Nordstrom Earnings Call Insights: Credit Card Penetration, Gross Margin Guidance

On Thursday, Nordstrom, Inc. (NYSE:JWN) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.

Credit Card Penetration

Deborah Weinswig – Citigroup: In terms of the expense side of things, Mike, with I think 50% of the deleverage you attributed to the stores, was that basically technology related, can you dive into that a little bit deeper?

Michael G. Koppel – EVP and CFO: Sure, Deborah. I didn’t say that we were delivering. I said that half of the $110 million in expense dollars increase was due to the stores. Now, of that, we did get a percent of sales leverage on our store performance where we saw the deleverage from a percent of sales is from the accelerated investment in the e-commerce and technology space.

Deborah Weinswig – Citigroup: Okay. And then in terms of the credit card penetration, can you talk about where that is now and how are your new Fashion Rewards customers shopping you differently?

Michael G. Koppel – EVP and CFO: In terms of the credit card penetration, can you give me a little more clarity on that?

Deborah Weinswig – Citigroup: Just where are you in terms of your Nordstrom (NYSE:JWN) customer – your Nordstrom (NYSE:JWN) card…?

Michael G. Koppel – EVP and CFO: Yeah, we are roughly one-third plus of our overall volume is done on our various tenders, including our debit card and our private label retail and the co-branded visa. We continue to see really accelerated growth as a result of Fashion Rewards. One of the things that we did start this year is offering a rewards in the Rack, and so we continue to see a lot of growth there of which over half of those are debit cards and of course the Rack continues to attract a relatively younger customer, and so we like that pipeline, but the overall health of folks being able to get in the program earlier, move up the various levels faster, and be able to enjoy the benefits quicker are paying off.

Gross Margin Guidance

Michelle Clark – Morgan Stanley: The first question is, your gross margin guidance for the year implies that back half gross margin performance will be better than the first half, and I’m just trying to figure out why that would be given my guess the rewards program will continue to offer the benefit it does, and then I am guessing that you would expect that the e-commerce will continue its strength?

Michael G. Koppel – EVP and CFO: Yeah, Michelle, this is Mike. One of the primary reasons is that we’ll be lapping over when we get free shipping and free returns, which I believe started sometime in September last year, and so the impact of that will be neutralized after we cross that.

Michelle Clark – Morgan Stanley: Great. My second question was what was e-commerce growth in the first quarter of last year? So, if it was up 44% this year, how much was it last year in the first quarter?

Michael G. Koppel – EVP and CFO: I don’t believe we disclosed it last year first quarter, but needless to say, it was a strong double-digit comp increase.