Trina Schurman - Director-Investor Relations Blake W. Nordstrom - Co-President & Director Michael G. Koppel - Chief Financial Officer & Executive Vice President James F. Nordstrom - Executive Vice President and President, Stores.

Matthew Robert Boss - JPMorgan Securities LLC Dorothy Senghas Lakner - Topeka Capital Markets Paul E. Trussell - Deutsche Bank Securities, Inc. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC Oliver Chen - Cowen and Company, LLC Lorraine Maikis Hutchinson - Bank of America Joan Payson - Barclays Capital, Inc. Bob S.

Drbul - Nomura Securities International, Inc. Paul L. Lejuez - Citi Jeff S. Stein - Northcoast Research Partners LLC Neely J. N. Tamminga - Piper Jaffray & Co (Broker) Charles P. Grom - Sterne Agee CRT Michael Binetti - UBS Securities LLC.

Greetings and welcome to the Nordstrom Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will begin with prepared remarks followed by a question-and-answer session. As a reminder, this conference is being recorded.

At this time, I'll turn the call over to Trina Schurman, Director of Investor Relations for Nordstrom. You may begin..

Good afternoon and thank you for joining us. Today's earnings call will last 45 minutes and will include 30 minutes for your questions. Before we begin, I want to mention that our speakers will be referring to slides, which can be viewed by going to nordstrom.com in the Investor Relations section.

Today's discussion may include forward-looking statements, so please refer to the slide showing our Safe Harbor language. Participating on today's call are Blake Nordstrom, Co-President; and Mike Koppel, Chief Financial Officer, who will discuss the company's third-quarter performance in addition to outlook for fiscal 2015.

Joining during the Q&A session will be Erik Nordstrom, Co-President; and Jamie Nordstrom, President of Stores. With that, I'll turn the call over to Blake..

Thank you and good afternoon. While we're on track with executing our long-term strategy, I'd like to first comment on our current performance. Over the past couple of years, we've had consistent top line trends, delivering six straight quarters of mid single-digit comp increases.

Beginning in August, we experienced a slowdown across our full-price and off-price businesses. We had a 6.6% increase in total sales and our comp sales were 0.9%, which resulted in third quarter earnings that were below our expectations.

While we haven't seen a meaningful change to our customer growth metrics, we did see a decline in our transaction growth relative to the first half of the year. As this softness continued, we've been able to quickly respond, ending the third quarter with inventory aligned with our expected sales plans.

As we head into holiday, we don't anticipate a measurable change in current trends and we've made appropriate adjustments to our operating plans, including our inventory levels. As we look ahead, we remain confident in our strategy, making progress through multiple growth initiatives to enhance the customer experience and serve more customers.

In the third quarter, we had an unprecedented number of store openings, with three new full-line stores, one relocation, and 16 Rack stores. This was a noteworthy effort, reflecting our investments and our team's successful execution. Our total full-price business had a 3.2% sales growth and a comp increase of 0.3%.

This includes our continued expansion in Canada, which represents a $1 billion sales opportunity by 2020, with six announced full-line stores and potential for roughly 15 Rack stores. On September 18, we achieved a new milestone with our first international flagship opening in Vancouver, British Columbia.

Not only was it the most successful opening we've experienced in our company's history, it is a major step forward in store experience and services. This store will provide learnings as we expand our flagship presence to Toronto next year and later in Manhattan. In our U.S.

full-line businesses, we opened our second store in Minneapolis, our first in Milwaukee, and a relocation in Los Angeles. These stores reflect our latest store design, which are now featured in nine locations. We're also investing in our flagship stores in Chicago and Seattle, which are currently undergoing significant remodels.

At Nordstrom.com, we've made ongoing progress on our strategic priorities around selection, convenience and experience. This included expanded selection of roughly 20% and increased capacity with our new East Coast fulfillment center. Our off-price business inclusive of Rack stores and online had a 12% sales growth and a 2.4% comp increase.

This business gives us access to new markets and a pipeline of new and younger customers to Nordstrom. Since the launch of Nordstromrack.com over a year ago, we are finding that the pace of growth is accelerating faster than we anticipated. To put it in perspective, it took our Nordstrom.com business nearly 15 years to reach $1 billion in sales.

From the time we acquired HauteLook in 2011, we expect our online off-price business to achieve this milestone in roughly half that time. Similar to our full-price business, we see meaningful synergies for customers to engage with us across stores and online.

We are serving more customers, with 16 additional stores, taking our total Rack store count to 194. Additionally, our online business had a meaningful gain in new customers to Nordstrom over the last year. Lastly, on October 1 we completed the sale of our credit portfolio to TD Bank.

Our mutual commitment to having Nordstrom employees serve our customers directly was paramount to this partnership. We're also pleased to be returning $1.8 billion in capital directly to our shareholders through a balanced approach.

On October 27, we paid a special cash dividend of $900 million or $4.85 per share, and the remaining proceeds will be applied towards share repurchase. In closing, we are well-positioned through our customer strategy while remaining focused on our current execution.

I'd like to now turn it over to Mike, who will provide more color on our performance and the credit transaction..

Thanks, Blake. This quarter we experienced a sequential slowdown in sales trends. For several previous quarters, our comp sales were solidly in the mid-single digit range, driving a high-single digit total sales growth. In August, we began to see a slowdown that progressed throughout the quarter, remaining relatively steady at a 1% comp sales trend.

As these lower trends persisted, we immediately began to adjust our operating plans, including aligning our inventories with expected sales. Our results reflect those efforts, which included increased markdowns and a reduction in sales plans for the remainder of the year.

We believe we have made the appropriate adjustments and will continue to move forward with our growth strategies, including Canada, eCommerce initiatives and the expansion of our off-price business through new Rack stores and Nordstromrack.com HauteLook, which are performing above expectations.

Our full price business, inclusive of full-line stores, Nordstrom.com, Canada, and Trunk Club, grew 3.2% driven by online and new store growth. Canada continues to exceed expectations. Trunk Club is projected to grow at a healthy rate as we position the company to leverage Nordstrom product and introduce Trunk Club for women.

Turning to our off-price business, we continue to invest in stores and online capabilities, which have fueled nearly 20% annualized growth over the last five years. In the third quarter, our off-price sales increased 12%, reflecting online growth that has well surpassed expectations.

Since our acquisition of HauteLook less than five years ago, this channel now represents over 10% of our off-price business. In contrast, it took us over 10 years for Nordstrom.com to reach this level of online penetration. Next we'd like to provide additional color on our gross profit and inventory performance.

Gross profit was negatively impacted by below planned sales and higher markdowns, coming in 163 basis points lower than last year. Inventory growth of 8% was in line with sales growth, reflecting adjustments made to align inventory levels with our expected sales plans.

Turning to SG&A, our core operations were well managed with expenses consistent with expectations. Our SG&A rate increased 68 basis points, primarily due to our growth initiatives of Trunk Club, Canada, and fulfillment. This quarter, we completed the sale of our credit card receivables and would like to provide further detail on that transaction.

As previously shared, $1.8 billion of net proceeds are being returned to shareholders evenly split between a special dividend and share repurchase. We recently completed the payment of the dividend and we are now preparing to execute the share repurchase portion, which is expected to begin this quarter.

For 2016, we estimate that the financial impact will be approximately breakeven to earnings per share considering both the retention of roughly 50% of credit EBIT and $900 million of share repurchase. Going forward, we believe this reduction of credit EBIT will narrow based on portfolio growth through TD's partnership.

Finally, let's turn to our 2015 outlook, which incorporates our third quarter performance and an adjustment to our fourth quarter plans based on current sales trends. When excluding the credit transaction impact, our earnings per diluted share outlook is $3.40 to $3.50 compared with the prior outlook of $3.70 to $3.80.

As we look ahead, we remain on track to achieve our sales ambition of $20 billion plus by 2020. To reiterate our long-term expectations, we anticipate improvement in earnings growth beginning in 2016 as we move beyond this year's peak level of investment.

More specifically, we expect the gap between sales and earnings growth to narrow over time as our investments deliver earnings accretion. As we head into the fourth quarter, we are being rigorous in making the appropriate adjustments to our operating plans in response to current sales trends.

Over the longer term, we remain confident that the execution of our strategy will deliver top quartile shareholder return. Now I'll turn the call over to Trina..

Thank you, Mike. Before we get started with Q&A, we'd like to ask that you limit to one question. If you have additional questions, please return to the queue. We will now move to the Q&A session..

Thank you. Thank you. Our first question is from Matthew Boss with JPMorgan. Please state your question..

Hey, guys. Thanks. So as we think about the ROIC, with the credit card transaction now complete and really taking a multi-year view, what level of underlying annual comp and EBIT margin do you guys need to reach that mid-teens goal? Any help just kind of bridging the gap would be great..

Yeah, Matt. This is Mike. At this point, we're not going to look forward to that level of detail in our plans. We'll share more of our thinking about that in February, but that being said, we still stand behind our ambition to achieve a high single-digit comp sales that will achieve that mid-teens ROIC..

Okay. Great. And then, if I could just follow up with one.

As you break down the Rack, so brick and mortar below plan but online clearly above expectations, how are you thinking about the aggregate in total? Any need to potentially slow the growth? Or is this just the online versus brick and mortar that we've been seeing for the last couple of quarters and years across all of retail?.

Matt, just to clarify your question that was specifically related to the off-price business?.

Yes. Exactly..

I'm sorry, Matt. This is Blake. Can you restate that for me please one more time? I didn't hear the question..

Yes. So just at the Rack question. Just at the Rack, brick and mortar below plan, online above plan, just the best way to think about it going forward in aggregate..

Sure. Thank you. We are mindful of all aspects and measurements of the business, but we look at the business in total through the customers' eyes and as we've been talking about for some time with our full price business and the Nordstrom.com as one unit, same is happening sooner than later with our off-price business.

So there are some minor pockets with our growth of some sales transfer, but we really look at it and that's why I made the comment in my remarks as a total. And as a total, we had 12% total growth and comp at 2.4%. We're gaining market share.

These are very productive stores with a significant return and we're pleased and confident with our strategy there..

Great. Best of luck..

Thanks, Matt..

Next is Dorothy Lakner with Topeka Capital Markets. Please proceed with your question..

Thanks and good afternoon, everyone. Congrats on all of the new things that you got done in this quarter, the store openings, the credit transaction, et cetera.

Just curious about performance across merchandise categories, when you started to see the slowdown, what were you pleased with? What were you not pleased with? Weather impact? Just any color you could provide on what's working and what isn't and how you've adjusted?.

Sure. Dorothy, this is Jamie. I'll take that one. I think the trend was pretty darn consistent throughout the third quarter starting in August, so no real change throughout the quarter. In terms of merchandise categories, it was really across the board. I think the categories that have been strong for us all year continue to be strong.

Our beauty business has definitely been a bright spot. Our younger customer business particularly around our Savvy, Topshop businesses continue to be above trend. It's interesting in terms of seasonal things. Our coat business is really strong.

And so, there's really nothing to point to in terms of merchandise category that would give you any more color on that. It's really kind of across-the-board lower transactions..

So traffic is really the big issue?.

I think that's right..

Yeah, okay..

Next is Paul Trussell with Deutsche Bank. Please proceed with your question..

Hello..

Hi, Paul..

Question on the traffic issue then. You spoke to seeing the slowdown in August. It's the same throughout the quarter and you do not expect it to bounce here in the fourth quarter.

Have you guys kind of been able to do some digging and see what has led to that slowdown, especially given that it is throughout all the formats and online? What do you think is behind this?.

Paul, this is Mike. Clearly, there's been a lot of commentary out there as to what potentially is causing this. It might be one, it might be all.

At this point, our point of view is what we can do about it is we can adjust our operating plans, we can continue to manage our inventories appropriately and we could ensure that our stores and our website has the right stuff to sell. And that's what we're doing..

Next is Kimberly Greenberger with Morgan Stanley. Please proceed with your question..

Thanks so much. Mike, I'm wondering if there is an opportunity to take a look at the marketing budget or the channels of marketing that you're using to see if there might be a way to drive traffic to the stores or the website.

I'm just wondering, is there any actions you can take in either the near term, meaning the fourth quarter, or looking out into 2016 and 2017 that you think might impact that traffic change?.

Yeah, Kimberly. This is something that's an element of how we run our business all the time. We have a lot of resources available to us whether it's online marketing, whether it's more traditional forms of marketing that drive traffic.

That being said, we also evaluate what's the value of that last dollar spent and its ability to drive more business and we look at that very closely as well. We have a very rigorous plan in place for holiday that's around traditional periods of traffic as well as a gifting program. And that's something that we continue to elevate every year.

So we are going to continue to do those kinds of things and we expect that those will help improve our business..

Next is Oliver Chen with Cowen & Company. Please proceed with your question..

Thank you very much. Regarding the markdowns and kind of cleaning the inventories. Which classifications did you conduct that most on? And we just wanted to ask you a little bit more about Rack. The comp on the bricks and mortar decelerated on a two-year stack.

Were there tweaks that you would have made? Or what happened with the product assortment there? If there's anything specific to call out, that would be helpful..

Hey, Oliver. This is Jamie. I'll take the first part of that. In terms of markdowns, like I mentioned earlier, there wasn't really any specific call-out in terms of category. The team in our Nordstrom Merchandising group, as usual, did a great job of reacting to the trends in our business.

We're in the fashion business and there's an ebb and flow there and our team is pretty good at reacting and managing as things are going up and things are going down. So we feel pretty darn good about our inventory position going into the fourth quarter and our ability to continue to react to business as it changes.

Blake, do you want to take the next part?.

Sure, Oliver. This is Blake. On behalf of the Rack team, if we were to go back maybe six, nine months and look at our plans and how we executed our merchandising plans, we felt really good about it. And a number of improvements we felt were made from previous year in trends. And so the bottom line is the customer and sales are the truth.

And so though we might focus on specifics where we thought we had improvement with value or flow or assortment or the editing process or how we turned the corner in the fall, there just were a number of initiatives that encouraged us to be able to meet and exceed our plans. But as you pointed out, we fell short of our plans.

So overall this is a very profitable, highly productive business. We think we're doing the right fundamental things. We like our strategy there, but we are very mindful of that reduction in comps and we're working on that on a day-to-day basis..

Oliver, this is Mike. I just wanted to add one more comment to add on to Jamie's comments around inventory. The speed with which we responded to the situation has put us in a position that not only are inventories aligned and on plan, but they're also current.

And that is very important because first place, the early markdown has the best value and having current inventory allows us to flow in the latest stuff. And so, while it created some disappointment in order; we believe it continues to position us well going forward..

Okay. And could you just brief us on what do you think is happening with the customer because customers do have a certain amount of extra money, but it doesn't seem to be going anywhere so clearly. Because I just wanted your thoughts on that because it's been a very confusing retail tape..

Oliver, this is Blake, and we've said this many times. We're not economists, we're merchants. And we concur with you that if you get to a higher altitude and you look at the scorecard, there are a number of economic indicators that look real positive for U.S. and the consumer and spending yet all we can tell you is in our business, we saw a slowdown.

And it was across the board, as Jamie talked about. It wasn't regionally or a merchandise region or a channel. We saw, compared to our plans, a very similar reduction again across the board and it went for the whole quarter, and that's why we felt strongly that we should plan accordingly for the fourth quarter that way.

So we're going to get after it each day. I think the key thing is what Mike talked about with the inventories. We believe we're in a strong position. We are not on our heels. We think we can react to the customer, we think we have the type of functionality and experiences the customer is desirous of.

But ultimately the customer is saying something right now in retail, in our niche, and we need to get after it.

Thank you for the transparency. And best regards for the holiday..

Thank you..

You too, Oliver. Thanks..

Next is Lorraine Hutchinson with Bank of America Merrill Lynch. Please proceed with your question..

Thank you. Good afternoon. I wanted to follow up on the comments about the gap between sales and earnings growth narrowing.

Is there a certain comp that you'll need to leverage SG&A next year and also are there any SG&A cuts that could happen if sales don't reaccelerate?.

Lorraine, this is Mike. As I said earlier, at this point in time, we're not going to go into a comp discussion. We'll talk about more of that in February. Historically the model has leverage at a low single-digit comp.

Part of what we're all learning at this point is that was a model that was built off of a mall-based distribution network, and now we have malls and we have the internet. And so the business model does look a little different and we're continuing to refine how we think about it and how we invest in it.

In terms of anything we're looking at, going forward, the areas that we're seeing the biggest growth in outsized investment are in technology, in our fulfillment and in our online marketing. And we continue to look at opportunities there to ensure that that last dollar that we're investing is creating value.

So those are the areas that I think we'll, over time, continue to evaluate..

Thank you..

Next is Joan Payson with Barclays. Please proceed with your question..

Hi. Good afternoon. Thank you. I was just taking a look at the dynamic in terms of the cost associated with Canada and Trunk Club, which looked like they're coming in maybe a little bit heavier this year than anticipated, and the enabler cost may be coming in a little bit lighter.

So could you just help us think about, as we begin to look at next year, how those dynamics could begin to shift?.

Sure. Well, this is Mike talking. The things that are driving that is number one, Trunk Club, we acquired roughly a year ago. And so, we should see that start to moderate as we anniversary primarily the amortization of the acquisition costs and on a year-over-year basis the impact starts to narrow. And then the second thing is Canada.

With the opening of several new stores and the under-construction of a number of stores, we saw some outsized expense growth to support that. Next year, the impact of that should basically be neutral on a year-over-year basis. So we should start to see a little relief and you're seeing it in the fourth quarter.

That chart we presented I think shows that the impact of those items really start to neutralize when we hit the fourth quarter..

And how would the – do you expect the enabler costs to progress going forward?.

Well, I think the enabler cost was primarily there at the fulfillment center and we should see that basically moderate over time as well..

Great. Thank you..

Yeah..

Next is Bob Drbul with Nomura. Please proceed with your question..

Hi. I just had two quick questions.

The first one is, in a period where you're transitioning with the inventory, is the movement – is there any inventory that goes above the trend from the Nordstrom full-line stores to the Rack in terms of allocation? And the second question is, Mike, is on the share repurchase plans now with the proceeds, is an accelerated share repurchase a possibility?.

Well, Bob. This is Blake. I'll take the inventory question, the first part, and Mike will get the second. Ultimately, if we have sales challenges in the full-line stores then that transfer of goods rolls to the Rack. We need to then adjust the special purchase of the close-outs we buy around that and our Rack team is working on it.

As we mentioned, our inventories in total for the company are in line. So the Rack, it's important that they stay fluid for, whether it's returns throughout the various channels, how the customer wants to shop, those vagaries (27:09) and also the changes that can take place in full-line. But there's nothing noteworthy at this moment.

What was a little bit noteworthy we called out is, we proactively took some additional markdowns to ensure that we were addressing slow sellers and we were getting this stuff sold. And so that did have an impact on margin..

Thanks, Blake. Bob, in terms of the ASR, yes, an ASR is part of the several alternatives we're looking at as we look at starting to deploy that excess capital in the fourth quarter..

Great. Thank you very much. Good luck..

Sure. Thank you..

Next is Paul Lejuez with Citi. Please proceed with your question..

Hey. Thanks, guys. Just wondering on the gross margin pressure if you saw more in the full-price business versus the Rack.

Maybe just – can you talk about what you saw in each of those two businesses? And then, separately, any thoughts about relaxing the credit standards on the credit card as you guys determined with TD what the right standards are? Are you guys running at a very low rate of write-off, bad debt.

Just wondering if there's any thought to maybe use that as a potential driver of top line? Thanks..

Well, Paul, this is Blake. We actually saw a little bit of the opposite of what you described. The full-line was fairly consistent with their margin performance this year versus last year, and Racks were down slightly due to increased markdowns.

And, I guess, the biggest contributor to that would be, we're really pleased the online off-price part of the business. Nordstromrack.com and HauteLook. The vast majority of the HauteLook customers were engaging in a return or visiting our Rack and we think that's a real plus for the company.

But that's generated a comparison from last year, some more markdowns to move some of those goods. So totally for Nordstrom I think it's a good thing but Rack incurred some more markdowns on that..

Paul, in terms of your question on credit standards. A couple of things I would say. The first thing is, we've always tried to build a long-term relationship with our customer through our credit card, and the customers that have joined us and that have opened accounts have been very loyal.

As a matter fact, this year we're on track to open another million new accounts and we've opened those accounts with the same credit standards we've always had. So in terms of using that as a lever, I think we would be very thoughtful and cautious about that. Sometimes those generate near-term sales but don't necessarily generate the healthiest sales.

And so, we'll continue to look at that as perhaps pockets of opportunity, but I wouldn't say that that is a material lever to impacting sales..

Got you. And just as a follow up on Blake's answer.

The Rack, weaker margins at Rack, is that a function of having more product that came from the full-line business? If you can maybe share what percent of Rack merchandise was from full-line versus source specifically for Rack this quarter versus last year?.

I'm sorry. I wasn't clear on that Paul. I thought I mentioned that it came from predominantly HauteLook and Nordstromrack.com. The full-line store transfers were fairly consistent and weren't material from previous years, so that margin and that performance is fairly similar. It was an uptick due to how the customer wants to conduct business.

In this case, do some returns in the stores, which is fine, but it just created a difference this year versus last year, a little bit of an apples and oranges..

Got you. Sorry, I misunderstood. Good luck, guys..

Thanks, Paul..

Next is Jeff Stein with Northcoast Research. Please proceed with your question..

Good afternoon, guys..

Okay..

Just a real quick question on SG&A. It looks like on a lowered sales forecast, you're still looking for relatively similar SG&A change as a percent of sales, 70 basis points, 75 basis points....

Yes..

...instead of 60 basis points.

So does that imply that you have made some adjustments downward in your expenses? And if so, where would that be? Because it would seem that if you're in an investment mode, that would be a fixed bucket, particularly in Q4?.

Well, Jeff, one thing to keep in mind is we have a relatively meaningful variable cost model, both in the stores and online. So when we reduced our sales expectation, some of those variable costs did come down.

And then, of course, we're making some other adjustments as it relates to a softer top line, but those adjustments are not related to the investments we're making for the long term..

Okay.

Where would it be, Mike? Any area in particular? Would it be store selling, home office?.

Yeah, Jeff, I'm not going to get into too much detail on that. But I will tell you based on the fact that our stores are 100% commissioned in the regular price, lower sales would mean that you'd have lower selling cost..

Okay. Got it. Thank you..

Next is Neely Tamminga with Piper Jaffray. Please proceed with your question..

Great. Good afternoon..

Hi, Neely..

Hi.

Did you dig into any of the looking at the customer cohorts on the Rewards programs like levels one through four to see if they're behaving differently? Are your higher value customers actually dropping off more versus the one? I know you guys haven't really seen much, but I'm just kind of curious to ask that question framed up a little bit there.

Then on anniversary sale, for Blake maybe or someone else on the team, it's historically been I think a pretty decent predictor for you guys for holiday has been at least our observation. And it was a good anniversary sale. Clearly, the customer is responding to some newness in fashion. We're just trying to bridge why the drop off..

Sure..

If it's a fashion related issue. Thank you..

Yeah. Sure, Neely. Thank you. In terms of your question on the loyalty side, no, we haven't seen a material change in the cohort, the segmentation, however you want to talk about it in terms of how that customer is behaving. As I said earlier, we continue to add new customers onto our loyalty program.

I think we had mentioned earlier that in Canada, we've had a non-tender program that is now generating over 60% of our sales there and it continues to be a very good story there. So I wouldn't say that that affected any of the top-line change..

Neely, this is Jamie. I'll take the second part. So on the anniversary sale, we did have a good event this year.

The one thing that's changed about that event over the last number of years is that it's become increasingly about current buy now, wear now merchandise as opposed to, as you recall in years past, where it was people buying a lot of fall goods that they put in their closets for a couple months.

So I think the anniversary is probably been a little bit less of a predictor of fall than it was 5, 10 plus years ago. That being said, again, I'd reiterate that there's really not a seasonal component to where we've seen transactions slow down. Our coat business has been really strong, having big increases. It's just a traffic thing.

We've got less people buying clothes this quarter than we expected and there's really nothing else to point to..

Can I just follow up with what's one of your worst-performing categories? You mentioned what some of your better performing categories are. But if you were going to rank what some of your underperforming categories are, what are they? Thank you..

Yeah, we don't really have anything dead at the bottom that's really dragging us down. I know you're looking for something that's dragging us down. There's really not. Everything is really at the same trend that it's been at least for the last few quarters.

We feel good about a lot of the initiatives that we've been talking about the last year or two, particularly women's apparel. We continue to see really great opportunities there that we're continuing forward on in beauty. In boots – I'm sorry, in shoes, boot business has been really strong for a few years.

That's leveled off, but I wanted to say that it's a category that's dragging us down. It's just like every category took a step down in terms of trend and that's about it..

Yeah, Neely, and this is Blake. I just would underscore Jamie's comments because in the past, we could talk about variances within the regions and within the merchandise divisions and you could get after it. Outside of the call-out that Jamie made at the beginning about beauty leading the way, everyone else is in a pretty tight band.

The basis point difference between, outside of beauty, the top performer and the bottom is pretty tight and we don't think it's material and that's why we're not calling out because there isn't anything to be gleaned from that..

Okay. Good luck out there, guys..

Thanks, Neely..

Next is Charles Grom with CRT Capital. Please proceed with your question..

Hi. Not to beat a dead horse, but to follow up on Paul's question. Is there anything that you guys are seeing today across your customer or across product category that remind you guys of what happened in 2007, 2008 when your business started to slow? Because it's definitely not a Nordstrom issue, right.

You got Whole Foods comping negative, Macy's is comping negative. There seems to be something out there.

So I'm just curious if you guys have seen anything that gives you any playback to back to that period?.

Yeah. Charles, this is Mike and I'll take a swing at the same question as well. Clearly, this is not as dramatic as what we saw in 2008, 2009, which was a pretty significant change. We went from what was a mid-single-digit comp trend to a low single-digit comp trend. As the guy said, we've seen it across geography.

We've seen it whether it's in-store, online. We've seen it by category. But it certainly is at not that level of drama that we saw during that period.

But you know what? One of the things that we have noted is that it did kind of reach this new plateau and kind of stayed there, and that is what gave us very clear evidence that we needed to respond and respond quickly..

And I think I would add that it's really apples and oranges. It was a dramatic economic change that took place there at that time, and we have the opposite to a degree here.

We have some positive economic indicators, but the customer is voting with their dollars in a manner were she or he came closer to the best here and all we can do is talk about our business. And what we saw in the third quarter was a reduction, about 400 basis points across the board our business.

It wasn't the wholesale change we saw in that 2008 time period, but it's material because our plans were for a higher performance and it has an effect. We're pleased with how our team is responding and we think we're in a good position for the fourth quarter.

We think we're being prudent on how we're planning it and time will tell if we execute that properly..

Okay. Thanks for the color. And good luck..

Sure. Thanks, Charles..

Next is Michael Binetti with UBS. Please proceed with your question..

Hey, guys. Good evening. I wanted to ask you, the level of the gross margin compression in the quarter was a little bit counterintuitive to me, even as I sit and listen to you guys talk through some of the decisions you made in the quarter and the level of sales you saw. I'm just curious.

Does the third quarter gross margin – did you take some marks and write them down in the third quarter that you expect for the fourth quarter or is the majority of the incremental markdown and clearance that you think will occur in the fourth quarter as you reset your sales plan, is that going to still occur predominantly in the fourth quarter?.

Sure, Michael. This is Mike. The markdowns that caused the compression in the third quarter were directly aligned to what we said earlier. And that is, we saw a sales trend that was significantly different from our operating plans, which resulted in creating inventory risks.

So we took markdowns so we could liquidate that inventory, sell it through, and assure that we were on plan. Now we've also considered that with the slower sales environment in the fourth quarter that we might have a higher markdown level as well and we've considered that in the guidance that we've given you..

Good. Okay. Obviously, the questions are going this way, but I think people are having a little hard time piecing together all the data points we're picking up across the space right now..

Sure..

Some of the other names we've talked that I think Chuck mentioned have been a little bit slower build was the sales accelerated a little bit more quickly here for you. We're trying to figure out what happened.

As we think ahead, if we look at the range of comps you gave for the fourth quarter, what is your instinct on what would accelerate in your business to get to the high end of that comp range in the fourth quarter?.

Well, Michael, again, it goes back to – I think both Jamie and Blake mentioned that it appears that there has been a slowdown in overall demand from the customer who was purchasing what we sell. And what would cause us to get back to the higher end is that customer reigniting their demand. And I don't think it's any more than that.

There's probably a multitude of data points out there that are driving some of this. But in the end, we can only do what we can do from our perspective and we believe we've done it..

And, Michael, this is Jamie. I think that's right. I would just add that we've taken the appropriate adjustments to our plans, but our inventory is current, and we feel really good about our plans for the fourth quarter in terms of our merchandise assortment, our marketing plans. We're going into fourth quarter all guns blazing..

Sure..

And we're clearly a little more conservative in our planning, given recent sales trends. We feel good about our plan to hit those numbers. But if trends change then we'll feel even better about that. But we're optimistic that our customers will respond to what we're going to put forth over the next couple of months..

If I could just ask, Mike, one last one. It's been a long journey for you walking us back to a point where like some very heavy investing over the past few years will lead to the earnings growth rate starting to improve closer to the revenue growth rate next year.

I mean, if we are in a new normal for the level of sales across the industry, not for you guys or anyone in particular.

But if we are in a new normal, I mean, how would you think about lower top-line opportunity versus the investments? We know you guys want to make for the long term, but you've also said that your earnings growth rate will go up next year.

Is it something where if the sales rate is going to be slower, you guys would start to try and look at ways to try to bring the cost down a little bit to try and stick to that guidance for 2016? Thank you..

The answer is yes..

Which part?.

The answer....

I know I'm going to look at the transcript and it's going to be a long question..

That's good, Michael. We can have a little back and forth here. No, no. The answer is yes that we would look to reduce the acceleration of our investment/cost as related to those initiatives..

Thank you very much..

Sure..

We'll now take one more question..

Our last question comes from Howard Tubin with Guggenheim Securities. Please proceed with your question..

Hi. Yes. This is Paula (44:01) calling in for Howard. Just talking about igniting demand and interest.

With regards to the Savvy department, can you tell us if there are any upcoming rollouts with regard to Madewell or Topshop or anything in the upcoming holiday period that we should be excited about that will continue the positive momentum there?.

Sure. This is Jamie. Yeah, well, it starts with a consistent flow of fresh new goods and that drives all of our business. But particularly in the Savvy department, our ability to always have something new to show the customer really drives our success there, and we feel good about our plans over the next couple of months.

You mentioned Topshop, we have Topshop in 70 odd stores. We're increasing that to over 90 by the end of the year. That's been a real positive business for us and our partnership with them is really strong. We have Madewell in approximately 30 stores, and that's been performing really well.

Another brand that we're happy with right now is Brandy Melville – thank you, excuse me – in our Juniors department, Brandy Melville's a brand that we've added to a number of stores and our customers have really responded.

So our ability to find ways of continuing to be relevant to particularly younger customers who are shopping with us maybe for the first time and we've acquired a lot of customers. Our metrics around customer acquisition continue to be very strong, which gives us a lot of confidence as we continue to execute these plans and look towards the future..

Great. Thank you..

Again, thank you for joining today's call. A replay along with the slide presentation and prepared remarks will be available for one year on our website. Thank you for your interest in Nordstrom..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..