Nordstrom 2Q17 Earnings Call Notes

Erik B. Nordstrom – Nordstrom, Inc.

60% of online returns come back into the store

Sure, Adrienne. This is Erik. Our online return rate, we don’t break out specifically. It’s come down a bit in the last – it’s been over a year now that we’ve made some progress there. But it’s high. Our online business’ a high return rate. We get over – for full-price, over 60% of our online purchase returns do come to stores. For off-price, it’s over 80%, which is a real positive for us. It’s an example we use a lot internally, especially on full-price, because it is free for customers to mail back their returns, yet over 60% of our customers choose to do their returns in a store. And it’s because that’s what they want to do. It’s good for the customer, and by the way, it’s good for us. It’s more economical for us to take a return that way, and also, as you can imagine, having a customer in the store is beneficial.

And we really don’t focus on trying to turn around that return and make it fail immediately with it. What we’ve learned is a customer comes with a return, that’s their errand they have to do, and the more efficient, the faster we are in doing that, the more free time we’re giving back to the customer. And oftentimes, they take that free time and start shopping. So we’re really looking to take care of the customer on their terms, and if they have a great experience in our store with a return, we certainly believe that ends up in good news for us.

Nordstrom 1Q17 Earnings Call Notes

Peter E. Nordstrom – Nordstrom, Inc.

There’s an ongoing casualization trend

And this is Pete. I’ll take the part about the fashion cycle. I think the themes that are generally true across all classifications is that there’s a continuing trend around casualization that we need to be mindful of really kind of across the board. And that we’ve had good success I think, where we’ve focused on that appropriately. Newness is always a theme that we talk about and for us to have our inventories in line and be able to bring new goods in always helps stimulate the business. Also, athletic and fitness type brands, and that’s kind of part of that casualization lifestyle part that we talked about a bit over the years, that’s a strong trend.

Nordstrom 4Q16 Earnings Call Notes

James Nordstrom

Move from things to experiences

“On the flipside, the fourth or fifth or sixth store in a market, we might look at differently today than we did in the past in terms of the role that it plays in driving business. So you’ve got two sides of the coin there. We think we have an opportunity to invest in those best stores in those malls that the developers are investing in and are creating better experiences, they’re doing great. In the malls that are not being invested in, are not, and those are some of the stores that you might see close. But overall, to the first part of your question, yeah, people said there’s a shift away from buying things to experiences, and I think you can see that around a lot of different parts of our industry and it’s debatable whether that’s a secular thing or a cyclical thing. We’re focused on having something new for the customer that they didn’t know they wanted to buy. And if we think we can stick to our knitting and focus on being that place of discovery, being that place where you come to find something new that that’s a winning strategy over the long-term.”

Peter Nordstrom

Some move to more of a seasonless thing

“Yeah, I think it’s true that customers are much more interested in buying now, wearing now. The idea that they would buy something and then put it in their closet for a couple months until the weather changed is not – I mean that’s changed a lot over the years. That’s just not a great scenario for us. So we talk a lot about making sure we got the product in the store at the right time for customers. I would also say that there is more a movement around season-less kinds of product, things that can be worn all year long. And we find – particularly since we do a lot of business in southern states with warmer climates that that’s where you see that happen to a greater degree. I mean you still have – weather drives a lot of business in colder-weather markets around coats and what have you, and that’s fairly predictable.”

Shopping happening in a more concentrated timeframe

“In terms of the shopping happening at specific times of the year, that is true. Events, holidays, what have you, drive a lot of business. And I would say most recent example of holiday – and we’ve seen this for the last several years – it continues to get more and more contracted where we still do a lot of business over a six-week timeframe. It gets concentrated increasingly into that last week. And so, we might feel like, well, the holiday season isn’t going very well. Then that last few days, it’s amazing, kind of how we make up for it. So the net of all that is we’re still doing the business; it’s just happening in a more concentrated timeframe.”

Nordstrom 2Q16 Earnings Call Notes

Nordstrom (JWN) Q2 2016 Results

Blake W. Nordstrom – Co-President & Director

Made substantial progress bringing inventory down

“Thank you and good afternoon. Over the past several quarters, our team has been actively addressing our inventory, expense, and capital as we align to current sales trends. In the second quarter, the team made substantial progress by bringing down inventory in line with sales.”

Best inventory positions we’ve been in

“And I think, overall, the most important thing is, whether it’s the Rack or our stores, we’re in one of the best inventory positions we’ve been in, in many years. We’re able to respond to the customer, partner with our vendors and have good flow, and a lot of good things come from that.”

Michael G. Koppel – Chief Financial Officer & Executive Vice President

No big news traffic wise

“Now, well, you know we really don’t track traffic within our stores. I would say, generally speaking, it was roughly – for the quarter, roughly equivalent to what it has been. I don’t think there was any big news there.”

Peter E. Nordstrom – Director, Executive VP & President-Merchandising

Peter E. Nordstrom – Director, Executive VP & President-Merchandising

Promotional activity has stabilized a bit

“With regards to price matching – this is Pete – our practices remain the same. But I think it’s fair to say that the promotional activity has stabilized a bit here in the last quarter or so. To the point you made, there’s vendors out there choosing to participate in different ways than they may have in the past with our competitors. What we’re trying to do is put ourselves in a real favorable position with vendors to be the retailer of choice for them, and what that means for most of the vendors we deal with is our desire, strong desire, to sell at full-price. And so, we focus a lot on flow and newness and all that.”

There’s so much more available online than at any given store

“And I think one of the things that happens slightly on the downside of that is the context it creates for some stores. There’s so much more available online than there might be at any given store. So I think our ongoing challenge is to do the best we can to make sure each store has the best possible product offer that it has, and the kind of stuff that customers ask about are the things that are hard to get. And they ask for that everywhere. And that has to do with some of the limited distribution stuff that’s obvious – that’s usually connected to designer or what have you.”

Nordstrom 1Q16 Earnings Call Notes

Blake W. Nordstrom – Co-President & Director

Comps decreased, inventories ended too high

” For the first quarter, we had a sales increase of 2.5% and a comp decrease of 1.7%, which fell short of our plan for a low-single-digit increase. Despite our focused efforts to manage through this current environment, we are not satisfied with our results. Given these sales trends, our inventories were too high, which puts pressure on our margins and necessitates additional markdowns.”

The promotional environment is very noisy

“Where we’re seeing a big miss is in our clearance and promo – promotional business. So what we take away from that is, number one, the clearance and promotional environment is really noisy. There’s a lot of excess product out in the marketplace. It’s certainly easy to shop online. There’s some heavy, heavy discounting going on. And we’re seeing that effect in our business.”

Price transparency is about customer respect. There’s no regionality online

“On price matching, it’s – the cause and effect is a little clearer online in our stores, the price transparency that the Internet provides. And we have been more purposeful for, I’d say, the last couple years of matching price on products online, really for big online retailers, wherever they may be because there is no regionality to e-commerce. And that has served us well in gaining trust with the customers. We do not look to price matching or price promotion in any way as being a big strategic lever and a way of driving our top line. We look at price matching as a customer respect and a customer trust issue; that when a customer comes to us, they know that they’re being treated fairly. And we think the clearest way of doing that and what customers expect is to not pay more for a specific item when they’re shopping with us.”

Michael G. Koppel – Chief Financial Officer & Executive Vice President

Making reductions to 5 year capital plan

Sure, Kim. Yeah, thank you for your question. I did mention in our comments that we are going through a thorough review of the capital plan which will result in a reduction of that plan. We haven’t articulated that specifically yet. We’re reviewing it with our board next week.

We continue to see a transformation in our business model

” clearly, as we’ve been talking for the last couple of years, we’re seeing a transformation in our business model. The e-commerce element continues to grow at a good pace and the impact of technology in digital on the customer experience continues to accelerate. So that would imply our commitment to technology and fulfillment and the things that continue to support that business is going to be something we’re going to stay very strong on. On the other side, we continue to see traffic falling off in malls. And how we think about our store-based asset will probably require some level of adjustment.”

James F. Nordstrom – Executive Vice President and President, Stores

Mall traffic down obviously hurts us

Yeah, Brian, this is Jamie. I think it’s been pretty well documented out there that mall traffic overall has been soft over the last probably couple quarters – we’ve seen some data recently over the last month or two that it was down, approaching double-digits. And we notice that. We are in – we’re primarily in malls.”

Lower mall traffic has affected clearance more than full price

And when we see mall traffic go down, it hurts us. And we can see that in certain areas of our business. Clearance sales is a good example of that. While our full-price, regular-price sales have been hanging in there, our clearance sales over the last quarter or two have really been down.

Nordstrom 4Q15 Earnings Call Notes

Blake W. Nordstrom – Co-President & Director

Michael G. Koppel – Chief Financial Officer & Executive Vice President

30% of our business will probably be done online by the end of this decade

“clearly, we’re seeing a, what has been a very noticeable change in our business model. I think one of our slides indicated by the end of this decade that we’re going to have a large proportion of our business about 30% being done online. That’s all the way from 5% that it was back in 2005 and that is a model that behaves enormously different than the mall-based model.
And so we have a lot to learn about that and we have to keep our lens on as it relates to how the customer sees us and how the customer wants to be served, but at the same time, we have to do it effectively. ”

Learned that we could be more productive with technology investment capital

“I think part of what we’ve learned along that journey is that we could likely be more productive with that capital.”…”In terms of the returns of the past, we’ve had some projects that have delivered some great returns and some that haven’t. That, by the way, is part of the business. It’s a test and learn and iterate business. But that being said, as I think over the last several years, we’ve learned that we can likely do it better. And at this point, we don’t feel that the moderation in investment is going to limit our growth in that channel.”

No sign of deterioration in the credit portfolio

“In terms of the health of the Credit portfolio, it continues to be very strong. We’re not seeing any deterioration in terms of the quality of the portfolio, the timeliness of payments, et cetera.”

Looking to understand how to get more efficient

“we need to continue to view the customer experience not just by channel but across the enterprise, and understanding how we can serve the customer on an enterprise level. And there’s a number of things we can do. Currently today, we fulfill out of multiple locations and are there opportunities for us to get more efficient at that? That creates not only additional labor cost but it creates additional shipping cost because you’re shipping multiple items per an order. We’re also looking at how spread out we want our assortment to be, because the more lower-price items we have in it, the less unit profitability we gain.”

Peter E. Nordstrom – Director, Executive VP & President-Merchandising

Other people’s inventory problems spill over to us because we have to be competitive on price

“When business is bad, it accelerates that clearance part of it, but the part that we’re talking about is promotional activity, where a retailer will take everything that they have to offer, something that’s a week old in the inventory and something that’s eight weeks old in the inventory and mark everything down. And that’s what really erodes the margins. For us, we don’t generate any of those events ourselves, but we have to be competitive for price. So if it’s a price that’s available for the customer and for all customers, to maintain integrity and trust and confidence of our customers, we’re going to match that price. So that’s what puts the pressure on us in terms of our promotional activity. ”

We try to focus on the things that we can control rather than the macro

“Some of the stuff is somewhat cyclical. But if we get into a position of trying to rationalize it based on external or macro factors that we can’t control, then that’s not a very good place for us to be. So what we really try to focus on are the things that we can control and that’s delivering great service for customers, having a great relevant experience for them, both online and in stores, seamless integration, new products for them to buy, the excitement of what retailing can provide, And we talk about in terms of marketing, the hopefulness and the cheerfulness of what this is about. “

Nordstrom 3Q15 Earnings Call Notes

Beginning in August, experienced a slowdown

“Beginning in August, we experienced a slowdown across our full-price and off-price businesses. We had a 6.6% increase in total sales and our comp sales were 0.9%, which resulted in third quarter earnings that were below our expectations.”

Main decline was transaction growth. Were able to adjust inventories

“While we haven’t seen a meaningful change to our customer growth metrics, we did see a decline in our transaction growth relative to the first half of the year. As this softness continued, we’ve been able to quickly respond, ending the third quarter with inventory aligned with our expected sales plans.”

We don’t expect trends to change as we head into the holidays

“As we head into holiday, we don’t anticipate a measurable change in current trends and we’ve made appropriate adjustments to our operating plans, including our inventory levels.”

Dropping EPS outlook to 3.40-3.50

“let’s turn to our 2015 outlook, which incorporates our third quarter performance and an adjustment to our fourth quarter plans based on current sales trends. When excluding the credit transaction impact, our earnings per diluted share outlook is $3.40 to $3.50 compared with the prior outlook of $3.70 to $3.80.”

Traffic is the big issue

“So traffic is really the big issue?”

“I think that’s right.”

We really don’t know why traffic is down, we’re just trying to focus on what we can control

“Clearly, there’s been a lot of commentary out there as to what potentially is causing this. It might be one, it might be all. At this point, our point of view is what we can do about it is we can adjust our operating plans. We can continue to manage our inventories appropriately and we could assure that our stores and our website has the right stuff to sell and that’s what we’re doing.”

We feel good about our inventory position

“We’re in the fashion business and there’s an ebb and flow there and our team is pretty good at reacting and managing as things are going up and things are going down. So we feel pretty darn good about our inventory position going into the fourth quarter and our ability to continue to react to business as it changes”

All we can tell you is we saw a slowdown in our business

“We’re not economists, we’re merchants. And we concur with you that if you get to a higher altitude and you look at the scorecard, there are a number of economic indicators that look real positive for U.S. and the consumer and spending yet all we can tell you is in our business, we saw a slowdown. And it was across the board, as Jamie talked about. It wasn’t regionally or a merchandise region or a channel. We saw, compared to our plans, a very similar reduction again across the board and it went for the whole quarter, and that’s why we felt strongly that we should plan accordingly for the fourth quarter that way.”

The consumer is saying something to us in retail and we need to get after it

“ultimately the customer is saying something right now in retail, in our niche, and we need to get after it”

There’s not really a seasonal component to what’s going on

“I would reiterate that there’s really not a seasonal component to where we’ve seen transactions slow down. Our coat business has been really strong having big increases. It’s just a traffic thing. We’ve got less people buying clothes this quarter than we expected and there’s really nothing else to point to”

Everything is really on the same trend

“We don’t really have anything dead at the bottom that’s really dragging us down. I know you’re looking for something that’s dragging us down. There’s really not. Everything is really kind of at the same trend that it’s been at least the last few quarters. ”

Clearly this is not as dramatic as 2008/09 but things have dropped and plateaued

“Clearly, this is not as dramatic as what we saw in 2008, 2009, which was a pretty significant change. We went from what was a mid-single-digit comp trend to a low single-digit comp trend. As the guy said, we’ve seen it across geography. We’ve seen it whether it’s in-store, online. We’ve seen it by category. But it certainly is at not that level of drama that we saw during that period. But you know what? One of the things that we have noted is that it did kind of reach this new plateau and kind of stayed there, and that is what gave us very clear evidence that we needed to respond and respond quickly”

It’s really apples and oranges vs 2008

“I would add that it’s really apples and oranges. It was a dramatic economic change that took place there at that time, and we have the opposite to a degree here. We have some positive economic indicators, but the customer is voting with their dollars in a manner were she or he came closer to the best here and all we can do is talk about our business. And what we saw in the third quarter was a reduction, about 400 basis points across the board our business. It wasn’t the wholesale change we saw in that 2008 time period, but it’s material because our plans were for a higher performance and it has an effect.”

It’s a demand issue, we’ve done what we can

“I think both Jamie and Blake mentioned that it appears that there has been a slowdown in overall demand from the customer who was purchasing what we sell. And what would cause us to get back to the higher end is that customer reigniting their demand. And I don’t think it’s any more than that. There’s probably a multitude of data points out there that are driving some of this. But in the end, we can only do what we can do from our perspective and we believe we’ve done it.”

Nordstrom 2Q15 Earnings Call Notes

This will probably be the death of the Westside Pavillion in LA

“In the U.S., this October, we will also…relocate a store in Los Angeles.”

mid single digit comps

“Our combined full-line store and nordstrom.com business delivered mid-single-digit comp increases over the past year. The growth in our off-price business continues with Rack’s total sales increase of 13%, which represented 26 consecutive quarters of double-digit growth. Rack had a comp increase of 1.7%, on plan for a low-single-digit comp for the year.”

Mechanics of transaction with TD

“Moving on to the credit transaction. The sale of the receivables will improve our capital efficiency. We expect to receive approximately $1.8 billion in net proceeds at closing. Because we are planning on fully funding our long-term growth through our current operations, we’re not intending to apply the proceeds to our incremental investment. While we are currently evaluating our plans, we are committed to maintaining our capital structure using a balanced approach.

In terms of the financial impact of the transaction, we reclassified our receivables as held for sale in the second quarter, resulting in the reversal of the allowance for bad debt. In addition, under the program agreement with TD Bank, we will be entitled to a substantial portion of net revenue generated by the portfolio. We estimate the cash impact of this revenue share agreement while maintaining our credit operating expenses will result in roughly 50% of credit EBIT retained. ”

We haven’t paid much attention to tourist spending, just focused on running our business

“We really haven’t commented or, frankly, paid particular attention to the amount of tourists we have in those individual stores. I mean, we’re focused on running our business and having the best product, and to-date, it really hasn’t been a discussion point for us.”

Customers are buying now wearing now more frequently

“One thing that has changed a bit over the years, our customers are more and more interested in buy now, wear now merchandise. So it’s less about selling merchandise that our customers put away in their closet for October and November than it used to be. ”

We don’t think customer loyalty is based on channels

“we’ve been focused for a number of years on really trying to create a seamless experience for our customers, whether they’re shopping online or in the store or on their phone, and we’ve made, and we continue to make progress on that. We don’t think the customer is loyal to channels. We don’t hear customers talk about channels very much. Customers value experiences, and so the more successful we’re at in creating a great shopping experience, no matter how they’re choosing to shop, I think the better our business will be.’

No secret that our industry has been more promotional, but we’re focused on our customers

“I mean, as I mentioned earlier, over the last couple of years, I don’t think it’s been a secret that our industry has been more promotional than historical levels. I can’t speak to any particular competitors out there what they are doing. We’re pretty focused on our deal and our customer, and what works for them and how to best serve them.”

This is how they think about price matching

“we’ve long believed for many, many years that we don’t want to be undersold. That if a product that we sell is available for less out there, then that’s the price that the market is at, and we need to be there. So it is part of the nature of our business that if you can buy something that we sell cheaper somewhere else, if we don’t match that price, you’re probably not going to buy it from us. And we think it’s just good customer service and part of earning our customers’ trust that we have market prices. We set our prices fairly, and we’re a full-price retailer. We sell that merchandise at regular price until it’s time to clear it out. When there is a promotion that we need to match, we’ll match it. But it’s all about earning the customers’ loyalty and earning their business over the long-term.”

We’re still in the early stages of understanding how e-commerce will evolve

“I think one of the challenges we all face right now, we’re still in relatively early stages, particularly in this e-commerce space in terms of understanding how that model is evolving and the elements of that model that we need to find to be more productive.”

Nordstrom 1Q15 Earnings Call Notes

20B by 2020

We’ve shared our sales ambition of over $20 billion by 2020. To achieve this, increasing customer acquisition and cross-shopping are important outcomes to improve our relevance with both new and existing customers.

A peak year for investments

we expect 2015 to be the peak investment year due to the concurrent timing of multiple growth initiatives. This includes Canada, Manhattan, several flagship remodels, and a third fulfillment center. We expect CapEx in subsequent years to normalize below our plan average of 5% of sales.

Typically turn inventory about six times a year

We typically, given our five to six times inventory turns to clear merchandise out, roughly six times a year, (13:07) depending on department and we’ve found that we have opportunities to be more effective and how we clear that merchandise out, clear out the old stuff to make room for the new stuff. Our business is at its best when we have a consistent flow of fresh, new goods.

We’re not a promotional retailer

Just to be clear we’re not a promotional retailer, we’re a full-price retailer. We only have one promotion a year, that’s our Anniversary Sale in July. But the half yearly clearance events are just that, it’s a clearance event and we’ve experimented a little bit with communicating those clearance events using different titles, different marketing techniques.

Half yearly is a brand that we used over the years to communicate what that event is all about. But we typically use that last weekend, Memorial Day Weekend, in May to clear out a big chunk of our early spring assortment and make room for the anniversary goods that are coming.

Buyback was lower because share price was higher

buyback was a little lower in the quarter. Is there any reason for this or any change in how you’re thinking about capital allocation going forward?
Michael G. Koppel – Chief Financial Officer & Executive Vice President
Yeah. Matt (sic) [Esteban] (19:07), this is Mike. No, there’s no change in our approach. I mean, we set up a buyback plan matrix ahead of time. It’s governed through a 10b5-1 plan. It was purely a function of the repurchase amount that was set based on share price. So no, there’s no change in our long-term view on share buyback.

We want to let customers shop how they want to

our focus is letting the customers shop how they want to shop. We look at it totally across the board when we put as an off-price, both online and in the stores.

Nordstromrack.com and hautelook serve two different types of off price customers

I’d say overall it’s, what Blake said earlier, that our plan is to provide customers choices to shop, how they want to shop. One of the interesting things about launching Nordstromrack.com is seeing the difference in customers between that business and our HauteLook business. The flash sale business is still a very viable business, a big business. It’s one that we think is really additive to what we do and there is a synergy there, that foundation that HauteLook had allowed us to launch Rack.com much sooner than we would have been on our own.

So, we’re seeing synergies of those businesses in things like product. I think our product in Nordstromrack.com has improved significantly since launch. There’s – we’re continuing to explore some synergies with marketing. But again there’s a point – while there’s some customers that go back and forth, there’s – they are separate customers. Customers, some customers prefer flash. Some categories are stronger in flash and some prefer persistence. So we really like the combination.

Nordstrom 4Q14 Earnings Call Notes

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Omni-channel=greater loyalty

“We also believe we are competitively advantaged by serving customers better through our multiple touch points in full-price, off-price, stores and online. As a result we have more customers shopping with us and more customers shopping two or more channels. This is meaningful as customers who shop multiple channels spend more and demonstrate greater loyalty.’

Rack customers in full price business

“1/3 of our Rack customers also shop in our full-price business.”

Grew sales 7.8% last year

“We added nearly $1 billion to our top line with record sales of over $13 billion. Our sales growth of 7.8% and comparable sales increase of 4% were ahead of our expectations.’

Planning for 7-9% sales growth mostly from e-commerce

“turn to our 2015 financial outlook. Our plan for earnings per diluted share of $3.65 to $3.80 incorporates total sales growth of 7% to 9%. We are planning a comparable store increase of 2% to 4% based on current trends. Our sales outlook assumes in full-price flat comparable sales at full-line stores and roughly a 20% total sales increase from our online business of nordstrom.com and Trunk Club with mid-teens growth at nordstrom.com.”

Being great at returns is part of our strategy

‘returns is a big strategic subject for us. Being great for customers around returns is something that’s long been part of our deal and that certainly includes online. For us, a big part of the value in our approach to returns is in having returns in the store. So online purchases being able to be return to our store, well over 60% of our Nordstrom.com returns end up at our full-line stores, well over 70% HauteLook and Nordstrom Rack returns end up at our Rack stores.’

Have to be transparent with price because customers can see these days

“with the way that online business has done now, the customers are way more enabled and they’ve got a lot of information and we’ve got be respectful of that, responsive to it.”

We have a natural rhythm of markdown cycles

“We’re trying to run a full-price business here. We have the natural rhythm cycles of markdowns that happen which gets addressed in our clearance strategy’

Earnings growth after 2015

“I think what we were saying is post-2015 we would start to see earnings growth improve. I don’t think we used the word accelerate but we thought it would improve beginning after the peak year of 2015 investment.”