of the results included an improved balance across the spectrum of price points, faster shipping, as well as a clear focus in our offering of the brands that matter most to our customers. Turning now to the three priorities that we set out for 2024, we are driving Nordstrom Banner growth, operational optimization, and building upon the momentum at the rack. I'll discuss the progress we made in the first quarter. The first priority is to drive Nordstrom Banner growth. Our strategy is rooted in enhancing the customer experience by offering high-quality service as well as a compelling selection. Our teams work diligently to offer inspiration as well as relevance with an emphasis on breadth and depth of the brands that matter most to our customers. We are working to ensure this consistent and premium offering is not just at our largest stores, but across our entire full line store fleet. While we still have more work to do, the return to growth for the Nordstrom banner provides evidence that our efforts are resonating with customers. As we outlined last quarter, we're focusing our Nordstrom banner efforts on digital-led growth supported by stores, aiming to further enable our customers to shop when and where they want. In our digital business, Nordstrom.com, we implemented improvements around the search and discovery experience and worked to optimize the balance of our price points across our merchandise selection while focusing on in-stock rates. We also launched our digital marketplace at the end of April. taking a measured approach in order to ensure a seamless customer experience, one that feels uniquely Nordstrom. Marketplace allows customers to shop more products and sizes from their favorite brands while providing more access to new and emerging labels. As Marketplace scales, we'll grow our online assortment to serve more customers on more occasions through unknown inventory over time. Our next priority for 2024, operational optimization, is intended to further build upon the success we've had the last couple of years in optimizing our supply chain capabilities. Efforts in this area resulted in an over 5% faster click-to-delivery speed and an improvement in variable fulfillment costs in the first quarter. We continue to see meaningful improvements in the movement of product throughout our network. We are getting merchandise through our network to our stores and our customers faster at a lower cost. This helps to drive better outcomes like higher conversion and lower return rates. Additionally, as we mentioned on the last call, the transition of operations from our San Bernardino Fulfillment Center to our West Coast Omnichannel Center is underway and expected to be complete in the second quarter. The West Coast Omnichannel Center is our newest, most automated, and lowest cost fulfillment center. It has been scaled to serve our customers across the Nordstrom and Nordstrom Rack banners. Our final priority for 2024 is to build upon the momentum at the RAC. With first quarter net sales growth of 14% and comparable sales growth of 8%, we are pleased with our efforts to continue its trajectory. Driving the RAC's growth in the first quarter were increases in trips, conversion, and customers as we invested in merchandise to support the business. Customers responded well to our product offerings of great brands at great prices in the first quarter. resulting in continued regular price sales strength with a year-over-year improvement in sell-through. We have opened nine new rack stores since the beginning of this fiscal year, which places us on track to open a total of 22 new racks this year. Our new stores are performing well as we've improved our planning with better data and insights, as well as a team fully dedicated to new store openings. New Rack stores continue to be a growth driver and excellent investment for us, as they deliver well in excess of their cost of capital within a relatively short payback period. Before I turn it over to Pete, I want to recognize and thank our team across the organization for their dedication and hard work. I also want to make a few comments about the passing of our dad, Bruce Nordstrom. Many people have reached out to us to share their memories of our dad, likely including some of the folks on this call today. Much of what you've shared has been quite moving, especially stories from employees who spent time working and interacting with him throughout the years. A few themes have jumped out to me from what folks have shared. The lasting impact of his genuine kindness, how quick he was to smile, his humility, and his servant leadership. Thank you to everyone who has taken the time to share a memory or impression from their time spent with him. Our dad was a values-driven person his whole life, and his values played a big role in defining what our company is today. There's no doubt that he was a great retailer and leader. And I'll tell you, he was an even better dad, and we'll miss him. And with that, I'll hand it off to Pete. Thanks, Eric, and good afternoon, everyone. I'll focus my remarks on our category performance, discuss a few in-store events, and provide some commentary on our upcoming anniversary sale. Starting with category performance. In the first quarter, our team sustained the momentum from Q4 with a year-over-year improvement in regular price sales. Our top performing categories were active, kids and women's apparel, and beauty. The active category, which includes apparel and shoes, led the growth with sustained strong momentum across both banners, led by recognizable brands. At the Nordstrom banner, the growth was led by Viore, Hoka, and Adidas. Kids Apparel continued its year-over-year improvement as we increased the depth of merchandise selection while improving sell-through. NordstromRack.com digital sales of Kids Apparel grew notably in the first quarter. Sales of Women's Apparel grew in the mid-teens, representing its fourth quarter of sequential improvement. Our focus on the brands that matter most to our customers is driving momentum across both banners. In the first quarter, our customers responded to more casual offerings, driving a strong regular price business led by tops and dresses. At the Nordstrom banner, contemporary brands such as Veronica Beard, Mother, and Vince were the top performers. We relaunched the Nordstrom private brand for women in the first quarter with a focus on modern, high-quality, and on-trend products. The Nordstrom brand is our most popular private brand, and customers have responded positively to the relaunch, driving improvement in sales, sell-through, and margin in our women's apparel category. At the Rack, our strategy and focus on the brands that matter most to our customers continue to deliver results, particularly in women's apparel. Our merchandise offering is differentiated and unique in the off-price space, as we aim to provide our customers access to great brands at great prices every day. The strength of the beauty category continued in the first quarter across both banners, driven by new brand launches and engaging customer experiences. At the Nordstrom banner, we introduced 30-plus new brands in the first quarter, most notably Prada Beauty, Pat McGrath Labs, and Pattern Beauty. At the RAC, beauty sales were supported by prestige and new brands. Before I move on to what's planned for our anniversary sale, I'd like to provide a bit of perspective on some in-store events that are inspiring customers and driving sales. Our Make Room for Shoes campaign that began in February is delivering results in our Nordstrom banner. This campaign features exclusive merchandise from one of our customers' favorite brands each month. Featured brands in the first quarter included On Running, Sam Edelman, and Birkenstock. On the heels of the campaign launch, we delivered year-over-year and sequential improvements in shoes. We also amplified in-store events around the beauty category in the first quarter, driving incremental trips and sales. From happy hour beauty parties to fragrance week to trend show programs that provide customers with an educational and entertaining experience around beauty products, our teams brought fresh ideas that resonated with our customers. These personalized events helped invigorate customers' excitement to shop in store and have a positive impact on sales. With the positive sales to inventory spread in the first quarter, our inventory position is healthy heading into our anniversary sale. Building upon the success of last year's event, we are increasing the depth of offerings and grounding our assortment in highly coveted brands. We're excited about the expanded catalog this year that highlights our assortment. Every year, We work hard to include the best brands that people expect as well as new ones too. This year's anniversary sale is shaping up to be a great event. In closing, our merchandise performance was solid and we ended the quarter with healthy inventory levels. We're focused on providing an exceptional anniversary sale this year, led by the brands that matter most to our customers. Before I turn it over to Kathy, I'd like to say a few words about the recent passing of our father as well. I want to start by saying how much we appreciate all the kind feedback and the condolences we've received. The memories of our dad remind us of the impact he made as a business leader and reaffirm what we know to be true about him. Our dad was a person of action, someone who focused on walking the talk. When it came to the business, he was serious. He was driven by firmly held and consistently referenced values, and he saw the company's reputation as an extension of his own reputation. He taught us that successful retailing required humility. While he was a merchant and a retail legend, he proudly saw himself as a shoe dog at his core. He earned respect because he was respectful of others. He believed in others so that they would believe in themselves. He had high expectations for himself, and in turn, he had high expectations of others. We carry on both grateful to and inspired by our dad and the company he was so proud of. And with that, I'll turn it over to Kathy to discuss our financial performance.

spk19: Thanks, Pete, and thank you all for joining us today. I'll begin by covering our first quarter results, then discuss our outlook, and close with our capital allocation priorities. As Eric mentioned, our first quarter net sales growth exceeded our expectations in both banners, reflecting strength in our business. Regular price sales were strong and showed an improvement from Q1 of last year. These factors provide us with confidence in our outlook and reaffirmed guidance today. Our outside sales came with strong sell through supporting our gross margin. Relative to our expectations for Q1, volume related expansion was more than overshadowed by pressure on our gross margin. Roughly one half being timing related and the other half from operational factors. Both drove profitability below our expectations. The timing related impacts were largely due to a higher than expected increase in our reserves as we grew our inventory throughout the first quarter off the seasonal low at the end of Q4, ahead of our anniversary sale. We expect this first quarter headwind to moderate and partially reverse in future periods as inventory levels and corresponding reserves change. With this being our first quarter operating and cost accounting, we are learning to better plan and forecast these elements. The other timing-related impact is due to our better-than-expected growth in sales to our Nordic Club members, resulting in additional loyalty-related deferred revenue that will drive sales and profit in future periods. Operational factors also impacted our gross margin in the first quarter. The primary drivers were external theft in our transportation network and inventory cleanup in our supply chain. We have taken swift actions on these factors to mitigate risks going forward. The timing-related and operational factors that held back our profitability in the first quarter masked the underlying strength that we are driving in the business. Moving on to other elements of our first quarter performance. Total company net sales increased 5% in the first quarter, which includes a 75 basis point unfavorable impact from the wind-down of Canadian operations in the year-ago quarter. Comparable sales increased 4%. GMV increased 5% in the first quarter. Nordstrom Banner net sales increased 1%, inclusive of a 110 basis point negative impact from the wind-down of Canadian operations in the year-ago quarter. Comparable sales increased 2%. And Nordstrom Banner GMV was flat in the first quarter. Nordstrom RAC net sales increased 14%, with comparable sales increasing 8%. Digital sales in the first quarter were flat compared to the same period last year, with Q1 representing the fourth consecutive quarter of sequential improvement. Digital sales represented 34% of our total sales during the quarter. Gross profit as a percentage of net sales of 31.6% decreased 225 basis points compared with the same period last year as discussed previously. We are pleased with our continued inventory health and management. Ending inventory decreased 6% versus Q1 of last year, resulting in a positive sales to inventory spread. SG&A expenses, as a percentage of net sales, improved 20 basis points in the first quarter, as leverage on higher sales and improvements in variable costs across the business were partially offset by higher labor costs. Loss before interest and taxes was $21 million in the first quarter. We ended the first quarter with $1.2 billion in available liquidity, including over $400 million in cash after retiring $250 million in notes in April. Our balance sheet and financial position remained solid. Turning to our outlook for the year, the macroeconomic environment continues to be uncertain. Even with higher interest rates, inflationary pressures, and overall concern about the economy, the consumer continues to be resilient and selective. We are reaffirming our full year guidance based upon the revenue strength that we delivered in Q1 and the gross margin related timing issues that I discussed, as well as actions already taken to mitigate further risks from the operational factors. Our guidance includes full year revenue in the range of a decline of 2% to an increase of 1%, which includes a headwind of approximately 135 basis points from the 53rd week in 2023's results. We continue to expect revenue to follow a typical quarterly cadence. As a reminder, the timing shift of our anniversary sale with one day falling into the third quarter this year versus eight days in 2023 is expected to have a positive impact of approximately 200 basis points in our second quarter net sales this year. We also continue to expect total company comparable sales in a range of a decrease of 1% to an increase of 2% in 2024 versus 52 weeks in 2023. As our full year 2023 included a 53rd week, we calculate our 2024 comparable sales using a realigned 52 week 2023 period for comparability. Turning to profitability, we expect a full year EBIT margin in the range of 3.5% to 4%. We continue to expect our effective tax rate to be approximately 27% for the full year. From an earnings per share perspective, we continue to expect full year results in the range of $1.65 to $2.05, excluding the impact of any share repurchases. Turning to our capital allocation, Our priorities remain the same. The first is investing in the business to better serve our customers and support long-term growth. We continue to plan for capital expenditures of 3% to 4% of net sales. Our second priority is reducing our leverage. As I mentioned, we paid off the $250 million bond that matured in April with cash on hand. Our third priority is returning cash to shareholders. Last week, our board of directors declared a quarterly cash dividend of 19 cents per share. In closing, we are encouraged that our focus and priorities are resonating with customers and driving top line strength. We remain optimistic. The momentum in our top line provides us with confidence in our full year guidance. I continue to look forward to the progress that we'll make this year with the growth opportunities we have, both at the Nordstrom banner and the RAC. We thank you for your interest in Nordstrom, and with that, Jamie, we are ready for questions.

spk29: Thank you, Kathy. Before we get started with Q&A, we ask participants please limit themselves to one question and one follow-up. We'll now move to the Q&A session.

spk25: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tab will indicate that your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question will come from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

spk24: Good afternoon and thank you for taking our question. Eric, can you speak to the sustainability of the stronger comp momentum you saw across both banners this quarter? How did the trend sequence by months throughout the quarter And are you seeing comparable trends quarter to date?

spk15: Sure. Hi.

spk11: Sales were positive each month during Q1 at the JWN level. There were some timing changes with Easter that caused some change throughout the quarter. coordinate our positive trends continue. They have softened a bit. I would point out, though, for our second quarter, the first three weeks of May aren't much of an indication.

spk15: Our second quarter is really driven by our performance during anniversary, which comes at the end.

spk24: That's really helpful. And then for Kathy, given a strong start to the year, can you provide some color on the drivers that led you to reaffirm the full year sales and comp guide? rather than passing this through to the full-year outlook. What factors in your cost and margin outlook are helping to offset some of that growth margin headwind from timing headwinds that you're seeing this year? Thank you.

spk20: Thanks, Brooke. So first, I'm going to reiterate Strength of the top line gives us a lot of confidence first just to see the sequential improvement we've been seeing across those banners and then obviously in the Q1 gives us a lot of confidence that our strategy is resonating with our customer. So that's the first basis that we start that with. With regards to the rest of the flow through, though, to profitability, you already noted some of the impact we saw or the headwind we saw in gross margin in the first quarter is timing related. You know, a couple of factors. First, strength in our loyalty or Nordic Club sales is a good thing. It's just a little bit of a reserve this quarter, but we'll see that strength continue to come back. The strength we're seeing across our loyalty sales was great this quarter. So that's a positive kind of in disguise. It'll impact us this quarter, but it'll come back to the remainder of the year. And then the other impact that was timing related is just as we're learning, it's our first quarter in cost accounting, our first year in cost accounting. And frankly, we had a planning miss. We didn't appreciate the need for the inventory reserves as you sequentially move coming out of a low in Q4 into a build quarter into Q1. We'll learn. We'll take those learnings into the remainder of the forecast. But all of that basically will cycle through in an inventory turn. Think about that for timing. So that gives us confidence around the timing factors. The non-timing factors, the operational ones we talked about for gross margin impacts, We've already taken swift action, so we did a quick deep dive on root cause corrective action, and we're committed to offsetting that given that Q1 is our smallest quarter, and we've got a lot of the year in front of us.