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Nordstrom (NYSE:JWN)

Q1 2010 Earnings Call

May 13, 2010 4:45 pm ET

Executives

Peter Nordstrom - Executive Vice President, Director and President of Merchandising

Michael Koppel - Chief Financial Officer and Executive Vice President

Robert Campbell - Vice President of Investor Relations and Treasurer

Erik Nordstrom - Executive Vice President, Director and President of Stores

Blake Nordstrom - Principal Executive Officer, President and Director

Analysts

Steve Marrs

Chris Cuomo - Goldman Sachs

Robert Drbul - Barclays Capital

Richard Jaffe - Stifel, Nicolaus & Co., Inc.

Lance Vitanza - Concordia

Lorraine Hutchinson

Adrianne Shapira - Goldman Sachs Group Inc.

Lizabeth Dunn - Thomas Weisel Partners Equity Research

Deborah Weinswig - Citigroup Inc

David Glick - Buckingham Research

Neely Tamminga - Piper Jaffray Companies

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Barbara Wyckoff - Jesup & Lamont Securities Corporation

Edward Yruma - KeyBanc Capital Markets Inc.

Jennifer Black - Jennifer Black & Associates

Operator

Hello and welcome to the Nordstrom 2010 First Quarter Conference Call. [Operator Instructions] I will now introduce Rob Campbell, Treasurer and Vice President of Investor Relations for Nordstrom. You may begin, sir.

Robert Campbell

Good afternoon, everyone, and thank you for joining us. Today's earnings call will last approximately 45 minutes and will include about 30 minutes for your questions. As a reminder, all forward-looking statements on this call 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 Forms 10-Q and 10-K.

Participating in today's call are Blake Nordstrom, President of Nordstrom, Inc.; and Mike Koppel, Executive Vice President and Chief Financial Officer, who will discuss the company's first quarter 2010 performance and outlook for 2010. Joining us for the Q&A are Pete Nordstrom, President of Merchandising; and Erik Nordstrom, President of Stores. And now, I will turn the call over to Blake.

Blake Nordstrom

Thanks, Rob. Good afternoon, everyone, and thank you for taking the time to join our call today. I'd like to, on behalf of our team, share a few thoughts about our business before turning the call over to Mike. We had a comp sales increase of 12% for the quarter and earnings improvement of 43.8%, a continuation of the momentum we've been seeing for several months now. We also feel it's important to recognize some of the calendar differences this year due to the shift in timing for Easter. In that regard, for March/April combined, comp sales picked up 12.6% compared to last year's comp sales’ performance of a decrease of 12.4%. We’re encouraged by our sales growth and the productivity from our stores. As we move forward, we are confident in our ability to execute along a number of fronts, including merchandising, inventory management, multichannel, new stores and, most importantly, customer service. Our ability as merchants to manage inventory continues to improve. This remains a key driver of our total performance, including our top line sales momentum. Inventory is turning faster than in recent years, an indicator of our ability to execute and of the strong partnerships with our vendors. In terms of the aging of inventory, it's as fresh and current as it's ever been. We're flowing lots of new receipts into our stores and delivering compelling fashion to customers. Our customers remain very receptive to this newness and the quality, color and top brands in our stores. We're also seeing fewer markdowns as a percentage of sales. Our focus on regular price business is core to our merchandising strategy and of late, it's back up to a historically high range as a percentage of total sales. Additionally, our overall model continues to evolve and, though we're not back to the peak sales per square foot productivity we achieved in 2007, the profitability we're generating from these numbers is better. Our company is benefiting from this improved merchandise performance and we're committed to continuing to execute along these lines.

Each time we've had a chance to talk with you about our business, we have highlighted our multichannel efforts. It is a key component of everything we do, because this is how our customer wants to interact with us, and our recent sales results bear that out. We're learning a lot from our shared inventory capabilities and developing additional tools to enhance the total shopping experience. We know our customers don't see a difference between nordstrom.com, our catalogs or our stores. We will keep working to become more seamless across all channels and give our customers more options to shop with us. To multichannel is really about improving customer service, which is fundamental to our approach to the business. In terms of store growth, we've been very pleased with the results from our Nordstrom full-line store and Rack openings this year. In April, we had a great response to our newest full-line store at Fashion Island in Newport Beach, California. And in the two weeks following the end of the first quarter, we relocated our Cerritos, California store, which was also well received by our customers. Additionally, we just returned from New York, where we opened our Union Square Rack on Tuesday. This is our first Manhattan location and a great fit for the Rack.

As we conclude the quarter and look ahead, we are optimistic about our business and feel confident about our ability to grow and take advantage of the opportunities in front of us. We believe we are in a unique position to better serve our customers and gain more market share going forward for the following reasons: we continue to focus on being better merchants and are leveraging our inventory capabilities to drive sales increases and improve service; we are evolving our multichannel capabilities to enable us to serve the customer on their terms; we have a track record of execution, maintaining our disciplines and delivering positive results; our strong financial position enables us to further invest in our business, with new stores and remodels, technology, merchandising systems and other opportunities; we continue to believe that our ability to improve service is the single greatest opportunity we have to differentiate ourselves from the competition. It's grounded in both our product offering and our people and remains our number one focus. With that, I'd like to now turn the call over to Mike.

Michael Koppel

Thanks, Blake, and good afternoon, everyone. Our first quarter performance continued the positive momentum that grew over the latter part of 2009, with results that exceeded both our internal sales and earnings plans. Same-store sales increased in each month of the quarter, giving us seven straight months of positive comp sales performance. Although customers continue to be cautious in their spending, this momentum is an indication of our progress in providing personalized service, a strong assortment of merchandise and growing profitable market share.

First quarter earnings per diluted share were $0.52 compared with $0.37 last year. Earnings before interest and taxes or EBIT were $219 million, an increase of $73 million, a 49.9% increase compared with last year's EBIT of $146 million. Total retail sales in the first quarter increased to $2 billion, up 16.7% and same-store sales increased 12% compared with the same period in 2009. Multichannel same-store sales in the first quarter increased 13.7%. Top-performing merchandise categories for multichannel included jewelry, dresses and women's shoes. The Midwest, Northeast and South regions were the top-performing geographic areas for full-line stores relative to the first quarter of 2009. Although improving, California same-store sales were below the full-line store average for the quarter. Finally, Nordstrom Rack had same-store sales increase of 1.9%.

The combination of higher sales and lower markdown rates resulted in our gross profit as a percentage of net sales increasing 245 basis points to 37.6%. Merchandise margin accounted for the majority of this improvement, coupled with increased leverage of buying and occupancy costs. The improvement in merchandise margin is a direct result of our ongoing progress in inventory productivity. By having a fresh, edited merchandise assortment, we are able to have more regular-priced sales and faster inventory turns. We ended the quarter with sales per square foot up 13% and inventory per square foot up 1.9%.

Retail selling, general and administrative expenses as a percentage of net sales increased 64 basis points to 26.8%. Over 40 basis points of this increase are due to the timing of incentive-related expenses. These incentive-related expenses are a reflection of our company's improved sales and earnings performance relative to our plan and better visibility into operating trends compared to this time last year. The remainder of the variance primarily reflects increases related to new stores and technology.

We have talked about achieving a normalized EBIT flow-through of 25% to 35%. We expect to be in our historical range for the year, but on the lower end of the range in the second and third quarters due to the flow of expenses.

Now I would like to turn to our credit business. Although our metrics are still above historical levels, we began to see improvements to the business this quarter. First quarter credit card revenue increased $11 million over the same period last year. Our delinquency rate in the first quarter was 4.2%, a sequential improvement versus 5.3% in the fourth quarter of 2009. This progress is attributable to improvement in overall consumer credit trends as well as actions that we have taken over the last three years to mitigate risk in our portfolio. We have seen early-stage delinquency rates decrease and start to return to levels comparable with the first half of 2009. Payment rates also improved. Write-off dollars in the first quarter increased $19 million compared to the same period last year to a rate of 11.9% of average receivables, which was better than planned. A disproportionate share of our write-offs are from customers in California, which have experienced greater economic weakness relative to other geographic areas. However, the improving trend in early-stage delinquencies offers increased confidence for a stabilizing and gradually improving outlook. That said, we feel it is too early at this stage of the cycle to make any changes to our reserves.

During the quarter, we had a $350 million asset-backed note reach its maturity. We mentioned in the fourth quarter conference call our intention of retiring this note using available cash, which we did. That said, during the quarter, we made the decision to issue $500 million in 10-year senior unsecured notes at a coupon rate of 4.75%. We felt this was an opportune time to issue debt at an attractive rate. And while maintaining our existing capital structure framework, we were able to obtain a tenure that fit well within our existing schedule of debt maturities. We are pleased with the outcome and believe this further strengthens our financial position. Total debt at the end of the first quarter was $2.8 billion.

We also finished the quarter with an adjusted debt to EBITDAR ratio of 2.5x, which is in line with the fourth quarter of 2009 and well within the range to maintain our investment grade rating. We expect to be at 2 to 2.2 adjusted debt to EBITDAR, the low end of our stated range, by year end.

With the continued improvements in our performance and business model, we expect to generate excess cash. The quarter ended with a cash balance of $1 billion, including the proceeds of our recent debt transaction, and generated free cash flow of $68 million. With this current cash position, and a projection of increased accumulation over the next several years, we are reviewing our capital structure framework. As we previously stated, we seek to maintain an appropriate capital structure that reflects our commitment to an investment grade rating, allows for continued investment in the business, including our ongoing commitment to merchandise systems, store growth, remodels and improving technology, and provides us with the flexibility to drive innovation and growth. We plan on reviewing these alternatives with our board over the next several months, and we'll share our plans when complete.

Next, I will discuss our outlook for fiscal year 2010. Overall, our first quarter performance exceeded our expectations. As a result, we are increasing our annual earnings per share guidance from the original range of $2.35 to $2.55 to a revised range of $2.50 to $2.65. The increase in our guidance primarily reflects better-than-planned sales and gross profit results for the first quarter and planned performance for the remainder of the year. Also, as a reminder, May sales are going to be unfavorably impacted due to the shift in Memorial Day and our Women's Half-Yearly Sale. Our sale typically begins the Wednesday before Memorial Day Weekend, which has now shifted one week later. We think that this will cause a 350- to 400-basis point shift out of May sales and into June sales.

In closing, as our business continues to improve, we want to remain focused on our customers and the experience we provide them across channels. Additionally, we want to retain and build on the practices and disciplines that guided us through the challenging environment we've experienced over the last several years. We're off to a good start in 2010 and believe we are well positioned to gain profitable market share and execute successfully throughout the remainder of the year. With that, I'll now turn the call back to Rob.

Robert Campbell

Thank you, Mike. We’re taking the first question. We want to request that each person limit himself or herself to one question and, if necessary, one follow-up in order to give as many persons as possible the room to ask a question. If you have additional questions, we'll ask that you return to the queue and, with that, we'll take the first question.

Question-and-Answer Session

Operator

And our first question today is from Lorraine Hutchinson from Bank of America.

Lorraine Hutchinson

Just wanted to get a little bit more detail on the increase in SG&A. You said about 40 basis points and timing of incentive comp. Would you expect the SG&A rate to continue to grow at that kind of pace through the year if your comp continues to outperform? And also were there any additional costs from the New York Rack store?

Michael Koppel

Lorraine, this is Mike. Couple of things. For the first quarter, almost 75% of the dollar increase was attributable to our comp sales performance, new stores and those incentives that we discussed. The balance of it was primarily additional investments we're making in technology and a few other areas. In terms of the year, we expect to have leverage in SG&A by the end of the year, but because of the accelerated performance early on this year versus last year, we're recognizing those incentives earlier in the cycle. So by the end of the year, you should see leverage in the SG&A.

Operator

Our next question is from Jennifer Black from Jennifer Black & Associates.

Jennifer Black - Jennifer Black & Associates

I wanted to know, your shoe department looks awesome, and I wanted to know if you've expanded the number of vendors you're offering and what kind of further opportunities you have in shoes? And then as you remodel and add to the full-line shoe department as a stand-alone department, does that increase your productivity per square foot? And what other changes are you making as far as productivity?

Peter Nordstrom

Jennifer, this is Pete. The shoe business has really held up really well. We've done a good job pretty much all the way along managing our inventories, but I think where they deserve a lot of credit is even during challenging times, they found a way to focus on the stuff that was really working well. If you look at last year, in particular, we had a lot of success with boots and we've just been able to keep the momentum going there. So I'm glad you like what's going in the shoe department. I don't think we’ve really necessarily added any more vendors, but I think that the team's just got a lot of discipline and focus on being really connected to what's working and investing in that appropriately. So we've been able to grow the business very profitably. We're having better margins than we've ever had there and our sales productivity is very good.

Operator

Our next question is from Edward Yruma from KeyBanc.

Edward Yruma - KeyBanc Capital Markets Inc.

I guess my question is around gross margin. I know that you've cited that your improving inventory trends allowed you to improve your merchandise margin. How sustainable is that? And should we expect that rate of improvement to decelerate as we hit the back half of the year?

Michael Koppel

This is Mike. In the first quarter, the majority of that roughly 240 basis points in gross profit came from margin. And we expect to see some level of continued improvement in that range in the second quarter. In the back half of the year, that will start to moderate, particularly in the fourth quarter, where we have some big gains. I think ultimately, based on our current plan, that's how we view it. But certainly that is also a function of sales performance. If sales performance outperform planned, then we do get leverage on margin.

Edward Yruma - KeyBanc Capital Markets Inc.

One follow-up on the inventory question. How does tight inventory impact your Half-Yearly Sale? Does this cause some shift given that your inventories are really tight right now?

Peter Nordstrom

This is Pete. That’s a good question. Historically, and I say historically in the last five or six years, a lot of success we've been able to have in a Half-Yearly event has been because we've been able to bring in new merchandise and not so much because we've got all this clearance that's been driving the business. Last year, last 18 months, that was different because we had more clearance, kind of given what was going on. Since our inventories are leaner, we'll get back to the way we've been operating in the last five or six years and I guess based on what we've seen over the last several months, we're on a much more normal rhythm about regular-price sales and what really seems to be stimulating the business across the board is newness and flows. So Half-Yearly's part of it, as are the clearance rhythm and that will be important that we also think that the new merchandise coming right behind it is what's really going to make it happen for us.

Operator

Our next question is from Neely Tamminga from Piper Jaffray.

Neely Tamminga - Piper Jaffray Companies

Just a question here on merchandise initiatives. Pete, if you had to outline kind of your top three initiatives on the Men's side of the business, I'd be curious, kind of, what direction you're headed and if there's an opportunity for really increasing the regular-price selling in that division specifically?

Peter Nordstrom

In Men's, gosh, things have really evolved there. And I think for us, when we have success is when we're really ground in what's happening with the customer, and so most of our efforts are just to be really in tune with what the customers want to buy. I know that sounds kind of obvious but probably where that plays out most evidently is in the Wear to Work category. And we've always done a pretty good business with clothing, suits and shirts and ties and while it's still a good business for us, the fact is that not as many men wear that to work as used to. So it's important that we're clear about what men are wearing to work and that we can be a store of choice for them. So I think that that will probably be the primary thing that we could point to as how that evolves. And then I'd say probably being in tune with more of kind of the modern side of the business, kind of the updated modern part of it and being able to do it, not necessarily at the very highest level price points, but to do it at what we would call better price points and where we've been able to add product there, that feels more modern, that’s worked well for us.

Operator

And our next question is from Deborah Weinswig from Citigroup.

Deborah Weinswig - Citigroup Inc

To keep things up, in terms of inventory management, you did an incredible job in the quarter and we’ve continued to see inventory turns improve, can you talk about your strategy and also what are you doing to chase inventory?

Peter Nordstrom

This is Pete. Well it's a good position to be in when you have open-to-buy and we've had it because we've been able to exceed plans. I think we continue to see opportunities where we can have a more efficient use of inventories. So for us, our total amount of inventory that we have seems to be about right, but I guess the trick in retail is making sure all the details of having the exact right item in the right place at the right time store by store and we're trying to get better at that all the time, and we've got good information, good systems and a lot of our investments in technology are going to help us on some of the up-front parts of that with the allocation and assortment planning. As we get better at that, that’ll allow us to even be probably more efficient with our inventory.

Michael Koppel

Yes, Deborah, this is Mike. I would just add one thing to that and that's since last fall, when we implemented our store fulfill capabilities, it's really helped us better fulfill demand across the chain and we are learning from it. We're learning more about where to have the right inventory at the right time and also how to deal with better fulfillment of demands. So that's been a big help as well.

Deborah Weinswig - Citigroup Inc

How are you guys thinking about the designer business at this point in the cycle?

Peter Nordstrom

The designer business has been pretty darn good for us. If you look at it, specifically when I say designer I would say all categories, in shoes, accessories and apparel. This last quarter, we were able to pick up 24% in those designer categories on 30% less inventory from the year before. So the business is there to be had if you do it well. Our customers expect that from us and want to see that, and we feel good about how that business is improving, particularly in shoes, we talked about that earlier. That really never dropped off much for us. We've been able to sustain good, healthy growth there all along, but the apparel part is definitely gotten much better here in the last few months.

Operator

Our next question is from Richard Jaffe from Stifel, Nicolaus.

Richard Jaffe - Stifel, Nicolaus & Co., Inc.

I'm wondering if your standards have changed at all for your customer evaluation or your credit customer evaluation or is it really the customer doing a better job managing their own finances? What's your take on that?

Michael Koppel

Richard, this is Mike. Well, it's probably a little bit of both. The first part of your question, beginning well over a year ago, we started to raise our standard levels of cycle requirements, to open new accounts. And we’ve been at a pretty high standard for a while, but even before that, our relative standards on approvals were probably measurably above average of the industry. But the second part is it does feel like we're cycling through that initial period where a lot of consumers got behind for one reason or the other. Unemployment seems to be stabilizing, although it's still putting pressure on the portfolio. And then we've also done a pretty good job of editing through a variety of different factors in the accounts and ensuring that the customers we do have are customers that are spending with us and that are paying their bills. So we think it's a combination of all that that we’re starting to see the improvement.

Operator

[Operator Instructions] Our next question is from Barbara Wyckoff from Jesup & Lamont.

Barbara Wyckoff - Jesup & Lamont Securities Corporation

You've had such strong new store openings lately. Are there plans to close any of the underperforming stores or is there thought to relocate them and remodel these stores as the leases come due? And I guess how many questions would be on your wish list to close stores?

Erik Nordstrom

Hi, Barbara. This is Erik. We don't have any plans to close stores at this time. The cycle that you mentioned, relocated stores which we just had at Cerritos, the cycle on that really isn't driven by our leases. We sign very long-term leases. It's really driven by our remodel schedule. We have a fairly aggressive remodel schedule to keep our stores up-to-date and when it makes sense, we certainly like to open up in a brand-new building as opposed to putting remodel dollars into an existing building and Cerritos is an example, the most recent example of several we've had. For it not only allows us to get in a brand-new building with our latest concepts but it allows the mall to make improvements as well. We're really pleased that in a tough environment, Macerich stuck with it and executed that project and it came out beautifully and the response we've had so far is really a little overwhelming to us considering we've been there since 1981. It was a great response. So we're going to keep remodeling stores where we can and the developer will work with us. We like doing relocations and, as far as store closings, we're fortunate that our portfolio's really healthy and right now we don't have any plans on closing stores.

Operator

Our next question is from Liz Dunn from Thomas Weisel.

Lizabeth Dunn - Thomas Weisel Partners Equity Research

I just wanted to follow up an earlier question so did I understand you correctly that you’ll deleverage expense in Q2 and Q3? And then I also had a question on your ROIC goals. I think you finished 2009 somewhere around 12%. When do you anticipate getting back to sort of your long-term goal range for ROIC?

Michael Koppel

Liz, this is Mike. In terms of your question on expense leverage, deleverage, we'll probably see slight deleverage in the second quarter, and starting the third quarter we'll start to leverage expense again. And then for the total year, we will leverage SG&A. In terms of our goals, we've stated that our long-term ROIC goal would be mid-teens, and based on our view this year I think we're making good progress against that. And we should achieve that within some reasonable period of time over the next several years. I think how quickly we do that is going to be a function of our ability to continue to drive top line growth.

Operator

Our next question is from Bob Drbul from Barclays Capital.

Robert Drbul - Barclays Capital

Just a question on the inventory, with inventory levels being so tight and sales so strong in the full-line stores, are you still able to maintain the 25% of sales in the Rack from the full-line product? And is inventory availability hindering the Rack comp currently?

Blake Nordstrom

Bob, we have been and I think we talked the other day in that range roughly, and I think the best thing for the company overall with our originating strategy is to enhance the regular-price selling we referred to and the sell-throughs. So that I think over time, that if you did the math in theory that we could get less, but at this moment, we're roughly in that 25%, 75% range and we continue to monitor that. But we think it's a good thing overall obviously. Our full-line stores, which is the heart and soul of our business, is making such great progress along those lines.

Operator

Our next question is from Adrianne Shapira from Goldman Sachs.

Adrianne Shapira - Goldman Sachs Group Inc.

As you said, we saw some pretty impressive improvements in your early-stage delinquencies and as you said it’s too early to perhaps change the reserving but help us think about what you would need to see to perhaps start to drawdown those reserves.

Michael Koppel

Hi, Adrianne. This is Mike. Clearly, we'd like to see a little bit more sustainable progress on the delinquency front. We clearly saw some pretty dramatic change in one quarter, 110 basis point improvement. I think if we see that continuous improvement or stabilization over the next quarter or two, it’ll certainly suggest we need to review that.

Adrianne Shapira - Goldman Sachs Group Inc.

So will – it’ll be up for review in the back half?

Michael Koppel

We review our performance and our reserves every quarter so we'll see how things play out.

Operator

Our next question is from Lance Vitanza from Knighthead.

Lance Vitanza - Concordia

Could you just discuss a little bit the longer-term opportunity for new stores? And then second on the cap structure review, could you talk a little bit -- is that to determine to what extent you think a dividend increase or share repurchase program might be appropriate at this time? Is that what that's about?

Michael Koppel

This is Mike. Erik will cover the new stores and then I'll cover the second part of that question.

Erik Nordstrom

The new stores, for full-line stores, there are fewer opportunities since the economy slipped. And I think it's pretty obvious that there's not much need for new mall construction in the country. Developers think they’re having tougher times filling the space they do have. So we have seen a lessening of these new full-line store opportunities. We have three over the next couple of years and I would say the two to four range is probably what you should expect from us going forward. On the flipside, for Rack growth, the economy's actually helped in that regard. Because our Racks aren't dependent on being part of a large project and they're much smaller, we've seen more good location opportunities come our way at better prices. So that's been a positive.

Michael Koppel

Lance, this is Mike on the second part of your question. You may recall that we've been pretty clear in our current capital structure, and that's been focused on reinvesting back in the business with every opportunity we have to deliver higher returns. We've had a stated dividend payout ratio of roughly 20% to 25% and a yield of 1.5%. And in the past, we have done some share repurchase. We believe going forward, as we continue to see the business generating additional capital, that we want to make sure that we review that structure, that it's appropriate, that we continue to reinvest back in the business, but that we have a long-term view that takes us through cycles and advises us on the right ways not only to invest in the business, but also to return capital to shareholder. So said simply, yes, it would include a review of both dividends and share repurchase.

Operator

Our next question is from Erika Maschmeyer from Robert W. Baird.

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Now that you're seeing improvement in top line trends or as you've seen improvement in top line trends and you cycle your 10%-plus decreases in AUR, do you think that you have opportunity going forward to increase AUR or, said otherwise, do you think you'll start to see AUR creep upwards?

Peter Nordstrom

This is Pete. That's a pretty dynamic situation for us, average unit retail. We're not still at the 10% decline. We actually were down 5% on our average price receipts for the first quarter, but interesting, it was about exactly the same in terms of average price sold and that's just because we're doing less clearance sales than we did before. So it's a pretty good trend and it's finding its appropriate level. But we'll continue to react as our target customers express interests in what we're carrying. So it's just a dynamic process that will go up and down a little bit all the time.

Operator

Our next question is from Michelle Clark from Morgan Stanley.

Chris Cuomo - Goldman Sachs

It's actually Chris Cuomo filling in for Michelle Clark. I just had a quick question for you on the Rack business. I apologize if I missed this, but I noticed your April sales comps did come in negative and now clearly you’d rather operate in a world where full-line was accelerating and Rack was decelerating, but I was just wondering if you could help us understand sort of the dynamic that's going on in that business and is that any cause for alarm? Does it perhaps change your strategy to go forward?

Blake Nordstrom

Chris, this is Blake. No question, we’re obviously striving always for comp store gains, and the Rack has had a number of years of pretty sizable gains and that slump was the first in some time. It’s important I think to note the importance of the calendar shift in Easter to put the two months together and when we do so, I think it was about a 1.8% increase. So it was still on the plus side. But it is something that we're sensitive to, and our team and specifically the Rack team is looking at, but there's nothing at this early stage that would be cause for concern, and so we're encouraged by the opportunities we have right now and focusing on those things in our control.

Chris Cuomo - Goldman Sachs

I think earlier you had suggested, just used the term that customers continue to be “cautious” and I'm just curious are there any specific metrics that you look at that give you that perspective? What would you be looking for, whether it's internal metrics or are you just making a broad sort of macroeconomic opinion, if you will? What metrics do you look at that might cause you to become more optimistic about the outlook?

Blake Nordstrom

This is Blake again. It goes without saying that it's comp store sales. I mean sales are the truth and so we look at that and that gives us the ultimate gauge of how we're doing in relation to our competition, but there are just numerous metrics and also anecdotal that give us the viewpoint of what's happening with our customer and our ability as merchants to stay close to our customers is really the key to what we do. And we're not trying to forward project because that's not our strength, but we do take it on a daily, weekly, monthly point of view. And we don't think, though there is some progress, we still have the numbers, which would clearly show that we still have more to make up for in terms of sales per square foot and productivity and total sales from what we gave up the last two years. But the key is we're making good progress.

Michael Koppel

Chris, this is Mike. Just one thing I would just add to that and it goes back to the discussion on the credit businesses. We get a lot of information on our consumer behavior through the credit business and, while it's showing improvement, delinquency trends and write-off trends are still measurably above historical averages, and so that continues to tell us that while there’s some stabilization improvement, that the consumer is still challenged, and so we need to be mindful of that.

Operator

Our next question is from David Glick from Buckingham Research Group.

David Glick - Buckingham Research

Mike, just have a question about how you're thinking about the credit card going forward. I mean obviously there are a lot of pending changes to rates and late fees and that’s still a bit in flux, but how do you think about the long-term in terms of the -- can you sustain growth in the credit card business? And can you get back anywhere near the historical profitability? And do you think about the profit potential of that business any differently? And does it change your long-term view on whether it's still the right thing to be owning your credit card?

Michael Koppel

First, there's two ways to look at the credit card business. One is you can look at it as a pure credit card business, as I think what the majority of the financial industry would look at it, and the other way is you would look at it as part of your overall offering to your customer. And that's kind of the way we look at it. We certainly believe that the changes in regulatory direction and some of the pressures on fees are having an effect on our business. We have factored that into our plans this year. The only known potential change to our revenue stream coming is the late fee change which we'll know sometime mid-summer. In terms of it as a strategic importance to us, just this past first quarter, we had some of the best performance in our Fashion Rewards program, with a couple of events we had. We had some just great traction from our customers. Our Fashion Reward customers still outpace spend of all of our other customers. So it continues to be a program that resonates with our customers and something that not only creates value from a pure credit card P&L standpoint, but from an overall customer standpoint. And so we still feel very strongly about it and are committed to it, and we'll continue to try to do better.

Operator

Our next question is from Steve Marrs from CitizensTrust.

Steve Marrs

Maybe I’m misreading your corporate tax based upon your corporate relief, but does your corporate tax rate go up year-over-year?

Michael Koppel

We had a minor adjustment based on some tax returns, I think. We're constantly getting adjustments with our tax rate so it was just something that happened this quarter. It's not something to be projected out long term.

Steve Marrs

Because if I read it correctly, last year you’ve had a tax rate of around, oh, 30%?

Michael Koppel

Last year, we did have a one-time benefit from some tax settlements.

Steve Marrs

In actuality, the tax rate didn't go up, it’s maybe about the same?

Michael Koppel

Yes. I'm sorry, I didn't understand that.

Operator

Our next question is from Jennifer Black from Jennifer Black & Associates.

Jennifer Black - Jennifer Black & Associates

I wondered with the big move to khakis especially with skinny cargoes? Can you reinvigorate both Savvy and TBD, which I know have been softer because of premium denim and I wondered what other big trends you're seeing.

Blake Nordstrom

I think what ultimately ends up driving businesses is if the bottoms part of the business has something you really can latch onto and grow, and for us, that's been the premium denim, for the last several years has been great. It's still a big part of our business, but I think for us to be successful in TBD and Savvy or really any of our departments, we're going to have to have a good strategy around bottoms. And so that's -- what you mention there in terms of the khakis and the skinny cargoes and stuff, and there's a few other pant silhouettes that are doing well. It's just a matter of being able to identify it and jump on it to the extent that it can really make a big difference in the business so that's an ongoing effort on behalf of our buyers.

Jennifer Black - Jennifer Black & Associates

Are there any other big trends you're seeing?

Blake Nordstrom

As always this time of year, just turning the corner into nicer weather really makes a big difference and just gets people excited about buying new things. It's a variation of the same theme that has to do with color and just new silhouettes, and for us -- and shoes such a big part of our business -- to open up footwear continue to be good like it was last year so I don't know that there's anything that's revolutionary there, Jennifer. I would just say I think that we're doing a better job in general of getting after that modern customer and kind of those better price points in both Men's and in Women's.

Operator

And our final question is from Erika Maschmeyer from Robert W. Baird.

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Just a follow-up on your technology investments, could you give a little bit more detail on those and how they’ll play a role in better inventory management?

Michael Koppel

Erika, this is Mike. What we’re referring to is we have a project going on that's basically going to help enhance our ability to both allocate and sort our product by store. And it's a combination of both improving our organizational practices, and plus, implementing some systems that we pretty much have in place, but haven't fully utilized. This is going to be a multiyear effort, and we believe the benefit is going to help us continue our progress with turns and sell-throughs and overall productivity of inventory.

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Is it a gradual improvement that you’ll be realizing?

Michael Koppel

Well I think we got to get through the implementation over the next 18 to 24 months first, and then after that, we have a pretty good set of metrics to measure how we're going to do against that.

Operator

And I'll now turn the call back to Rob for closing remarks.

Robert Campbell

Thank you, everyone, for joining us today for our first quarter earnings call. As a reminder, a webcast replay of the call will be available for 90 days on the Investor Relations section of nordstrom.com under Webcast. Thank you and goodbye.

Operator

Thank you and this does conclude today's conference. Thank you for participating. You may now disconnect.

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Source: Nordstrom Q1 2010 Earnings Call Transcript
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