Nordstrom, Inc.

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 to 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.

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.

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 unowned 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.