Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Nordstrom (NYSE:JWN)

Q1 2011 Earnings Call

May 12, 2011 4:45 pm ET

Executives

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

Michael Koppel - Chief Financial Officer and Executive Vice President

James Nordstrom - Executive Vice President and President of Nordstrom Direct

Robert Campbell - Vice President of Investor Relations and Treasurer

Blake Nordstrom - Principal Executive Officer, President and Director

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

Analysts

Dana Telsey - Telsey Advisory Group

Michelle Clark - Morgan Stanley

Lizabeth Dunn - FBR Capital Markets & Co.

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

Robert Drbul - Barclays Capital

Adrianne Shapira - Goldman Sachs Group Inc.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

Deborah Weinswig - Citigroup Inc

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Jennifer Black - Jennifer Black & Associates

Neely Tamminga - Piper Jaffray Companies

Lorraine Hutchinson - BofA Merrill Lynch

Edward Yruma - KeyBanc Capital Markets Inc.

Operator

Hello and welcome to the Nordstrom 2011 First Quarter Conference Call. At the request of the Nordstrom, today's conference call is being recorded. [Operator Instructions] And I would now introduce Rob Campbell, Treasurer and Vice President of Investor Relations for Nordstrom. You may begin.

Robert Campbell

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

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 2011 performance and outlook for 2011. Joining us for the Q&A are Pete Nordstrom, President of Merchandising; Erik Nordstrom, President of Stores; and Jamie Nordstrom, President of Direct.

And now, I will turn the call over to Blake.

Blake Nordstrom

Thanks, Rob. Good afternoon, everyone, and thank you for joining our call today. Yesterday, we held our Annual Shareholders Meeting here at our downtown Seattle store. We had a good meeting, and appreciate those of you who were able to attend or view the webcast for this event. On behalf of our team, I'd like to share with you the progress we made in our first quarter, as well as some key focus areas for the year. Mike will give you more details about our quarter, but we're off to a good start in 2011, continuing to have comparable-store increases and earnings growth. We're encouraged by the fact that we're now at 19 straight months of comparable-store increases, and that we delivered our sixth straight quarter of double-digit increases in total sales.

As a company, we aspire to improve customer service. It's our number 1 goal every year. We believe we've made good progress in putting the customer front and center in how we apply resources and spend our time and energy supporting our sincere desire to offer a better customer experience. Our model of staying grounded in how we plan our business allows us flexibility in how we execute our customer strategy. We feel we've demonstrated the success of this model over the last 10 years, and we continue to develop tools and systems to help us evolve with the customer.

We're encouraged by our progress and how we're moving faster to add capabilities to provide our customers with the shopping experience they're looking for. Last November, we put Wi-Fi into all our full line stores as an added convenience for our customers and to set the stage for using mobile devices in our stores. We're pleased to share with you that in a very short time period, roughly 6 months later, we're now in the process of rolling out new handheld devices with mobile checkout functionality, so that our people can take care of customers no matter where they are in the store. We should have roughly 5,000 to 6,000 handhelds in our full line stores by the Anniversary Sale in July. We will learn from these efforts and quickly add to this functionality with plans to have significantly more of these devices in our stores by year-end.

Technology has been a critical enabler of our business, particularly over the last 10 years. We started out with the need to build the infrastructure necessary to allow us to become more efficient with our inventories and how our merchants partner with our vendors. Over time, we've continued to add various technologies to give our salespeople and customers the tools they need. We continue to be proud of how well our teams adopt these technologies, helping our people drive top and bottom line results.

We're excited about our prospects in mobile and e-commerce. Online has been the fastest growing part of our business, and there is significant potential to drive more sales and improve service in this area. Ultimately, it's up to our customers to determine how much of our growth will come from online, and we're taking steps to respond. One example is that we're offering a mobile-optimized version of our site in June to make it easier for customers to shop from their smartphones.

We're also excited about our recent acquisition of HauteLook and believe our partnership will enable us to better react to how customers want to shop for fashion online. HauteLook continues to innovate and grow as a leader in the private-sale sector and we look forward to their contribution as we work together to further enhance our mobile and e-commerce offering.

The pace of change has quickened and customers have a broader definition of service. Our multi-channel foundation puts us in a strong position to grow the business by moving faster and being more nimble. Our customers have responded favorably to our multi-channel efforts these past few years, leading to great results. Looking ahead, we believe we have an opportunity to evolve beyond multi-channel. Our efforts are becoming less about behind-the-scenes enterprise projects and more about customer-facing functionality, providing a compelling online experience and putting new technology in front of our customers as quickly as possible. Ultimately, we want to be our customers' store of choice.

Now, I'd like to turn the call over to Mike.

Michael Koppel

Thanks, Blake. We're pleased with our first quarter performance, which was at the high end of our internal plans. We continue to make progress in the execution of our existing business while moving forward with growth opportunities.

I'm now going to review the financial results for the quarter, including comments on the financial impact of our recently closed HauteLook acquisition and on our updated guidance for the year. For the first quarter, our earnings per diluted share were $0.65, and earnings before interest and income taxes or EBIT, totaled $272 million. This is an increase of 25% in diluted earnings per share, and an increase of 24% in EBIT compared with the same period in 2010. This year's first quarter results include charges totaling $0.04 per diluted share related to the HauteLook acquisition in late March.

Same-store sales in the first quarter were up 6.5%. Nordstrom same-store sales, which include results from our Full Line and Direct businesses, were up 7.8%, with the South and Midwest as our top-performing regions. Designer, Jewelry and Men's Apparel were our top-performing merchandise categories. Our Direct channel continued to show strong sales growth, outpacing our overall Nordstrom increase. Nordstrom Rack same-store sales were up 1.2% in the first quarter. HauteLook sales performed ahead of our plans.

First quarter gross profit, as a percent of net sales, increased approximately 30 basis points to 37.8%. The improvement was driven from our ability to leverage buying and occupancy costs. Sales productivity continues to improve, with regular price selling as a percentage of our total business returning to prerecession levels. As a result, our total sales per square foot improved 7.3% on an inventory per square foot increase of 3.7%. Overall, our inventory turn improved 130 basis points to 5.4 over the same period last year.

Retail SG&A increased $78 million compared to last year's first quarter. Excluding HauteLook operating expenses and the related purchase accounting charges, retail SG&A increased $61 million compared to last year. The majority of this increase was due to higher sales volume and new stores.

Our first quarter EBIT flow-through excluding HauteLook was within our targeted range of 25% to 35%. While our incremental EBIT flow-through in future quarters could fluctuate due to investments in support of growth, year-over-year adjustments and the timing of expense or other factors, we remain focused on striking an appropriate balance between near-term performance and positioning ourselves to deliver long-term growth.

Now on to our Credit business, which continues to demonstrate improving trends. The delinquency rate was 3.3% at the end of the quarter, an improvement of 90 basis points over last year. Our write off rate was 7% for the quarter, down 490 basis points from last year. Our payment rate increased 325 basis points over last year, resulting in lower finance charge revenue, but reflecting better credit quality. As a result of these improving trends, we reduced our reserve for bad debt by $10 million to $135 million, which is 6.7% of ending credit card receivables compared to 9.2% of credit card receivables last year.

Overall, we're in a strong financial position. We have $1.4 billion of cash and total liquidity of nearly $2.4 billion. Our adjusted debt to EBITDAR of 2.1x is well within investment grade and consistent with our targeted range for this metric.

In support of our capital structure goals, we repurchased 3.9 million shares at an average price of approximately $45 for a total of 176 million. The remaining balance on our current authorization is 235 million, which expires at the end of 2011. We recently received authorization from our board for an additional 750 million in share repurchase, which expires at the end of 2012.

During the quarter, we closed on our previously announced acquisition of HauteLook. We are still in the early stages of this new partnership, but thus far, HauteLook has been performing ahead of our plans. We continue to see an opportunity to develop our capabilities in the e-commerce space and we'll keep you apprised of our progress.

As a result of the related purchase accounting, we expect the acquisition to be diluted to our 2011 earnings by $0.20 per diluted share, including $0.04 per diluted share in the first quarter. This total includes an estimated provision for earn-out payments, amortization of intangible assets and the issuance of shares. Due to the performance-driven nature of the earn-out payments, we could experience variability in that provision. We will continue to provide the appropriate disclosure on these impacts.

Now I will discuss our updated outlook for fiscal year 2011, factoring in our Q1 performance and the impact of the HauteLook acquisition. We expect to achieve 2011 earnings per share of between $2.80 and $2.95, with same-store sales planned between 2% to 4%. HauteLook is $0.15 lower than the deal we shared at the end of the fourth quarter due to the estimated $0.20 impact of the HauteLook acquisition, partially offset by Q1 share repurchases. Outside of these 2 changes, our view of the business for the year remains the same.

In conclusion, we are pleased with our performance during the first quarter. We remain grounded in our customer strategy, which keeps a balanced focus on both execution and sustainable, profitable growth.

With that, I will turn the call over to Rob.

Question-and-Answer Session

Robert Campbell

[Operator Instructions] With that, we'll take the first question.

Operator

Our first question is from Deborah Weinswig from Citi.

Deborah Weinswig - Citigroup Inc

Can you talk a little bit about or maybe give us a preview of what you're doing differently this year for the Half-Yearly Sale?

Peter Nordstrom

Differently, not much is different. I think for us, how the Half-Yearly Sale has evolved over the years is we have less clearance that we save up for that time. So it's tended to impact some of the top line performance of the sale, but in totality, we look across the year, it's really benefited our markdown levels and our gross margins. So our strategy of taking timely markdowns and turning faster has really enhanced our results. We go forward with the same plan we've had with Half-Yearly for the last several years.

Deborah Weinswig - Citigroup Inc

Okay, great. And then my second question. From talking to Rob each month, it sounds t.b.d., Designer and Savvy have improved can you talk about some of the drivers behind those -- the improvement that you're seeing there? What's does that tell you about the future?

Peter Nordstrom

I think probably the most encouraging thing is Designer really across the board for us has been excellent and we picked up, when you put that all together for 30%, I mean all designer classifications and I think that's reflective of the customers' continued desire to buy fantastic aspirational product. And what we've learned is that they want it in pretty much every store we do business in. So we continue to work on adding distribution. It's a growing part of our business, and our customers love it. So I think that's a really good sign in the Women's Apparel segment, both Dresses. Dresses continues to be really strong and then, as you mentioned, the t.b.d. Department which I think is reflective that denim is strong and essentially the modern or kind of a contemporary styling part of the business has been good, so we continue to build on that. All in all, when you look at how our customers have responded, we are selling bridge to upper-priced products really well, disproportionally well.

Operator

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

Jennifer Black - Jennifer Black & Associates

My first question is I wondered what your finding with your test of consolidating categories in Women's, and what I think you're calling your neighborhood store. Any color would be great.

Peter Nordstrom

We're really just getting started on that. It's part of an ongoing effort in everything that we do in the store to make things better, more relevant to customers. And one of the things we've learned over time, particularly opening up a new place where customers aren't as familiar with us, is sometimes the way we layout our department isn't super intuitive for every customers. So we've just tried to take that feedback and adjust what we do. And so the fact that we've got 116 stores allowed us to try some things. And we've taken, I think, 7 stores to date, where we're laying out a little bit differently. I think your point about neighborhood is kind of more that within the specific departments. And it's inconclusive at this point. I think it's encouraging for us, the anecdotal feedback we're getting and there's no doubt that we'll apply those learnings as we arrange our stores going forward, and merchandise our stores.

Jennifer Black - Jennifer Black & Associates

Great. Okay. And then my second question is can you put a product onto the website more frequently, especially for the more contemporary or fashion departments? It seems like a lot of customers are on the website everyday, looking for the hot item. And it may have been on a competitors' website several weeks earlier. And I just wanted to know how you can expedite the product, Is it delivery? Is it the lag time because of photo shoots or tagging? And I didn't know if you had models on staff. Just any color on that would be great.

James Nordstrom

Jennifer, this is Jamie. We intend to have merchandise on our website available to sell as soon as we have it, as soon as the vendors is able to deliver it to us. So we have a pretty capable team who, I guess, takes those pictures, gets them up on the site. We start that process weeks and sometimes months in advance and the merchandise actually being available for sale. In the online industry, you have the opportunity to sell stuff before you have it in stock available to ship. We do that. Most of our competitors do that. And it's kind of on a case-by-case basis. So we're always hoping to have them advertised on the site as soon as possible. In most cases, we're successful with that but it's something we're always working on.

Operator

Our next question is from Ed Yruma from KeyBanc.

Edward Yruma - KeyBanc Capital Markets Inc.

How should we think about the remainder of the $0.20 impact from HauteLook in terms of the timing of the impact here? I know there was some variability due to the earn-out, but how do we think about that cadence going forward?

Michael Koppel

Yes, Ed, this is Mike. The impact will be more in the back half. Keep in mind in the first quarter the acquisition closed sometime toward the middle end of March, so the first quarter was partial. But those costs should be primarily recognized the majority in the back half of the year.

Edward Yruma - KeyBanc Capital Markets Inc.

Got you. And I know you indicated that HauteLook was performing in excess of your expectations. Could help quantify for us how the earn-out looks on kind of a multiyear basis? Is the $0.05 really the bulk of the earn-out, or is there a multiyear earn-out opportunity.

Michael Koppel

Yes, Ed, this is Mike again. Yes, it is a multiyear opportunity. It's basically over 3 years, '11, '12 and '13. And there is some variability to that based on performance. And so, as the company performs, we'll recognize the appropriate provision based on the best available information at the time. So every quarter as we update that, we'll share that with you in detail.

Operator

Our next question is from Michelle Clark from Morgan Stanley.

Michelle Clark - Morgan Stanley

First question, any updates on apparel elasticity and ability to raise price points?

Peter Nordstrom

Our price points have been raising just naturally organically, given the customer demand. I think given the breadth of what our offer is, pretty easy for us to adjust there, much like when times were tougher, the price went down some. But they've gone back up and really above where we were even in '06 and '07 years. So there's a mix subject there. In terms of the inflation that really hasn't hit yet. Although we're predicting that, that could impact retails for us and have 2%, 3% to 5%.

Michelle Clark - Morgan Stanley

Okay. Great. And then a question in the first quarter, if you strip out the impact from HauteLook and you just look at core retail SG&A that deleveraged in the first quarter despite the 6.5% comp, and I'm just trying to get further detail on expenses.

Michael Koppel

Yes, Michelle, this is Mike. Actually, it was a slight deleverage. We expect to get a fair amount of leverage for the year in the retail SG&A. So it was more of a function of timing. Keep in mind, we had a lot of new stores that came on year-over-year, and the volume was up. So we expect for the year to get a fair amount of leverage, excluding HauteLook from SG&A.

Operator

Our next question is from Neely Tamminga from Piper Jaffray

Neely Tamminga - Piper Jaffray Companies

A real quick question here, as you guys look ahead to the Anniversary Sale, and thinking about how you guys were shipping products last year, it seemed like with the online fulfillment, there might have been some excessive shipping which caused some additional charges that maybe you didn't really anticipate. Just wondering how you're better positioned for that this year, how that could be an opportunity? And then just a real technical question, Mike, where was the share count actually had end? Or how should we think about Q2 share count? That would be helpful.

Erik Nordstrom

Neely, this is Erik. I'll take the Anniversary question. It is our plan to have more of a merchandise at the location where the customer is. Last year, we had a portion of our inventory to fill store orders from online, especially our presale orders. We are adjusting that a bit. It's never going to be exact. We have to many SKUs to nail that one exactly but we do anticipate having the merchandise customer wants better by location this year than last year.

Michael Koppel

Neely, this is Mike. I don't have the exact number in front of me, but we can get back to you subsequent to the call.

Operator

Our next question is from Lorraine Hutchinson from Bank of America.

Lorraine Hutchinson - BofA Merrill Lynch

Just wanted to follow-up on the credit SG&A guidance. It looks like you have it down $10 million to $20 million. And given the first quarter's performance, what should we expect in the back half, it looks like you're expecting it to perhaps get worse than the performance that you just had?

Michael Koppel

Lorraine, this is Mike. No, we don't expect it to be worse. I mean the dollars are down because our write-offs are down substantially year-over-year. At this point, we have not contemplated any more changes in the reserve. That's something that we update on a quarterly basis. So those numbers that you see are basically reflective of the initial plan that we put in place last quarter.

Operator

Our next question is from Adrianne Shapira from Goldman Sachs.

Adrianne Shapira - Goldman Sachs Group Inc.

Two questions. Mike, as we kind of think about guidance and just step back, think about outlook, the $0.20 dilution, it sounds as if you basically flowed through Q1's beat, but that's pretty much it. And yet you did better in the quarter on several lines, sales, credit, but it doesn't sound like you factored any of the continued outperformance going forward, keeping comps in the 2% to 4% range, for example. Maybe just walk us through your thinking. Is that just continued conservatism? Is there anything that would prompt you to be concerned that this outperformance wouldn't continue?

Michael Koppel

Sure, Adrianne. Well, as we've said earlier in our comments, we performed at the high-end of our plan and the range we gave at the beginning of the year reflects the high-end of the plan. So after 1 quarter we didn't feel it was prudent or appropriate to change our internal operating plans based on just the first quarter's performance. What we did reflect in the going-forward EPS guidance was the fact that the $0.05 impacted the share repurchase. And certainly, as the year progresses and we get more certainty over the results, we'll consider any changes to the annual guidance. But at this point, we feel very comfortable with our current plans.

Adrianne Shapira - Goldman Sachs Group Inc.

Okay, Mike. And then just continuing on the buyback, now that you've got -- you're aggressive in Q1 and you've got $1 billion authorization, does the guidance assume any further buyback activity in the year?

Michael Koppel

No, the guidance does not assume any more buyback activity in those numbers. Clearly we'll update quarterly as we get the actual numbers.

Operator

Our next question is from Bob Drbul from Barclays Capital. [Operator Instructions]

Robert Drbul - Barclays Capital

The first question I have is regarding full price selling. You said regular full price selling has returned to prerecession levels. Do you think that it has peaked out? Or do you think that can continue to increase based on where the consumer is? Your high-end consumer is today?

Peter Nordstrom

Well, I think we're actually at historical high levels in terms of our percentage of Regular Price business. It doesn't mean it can't get better, and that's what we work towards everyday. Our customers have clearly told us they prefer to buy new full priced merchandise from us than old discounted clearance-type merchandise. So that's the, first of all, our focus and that's what we'll work on and we will continue to try to give them more of that offer.

Robert Drbul - Barclays Capital

And then on the merchandise, in terms of some of the trends that are occurring right now, what are the areas where you think there's additional opportunity to improve? I mean the results are very impressive as they are today, but what do you think can get better as the year progresses based on where we are?

Peter Nordstrom

Probably Men's just given the ground they have to make up from what we have lost the last few years and the size of the business for us, and the momentum that we have. We're having good results in Men's right now. I think we should expect to see that to continue. It's a big business for us, a high margin business. So I would say probably primarily Men's can be the biggest growth factor for us.

Operator

Our next question is from Richard Jaffe from Stifel, Nicolaus

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

A couple of quick questions, I assume you're planning on a loss this year from HauteLook, and I'm wondering how you anticipate that business? Or when you anticipate it moving into the black.

Michael Koppel

Richard, this is Mike. Actually, on an operating business, we expect HauteLook to operate at roughly breakeven for the year. The charges, the $0.20 impact, is primarily related to the purchase accounting impacts, the cost of the transaction, the share dilution, all those items. But from an operating basis, we're looking at a breakeven. In terms of how this business will look on a reported basis, we'll have roughly the same amount of non-cash kind of purchase accounting charges in 2012, that will go down by roughly 1/3 in 2013, and then all those non-cash charges will be complete after that 3-year period. We do expect to see the business start to show some actual reported profitably in that third year and certainly beyond that. So that's our current point of view.

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

We'll you don't break out the Direct business, would you comment on its rate of change, how the customer is either moving from 1 channel or adding up and doing more business on the Direct channel than in the past?

James Nordstrom

This is Jamie. Yes, as Mike mentioned, our online channel has continued to outpace our store channel, just in terms of sales growth. We've been focused for the last several years on creating a seamless multichannel platform between the channels. I think the opportunity for us going forward is how do we be more competitive, purely within the online channel. And so I think that's what you're going to see us focus on. And we believe that there's a lot of growth opportunity there. We have ambitious plans for our online business, and we'll look forward to sharing with you guys some stuff on that over the next few quarters.

Operator

Our next question is from Liz Dunn from FBR Capital Markets.

Lizabeth Dunn - FBR Capital Markets & Co.

I guess my first question relates to the acquisition. Any co-branding opportunities, and did you think at all about whether or not you could build a business like this yourself? Was that any part of your thought process as you went into this transaction?

James Nordstrom

Yes, this is Jamie. Yes, that is something that we thought about. We have been looking at the Flash Sale business for quite a while and had done a lot of work studying it. And obviously, looking at what it would take to do it ourselves versus partnering with somebody. And as we got to know the folks at HauteLook more and more, we felt that they'd be a great partner for us. They also gave us some capabilities that we're afraid we just didn't have in-house. And so that's one of the main reasons why we want to partner with them. Co-branding, yes, we're down the path on a number of different marketing initiatives, as well as merchandising initiatives. Nothing to share with you today, but we've got lots of ideas how we can help their brand as much as they can help our brand. So we'll have to see how that goes.

Lizabeth Dunn - FBR Capital Markets & Co.

Okay. Great. And then just on the buyback, how aggressive are you willing to be? Are there sort of credit metrics or safety cash that we should use as sort of guard rails? Or how are we thinking about the buyback going forward, Mike?

Michael Koppel

Sure, Liz. Well, clearly a fact that we committed to those kind of dollars, that was well within our capital structure framework in terms of how we feel about our debt metrics and our cash levels. So the next step of that is just how we execute quarter to quarter, and that's based on how we feel about relative valuation. And we preassign that to a 10b5-1 plan. But clearly based on those amounts and the fact that, that 750 is through the end of 2012, we feel like that's something we can make some progress against the next 18 months or so.

Operator

Our next question is from Dana Telsey from Telsey Advisory Group.

Dana Telsey - Telsey Advisory Group

Can you talk a little bit about the Rack business, what you're seeing in terms of productivity there and merchandise trends and pricing margin trends there versus the full line stores?

Blake Nordstrom

Dana, this is Blake. We're really pleased with the growth coming from the Rack and total sales and the new store part of it has really exceeded our plans. We've talked in previous quarters regarding somewhat flat comps. This quarter was just slightly above 1%. So it's a slight improvement. But still we aspire to do better in that. There's a number of initiatives taking place there, and it ranges from procuring the hottest merchandise to the appropriate pricing and how we're communicating our story and our marketing in terms of customer acquisition. In terms of productivity, it's a terrific story. These are very, very productive stores. They're over double our competitors' average. And so, this is an important part of our business. We have a lot of customers that like it. It's a strong employee basis for us, and it's a business that's growing and one that we're committed to improving the comps as well. In terms of the pricing, Pete mentioned earlier, potentially a 3% to 5% increase in the second half of the year. We operate in the Rack from more of a close up point of view, but we would expect a trickle down effect. We really haven't seen anything yet, but it's something we'll keep an eye on. But it's important that whether it's full line or online or the Rack, there's a value equation and it's particularly inherent in the Racks and we work very hard to make sure we have competitive pricing and strong quality value relationships.

Operator

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

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

I'll pile on the Rack topic. Could you update us on the adjustments that you've made there on the merchandising and allocation side? And also recently I've noticed that you've been using promotional e-mails for the Rack more than you had been. Could you talk a little bit about those, and also how that has impacted your results at rack.com?

Blake Nordstrom

Sure. Erika, this is Blake again. In terms of the e-mails, we predominantly had a file of names that we were using postcards regarding various events that we had throughout the year. And there's been a focus for the last 6 months or so to enhance our efforts on the relationship we have with our customers and having their e-mail address and communicating in that fashion. And we're really pleased with the reception from the customer so far, that and the amount of names we're gathering daily and the improved communication that we're having. And so ultimately for the whole company, we're striving to improve our personalization in the various channels and means our customers want us to interface with them. And Rack is a great area for us to test and try something. So there's a lot of learnings going on, and we hope throughout this year to share more with you, but we're kind of on the early stages of that. You had another question there, I'm sorry, within Rack. It was e-mail...

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

I guess I had a couple of sneaky ones. Also, merchandising and allocation improvements on rack.com.

Blake Nordstrom

On the merchandising allocation, our focus has been on the full line stores and our Direct business and those multi-channel efforts. There's been some terrific learnings there then to apply to the Rack division and Teri Bariquit works closely with Pete in our merchandise support area. Has really partnered with the Rack and sent over some of her best leaders and some of those best practices. So there are some new nuances and some differences between the Rack and the full line stores, but we're really excited about those allocation tools, and what that can do to our business today and really for the next couple of years. So again we think we're kind of on the early side of that within the Rack, but definitely huge opportunities there. From the Rack website, Jamie may want to talk a little bit about it, but there's certainly a demand from the customer for that product and that offering online. And it's one of the reasons why we were interested in HauteLook and we keep a close eye on all those alternatives out there. Given the nature of our business in the Rack, the wide assortment of SKUs, 1 of this and 2 of that, there are some challenges in fulfilling it properly for the customer to do it on our end in an efficient, profitable way. So the demand's there, but we've got some opportunities to how we execute it properly. So we've taken some steps. We're not fully executing our plan currently online, but we're on a steep learning curve. And clearly, the customer is demanding it and we need to, over time, have a robust offering online. Jamie, is there anything more there that you want to add on that?

James Nordstrom

No, you did well.

Operator

Our next question is from Ken Stumphauzer from Sterne Agee.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

Quickly, I wanted to touch on average transaction value. It kind of troughed about 6 months ago and it seemed to have accelerated in the most recent quarter. And I was just hoping that maybe you could help us understand if it's an issue of category outperformance? If it's maybe less markdowns? If it's higher initial price points? What's driving that inflection there?

Erik Nordstrom

This is Erik. I think it's mainly the mix of our business. In general our higher priced merchandise areas have been outperforming the rest of our store. So that's driven by average price point of some. And there is some increase in regular price selling, but it's more of a performer.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

And then just secondly, regarding comps, the 2% to 4% comp guidance. Mike, you, obviously, meaningfully outperformed that in the first quarter. How do you expect for the duration, the cadence of the comps to play out? Do you expect it to decelerate as the year progresses or should it be uniform?

Michael Koppel

Yes. We expect it the first of the year to be about 150 basis points higher than the back half of the year.

Operator

And our final question is from Jennifer Black from Jennifer Black & Associates.

Jennifer Black - Jennifer Black & Associates

I just had a follow-up on Encore. It seems like that has been down every month, as far as I can remember for a long time and I noticed you're using plus-size models, as well as targeted e-mails. And I just wondered, do you have strategies to improve the sales in-store and just what are your thoughts about it?

Peter Nordstrom

This is Pete. Yes, Encore has been a bit of a tougher business for us, and there really is no systemic reason for that to be the case. We've got control over that, and we can clearly do better. Our effort is to try to make our offer there a little bit more modern, and I think that anecdotally, that seems to resonate well with customers and our people on the floor. Part of that means we got to track some customers, maybe we don;t necessarily have in the store today and we may be alienating some that expected some of the stuff we had in the past. So there's a little bit of a transition going on there, but I think to your point that the business has been challenging for a while requires that we need to do something differently, because that's [ph] clothes are not going to cut it. So we're encouraged at where we're trying to go, we just don't have any results to show for it yet. But we'll keep you posted.

Robert Campbell

This is Rob. Thank you for joining us today on our first quarter earnings call. As a reminder, a webcast replay of this call will be available for 90 days on the Investor Relations section of nordstrom.com under webcast. Thanks for your interest in Nordstrom.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Nordstrom Management Discusses Q1 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts