Good morning, and welcome to this next session of the Goldman Sachs Global Retailing Conference. My name is Brooke Roach, and I cover the apparel and brands sector here at Goldman. I am very pleased to introduce our next session with Nordstrom. Here with me today is Erik Nordstrom, CEO, and Cathy Smith, CFO. Welcome, Erik. Welcome, Cathy. Thank you. Thank you. Good morning. Erik, would you like to kick it off with a few brief, brief opening comments? Yeah, I thought I'd just give a little context of where we're at as we pass the midpoint of the year. Really encouraged with the execution we've had on our plan. Our top line continues to show improvement and some momentum there, but I want to bring you all really to the, I think, the highlight of our plan, which is we entered the year and saw opportunities to improve our profitability, even in a what we saw as being an uncertain customer environment. T hat's playing out really well. We're ahead of our plans in delivering higher profitability and feel good about delivering on our year. The other piece I'd call, just as we enter Q3, as hopefully most of you know, our big event in Q2 is our Anniversary Sale, and we come out of that with really high sell-throughs on that event. So we enter the year with really good inventory position, and we think we're well-positioned for what we continue to see as a pretty uncertain customer environment, but we like our positioning. That's great. A s you think about the strategic levers that you're focused on this year, what are the most important ones that you think you can execute against? A are there any areas that you're particularly focused on in this dynamic and inflationary macro backdrop? Yeah. We entered the year with three focuses we've called out and are well on our way on executing them. First was with our Rack division, really delivering on an inflection point with our sales there. T hat focus, which we can get into, is a couple things to call out there. One is really focusing on great brands at great prices. Getting more of our inventory into the brands that our customers come to us most often for. A lot of them are unique to us. The depth that we have in these recognizable brands is something that we think sets us apart. Third part of the Rack business, we see opportunity to add new stores there. We've started adding new stores. Again, we've got, like, 9 open so far this year, 10 more coming. Started the year with about 250 stores, so we see a lots of opportunity to add growth there, and it's a terrific investment for us. The third piece of our Rack plan is engagement. In particular, we have a scaled online off-price business in rack.com, which is unusual. Selling off-price merchandise online is challenging, so there's not many people who do that. For us, it's a key part because it's part of our ecosystem. It's something that can connect with our stores and allow us to have more engagement with customers. Rack growth is one piece. The other piece, our inventory productivity. I don't have to tell any of you, the last couple of years have been bumpy, to say the least, with supply chain and access to goods, and it's caused challenges for us. That's smoothing out. Our plan entering the year was for faster turns and more productivity over with our inventory investments, which inventory always starts with the content of our inventory. I t goes to the how much, but increasingly important is the where, where we put the merchandise, to really provide the fuel for our closer to you strategy, which is connecting our physical assets, inventory being a big one of them at the local level for the customers and things like same-day pickup, being able to do buy online, pickup in stores, be it a Nordstrom store, be it a Rack store, things like that. The third piece we've had a focus this year is around supply chain. R eally pleased with our team there is executing super well. We've had our fourth quarter in a row of over 100 basis points improvement in our variable costs with supply chain, so, we're doing a lot of efficiency there, which is, obviously, important in and of itself. The other piece is, improved customer experience. So we're getting faster deliveries, to our customers, again, by leveraging our network. Those are our focuses. That's great. Maybe we can bridge that to the current trends that you're seeing in the business. How would you characterize the health of the Nordstrom consumer today? W ithin that, can you elaborate on the softer trend quarter to date that you had noted in, by banner, by consumer demographic or by other, or otherwise? Yeah, we've started the year and saw a lot of uncertainty. S o, okay, what's the prudent response on our part? First and foremost, is to get our inventories in line and put ourselves in a position to respond whatever the environment ends up being. T hat's served us well so far. I think this quarter is a good example of that. As we called out in our second quarter earnings call, we saw August start a little softer. September's gotten a little better from that, and just reflects the unevenness that we see with our customer. We've seen softness really across all income groups. The healthiest income cohorts we have is our higher income cohorts, and so a little healthier than for us, our lower income cohorts, which relative, I think, is higher customer mix than some others. So we see uncertainty. I think there's some macro data that's encouraging, and there's some macro data that's causes us to pause. Again, that's we enter the back half of the year, and we think that the prudent thing is to stick to our plans. We're confident that we can deliver on our commitments. We're well ahead of our commitments at the halfway point, but do see continued uncertainty. On that point, Nordstrom has now posted two quarters of better-than-expected sales trends, and yet you haven't changed your fiscal year, guidance outlook. What's keeping you so guarded on the outlook in the second half? A re there any particular items that you're focused on into holiday? Yeah, I'm happy to maybe start there. So first, as you noted, we're very, very pleased with the first two quarters. Sequential improvement, delivering above our commitment. But given just the dynamic of the back half of the year, while we saw great success in the anniversary, which tends to portend a good holiday, we wanna make sure that we continue to navigate the dynamic environment. So I think, as Erik said, we're just being prudent. I think it's the important thing to do right now, and to stay agile, to address whatever the consumer needs are. It's more of a function of macro uncertainty- Yeah. Than it is about a lack of confidence in your own business? That's right. That's great. On designer, that's one of the areas that's been a little bit softer this year. I'm wondering if you can talk a little bit more about your outlook for improvement in designer. Are there changes that you're making to the merchandise? What other opportunities do you see in the business from a category perspective, to put perhaps offset some of those designer trends? Yeah, before I get into the opportunities, it's just context-wise, you know, designer has been the fastest growing merchandise area for us for the last number of years. T his year is certainly a pullback, softer year-over-year. But we'll still end the year ahead of 2019 in designer. So it's been a source of growth, and it's a very important category for us. I wanna be clear, like, when we talk about designer, that term can get thrown around and conflated, I think, with the term luxury. It's a big, true designer business for us and is a key part of the breadth of merchandise offering we have. T hat offering works together. There's a synergy to that. In particular, the importance to us, what we do around discovery of new products, new brands. A lot of our customers come to us not knowing exactly what they want, but interested in something new, and designer is a big part of that. Per the data I've seen, we're the leading retailer around a customer's first designer purchase. But that's, which I think makes sense, with the breadth of our offering that customers, when it's the time is right, maybe their income is right to make a designer purchase, that they're in our stores, they're on our website, and we have that offering for them. So super important part of our area that's been healthy. This year, we entered the year with pretty big pullback in sales, and in designer has very long lead times with the inventory, so it's not an easy area to adjust our inventory levels. So we said at the beginning of the year, we thought it would take us all year to get in the right position. We're a little ahead of our plans in getting there so far. So we're getting our inventory levels in the right position with designer. We still have a ways to go, but we're confident we'll get there by the end of the year. One of the opportunities, I'd call it, again, it, it still will be a real vital area of our business. We do see opportunity to have more, for us, unknown inventory in designer. Having more consignment and other inventory models that allow us to bring to the customer the offering of designer that they want and we want to have without the inventory risk that can be a little more painful in the designer area than in some other categories. On that inventory point, one of the other areas where you've been looking to improve the inventory is in the Rack banner, and that's an area where you've had some success year to date, and you had talked about some better trends in the second quarter in Rack. Can you talk a little bit more about the progress that you've made in Rack inventories? Where are we in that journey, and are you satisfied with the health and composition of Rack inventories today? Yeah, we're really encouraged where we're at. We're, we've seen an inflection point to our top line, and it is, coincided with, our execution on Great Brands, Great Prices, which is as part of taking these strategic brands, and putting more of our inventory in, into these brands. I t the importance, it does vary a bit by category, but, the healthiest categories within our Rack business, allow athletic, especially athletic footwear, beauty, handbags. All three of those, have a particular strength and importance on brands, recognizable brands. T he brands that we have access to, having our Rack business be part of our, our bigger ecosystem, has really helped, fuel that top line. So-... You know, active footwear, I'd call out On Running, HOKA, New Balance, have all been real big drivers of business for us this year. So, we're really encouraged as we've been able to be in a position, number one, we had to get our inventories in a healthy position to invest more in these strategic brands. We entered the year in a good inventory quantity. Our team's been executing against these strategic brands, and we continue to see more traction on the top line from that. One of the questions we often get is the comparison of the Rack business to off-price. W hile Rack has started to perform a little bit better, it still has an execution gap relative to other publicly traded off-price peers. Can you talk to the opportunities that you see to close that execution gap, both in top line and in profitability, both this year and longer term? I don't think I'd use the term execution gap. I get that there's a gap in growth, certainly. Y ou know, Rack is its importance for us is a couple areas I'd want to call out. It is part of our larger ecosystem, and our segment there, our average price point is quite a bit different than some of the other pure off-price players. It sits somewhere between them and really kind of closer to mid-tier department stores. Our customers, Rack customers, do shop some of the other off-price players, but they shop mid-tier department stores, predominantly. So, we sit in that area, and that is our strength. It's our strength in the brands that we can bring to customers in an off-price environment. But it's also important part, again, of our ecosystem. It doesn't sit in a silo. Rack stores is our biggest source of new customers to JWN overall. W e see significant migration from these new customers from our Rack banner into our Nordstrom banner over the first couple of years after we acquire these customers. So, again, I would bring it back to those brands. The depth of offering those brands, we think, is. We're uniquely positioned to do that. I t's something that not only drives a profitable Rack business for us, but is an important customer acquisition part for our overall business. You know, I think I would add to that, though, as well. We see continued growth opportunity with that positioning that Erik just described. As he said, we've got, you know, roughly 250 or so Rack stores, and we continue to see more white space where we can have growth in the Rack, in that offering, where that brand is positioned, and it's great for our ecosystem. As you think about the opportunity for continued Rack improvement, one of those opportunities is also new store rollout. You mentioned at the beginning of our conversation today, where are you seeing the most success from those new store rollout builds? W hat types of new store productivity or new store economics are you seeing as you start to accelerate the number of new stores in the fleet? Yeah. So we're really, like Eric said, we're really pleased. We've got 9 or 10 open now. 9 open, I guess, so far. W ith each one, we take learnings, we roll those learnings into the next openings, and they keep getting better and better. So I would start there. We're really excited with the most recent one. I think Eric was at a new store last week, a new opening. S o we continue to see those. They have a great return on investment, which we like. But more importantly is, it's a great source to new customers to the Nordstrom brand as well. So all in all, we like what it's adding to the ecosystem. We'll continue to take those learnings and roll those in. I t's a new muscle we're having to rebuild. So, like all good retailers, we take those learnings and keep building them in. Last year at this time, we talked about some of the challenges that you had in private brands, and since then you've done a lot of execution work against that to improve the success of private brands in the Nordstrom portfolio. Can you provide an update on this category and whether or not you're seeing a difference in performance in private brands relative to what your expectations were? Yeah. The performance has been market improvement. K ind of in two steps. One, we had to get our inventory levels to the right spot. Yeah. Last year, our... At this particular point, coming in on our Anniversary Sale, our own label was a drag. We had lower sell-throughs there than we had expected and had inventory to clear out in the back half of the year. Our sell-throughs on our own label product are significantly, significantly higher than they were last year, at a very healthy level. Part of that is we right-sized the quantity, but it does reflect the team's progress in the product that we're making. W e see a lot of growth opportunity. I think we're in a position now of being able to have the content and the flow coming, that we can start building our investment in our own label product, given its performance. Inventory has been a consistent theme today in your comments. One of the questions that we're asking every company in our conference is on the outlook for inventory and where we are in the inventory and destocking cycle. Where do you think we are in the destocking process for the industry and for Nordstrom, and are there any areas of heavy inventory that you're still watching? Yeah, I don't know about the industry. I would comment on our own situation. We see opportunities, and it adds to the health of our business to have fast returns. I t's not just about staving off markdowns. Again, that allows us to have the flow of newness, and that newness, that discovery is vital for our business. That is when we're at our best, when customers think of us as a place of offering something new. So our plans are for fast returns this year. We're ahead of those plans, and continue to see opportunities to turn faster. The only area I'd really call out that's we have ways to work through is what we talked about earlier, is designer. That still will take the rest of the year to get through that, but we are set up to enter next year clean in that category as well. That's really helpful. As we think about the cleaner inventory levels for Nordstrom, on the back of that, we've seen a lot of companies look to move pricing around as they look to enhance their competitive positioning. While I know you don't control a lot of the base ticket pricing that goes into your stores, how are you thinking about the pricing that's getting shown to the consumer next year? Do you think it's going to be going up? Do you think it's gonna be about the same, or do you think pricing is going to go down next year? Yeah, I reiterate your comment. For our Nordstrom banner business, it's pretty much an MSRP business, and then we manage the markdowns from that. Rack, we have a little more flexibility with our pricing there. I would think it needs to pull back a bit. I mean, this cycle we're in of higher prices and lower units while can balance out on the top line, that's not a long-term solution. Again, as an industry, we need to deliver the value for customers to where trips and in- and unit sales start to start going up as well as the overall sales number does. So, hopeful that as things normalize around the globe, but particularly supply chain costs and some of that efficiency gets passed along to the customer. The final question that we're asking all companies at our conference today is that of the consumer backdrop. Do you see the consumer facing more headwinds or fewer headwinds next year compared to 2023? H ow are you thinking about the potential impact from trade up or trade down among your income demographic cohorts? We'll start with the latter, Cathy, we and I—we haven't seen real evidence, clear evidence of trading down. That's... We normally don't in that. It's there is... I think you start with the income, average income, household income that our customer has. Even our Rack banner is higher than I think many other retailers. W e've seen more resiliency in those income cohorts. So I think there's a lot of uncertainty. Again, we're not economists. I'm a shoe salesman by training, so I think the prudent thing for us is to manage our expenses, manage our inventory in a way that gives us the agility to respond to what we see there. F or our Nordstrom banner, that means a flow of newness. For the Rack banner, that means being opportunistic and getting the best deals out there on these, bringing these great brands at great prices to our customers. T hat's what we can control, and we're well positioned to do that. Great. Thank you. Cathy, let's bring you in here. On gross margins, how would you frame the profit outlook for gross margins in the medium term, both as you contemplate inventory, promotions, but also leverage on your fixed costs? Yeah, as Erik has said, too, so let's start with we continue to see improvement. We're pleased with where we are through the first half of the year. Inventory positioning or inventory is a key part of our gross margin going forward. S o being clean coming through Anniversary Sale into the back half of the year is a great place to be as we think about going forward. We're also coming off of some pretty challenging back half of last year with the markdowns we took in the fourth quarter. So we're expecting gross margin improvement through the remainder of the year. It'll be more modest in the third quarter, a little bit more in the fourth quarter, as we've said, as we reaffirmed our guidance. So that's kind of the way we think about it. I think it's always key to focus on the things that Erik said, which is inventory that's in our control, making sure we're staying as clean and lean as we can there, so that we can get that relevance and inspiration for our customers, is the most important thing. Focus on the things in our control, and the rest will take care of itself. On SG&A, Nordstrom has delivered several quarters of over 100 basis points of strategic improvements here. As you start to annualize some of those early wins, can you contextualize the outlook for further improvement? What are the most important drivers, and are there more efficiencies still on the horizon? Well, so I'm always gonna say there's always more. I'll start there. That's Fair point. My disposition. Our team has done an amazing job over the last four quarters or five quarters of supply team productivity, and you've seen that come through with over 100 basis points of improvement each quarter. So that will start to moderate because you can't keep comping over that improvement. But we still have a ways to go. I would tell you, across the SG&A, there are always places we can be more effective and efficient, and we'll continue to strive to do that. Putting those two things together, Nordstrom has a long-term EBIT target of +6%. Can you help us understand how you're thinking about re-achieving that level, and what levers are in your control versus what are functions of the external environment? Yeah. So just to reiterate, so we keep everyone on the same page, our guidance for this year is 3.7% to 4.2% in adjusted EBIT. S o start thinking about that. So we're not at that longer term 6% that you referenced. Obviously, we've got a little bit of work to do still. It'll come on both sides. It'll start always with sales. So, I'll tell my story because I always tell this, but I used to walk a lot of retail with a great operator, and he had a sign in his office that said, "Sales is not the most important thing, but it's right up there with oxygen." I always start then with sales because that's always the solve for almost everything, is not the most important thing, but it's right up there with oxygen. So that will help in achieving that longer-term EBIT. I t's all the work we do on inventory to get to the gross margin, and then we'll continue to do work on the SG&A line. Again, we've made really, really great progress, but closing that gap from where we are today or guiding this year into that more longer-term 6% will take us a little bit of time. Within that, one of the comments that Nordstrom has historically made is that you're largely channel agnostic between stores and digital for full line. Maybe not necessarily so for Rack. Can you talk about the initiatives that you have in place to move the needle on Rack digital to continue to improve profitability there? I s it still the case that you're still channel agnostic between your full line channels? Yes. Yeah, our contribution margin between a Nordstrom.com sale and Nordstrom store sale is pretty darn similar. W e actually don't split it out much internally, because it's really not relevant of... For one, it's a bit arbitrary when you assign a sale to which channel, because so many customer journeys involve both the digital and the physical assets. So we've been in that position for a while to really just focus on the customer journey and being where the customer wants us to be. T hat's, yeah, as I think a lot of people have seen, a lot of companies buy online, pick up in store, got a lot of boost during the pandemic. You know, for us, we have the added capability, you know, to leverage our Rack stores. So, a customer could go on Nordstrom.com, make a purchase, and pick it up at a Rack store, which I think about a third of our Nordstrom.com buy online, pick up in stores happen, get picked up in a Rack store. That synergy is great for the customer. It's great for us as well. It drives a lot of traffic, and customers are in our stores, they tend to buy things as well. So, that... We are agnostic there. Additionally, we continue to invest in that direction. That direction being how do we leverage our digital and physical assets to serve customers better? A lot of that is around inventory availability and placement. But there's also increasingly use of machine learning around leveraging customer data and our own product data to help in the discovery process. That could be customers' online journey of what we're able to offer up around a journey of suggestions. We also use that for our own stylists. W hile a lot of focus gets put on e-commerce, it's still a huge part of our business, is having a great personal stylist and a customer. W e can have these digital capabilities for internally, of our own people, who can make relevant suggestions for their customers. W hat could be in person, that could be in what we call Style boards. This is basically our stylists have the capability of building their own web pages of suggestions for customers. A n increasing amount of our salesperson's sales come from customers who aren't in the store. They are happening remotely. So that's a big part of our digital investments as well. That's great. Thank you. Credit's been a hot topic in retail. You called out some normalization in some of those trends last quarter. Can you elaborate on this? How is Nordstrom's credit revenue structured? What's the flow-through rate that you get on that? D o you think that worsening credit trends could weigh on your top line opportunity, should this trend persist? Yeah. So let's start with our customer, our credit customer, tend to have a higher income. They're a little bit higher quality credit score than an average. So that's a good place to start. As we noted in the second quarter call, we have seen delinquencies start—it had been rising actually all year, but they're now back to kind of pre-2019 levels. S o we'll be mindful there as we continue to watch where the consumer's going there. But I always start with, we've got a little bit higher quality, which is great. They tend to be a little bit more resilient. We've watched through previous downturns, so we'll watch that. But in the bigger context, credit's really important, too, as an important part of our loyalty program for our customers, and those are really important to our company, obviously. So we want to make sure that we continue to fuel both the credit, as well as the other loyalty customers for our business. W e'll continue to do that. Again, we're kind of blessed with a little bit higher income cohort that is a little bit more resilient. So going forward, we'll continue to support that, the credit program. We have a great bank partner. We like the structure of our relationship there. It's, you know, credit for our businesses been pretty consistent as a percent of sales, in the amount of its contribution. It is strong flow-through, but it's probably a bigger perspective around the total ecosystem of what that customer brings. So I don't know, Eric, if you'd like to add anything there? Yeah, I would just emphasize that last point, that it's a key part of engagement and, you know, Anniversary Sale is a good example. It's Anniversary Sale really resonates with customers who've experienced it before. It's something that a lot of our customers mark on their calendar and go with friends and family and it reflects, we think, that the highest tier of our loyalty level, I think it's a little over 90%- Yeah ... engagement of customers in that segment, shopping during this Anniversary Sale period. Which, you know, end of July is not the usual busy period of fashion retail, so it's an important part and a real healthy part. I'll just take a minute. This was my first anniversary as a Nordstrom employee, and I have to tell you, what a bunch of fun. Our most loyal customers, they dress up, they come in our stores, they're zealous. It was, like, huge, huge fun. So it was the first time I got to see it from this side of the fence. I've been a long time Nordstrom customer, but it was amazingly fun. That's great. The other hot topic in retail is shrink. A lot of those challenges have been discussed pretty widely in terms of what's driving it, but what are you seeing here? What's embedded for your outlook for the year, and what actions do you have in place to mitigate this risk? Yeah, I'll start- Sure. Erik can add on. So first off, as we've shared, and I think many others have, shrink's at elevated levels from historical amounts. That said, it's been pretty stable for us and continues to be. So we'll start there from the financial aspect. It, I'll knock on wood, doesn't appear to be... That's not wood. Doesn't appear to be getting worse. But so it's been steady. We are taking a number of actions, and Erik can detail those more, but everything that others are doing as well to continue to try to mitigate it. But it, it's clearly an industry challenge and needs to be addressed. Yeah, I would just add, it, the shrink we're seeing is fairly consistent, as Cathy mentioned, and within our plan. So it's not a barrier to delivering on our near-term plans. I think it is a barrier to get to the profitability levels we want to eventually get to, the more historic levels that we've had. That hard to do that with shrink being elevated over those historical levels. You know, there's a lot of things going on and we've made investments in personnel and devices. Maybe what we need for us is where we're at in our rollout of RFID. That's been progressing well this year and provides us with significant information for all parts of our business, but one of it will be to help with our shrink efforts. Excellent. Any final thoughts to wrap it up? I don't think so. You did a great job. Oh, well, thank you. I have nothing left to say. Very kind. Well, thank you, Erik, thank you, Cathy- Thank you to all of you in our audience today for joining in. Thank you. Thank you, everyone.