Nordstrom Q2 2007 Earnings Call Transcript

Aug.16.07 | About: Nordstrom Inc. (JWN)
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Nordstrom, Inc. (NYSE:JWN)

Q2 2007 Earnings Call

August 16, 2007 4:15 pm ET

Executives

Mike Koppel - CFO

Blake Nordstrom - President

Pete Nordstrom - President, Merchandising

RJ Jones - IR

Analysts

Dana Cohen – Banc of America

Jennifer Black - Jennifer Black & Associates

Stacy Turnof - Merrill Lynch

Christine Augustine- Bear Stearns

Dorothy Lakner -CIBC World Markets

Neely Tamminga - Piper Jaffray

Bob Drbul – Lehman Brothers

Michelle Tan – UBS

Adrianne Shapira – Goldman Sachs

Richard Jaffe – Stifel Nicolaus

Debra Weinswig – Citigroup

Presentation

Operator

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

RJ Jones

Good afternoon, everyone. Thank you for joining us on the call today. On the line with me this afternoon in Seattle are Blake Nordstrom, President of Nordstrom Inc.; Mike Koppel, Executive Vice President and Chief Financial Officer; also joining us today while traveling are Pete Nordstrom, President of Merchandising; and Erik Nordstrom, President of Stores.

This afternoon, Mike will lead off with a review of our second quarter results, Blake will make a few additional remarks, and then we'll open it up for questions. Please note that today's discussion will contain forward-looking statements which are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions discussed, due to a variety of factors that affect the company including the risks specified in the company's most recently filed Form 10-K and Form 10-Q.

Now I will turn the call over to Mike.

Mike Koppel

Thanks, RJ and good afternoon, everyone. We're please to report another quarter of improving execution. During the second quarter, we exceeded several near-term objectives and continued to make progress in line with our company’s strategy. This includes further steps to enhance the foundation of our multi-channel platform which is positioning us to better serve our customers and provide them a more seamless experience.

For the second quarter, earnings per share increased to $0.71 versus $0.67 last year. Top line results outpaced our 2% to 3% same-store sales plan and our gross profit rate expanded ahead of our expectations. As we plan for this quarter, our SG&A included higher costs than seen historically. Non-comparable expenses related to our accounts receivable securitization transaction completed earlier in the year had a significant impact on our SG&A expense rate of approximately 70 basis points versus last year.

Second quarter's pre-tax margin was 12.3%, 60 basis points lower than last year but above our plans. Net income for the quarter rose to $180.4 million compared to $178.8 million last year. In contrast with most retailers, our second quarter sales contribute significantly to our annual results and reach roughly 90% to 95% of our fourth quarter sales volume. Our highest volume days of the year occurred during our sale events in the second quarter. In July our unique anniversary sale is our biggest event of the year where we offer new fall season merchandise before the season begins. This year we achieved a seven-year high same-store sales increase for this event. Consistent with other retailers, we also go through clearance activity in June with our men's, women's and kids half yearly sale events which delivered positive low single-digit comp results this year.

Total sales for the quarter grew 5.2% to $2.4 billion, and same-store sales increased 5.9%. In the full line stores, the strongest regional performances were in the Midwest, Southern and Northwest regions. Major merchandise categories performing ahead of the full line store average for the quarter were our designer offerings across categories, accessories and men's apparel. Gross profit margin increased 36 basis points for the quarter over last year. Improved merchandise margin drove results coming in above plan and higher than last year. Key divisions with increased sales and merchandise margin that contributed to the rate expansion were women's apparel, kids, and designer apparel.

Offsetting gross profit improvement on a percent of sales basis, our SG&A rate increased 110 basis points versus the prior year. As we outlined at the beginning of this year, our operating plans included higher costs for this quarter than seen historically during this period. For everyone's reference, we completed an $850 million securitization transaction for our co-branded Visa receivables in the first quarter. While our proprietary card receivables have always been on balance sheet, our co-branded Visa receivables were previously held in an off balance sheet trust. With the transaction, we began the on balance sheet accounting treatment for new Visa receivables and started recording provisions for credit losses and SG&A.

Primarily as a result of this transaction, the total provision for bad debt in the second quarter increased $22 million versus last year. Approximately $14 million of the bad debt reserve is non-comparable due to the previous mentioned accounting treatment for our co-branded Visa receivables that did not occur in the prior year. The remaining $8 million of the incremental provision resulted from growth in both the Visa and proprietary card receivables ahead of plan and from changes to assumed repayment rates versus last year.

These changes stem from observed increases in early stage delinquencies. Despite this new data, our write off rates continue to be lower than they were prior to the 2005 change in bankruptcy legislation. We will continue to monitor our program for material behavioral changes in step with review of our authorizations for new accounts and we'll keep everyone informed of any new development.

Also increasing SG&A expense was a series of projects that directly support strategic plans for multi-channel integration and growth in our online business. These projects impacted areas across the company including IT, personnel, and services purchased. The other income line of the P&L increased $9.5 million for the quarter which was ahead of our plan. The increase came primarily from higher finance charge income as a result of growth in our co-branded Visa card and proprietary card receivables. We also realized a gain of $5 million from the disposal of an asset.

Net interest expense of $16.8 million was $4 million higher than last year, primarily due to an increase in our debt levels combined with lower interest income. We repurchased 11.4 million shares of stock during the quarter for a total of $590 million. The resulting reduction in weighted average shares outstanding had a $0.01 impact on earnings per diluted share this quarter. At this time, we have completed our $1 billion share repurchase authorization.

Looking at the balance sheet, our total inventory per square foot was approximately 7% higher versus last year. Part of the increase in our inventory supports the growth of our designer business in apparel, accessories and shoes. In addition, we have floating merchandise above our planned levels. We are currently addressing these areas to get back on plan.

Total debt at quarter end was $1.5 billion, and total capital was $3.4 billion, resulting in a debt to total cap ratio of 44% compared to a 33.6% at this time last year. As previously discussed, the change versus last year was driven primarily by the addition of $850 million in securitized debt on our balance sheet this year, which increased our long-term debt by $568 million versus the second quarter of last year. Additionally, our share repurchase activity in the quarter reduced our shareholders equity. The debt to cap ratio is within our current target range of 30% to 45% on a book basis.

Our current dividend policy aims to maintain a payout ratio of 18% to 20% and a yield that is approximately 1%. Our quarterly dividend of $0.135 is unchanged from last quarter are and currently meets these target ranges. Our return on invested capital on a rolling 12-month basis was 20.5% compared to 18.5% at this time last year. This return level currently exceeds our long-term objective range of 18% to 20%.

Turning to our updated outlook for the back half of 2007, we have included an updated table and notes in our second quarter earnings release that outlines our performance expectations for the remainder of the year. Our earnings expectations for the full year is now $2.91 to $2.97 per share, up from $2.81 to $2.90 per share. Including a $0.10 per share cumulative impact of non-comparable items in this year's figures, this represents a 14% to 16% year-over-year increase.

Our same-store sales expectation is now 5% to 6% for the year, up from 3% to 4% based on our year-to-date performance combined with our plans for the remaining two quarters of the year. Estimated improvement in gross profit margin remains at 35 to 45 basis points for the year. We now expect our annual SG&A expense rate to decrease 20 to 30 basis points versus last year due to sales leverage on fixed expenses compared to our previous plan for a 5 to 15 basis points decrease. This updated plan includes the impacts of the securitization transaction, a revised bad debt forecast, the 53rd week timing shift, fashion rewards, and new store pre-opening expenses.

Other income is anticipated to increase $20 million to $30 million for the year. Interest expense is now assumed to increase $10 million to $15 million versus last year due to lower expected interest income from decreased cash balances. For the third quarter, we are planning same-store sales of 4% to 5% and expect earnings in the range of $0.61 to $0.64 per share.

Recently, we announced our agreement to sell our Faconnable business for $210 million to the M1 Group. The sale is expected to close in the third quarter. We anticipate realizing a gain on the sale that will positively impact earnings per diluted share by $0.08 to $0.10. Because the gain is not operating, we are not including it in our earnings outlook for the third quarter or the fiscal year.

In closing, we are excited about the progress we are making and the impact our company strategy is having on our current and expected future performance. Now I will turn the call over to Blake for some additional remarks.

Blake Nordstrom

Before opening it up for questions, I would like to make a few comments about recent progress and discuss the areas we continue to focus on. Second quarter's results show that our business continued to experience positive momentum. Our top performing departments were in our designer and accessories businesses which are some of the most fashion forward and aspirational areas of our stores. Our customers’ passion and desire for the hottest brands and styles remained strong.

As Mike mentioned, we completed an important part of the year that included our anniversary sale which is our biggest annual event. Our anniversary sale is a unique opportunity for our customers to shop for new fall merchandise before the season begins. The event showcases fresh merchandise at temporarily reduced prices during an historically softer time of the year for retailers. By giving our customers compelling reasons to buy something new, our July sales volume approaches levels we see in December. The first day of the event is always our biggest day of the year.

One element of our strategy is to build deeper connections with our most loyal customers. Last year we began inviting many of our top-spending customers into the stores before the sale to pre view the new merchandise and reserve their first-day purchases. This year the response was inspiring and contributed to the success of the event. Our customers and sales people are embracing this approach to improving service and strengthening relationships.

Result from our anniversary sale also reflect positive developments in our multi-channel integration effort. In our full line stores, we had a 7.9% comparable store increase for the anniversary sale that was bolstered by our online store results for the event overall. Sales in our online store exceeded our mid-teen comparable sales target, and more importantly enhanced the performance of our full line stores. A key factor in better full line store performance was that our sales people used our website more often to service customers than they have in the past. By leveraging our total inventory available across channels, be it in our direct or other stores inventories, we were able to serve our customers in ways that are more convenient for them.

Listening to feedback from our most loyal customers, we know that they want more and easier access to Nordstrom. When we provide a consistent experience across channels, our customers shop more often and spend more with us. As we start the third quarter, we remain focused on bringing in the best merchandise for our customers, and we are encouraged by what the market currently has to offer. The favorable response from our customers to date tells us that our merchant teams are doing a great job selecting and editing our product offering. Newness, fashion, quality, and service are still driving our business.

As a reminder, we will open up three new stores in the third quarter. Upcoming on September 7th we will open our Natick collection store in Natick, Massachusetts, a suburb of Boston which marks our long desired arrival in that metropolitan area. On September 28th we will open our 12 Oaks store in Novi, Michigan, a suburb of Detroit. Then, on October 19th we'll open our Cherry Creek store in Denver, Colorado.

With that we would like to answer any questions you may have.

Question-and-Answer Session

Operator

Our first question comes from Dana Cohen – Banc of America.

Dana Cohen – Banc of America

In terms of the SG&A given there is a lot of non-comparable items in the quarter as we all understand, where did they come in versus your expectations? It sounds like they may have been some things you didn't anticipate. Can you go into a little more detail on that?

Mike Koppel

In terms of the non-comparable items, they came in right in on our plan. What we had shared previously which was roughly a 3% impact from securitization and then $0.03 from the calendar shift was pretty much right on our plan. The only item in SG&A that was slightly higher than our expectation was our bad debt, and as we talked about, part of that was just a result of continued growth in success in our credit card program, and part of it was from some higher delinquencies we're seeing in some of the earlier payment patterns.

Dana Cohen – Banc of America

Is there any way to quantify what percentage of receivables that these delinquencies mean? You said it is still way lower than it was two years ago, so is there any way to put numbers around this?

Mike Koppel

Not at this point, no.

Dana Cohen – Banc of America

Can you go over where the inventories are? I just missed that.

Mike Koppel

What we said is that the inventory per square foot was up roughly 7% to last year, and that roughly half of that was planned. It was for growth in the designer categories where that is consistent with our strategy. The other half, frankly, we were just over receipt planned, and there are opportunities there for us to get back on plan over the next couple of quarters.

Dana Cohen – Banc of America

You guys have been so good on the inventories here for quite some time. How does that happen?

Mike Koppel

How does that happen?

Blake Nordstrom

Well, human beings.

Mike Koppel

I think in some cases we've had some pretty positive trends, and in certain categories some folks have gotten out a little bit ahead in terms of expectations, and I think we just have to reel that back in a little bit.

Pete Nordstrom

I would also add the way we've been monitoring and accounting for inventory is a little different than we've done in the past. It has to do with average inventory rather than an artificial date at the end of the month, and it is really not an excuse or anything, but it is a different way of looking at it and some of our people are getting used to it. But I think Blake is right when he said human beings. We think we'll be in pretty good shape here, but we definitely have to make sure we continue to have the same diligence we have applied over the last few years.

Operator

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

Jennifer Black - Jennifer Black & Associates

My first question has to do with the new brands that you are launching, also make and model, it looks likes you are rejuvenating your private label brands and it looks really good, and I just wondered if you can comment on that.

Pete Nordstrom

Thanks for noticing that. Valette is pretty darn new and its doing really well. I think the biggest thing this indicates for us is that for our own label brands there is no sense of entitlement there. If we're going to have our own label, it has to compete and compete well against all of these things that we are bringing in by known brands and designers, so we really upped the ante with design and what we're trying to focus on there in our MPG division and I think you're seeing some of that come to fruition. We have some exciting new things we're working on, and I think it is really a view of a competitive element when they're trying to get open to buy from our buyers they have to have great new product.

Jennifer Black - Jennifer Black & Associates

Great. Secondly, I wondered if where are the opportunities in Brass Plum, if that was a drag during the sale, and lastly –

Blake Nordstrom

Hello?

Operator

You're still connected, sir.

Blake Nordstrom

Sorry, Jennifer. What was the end of that last part of the question?

Operator

One moment please. We'll reopen her line. Jennifer, your line is open.

Jennifer Black - Jennifer Black & Associates

Okay. All right. So my questions were opportunities in the Brass Plum and then in regards to your delinquencies, any specific areas of the country, for example California? Thank you.

Pete Nordstrom

For BP, for Brass Plum, it has been in the continuum of women's areas, probably the most challenging we have had. The whole women's area is doing really well but that area has been a little tougher and has been for several months for us now. We got a little bit better at the beginning of the year and then it got tough again. So I don't have a specific answer for that other than it is fickle and demanding customer and style is of the utmost importance, and we continue to dig deep and focus on it, and it has a lot more to do with where we go in the future rather than researching a bunch of information from the past. We're trying to do the best we can to stay close and listen to the customer, so I don't have anything to report other than it has our full attention.

Jennifer Black - Jennifer Black & Associates

On the delinquencies? Any area of the country that stands out?

Mike Koppel

No geographical differences in patterns at this point.

Operator

Our next question is from Stacy Turnof - Merrill Lynch.

Stacy Turnof - Merrill Lynch

Given the fact that you took up guidance pretty notably, I was curious because your expenses were up slightly higher than we anticipated, what are you factoring into the numbers in the back half of the year?

Mike Koppel

Expenses while they did come in -- I would say slightly higher, I wouldn't say noticeably higher -- relative to planner expectations, in terms of the back half, we have taken into account a change in our bad debt forecast for both the third and fourth quarter, but we also are benefiting from roughly a penny in the third quarter and fourth quarter as a result of our share repurchase that wasn't there when we shared our outlook last time.

Stacy Turnof - Merrill Lynch

On the gross margin side, any way to help us quantify how markdown optimization is helping margins right now?

Mike Koppel

Stacy, at this point it is tough to tell. We continue to make progress there. As we shared with everybody previously, there are so many factors involved with inventory productivity and the various lines of business we do, and suffice it to say we're learning. We're moving forward, but at this point it is tough to put a number around it.

Operator

Your next question comes from Christine Augustine- Bear Stearns.

Christine Augustine- Bear Stearns

Of the 50% of the inventory that's over the receipt plan, is there any concentration? Is it women's, men's, broad based?

Mike Koppel

I wouldn't say it is concentrated in any one area. There are three or four categories where we're seeing the inventories over, and those are the ones we're going to focus on and get it back in line.

Christine Augustine- Bear Stearns

Which ones are those?

Mike Koppel

Currently it is what you mentioned, it is women's, men's. We have some in accessories and some in shoes.

Christine Augustine- Bear Stearns

Please correct me if I'm wrong, but have you factored into your forecast then, having to take higher markdown to clear the stuff? Are you going to try to return to vendor? What's the strategy to get back on the receipt plan?

Mike Koppel

Yes. We have considered those things, and at this point in time we expect to move back in that direction, and our outlook considers that.

Christine Augustine- Bear Stearns

I am sorry, which direction, both return to vendor and markdown?

Mike Koppel

I am sorry. We expect to get back on plan through a variety of different ways, primarily hopefully selling it.

Christine Augustine- Bear Stearns

Would you anticipate that you would be back a plan by the end of the third quarter? Will it take the rest of the year to get back to where you want to be?

Mike Koppel

I think we indicated earlier that we're working on it over the next couple of quarters.

Operator

Your next question comes from Dorothy Lakner -CIBC World Markets.

Dorothy Lakner -CIBC World Markets

I just wondered if you could give us a little bit more color on the progress that you've obviously been making in the women's apparel sector. Obviously done a great job, and we hear that women's apparel more frequently is as the sales come in above plan, so I wondered if you could talk a little about what you've been doing there, how far along you think you are in the whole process and a little bit more color, and that would be great.

Pete Nordstrom

It is a big part of our business, so it is hard to lump it in as one big group because it is a bit of a generalization, but I think what we originally talked about a year or so ago and got going on this initiative, we knew we had a better chance to improve our wear to work offer for women, and I think we have made some pretty significant progress there. You look at a department like Point of View which has a pretty substantial offer there, and we've had some really positive trends, both with some of the our own product that we've been working on, for example, the Symantics line that's an MPG line for us, own label, with some suits, Agnes performed very well. Denim continues to be really strong. The more kind of aspirational and contemporary parts of our business continue to be strong. The junior is a little more challenged right now.

On the continuum of women's, on the whole it is perform well, and I think we're making good solid progress. This work is never done. It is a big complex business that we just have to keep focused on nonstop, and I think we're definitely moving the right direction and I think our results reflect that.

Dorothy Lakner -CIBC World Markets

In terms of the designer categories, obviously that's been a big part of your success as well. Where are you in that process? Are there still brands you would like to get and how is that all working for you, and where are you in the process?

Pete Nordstrom

We have a long ways to go, but we made a ton of progress there. That's another one of these never-ending situations. It is a very competitive market, and I think given the way the designer market works, where scarcity is a big driver in terms of how these brands and designers do their business, you know, they're always going to keep a pretty tight control of it. Any time something is hot out there, you know, we're not the only ones really scrambling to get more of it, and I think what we have to continue to do is earn the trust of the designer vendors that we work with because we perform well with the product and we demonstrate our customers really want it, and we have a lot of great results to point to now that go way beyond anecdotal.

We have a lot of information about our customers and the actual results we're having when we bring things in, so we found for the most part that most of these vendors are very receptive to the story we have to tell about our customer and their desire to buy the product, so I think you will continue to see us really focusing on it because no matter where we go, and you can talk to any of us throughout the stores, it is always the same refrain, that our customers want the absolute best products and the newest and the greatest that there is to offer out there, and so we're going to keep going full steam ahead of this.

Dorothy Lakner -CIBC World Markets

I think it is about a year or almost a year since you opened Topanga. Are you continuing to see success in the boutique format and will we see more of that in the stores you're opening this fall?

Pete Nordstrom

I think those have worked really well, and in the specific categories where it applies, I think that makes a lot of sense. Namely you're looking at things like in accessory and handbags, for example, and there is a handful of these vendors that warrant having a shop like this. Where we've added them, they've done well across the board. I know, for example, Eric is on the phone from Minneapolis, and we just added some things there in the last six months performing extremely well; we just opened some new things in Portland that are performing, so we continue to be very encouraged with that category.

Operator

Our next question is from Neely Tamminga - Piper Jaffray.

Neely Tamminga - Piper Jaffray

The productivity improvements that we're start to go see at Mall of America around the escalator, we see more of that nationally? Can you speak to a little bit more of the productivity to really maybe accelerate productivity per foot, what's going on?

Pete Nordstrom

I was in the Mall of America store today, and it is really a terrific example for us in investing in an existing, fairly mature store. We actually have our 15 anniversary here, and we've continued to be investing in the store and a lot of it is driven by the designer subject that came up earlier. We've had opportunity to get some real top designer distribution in this market, but it required investing in the store physically first in shop space and moving things around. Investments in other categories like sun glass shops, around the watch shops, we don't use the escalator well very often at all. We try to keep those open. This store made some sense here as the store was so productive to begin with, and the escalator well was larger than our normal, so it is really on a store by store basis.

There is definitely a change from looking at I guess you call it remodel dollars into existing stores where typically they've been more maintenance dollars that you didn't expect or we didn't see a return on, to where we're able to go into existing stores more with strategic investments and really take the store to another level. This store here is performing at a level that has been a very pleasant surprise, and not just investing in the physical space but to get the inventory as well and taking the merchandise mix up to another level has definitely paid off here and encouraged us to do more elsewhere.

Neely Tamminga - Piper Jaffray

Mike, can you speak a little more then to the point of just general trends on productivity per foot? Clearly you guys are getting very near that previous peak if not at it, depending on how you calculate. Just wondering how you can go higher and talk just a little bit more about what those plans might be in your longer term pre-tax goals.

Mike Koppel

In terms of the overall sales per square foot productivity, this year we'll surpass our previous high which is roughly $394 a square foot. We believe, based on the plans we put in place to continue to improve our market share both geographically and by category that should continue to help us grow that sales per square foot line. As we've said that our mid-term target to the bottom line was 13.5% to 14% pre-tax margin, and we believe that's a good measuring point for us over the next couple of years. If we continue to achieve the kind of sales per square foot growth that we're achieving in top line, we should see us getting there certainly in that timeframe.

Operator

Your next question comes from Bob Drbul – Lehman Brothers.

Bob Drbul – Lehman Brothers

Mike, just one question for you. On the credit portfolio, what assumptions have you incorporated on bad debt expense in delinquencies in the back half of the year in the guidance that you have given us?

Mike Koppel

When you say assumptions, can you give me a little bit more?

Bob Drbul – Lehman Brothers

Do you have a significant deterioration in the bad debt expense ramping up or do you have it flat from where you experienced in the second quarter as you go into the back half?

Mike Koppel

We have taken our current experience in our portfolio and applied that to our estimated future business for the back half of the year. We did not experience what I would call a significant deterioration. We saw some slight adjustments in the delinquencies. If you compare those to where we were prior to 2005 bankruptcy, they are is still below that, so while we do see some softness at this point, it is much more in line getting back to more normal levels, and we adjusted our outlook to take that into account.

Operator

Your next question comes from Michelle Tan – UBS.

Michelle Tan – UBS

Obviously the changes you're making with designer and the huge amount of improvement that I have seen at least in the product, as well as the loyalty program for driving sales, can you help us understand what impact that has on profitability on mix and also year-over-year changes you made to the loyalty program?

Pete Nordstrom

I am not exactly sure what the question is.

Michelle Tan – UBS

The question is basically as designer grows as part of the mix, you know, are you seeing any drag on your gross margin as a result of that?

Pete Nordstrom

I think that's one way of looking at it, but in almost every case we've had this additional business, so it isn't coming at the expense of other businesses that we're doing. I think if it was then that might be more of a concern, but we're able to layer on essentially gross margin dollars, and at the same time our historical performance with relation to margins in these categories has improved significantly and continues to and I think one of the things we can point to there is having Jeffrey Kalinsky’s involvement there really helped give us another objective point of view about where we should be in terms of our margin performance in the designer category. We've got a long ways to go, but the improvement has been significant.

Michelle Tan – UBS

Also on the loyalty program, I know you talked about this a little bit in the second quarter. Is there any impact to gross margin from the changes you made in the second quarter?

Mike Koppel

As you may recall, we kicked off our new fashion reward program at the end of April, and really the idea behind that program was to enhance loyalty and to drive top line, and to date some of the early reads is we've seen a great response. Our credit share is up. We're seeing more business coming out of our customers that are taking advantage of that program, and it is resulting in a lift in our sales, so some of the early reads are very positive. From a margin standpoint, I wouldn't call that something that's going to impact our margin.

Michelle Tan – UBS

Finally, just an update on merchandise planning which I think you guys have recently rolled out. I think Pete may have referenced it when talking about the inventory levels. Can you help us understand where you are in terms of the rollout and what benefits you're hope to go see from that?

Mike Koppel

Well, this merchandise planning that we discussed is a tool that's going to help us better plan our dollars on a weekly, monthly and annual basis, and the big change that happened there is we're now looking at receipts on a weekly basis rather than just trying to hit end of month inventory numbers. That's the big adjustment we have in helping our team understand how this works. That tool will be a foundation for the next level which will be tools that will help us to allocate and sort our product at a unit level by store and by category, and I think that's where we're going to start to see some of the bigger benefits to the top line and that's to come.

Operator

Our next question is from Adrianne Shapira – Goldman Sachs.

Adrianne Shapira – Goldman Sachs

Mike, just talking about the buyback, can you help us understand why so aggressive in terms of completing in the quarter? It looks as if you bought back stock over $51.

Mike Koppel

Right.

Adrianne Shapira – Goldman Sachs

Any thoughts as far as going forward? How should we be thinking about the capital plan and perhaps more buybacks coming?

Mike Koppel

Sure. Well, when we began the quarter, we had completed that securitization for $300 million, so we had $300 million in cash, and we still have a fair amount of availability because we didn't purchase any in the first quarter. At that time, our stock was trading $50, $51. It had come down from a high of $59 and was averaging about $55, and we chose to do an ASR program because of the large influx of cash we had at that point in time. As the quarter played out, it was part of our normal 10b5-1 plan, so I think not having a good eye into the future and knowing what was going to happen in the market, it was kind of tough to see that we would have had more advantageous purchases ahead of us.

But all that being said, we're going to discuss an updated share repurchase program with our board next week. We certainly want to get back in the market and we continue to review our capital structure in light of that, and we think with the free cash flow that the company continues to generate that we'll be back and doing it over time at a prudent level.

Operator

Our next question is from Richard Jaffe – Stifel Nicolaus.

Richard Jaffe – Stifel Nicolaus

The question is really related to the direct business and the synergies you're finding between store, catalogs, catalog mailing, and the Internet service. I have had a couple of experiences where I was sold in-store through the Internet, and it was fascinating the facility from which the salesman could shift gears from store-selling floor to stockroom, to other store stockroom, and then to Internet. Can you put some numbers on the gain there and how far you think that can go?

Erik Nordstrom

Sure. It is very exciting for us. I think the anniversary sale we just came off of has been the strongest example for us to date of really utilizing the direct channel in a big meaningful way in volume in our stores to drive volume. Jamie's team has really done a terrific job of taking down the barriers between the businesses so it really is seamless to and customer, and again, I think it is the first time for the majority of our sales people started to see it as seamless between the stores and direct. To where our sales people viewed the inventory they have to sell as being not just their stores inventory physically in their four walls, but what's in our Cedar Rapids warehouses direct and what's in our other 97 stores, and that -- I guess virtual inventory might be a good term for it -- is really powerful for our sales people, and we're excited about the future in that because we think it is just starting.

Richard Jaffe – Stifel Nicolaus

Can you give a sense or quantify the kind of sales you're generating or do you think they're incremental to the store line sales? How do you think about those sales?

Erik Nordstrom

Well, we definitely think it is incremental. I think it is impossible to quantify exactly, and I think that can be one of the hang-ups in going after multi-channel is getting hung up on the accounting of who gets credit for what. For us, the best way to look at it is from the customer's viewpoint, and we know when I customer shops multiple channels with us, that they spend more with us, quite a bit more, so that's what we're focused on.

Richard Jaffe – Stifel Nicolaus

So this is more of a tool for your sales people than starting a catalog and trying to do a direct business?

Erik Nordstrom

Absolutely. A lot of our recent investments in technology in the spirit of multi-channel need to be viewed not as technology investments but as really selling tool investments for our people. As you all know, we've had a focus on the front line and service and our salespeople for a long time. It is a part of our culture, and we think that puts us in a great spot to take advantage of these technology investments.

Richard Jaffe – Stifel Nicolaus

Do you keep score or have some metric you use to look at what appears to be a very significant direct business investment and measure it against the amounted of revenue you're generating from that channel and can you share that revenue with us?

Mike Koppel

Yes, we do. As a matter of fact, in our 10-Q and our 10-K as part of segment reporting, we do break out the direct business.

Richard Jaffe – Stifel Nicolaus

I should wait or you can share that with us now?

Mike Koppel

At this point why don't we wait until we publish that because we'll have the full P&L included.

Richard Jaffe – Stifel Nicolaus

Very good. Thank you.

Operator

Our final question comes from Debra Weinswig - Citigroup.

Analyst for Debra Weinswig – Citigroup

You touched on this a little earlier, but can you give us a little more color on how the Internet business is doing specifically? Anything you can call out in terms of category performance in that channel?

Blake Nordstrom

The Internet or Nordstrom Direct has really mirrored our results in the full line stores, so as the full line stores merchandise content has evolved, the merchants have tried to emulate that as well in direct, and so it has moved from back in the early 90s a traditional catalog business if you will, to being much more in sync with what we're carrying in our stores. That's reflective in the catalogs, both in the visuals and how we approached that marketing, and both online, and that customer is responding very favorably. So the results in Direct have been terrific.

They're exceeding our expectations, but as Erik said earlier what, we're focused on and what we're most encouraged about is this multi-channel approach. When we say that, we fully admit or recognize that we have a long way to go, but that we're encouraged by what the customer is asking from us and the response we're getting in our salespeople and what the future holds this. So it is a wonderful growth opportunity for this company to leverage some real strengths and be the multi-channel retailer of choice for our target customers.

Analyst for Debra Weinswig – Citigroup

Do you have any updates on Manhattan store?

Pete Nordstrom

No, at this point there are no updates on where we are with Manhattan. Thanks for asking.

RJ Jones

Thank you for participating in our conference call this afternoon. If you have additional questions or need further information, please contact me at 206-303-3007. Replay number for this call is 1-866-498-1469. There is no passcode required, and the replay will be available for 48 hours. Alternatively, the archived version of the webcast will be available on the investor relations section of our website for 30 days.

Thank you for your interest in Nordstrom.

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