$JWN Nordstrom Q1 2024 Earnings Conference Call

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 $0.24. We are pleased with the strength of our top-line growth across both Nordstrom and Nordstrom Rack. Our business is performing well as we delivered net sales growth in excess of 5%, with double-digit growth at the Rack, 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 are 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 improved measurements around the search and discovery experience, 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 Omni-Channel Center is underway and expected to be complete in the second quarter. The West Coast Omni-Channel 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 Rack. 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 Rack'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've 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 an 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. With that, I'll hand it off to Pete.

Sure, hi. Sales were positive every day in Q1 at the JWN level. You know, there were some timing changes with Easter that caused some change throughout the quarter. Quarter-to-date, our positive trends continue. They are soft; they have softened a bit. I would point out though for our second quarter, the first three weeks of May aren't much indication. Our second quarter is really driven by our performance during anniversary, which comes at the end.

Yeah, thanks, Simeon. We appreciate your condolences.

Yeah, I'll let Pete take that. He's actually at a Rack store opening in Elk Grove, California. So, Pete, you want to take that?

Hey Tracy, I'll take the first part and Pete can take the designer part. In short, the promotional environment seems pretty normal to us and we don't anticipate it changing much.

Yeah, sure. We launched Marketplace late April, and it's been a good 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. We don't see it as having a big material effect on 24 results; we see scaling it in 25. I would just add that the bigger story to Marketplace is really a key part of two objectives we have. 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. But the second piece is as important, which is the discovery piece. So customers not only have more choice, but they're able to discover brands and items that really resonate with them. 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 made improvements in search and browse that we're seeing good response to. So we've invested a lot in both those areas. Again, for material impact, I wouldn't say you're going to see it in 24, but we are optimistic for its impact in 25.

Thanks, Ryan. So 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 where we were at 6% EBIT margin. That seems like a reasonable next target, which is what we've been working on. Structurally, I would say the businesses are very, very different today than they were 10 years ago or something, and that's the work we have to do, as most omnichannel retailers have. We've invested significantly, like we should, 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, I don't know that answer. We're kind of focused on driving EBIT margin growth over the next couple of years, and kind of focused on where we were in 2019 at 6%, and then we'll go north of that.

You know, it's really hard to separate out the value versus newness. It's really essential for us both. And as you've heard us talk a lot about it, in particular, it's the really coveted brands, brands that customers associate with our Nordstrom brand. And as we've leaned into those brands more, been more purposeful and allocating more open-to-buy to those brands as well as featuring them more in our stores, our stores showcase these brands more, and we really do lead with brand first there. Now the price is super important, but having that mix of brands does separate us. Our mix is unique in the off-price space. Having the depth of these coveted brands is a point of difference, and having it in an off-price environment is really our secret sauce. 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.

Thank you.