Nordstrom, Inc.
Q1 2007 Earnings Call Transcript

Published: 17 May 2007

[Operator:]

Welcome to the Nordstrom Q1 2007 earnings release conference call. (Operator Instructions) I will now introduce Mr. RJ Jones, Manager of Investor Relations for Nordstrom. You may begin, sir.

[RJ Jones:]

Thanks, Laura. Good afternoon, everyone and thank you for joining us on the call today. On the line with me this afternoon are Blake Nordstrom, President of Nordstrom Inc.; Pete Nordstrom, President of Merchandising, who is joining us while traveling; and Mike Koppel, Executive Vice President and Chief Financial Officer. This afternoon, Mike will lead off with the review of our first quarter results, Blake will make a few additional remarks, and then we'll open it up for questions. Please note that today's discussion will contain forward-looking statements, which are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions discussed due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Form 10-K and Form 10-Q. Now, I'll turn the call over to Mike.

[Mike Koppel:]

Thanks, RJ and good afternoon, everyone. We are pleased to report another quarter of progress in the execution of our company's strategy. For the first quarter, earnings per diluted share increased 24% to $0.60 versus $0.48 per share last year. Our pretax margin rose to 13%, 106 basis points higher than last year. Top line results exceeded our mid single-digit same-store sales plan, which drove incremental leverage on both the gross profit and the operating expense lines of the P&L. Net income for the quarter was $157 million, compared to $131 million last year, a 20% increase. All of our geographic regions and major merchandise categories achieved same-store sales increases. Total sales grew 9.3% to $1.95 billion and same-store sales increased 9.5%. Our strongest regional performances were in the Midwest and Northwest and our best performing merchandise divisions included our designer offering across categories, women's accessories and women's apparel. Gross profit increased 66 basis points for the quarter. Above planned sales leverage on buying and occupancy expense generated rate expansion. In addition, merchandise margin improved versus last year driven by lower markdowns across women's apparel, accessories and men's apparel, along with strong sales through most major categories. In SG&A, we gained 32 basis points of rate improvement versus the prior year. Overall, fixed expenses were in line with plans. With the launch of our enhanced fashion rewards program, we granted benefits to top tier customers who qualified for rewards based on their 2006 spending in our stores. This resulted in $4 million of one-time expense above our plan and impacted the SG&A rate by approximately 20 basis points. By our customers aspiring to new reward levels, we believe this program will create incremental value through greater loyalty and higher spending. Other income and finance charges increased $2 million for the quarter as a result of growth in our co-branded Visa card program. The increase was partially offset by securitization transaction costs. Net interest expense of $7 million was $4 million better than last year, due to lower debt levels and higher interest income. Turning to the balance sheet, inventory per square foot increased 2.6%. Most importantly, comp sales results exceeded our inventory growth, driving improvement in both merchandise margin and inventory turnover. As we respond to our customers through an increased designer offering and a flow of fresh merchandise, we continue to exercise discipline over our inventory investment. At the end of April, we increased our securitized debt and transitioned our entire securitization program onto our balance sheet for ease of reporting and administration. This resulted in adding the following amounts to our balance sheet

[Blake Nordstrom:]

Thanks, Mike and good afternoon, everyone. We are pleased to share with you continued progress on our results. Sales are off to a good start for the year. This is the 16th quarter in a row of positive same-store sales, which goes back to the second quarter of 2003. Momentum continues across our merchandise categories and throughout our full line stores. Our number one driver of earnings growth continues to be having meaningful comp store increases and improving our productivity. We have shared with you previously that we have been achieving record-high levels in our gross profit margin. Over time, we expect to have continued opportunities for leverage on our buying and occupancy costs. While in our merchandise margin, we have enjoyed significant basis point expansion over the past few years, we anticipate more modest gains going forward. Finally, we have room to steadily improve our SG&A rate as we stay focused on our daily execution. We have set goals this year to improve the productivity of our salespeople and we are starting to gain traction. We constantly strive to provide our customers with an exceptional shopping experience, both in our full line stores and online, one customer at a time. Keeping our focus on our customers is our highest value strategy. As merchants, our team is responding to the feedback we get from our customers and salespeople to carry the very best product available. This goes for all of our merchandise divisions. The customer continues to respond favorably to fashion, brands, newness and quality. Part of the improvements seen in our women's apparel business comes from this approach. While we have a couple of quarters behind us in executing our current merchandise strategy, we know that there are still many opportunities within our women's business to contribute to our total results in a meaningful way and we expect it to be an increasing part of the continuous improvement we're striving to achieve. As we strengthen our comprehensive designer offering in shoes, accessories and apparel, we are enhancing our core business. Our customers want more access to designers and we are making progress in our focus stores. When we can bring in more merchandise at the top of the luxury scale, our customers choose to spend more with Nordstrom. We are currently in a favorable position when it comes to the use of our capital. New stores and relocations remain the most attractive options. We also feel strongly about maintaining our stores over time so we've taken the necessary steps to ensure the appropriate amount of capital is being allocated to store remodels. Over the next 18 to 24 months, we are devoting more financial and management resources to our multi-channel platform. A completely integrated multi-channel offering is important to our customers and better positions us to serve customers in the way they want. As we look ahead, we see increased opportunities for us to grow our share of business. We are looking at what performance we can achieve and we see few barriers, if any, if we stay focused on our core business. One example of us building upon our core business is by connecting and rewarding our loyal customers better through the recent launch of our enhanced fashion rewards program. Though it's still very early, we're receiving favorable responses from our customers and believe it rewards are top spending customers and in turn enhances our business. Everything we do is grounded in our customer. We realize today's customer has almost endless choices. So whether it's retaining the good will and patronage of our current customers or finding ways to garner more of their total spend with Nordstrom, and finally gaining the trust of new customers, it all boils down to some tremendous opportunities. With that, we'd like to answer any questions you have for us.

[Operator:]

(Operator Instructions) Our first question comes from Liz Dunn – Thomas Weisel.

[Liz Dunn:]

Congratulations on a good quarter. Looking at the second quarter, the guidance seems a little bit weaker than I had anticipated. I'm wondering on a 1% to 2% comp, is it just that you don't get much leverage or could you just talk us through some of the issues impacting that second quarter number? Similarly, in looking at Q4, the guidance is a bit better than I had anticipated but you have a similar low single-digit comp. So, if you could just help us understand that?

[Mike Koppel:]

Liz, first thank you for your comments. In the press release, we had outlined the components of the shift. I would start with by saying because of the shift in the calendar, we do have a shift in sales. We're expecting lower sales. We talked a 1% to 2% expectation for Q2 and 4% to 5% for Q3. So that's the first part. In terms of other components, Q2 just by, I think, circumstance has a number of items that are negatively impacting what we're expecting on the bottom line. Most of those are either related to timing or the securitization. We've highlighted those out. There's an impact due to securitization, which is a one-time effect. There's an impact due to the sales, which is really pure timing. Then there's an impact due to last year. We received a settlement from the Visa/MasterCard trust that won't be repeated this year. I would say the overall model is operating mostly as normal other than shifts in the sales and those nonrecurring items.

[Liz Dunn:]

What kind of leverage do you get on a 1% to 2% comp or any at all?

[Mike Koppel:]

We do get some SG&A leverage and we've always stated that at a low single-digit comp, we can get some leverage.

[Operator:]

Our next question comes from Matt McClintock - Lehman Brothers.

[Matt McClintock:]

I just had a quick question on securitization. At the end of fourth quarter, it looked like the expenses and the income was going to essentially net out to be even/flat and now it's looking like there's going to be a $0.01 reduction in earnings. I just wanted to get a little bit of your thoughts on that?

[Mike Koppel:]

There's two components to that. One is the nonrecurring component that recognizes the charge-offs for all the receivables that are now coming on the books that we didn't have before. The second component, the $0.01 difference there is really primarily due to variances in how we value the old securitization accounting and the new on book accounting. It really is an accounting element and netted out to a fairly small amount.

[Operator:]

Our next question comes from Deborah Weinswig – Citigroup.

[Deborah Weinswig:]

Blake, can you give us some background in terms of Genesis and fashion rewards?

[Blake Nordstrom:]

Well, we've had, as you know, a loyalty program with our credit card portfolio. As time goes on, we're learning more about our customer and getting great feedback from the customer and from our salespeople. We felt there were some opportunities to enhance that loyalty and that connection with some of our best customers. So it's not a new program but it's an enhancement of what we have been doing. Again, here at this very early stage, we're getting great feedback from those customers. There are milestones that the customer has to hit and if they do, there are things like shipping or alterations and other services that come into play for those top customers.

[Deborah Weinswig:]

You had also talked about anticipating more modest gains in the merchandise margins going forward. Can you talk about what component of that is the growing designer business and what might kind of comprise the rest of that?

[Mike Koppel:]

The margin in designer was your specific question?

[Deborah Weinswig:]

Well, you had said that you'd have more modest gains going forward on your merchandise margins. I just wondered how much a component designer was and what was the rest of the make-up of that?

[Mike Koppel:]

It had very little to do or nothing to do with designer, and it has really everything to do with the marketing in that we are at historical highs in terms of margin. When we look at competitors from the data, we can glean, it also shows that we have a pretty good performance there. We think it's prudent when we look for opportunities going forward that the number one opportunity, I think goes without saying but, it is sales and volume and productivity. We also think there's opportunities to leverage SG&A. We don't think it's wise to expect the same kind of gains or improvements that we've had in margin. We do fully expect continuous improvement, but they will be much smaller basis point numbers than we've seen in the past and we think it's important that we share that with you as you put your model together, as you follow us.

[Deborah Weinswig:]

You had also talked about increasing the productivity of the salespeople. Is it new technologies that will be driving that or new processes and procedures? Can you help us understand that better?

[Blake Nordstrom:]

It's really kind of all of the above. But I think it's really grounded and starts in a high expectation from all of us. As an organization, it's about selling. For us to achieve these goals that we've laid out, we're going to accomplish that by selling more merchandise through service and through great merchandise. So we're very fortunate to have a great group of people. We just felt the last couple of years there was some opportunities to sharpen that whole selling process and experience that a customer has. We've been working closely with our regional managers, our store managers, department managers, and salespeople to how we can be better sellers. And part of that is grounded in these tools and these resources that we've been able to implement the last couple of years. Are we fully maximizing it? But it's not a systems initiative. It really is an initiative as salespeople, whether it's product knowledge or having confidence in that merchandise, fit, and really having a relationship with their customers to be able to talk about what are the appropriate items.

[Operator:]

Thank you. Our next question comes from Jennifer Black – Jennifer Black & Associates.

[Jennifer Black:]

I wondered if you could talk about your approach to this year's half yearly sale? Last year the customer was more interested in full-priced goods and so I wondered what your approach is going to be? Secondly, I wanted to know if there's any new departments that you are considering? You've had so much success with your sunglasses. Thank you.

[Blake Nordstrom:]

Pete, can you take that question, please?

[Pete Nordstrom:]

Sure. It's been pretty clear to us over the last few years that the customer is taking us in a direction that really speaks to newness and regular priced merchandise and that's when our business has been the best. Obviously, the clearance rhythm in this business is there and that's not going away. So our half yearly sales are there to help us clean up during these natural rhythm times of the business. What's been making those times of the year work best for us is the ability to take steep markdowns quickly and get through the clearance product as fast as possible and supplement it with new product right on the heels of that. As we've been able to bring in new fresh merchandise more regularly and more consistently, our business has been better. So, it's just really in response to our customers wanting new full priced product.

[Jennifer Black:]

So, will you have more full-priced product than you did last year to show the customer as she may be browsing the sales racks?

[Pete Nordstrom:]

Yes, that would be true. We have somewhat less markdown merchandise because we're selling through better. That's a good story. Then again, the customer demand really is more for regular price. So that's how our merchandise offering is skewing.

[Blake Nordstrom:]

I think there was a question about new departments, Jennifer that you asked?

[Pete Nordstrom:]

There's no new departments really in store. When you talk about sunglasses, it's really just an extension of business we've already been doing but how we can make it bigger and better, but there's nothing new announced there. We're going to keep working on that. As you mentioned the sunglasses, that's still been a very robust business for us.

[Operator:]

Thank you, our next question comes from Adrianne Shapira – Goldman Sachs.

[Adrianne Shapira:]

Just following up on the merchandise margin comment. Mike, it's understandable you've obviously had a meteoric rise in the merchandise margin. Can you give us a sense of this past quarter, 66 basis points, how much of the improvement came from leverage versus improvement in the merchandise margin?

[Mike Koppel:]

Sure, Adrianne. The majority of the expansion came from levering buying and occupancy expense, and a smaller portion came from the actual merchandise margin.

[Adrianne Shapira:]

Just going forward, again, it is understandable to not plan for continuation, but maybe give us a sense for where we are in the women’s turnaround business? It seems as if we are still early stages, and if that is the case, why wouldn’t we expect to see continued opportunity in merchandise margin?

[Mike Koppel:]

I’ll take one piece of that, and that is the further opportunity in total margin; and then Pete, if you could talk about women’s after I am done. But in terms of total, Adrianne, we have a lot of different businesses and our concern is that while we do have opportunity in one business, there are a lot of other things going on that don’t always operate at the same level. So for us to expect that all stars will align and margin will keep expanding because one is expanding I think probably isn’t the most prudent way to run our business. So that’s why we’re thinking about those margins staying at a more moderate level. Pete, can you talk a little bit about where you think we are with women’s?

[Pete Nordstrom:]

It’s hard to measure that, because there are not finite profits here. This is an ongoing evolution of our business, and I think based on all of the conversations we’ve had in the last few years, women’s has lagged relatively to some of the other expansion we’ve had, both in sales and margin. We’re catching up and we’ve had a lot of improvement there, and I think it is fair to say that we’ve got a ways to go. It is hard for me to know exactly how to measure that. I think we’re just trying to take a conservative approach on this. We believe there’s improvements to be made in margin, but when you look at it across the total business, it is not the same opportunity it was three years ago.

[Adrianne Shapira:]

Just to follow up, when you look at the improvements on women’s, any lessons that you can bring to other categories? I think you had called out kids as an opportunity.

[Pete Nordstrom:]

While they are different, they all have a lot of things in common. For us, it usually means having a little bit more authority with a little bit more of a specific point of view. I think where we tend to get ourselves in trouble if we try to do too many things at once. It really relies on good information and experience and confidence with our buying teams to be able to go and identify what the hot trends are going to be and then really buying in with confidence. I think given the fact that we’ve had the success behind us and we have really good information, it has made that much more possible. And we have better customer information than we used to. We can combine the anecdotal stuff that we’ve always had and it has served us very well with a lot of pretty solid, objective data.

[Adrianne Shapira:]

Blake, I just had a question about your best customers. Can you give us a sense in terms of how much they spend versus an average customer, as you are focusing on these customers and dedicating the fashion rewards towards them?

[Blake Nordstrom:]

Adrianne, I don’t think we’ve ever shared that information externally, so I am looking at my partner here Mike. I think the good news is that we do internally have more of those facts and that we are able to be a little bit more strategic in focusing our resources. Obviously, when customers come in our door we want for everyone to be treated well and have a good experience. What we are learning is there are some loyal customers of Nordstrom or customers that we believe that we are targeting or have an offering that should be attractive to them that are shopping in a number of other alternatives out there, whether that be online or at a mall or specialty store. So we look at that and we get really excited about the opportunities that are there. I think over time, again, If we use this information correctly, there are some tremendous opportunities.

[Operator:]

Your next question comes from Dorothy Lackner – CIBC World Markets.

[Dorothy Lackner:]

I wanted to follow up on that question, just asking whether you’d share with us what percent of sales those rewards customers account for in your store base? Just a follow up on the women’s apparel business, where have you seen the most progress? Where do you think there is the most opportunity still to come in that recovery?

[Blake Nordstrom:]

We’ve never broken out those specifics of these customers, but I think it is fair to say it is not the majority and so again, that represents a lot of opportunities. We deal with a pretty broad base of customers, and there is a segment, because of their spending habits, that are now receiving these enhanced fashion rewards. We think there are opportunities across the board there.

[Dorothy Lackner:]

Have you shared at all, just looking at the focused doors where you have more of a designer presence, the comps in those doors, the sales productivity or the comps versus the average?

[Mike Koppel:]

We have talked about that. Pete, do you want to give some examples or specifics on that?

[Pete Nordstrom:]

Do you want me to answer the women’s apparel question first?

[Mike Koppel:]

That would be good, too.

[Pete Nordstrom:]

I think in the last handful of months, probably where we’ve had the biggest improvement is probably juniors, because last year, the last 18 months or so juniors was pretty challenged for us. We made a fair amount of improvements and corrections going into fourth quarter. Here we are in the first quarter of this year and we’ve realized quite a bit of improvement there, and that’s helped. That’s a pretty good size business for us. I would say the designer part of the business, while it has been relatively small, the sales increases there have been really great and we’ve actually been able to improve our margins there quite a bit. It’s really been across the board. I think if you look at the biggest parts of the business, that women’s better-priced stuff, all of those areas have shown pretty significant improvement. I guess there is not one single thing we can call out there other than to say in the last three or fourth months juniors has been the one area that has had the biggest improvement. The other question was about what, focus stores?

[Dorothy Lackner:]

Yes, the focus stores where you have more of a designer presence, the comps in those stores versus the average.

[Pete Nordstrom:]

Well anytime we’ve been able to deliver the best the market has to offer, our business has improved. So it is fair to say that in the focus stores where we are really getting after the top names that any designer customer would expect from us, any time we brought that product in it has improved not only in that specific category, but it improved the entire business of the store. So I think it is fair to say that it is very encouraging the results we have in focused stores and it gives us a lot of confidence to not only keep going in those stores, but perhaps there is more we can do across the entire company in terms of elevating the quality of products that we are carrying.

[Operator:]

Your next question comes from Bob Buchanan – AG Edwards.

[Bob Buchanan:]

Congratulations. I just want to appreciate Mike for the guidance; very lucid and a bit of a bummer on the second quarter but certainly no problems with the year, so just a very careful explanation. I certainly appreciate that. With respect to Topanga, specifically, any concerns about the ability to continue to get the good stuff once Neiman opens their store in that great mall? Secondly, with regard to the one or two lease arrangements you have with the hard shops in Topanga, any initial learnings from that lease arrangement?

[Pete Nordstrom:]

This is Pete, I'll take that. I don't think there's any risk of losing what we have. As a matter of fact, I think we can add more to what we have because it's performed so well. The only risk would be really on us, if we're not able to execute and perform with the products we carry. And so, far that's not been the issue. I think it's exceeded expectations, frankly, in terms of how the vendors we're working with, the results that we've been able to achieve. So, it's like anything else. When you have those kinds of results, it gets people's attention and it opens up opportunities for new distribution. So, we're not anticipating that going backwards at all. In terms of the leases, we only have one and it's too early to say if we can draw any conclusions about what it means to have a lease in Nordstrom. We're keeping an eye on it. In terms of whatever's going on there at Topanga, it's been a positive. So, so far so good.

[Bob Buchanan:]

Pete, as a follow-up, to the extent that you've done well in those hard shops I think is the conclusion that would be fair, has there been any additional interest, without naming names, in terms of some of the other vendors who might want to pitch in some future similar endeavors on the hard shop front?

[Pete Nordstrom:]

Yes. In a store like Topanga, we've had people say, that's really great, so we'd like to be there now too and we can't accommodate that because we've already committed to what we're doing there now. To be able to expand with more hard shops in that store, when it's only less than a year old, that's not possible in the near term but we have a lot of stores that we're working on remodeling and the new stores that are coming up. It just creates opportunity in those places, particularly since we've been able to do this in Topanga. And we've also been able to do it at a place like Mall of America, for example, where that store went through a renovation and remodel, a pretty significant one. We were able to layer in a lot of this luxury business and it was just really made for terrific results in that store. So, I think it gives confidence not only for us internally, but obviously the vendor community when they see that it's not just one place where Nordstrom can do this. There's literally several places where this can happen because we've got great customers who really want this product.

[Bob Buchanan:]

Okay. Thanks. Good smooth sailing, thank you.

[Operator:]

Our next question comes from Christine Augustine – Bear Stearns.

[Christine Augustine:]

On your guidance, I just wanted to clarify something if I could. The comparable operations results for the second quarter, for example, $0.70 to $0.73 EPS, that's based on the 1% to 2% same store sales, right?

[Mike Koppel:]

That's correct.

[Christine Augustine:]

Okay. So then what is the $0.03 adjustment for the 53rd week timing shift and calendar? Wouldn't that already be embedded in the comp plan?

[Mike Koppel:]

Well, you're right. It is embedded in there, Christine. The other thing that's a happening too in the $0.70 to $0.73, as we called out, we do have some quarter-over-quarter historical pressure on SG&A, which is going to neutralize its way out for the remainder of the year. So, you're right in your assumption.

[Christine Augustine:]

How are your new store opening plans going? Where are you seeing the biggest growth opportunities? A longer term question.

[Pete Nordstrom:]

I think the big major obvious opportunities in terms of new stores aren't nearly like they would have been 20 years ago for us because we are in every major market in the country, with the exception of Manhattan, which we're aggressively pursuing and hopefully someday we'll have something to announce there. But we're going into Boston this fall. So, that was really the last major market besides Manhattan where we weren't. As you know, we have planned to build four stores over the next four years in the Boston area. After that, they're really pretty much opportunistic; in some cases fill-in stores. We have a fair amount of geographic regions where we do very well. It may call for another opportunity to open another store just, again, another 15 to 20 miles outside of where we may have a location. So, we're always talking to the developers about new development opportunities and with the more than a handful of existing malls where we're not, again what happened with the Federated-May situation, it did create some real estate opportunities. There's still a few opportunities out there that we continue to explore.

[Christine Augustine:]

I know you don't break out for the rack except for the same-store sales, but the business has been very strong there for lots and lots of quarters. So, could you just talk about what you're doing there with merchandise offering or your marketing strategy or sort of what the ongoing initiatives are? If there's anything that's changing?

[Blake Nordstrom:]

Our racks have been operating very successfully and contributing to the total. In terms of growth, they kind of mirror the full line store growth. So, they're dependent upon and their purpose is to move efficiently in these goods. So, we don't have an aggressive expansion program. We'll have an expansion program that will hopefully follow and complement over time when the fill line stores come on board that we'll also fill in. We currently have about a 2

[Pete Nordstrom:]

I'll just say more specifically to that, it's being able to carry brands that are brands that people would see in the full line stores, we don't do as many make-ups or as many buy-ins with no name brands or brands that might be off strategy for us at the full line stores. What Blake's really speaking to is being able to leverage the relationships that we have with these prestigious brand names. All the things we might carry in the full line store to be able to say, hey, if you have any excess goods that you're looking to clear, we're a great avenue for that. We've had great success with so many of our vendors that way. That we've just been able to elevate the whole brand name recognition to be much more synonymous with what we have in full line stores.

[Operator:]

Our next question comes from Charles Grom – JP Morgan.

[Charles Grom:]

Just to fallow back on that merchandising question a few minutes ago. Why did you not get any benefit in the quarter?

[Mike Koppel:]

Charles, this is Mike. Could you please clarify, what kind of benefit in the quarter?

[Charles Grom:]

You, said the gross profit margin was up 66 basis points. The majority was that buying and occupancy leverage but the core merchandise margin I don't think really contributed too much.

[Mike Koppel:]

We did have partial contribution on the margin. We had some improvements in markdowns. Overall, we did see some benefit there. But there was some opportunity, which is one of the reasons why we're going forward trying to moderate that expectation.

[Charles Grom:]

Just another one on margins. SG&A, you're taking up your assumption about 20 basis points. Can you walk us through the factors that gives you more conviction today versus three months ago?

[Mike Koppel:]

Well, basically, the way we do that is we take our first quarter actual results and combine them with our plan for the remainder of the year. What that reflects was the significant leverage we achieved in Q1, combined with the plan for the remainder of the year. So nothing has changed in terms of our forward look. It's more about what happened in the first quarter.

[Charles Grom:]

One more if I could, just on the macro environment. Could you give us a sense for where your customers today, what you guys are thinking? There's a lot of noise out there. Are you seeing it at your demographic level?

[Mike Koppel:]

Pete, do you want to start with that?

[Pete Nordstrom:]

I think we just have a lot of confidence in our customer. They've just continually demonstrated across all product categories and across all geographic regions that they are responding to us delivering better and better products. So, we believe that there's a lot of opportunity to gain market share there. It's a big chunk of customers, it's a large group. They have a strong desire to buy the best products there is to offer and they want to buy them from Nordstrom. I think we have a lot of confidence that there's a lot of room to grow there and that it should be a consistent business for us.

[Operator:]

Our final question comes from Stacy Turnof – Merrill Lynch.

[Stacy Turnof:]

Could you walk us through some color on the other income only going up around $2 million this quarter? From your guidance perspective, other income has come down. So, a little bit confused on the difference that's going on there.

[Mike Koppel:]

We've laid out most of the details on that in the press release itself. But for the quarter, we did get some benefit related to the growth in receivables and part of that was offset by some costs related to the securitization, which we've outlined. Going forward, we do have roughly -- and we note this in our footnote -- roughly a $20 million charge that's going to be going in other income for the remainder of the year. What that's going to do is reflect the write-offs on the receivables that we just brought on the balance sheet and those write-offs are going to be taken over the next eight months. So, there's a little bit of noise in there because of securitization but I think if you go through those footnotes, we've done a pretty decent job of calling that out.

[Stacy Turnof:]

My final question is, any update on taking your designer initiative and rolling it out to more stores throughout the chain?

[Pete Nordstrom:]

I think the best thing that we can do is do a better job of having a complete and robust offer in the more subset stores we've spoke to, these focus stores. I think over time, once we get that really up and rolling, it's fair to assume that we should be able to roll that out to more stores. A lot of it has to do with our ability to get the distribution we want. I don't think it's particularly realistic to think that we could have that level of distribution across 99 stores. So, we decided to focus on about a quarter of our stores right now and really get that up and rolling. That's working really well. Every year we kind of take a look at where we might be able to add a store or two or three to that focus group list. So, as those opportunities to get more distribution come up, we will definitely pursue them because as we've mentioned, it works across all regions for us.

[Operator:]

I'd now like to turn the call over to your speakers for closing comments.

[RJ Jones:]

Thank you for participating in conference call this afternoon. If you have additional questions or need further information, please contact me at 206-303-3007. The replay number for this call is 866-448-7644. That number again is 866-448-7644. There is no pass code required and the replay will be available for 48 hours. Alternatively, an archived version of the webcast will be available on the Investor Relations section of our website for 30 days. Thank you for your interest in Nordstrom.