Chris Holloway - Director of IR Blake Nordstrom - President Mike Koppel - EVP and CFO Pete Nordstrom - President of Merchandising Erik Nordstrom - President of Stores

Christine Augustine - Bear Stearns Deborah Weinswig - Citigroup Adrianne Shapira - Goldman Sachs Charles Grom - JPMorgan Jennifer Black - Jennifer Black & Associates Michelle Clark - Morgan Stanley Barbara Wyckoff - Buckingham Research Group Liz Dunn - Thomas Weisel Teresa Donahue - Neuberger Berman Michelle Tan - UBS Richard Jaffe - Stifel Nicolaus Dana Telsey - Telsey Advisory Group Neely Tamminga - Piper Jaffray

Hello and welcome to the Nordstrom's fourth quarter 2007 earnings release conference call. At the request of Nordstrom, today's conference call is being recorded. All lines will be in a listen-only mode until the question-and-answer session. (Operator Instructions). I will now introduce Mr. Chris Holloway, Director of Investor Relations for Nordstrom. You may begin, sir.

Good afternoon, everyone, and thank you for joining us on the call today. We have scheduled today's call to last about 45 minutes, which includes time for questions-and-answers. Before we begin, let me remind everyone 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. With me on the call today are Blake Nordstrom, President of Nordstrom, Inc; Mike Koppel, Executive Vice President and Chief Financial Officer; Pete Nordstrom, President of Merchandising; and Erik Nordstrom, President of Stores. This afternoon, Blake will lead off with a review of the company's business and strategy; Mike will review our fourth quarter results and 2008 outlook; and then we'll open the call up for questions. Please limit yourself to one question, so we can accommodate more callers. With that I will turn the call over to Blake.

Thanks, Chris, and good afternoon everyone. On behalf of our executive team, I'm pleased to share our results with you today. For the fourth quarter, we had a 0.7% comp sales decrease, ending up about where we thought we would be. While we got inventories inline with current trends, there was a trailing effect from the previous quarter resulting in more markdowns in the fourth quarter than in previous years. That coupled with a softer environment impacted our bottom line. Then looking at the year, the first half was successful for us in terms of sales, continuing the kind of results we've seen over the past several years. While we had our share of challenges in the back half of the year, we still realized some record performances. 2007 marked our sixth consecutive year of comp store sales increases as we finished the year up 3.9% with record high revenue of $8.8 billion. Our SG&A rate improved for the seventh year in a row at 26.7%, improving by 9 basis points over last year. Earnings before interest and taxes also improved 8.5%. We recorded our highest sales per square foot ever at $402. As we look ahead 2008 and beyond, we are focused on executing our long-term strategy of increasing market share with our core customers by offering great service and the best merchandise the market has to offer. We are in a position of strength financially, which allows us to take advantage of opportunities that may come our way as well as weather any current challenges we may face. We feel our long-term strategy is the right one for a number of reasons. We know that our core customers are expected to spend more, in fact at twice the rate of the U.S. market per apparel. While we want to take care of everyone who walks through our doors, the company is well served by our merchants targeting their strategies and merchandize buys around increasing share of [wallet] with our core customers, ultimately gaining overall market share. To that end we remain focused on all our Full-Line stores. In the short-term we face challenges in our business, in particular in women’s apparel and regionally in California. In a softer economy we notice more important than ever to provide our customers with a reason to buy something new. The driver of our business today is new receipts. Our merchandizing teams continue to strive to achieve the right balance [assortment]. The return quickly with a constant flow of new merchandize, our customers have responded well. We have areas of business where our merchants are being successful. For instance, out t.b.d. department, a women’s apparel department, which carries premium denim and contemporary trend items, had an excellent year. We believe an important part of every buyer's role is to seek out new resources and anticipate our customer's needs and wants. We also believe our buyers must sharply edit the best of what the market has to offer while staying grounded in [realistic] plans. Our difference is really in our assortment. We offer our customers a breadth of merchandize that serves the way a modern customer dresses. We continue to grow our presence in the top markets and best retail locations around the country. We plan to open eight Full-Line stores and relocate one store over the course of this year. Two weeks ago we opened the first store of the year at Aventura mall in Miami, our eighth store in Florida. We are pleased to report it has exceeded our plans to-date. In two weeks we are opening our first Full-Line store in Hawaii at the Ala Moana Center in Honolulu, one of the best malls in the country. Additionally we will be opening our second store in the Boston market in Burlington next month. We are most interested in the very best opportunities rather than seeking to increase our square footage by a certain amount just for growth sake and we are happy with the commitments we have made. New stores are the most productive use to capital available to us. Today we have 102 Full-Line stores and our plan is to have 140 to 150 stores by 2015. We are pleased with the performance of the three stores we opened last fall. We are confident we can grow in new markets and add stores in existing markets. If we are doing our job right with our service and merchandize offering we'll gain market share. We continue to invest in remodeling our existing stores as it is our belief that we must keep the experience fresh and relevant to customers. Our Mall of America and Downtown Portland stores are both good examples of remodels that occurred this past year resulting in significant volume increases. We were able to increase our designer merchandise offering in both stores as a result of the remodel and customers have responded enthusiastically to the improved offerings. We currently plan to remodel roughly six stores a year. We also are very encouraged by the continued growth we experienced with our direct business, which has grown to over $600 million. However, this number under represents the true value of the channel. We gain additional value from the volume attributed to the Full-Line division from sales initiated online in our stores, as well as immense value from being a multi-channel retailer, satisfying customers the way they want to be served today. We believe it's a great way to connect with our customers, both as a convenience to serve their shopping needs, but also as a way to reach new customers in a very efficient manner in existing markets where we have stores. When we do this successfully, these customers spend more with Nordstrom. We also know that many customers research online at nordstrom.com, and then come into one of our stores to purchase. We continue to make improvements to our sites to make shopping easy and we're using it to help give our customers a richer Nordstrom experience, like featuring Jeffrey Kalinsky in videos wrapping up New York Fashion Week. We will continue to enhance our multi-channel experience as we move forward. We'll also continue to use technology of the tool to improve the service experience we offer our customers. In the second quarter, we're excited to share with you that we'll have a single view of inventory across Full-Line stores and direct, giving us service improvement and efficiencies. Ultimately, our focus is on offering our people the best resources and tools possible to improve the service experience and merchandize offering, in turn benefiting our customers. Another tool that helped us gain share of wallet is our Fashion Rewards Program. We know that customers who participate in the program simply spend more with us. While there may be current economic issues based on the industry and our customers, we feel we are well positioned now and for the future. We have plenty of room to improve market share and share of our customer's wallet. We are in a strong financial position to respond to opportunities that may present themselves. In closing, we remain dedicated to our customers and we believe we can weather the economic challenges we face and are optimistic for the long-term. With that, I'll turn the call over to Mike to review our results at a more detailed level.

Thanks, Blake, and good afternoon, everyone. Today, I will provide detail on some of the significant factors that impacted our financial performance in the fourth quarter and full year of fiscal 2007. I will also review our targets for fiscal year 2008, and then we will take your questions. Fourth quarter of 2007 was a more challenging period for our industry. Consumer spent more cautiously and retailers continue to align their product flows and inventories with sales trends. Despite operating in this environment, we achieved a lower end of our sales plan for the fourth quarter and maintained disciplined inventory levels. We continue to focus on the factors within our control and that begins with serving customers one at a time. We are in a position of competitive and financial strength with industry leading profitability, a health balance sheet and strong operating cash flows that are more than sufficient to fund our long-term strategy. Although the near-term market may be slower and uncertain, we continue to see high return investment opportunities and are confident about our core customers' long-term prospects and the growth potential of our business with them. For the full fiscal year of 2007, earnings per share were $2.88. Excluding the $0.09 gain from the sale of the Faconnable brand earnings per share were $2.79, a 9.4% increase from the prior year. Total sales increased 3.1% and were in line with our original plan, driven by a 3.9% same-store sales increase and the opening of three new Full-Line stores at the Natick Mall in Natick, Massachusetts, the Twelve Oaks Mall in Novi, Michigan and a Cherry Creek Mall in Denver, Colorado. For the 2007 fourth quarter, earnings per share increased 3.4% to $0.92. Our share repurchase activity during 2007 benefited fourth quarter earnings per share by approximately $0.06. During the fourth quarter, we added leverage to our balance sheet as we moved to a more efficient capital structure. As a result, we believe earnings before interest and taxes, or EBIT, is the most relevant measure of our performance. For the fourth quarter EBIT was $384 million, a 1% decrease compared to last year's EBIT of $387 million. Same-store sales in the quarter decreased 0.7%, in line with our revised plan of approximately flat comp sales. By channel Full-Line stores fourth quarter comps were negative 2%, Nordstrom Rack comps grew 6% and our online stores sales growth was 12%. Our strongest performances by geographic region were in the Northwest, South and Midwest. Our best performing merchandise divisions were Designer across all categories, accessories and women shoes. Our gross profit rate for the quarter declined 66 basis points. As we continue to realign inventory levels for slower sales trends and experienced higher levels of markdowns as a result. The increase in markdowns was partially offset by leverage in buying expenses, due to lower incentive costs tied to company performance. We are comfortable with our yearend inventory position of $47 per square foot, a decrease of 6% compared to the end of 2006. We are beginning the 2008 fiscal year with the appropriate level of inventory, but continue to monitor sales closely for any changes in trends. Our SG&A rate improved 68 basis points over prior year due to reduced incentive costs tied to company performance, which were partially offset by higher provisions for bad debt. In light of the current environment surrounding consumer credit, I would like to spend a few minutes discussing our credit card business. Our credit card business has historically contributed 5% to 7% of our annual earnings and is a crucial part of our integrated business model. We strongly believe our credit card products and service enhance our ability to earn and retain the loyalty of our core customers. However, we have observed the softening in underlying credit trends that negatively impacted our 2007 earnings per share by approximately $0.11. Fourth quarter credit results were in line with our expectations, as delinquency rates increased 54 basis points year-over-year to approximately 2.6% and write-offs increased to 139 basis points year-over-year to 4.4%. Overall, our credit card portfolio remains high quality, as over 90% of spending in our credit cards is by super prime and prime customers, and delinquency trends remain well below the industry average of approximately 4.3%. We have heard desire from many of you to have more details about this business and we will take steps to enhance our disclosure beginning with our 2007 10-K, which will be released in late March. Returning to our review of the financial statements, 2007 fourth quarter finance charge and other net income increased $11 million, due to growth in our accounts receivable and to the change in the accounting for Visa credit card program. Net interest expense of $30 million was inline with expectations and higher than last year due to increased debt levels. Total debt at quarter end was $2.5 million which was within the capital structure guidelines we shared on our third quarter call. As you may remember, we have a target ratio of two times adjusted debt to EBITDAR and this target is consistent with our goal of maintaining our current credit ratings. We ended the year with $358 million in cash and short term investments. Our liquidity levels and credit ratings provide the financial strength and flexibility to support our long-term growth objectives. We continue to generate strong operating cash flows and remain committed to returning excess capital to shareholders. Our capital allocation framework has a balanced approach to returning capital over long periods of time. Over the past five years, we have more than tripled our quarterly dividend and repurchased almost $3 billion in stock. More recently, we announced that our Board of Directors approved a 19% increase in our quarterly dividend from $0.135 to $0.16 per share. During the fourth quarter of 2007, we repurchased 11 million shares of stock for a total of $388 million at an average price of $34. For the fiscal year of 2007, we repurchased 39 million shares for total of $1.7 billion at an average price of $44. Our current authorization has approximately $1.4 billion and two years remaining. Next, I'll discuss our outlook for fiscal year 2008. Due to the uncertainty in economy, we are planning our business accordingly. Our business model provides flexibility, which helps protect margins and cash flow during periods of changing trends. For example, our inventory turns on average five times per year, which is faster than most of our peers and gives us the flexibility to align inventory levels more quickly to changing sales trends. Our private label penetration is relatively low for the industry, which allows us to work with our vendor patterns to adjust inventory levels and receipt flows closer to the selling season. On the expense side, most of our compensation structure is tied to performance, whether through our commission sales force or through the performance based incentives of management. In addition, we are careful to ensure that our planning processes prioritizes the investments that are highest value and closest to the customer experience. While we believe we can adjust to changing market trends, we are taking a cautious approach to 2008 and our planning same store sales to be approximately flat to negative 2% for the year. This sales plan yields earnings per share in the range of $2.75 to $2.90 for the full year, a negative 1% to positive 4% increase over 2007 earnings per share, excluding the gain from Faconnable. We expect the 2008 gross profit rate to be 30 to 60 basis points lower than the rate in 2007 primarily due to increased occupancy cost from new stores in 2007 and 2008. Regarding expenses in 2008, we anticipate an SG&A expense rate increase of 60 to 80 basis points, driven by a lower same store sales plan and continued investment in our long-term growth. Our operating model normally leverages SG&A expense with low single-digit same-store sales. The combination of a lower comp sales plan and new stores and related pre-opening costs are causing deleverage to our 2008 SG&A rate. We will continue to invest in high return projects including new stores, which will create long-term value far beyond the short-term impact today. Net interest expense is anticipated to be higher by $55 million to $60 million due to higher average debt levels. Finance charge and other income, is expected to increase $50 million to $60 million. Our capital plan for the coming year is approximately $540 million. Net of developer reimbursement, 80%, of which will be spent on new stores, remodels and relocations. The remainder is for technology, maintenance and general purposes. Depreciation will be approximately $320 million for the full year. For the first quarter we are planning for a decrease 3% to 5% of same-store sales. Net earnings for the first quarter are expected to be in the range of $0.49 to $0.54 per diluted share. We expect an increase in our SG&A rates in the quarter, as we support strategic plans for growth in new stores in our online business. To conclude, I want to take this opportunity to update our intermediate term profitability goals. We are targeting in earnings before interest and taxes margin of 13.5% to 14% by the end of 2010, which is based on an assumption of low single-digit percent same-store sales increases. While 2008 may have its challenges, we are focused on the factors in our control and are constantly striving to enhance the customer experience. We remain confident in our long-term value growth strategy and look forward to our future. Now, we will open the call up for questions.

(Operator Instructions). Our first question is from Christine Augustine from Bear Stearns. Christine Augustine - Bear Stearns: Well, thank you. Good afternoon, everybody. I'd like to now, if you can talk about the expenses going forward and in particularly, could you just describe on the net service charge income, why do you expect that to be up so much in '08 with the credit card trends?

Hi, Christine, this is Mike, and I'll take that question. First on the expenses going forward, going into next year, we've had multiple years of improvement in margin and I think, we've said in the past that our model leverage is well at a low single-digit comp. Going into next year, obviously, with a plan of [plaster down] we're seeing about half of the deleverage coming from just a lower sales plan, and the other half mostly coming from the impact of new stores and the related pre-opening expenses. In terms of the service charge income, a portion of that growth relates to the one-time expenses related to the change in accounting in 2007, and we're getting some benefits from that plus in addition just a normal growth of the AR. Christine Augustine - Bear Stearns: So just to clarify that, Mike, was the one-time charge approximately $20 million?

It was roughly $20 to $25 million in finance charge income. Christine Augustine - Bear Stearns: Okay. Thank you.

Thanks, Christine.

Thank you. Our next question is from Deborah Weinswig from Citigroup. Deborah Weinswig - Citigroup: So in terms of thinking about 2008, in terms of your kind of overall earnings plan until [planned], are you expecting improvement in the back half of the year or can you just walk us through the year as much as you can give us details at this time?

Sure, Deborah, this is Mike again. Yes. I think if you just look at the performance in 2007 you will see the front half of the year, we had some pretty robust comp performance and a slowdown in the back half of the year. And the way we are planning our business is soft to negative comp sales trends in the front half, with improving trends in the back half. Deborah Weinswig - Citigroup: And also women’s has been an area of weakness for you is there anything that there specifically where we could also expect to see improvement in the back half of the year as well?

Well this is Pete. I think Mike’s point about our comparisons in the second half of the year has probably provided us with our best opportunity to have some success in women’s. We continue to focus down on our targeted customers and making sure that we are just delivering some fine products. In second half of ’07 we got ourselves to a position where we got overbought. We had to cancel orders. We did a lot of scrambling and work that really didn’t apply itself to selling and getting after the best new product. So we believe that we have a good opportunity to improve our situation mostly just by say both our targeted customer and keeping discipline in place, and not get ourselves overbought. That should help us there. Deborah Weinswig - Citigroup: And Blake, designer has been such a win for you, is there anything specifically you will be doing kind of more of in 2008 and also can you update us on your penetration as it ended 2007?

This is Pete. Well, designers are really growing part of our business and relatively as just a subset it continued to grow faster than any category we have and that’s across all merchandize categories. So we keep investing -- I think you will see that continue to grow really just to meet the demands of our target customer base. Deborah Weinswig - Citigroup: Okay, great. Thanks a lot and congratulations.

Thanks Deborah.

Thank you. Our next question is from Adrianne Shapira from Goldman Sachs. Adrianne Shapira - Goldman Sachs: Thank you. Mike, if you could just spend a little time on the gross margin, can you shed some light in the fourth quarter in terms of how much of the gross margin contraction is due to the higher markdowns and deleverage in terms of occupancy and buying, and then, similarly, when you talk about '08, the 30 to 60 basis point of contraction expected, how much will you expect from occupancy leverage versus merchandize margins?

Sure, Adrianne. The first part, in the fourth quarter, the majority of the deterioration in gross profit was from merchandized margin and primarily due to increased markdowns as we saw continued slowing business trends and we were clearing our inventory. In terms of 2008, it's a little bit of a different story. We expect overall for the year a somewhat flat performance in gross margin. And most of the deterioration in gross profit is from the additional occupancy costs, partially from the new stores in '07 from all eight stores in '08 and the fact that we have a slight amount of deleverage there. Adrianne Shapira - Goldman Sachs: Okay. Mike. So just to be clear, so the inventory planning in the back half you think mitigates any sort of further merchandized margin vulnerability to growth markdowns?

That's correct. Adrianne Shapira - Goldman Sachs: Okay. And then, just follow-up on the comps, it seems as if the first quarter guidance down 3 to 5, seems like somewhat of a downward step function from what we've been seeing. Could you give us a sense of what do you expect to see on traffic versus tickets?

In terms of a point of view on traffic versus ticket, we don't have specifics on that we can share with you. But I think what the first quarter does reflect is a trend that we continue to see following the month of January and wanting to be prudent in terms of planning our inventories and expenses coming out of the beginning of the year. Adrianne Shapira - Goldman Sachs: Okay. And then just lastly on the bad debt provisions, could you quantify how much that cost you in the quarter?

During the quarter the increase over last year was roughly $0.04. Adrianne Shapira - Goldman Sachs: Thank you.

Thanks, Adrianne.

Thank you. Our next question is from Charles Grom from JPMorgan. Charles Grom - JPMorgan: Thanks. Good afternoon. Mike, could you quantify the impact or the benefit in SG&A from the lower incentive costs, not only in the fourth quarter, but also if you could remind us what it was in the third quarter?

Well, Charles, in terms of the fourth quarter, the majority of the positive leverage we got was from the benefit. And just to back up a little bit, it was a combination of the fourth quarter last year, which was very robust where we saw very high comp sales and we saw a steep appreciation in the stock price. This year, obviously, with the softening business, we didn't have quite the same costs, and compared to last year, it was a fairly significantly spread. So, I would tell you most of the leverage partially offset by the bad debt was a result of that benefit cost. Charles Grom - JPMorgan: Okay. I understand. And then just a follow-up. Obviously, inventory is in great shape, a little bit different than your peers. Can you comment on the components of the inventory by channel, by category?

I don't think we're going to break it out in that manner right now, Charles. Thank you. Charles Grom - JPMorgan: Okay. Thanks.

Okay.

Thank you. Our next question is from Jennifer Black from Jennifer Black & Associates. Jennifer Black - Jennifer Black & Associates: Hi. Congratulations on doing well on a really tough environment.

Thank you, Jennifer.

Thanks, Jennifer. Jennifer Black - Jennifer Black & Associates: I wondered how you're doing as far as fixing brass plum, petites and cosmetics, and what we should expect throughout this next year.

This is Pete. Actually our brass plum business, I think I mentioned it on our last call, it started to improve some relatively from where it was at. As you know, in the past, 18 months or so, it's been relatively challenged. And we've made some progress there, and actually I give a lot of credit to our merchandising team who have added just to do a real sharp job editing the buy to the most compelling stuff. It seems kind of obvious, but when business is tough like that, they were really forced to take a good hard look at the business. And so, relatively that has started to improve some petites. I would say, again, we were just looking at the context of all women's is, found average there, and then the last one was what, cosmetics. Jennifer Black - Jennifer Black & Associates: Cosmetics.

Cosmetics has been performing right near the company average as well. I wouldn't say it's done relatively poorly. I mean it's kind of riding the same wave that the entire company is. Jennifer Black - Jennifer Black & Associates: And would you expect that going forward?

Cosmetics, particularly, is such a large category that I think it's going to be at least in that ballpark. We've identified a lot of things that are on the upswing there with relation to types of products, the way customers are being served and new lines that are growing very rapidly for us. So, I think that there are always things to focus on there that are positive and give us hope that the bids will continue to be good. Jennifer Black - Jennifer Black & Associates: Okay. Just one last question, can you talk about what your gift card trends were over this last year?

Yeah. Jennifer, this is Mike. We actually saw in the fourth quarter an increase of over 10% in both purchases and redemptions in gift cards. So that was a business that definitely continues to help us especially through the holiday season. Jennifer Black - Jennifer Black & Associates: Great. Thanks a lot and good luck.

Thank you. Our next question is from Michelle Clark from Morgan Stanley. Michelle Clark - Morgan Stanley: Yes. Good afternoon. The first question, if you can give your inventory outlook for 2008, where do you expect inventories to be on a comp store basis at the end of the first quarter and then at the end of fiscal year '08? And the second question is on your receivables growth in the portfolio, what are we assuming in terms of receivables growth in '08? Thanks.

Michelle, this is Mike talking. In terms of inventory I am not going to quite break it out by quarter, but our assumption is that our inventory levels on a comp basis should be relatively flat. And obviously our goal is always to continue to try to improve our turns. In terms of receivable growth, the current assumption in the model is a high single to low double digit growth rate in the receivables. Michelle Clark - Morgan Stanley: High single digit to low double digit?

That's correct. Michelle Clark - Morgan Stanley: Okay.

Thank you. Michelle Clark - Morgan Stanley: Thank you.

Thank you. Our next question is from Barbara Wyckoff from Buckingham Research Group. Barbara Wyckoff - Buckingham Research Group: Okay. Hi everybody.

Hi. Barbara Wyckoff - Buckingham Research Group: How should we be looking at preopening expense by store, and I guess by month, what's the average per store and then the second is, do you anticipate any glitches from consolidation of the inventory in Direct and the Full-Line stores?

Barbara, this is Mike. In terms of by store, I would share with you for the year that total preopening expenses are roughly in the range of $13 million to $14 million, and they vary by store. We have a predominant amount in the first quarter as we have four stores opening. And they basically will be roughly ratably based on the number of stores opened by quarter. Barbara Wyckoff - Buckingham Research Group: Okay.

And the second part of your question please. Barbara Wyckoff - Buckingham Research Group.: Do you anticipate any glitches from the consolidation of the inventory in Direct and Full-Line stores?

Well this is Blake. I don't know if consolidation is the right word. It's just more that we have the ability to efficiently have our salespeople access. So we're not physically moving the inventory from channel to channel, we are just breaking down any barriers that might have been there, so that our people can service their customers better. Barbara Wyckoff - Buckingham Research Group: Is there a systems change?

There is an enhancement within Direct specifically that now enables the Full-Line stores to easily access it without having to jump through another hurdle on the screen. Barbara Wyckoff - Buckingham Research Group: Okay. Thank you.

Thanks, Barbara.

Thank you our next question is from Liz Dunn from Thomas Weisel. Liz Dunn - Thomas Weisel: Hi good afternoon. My question relates to return on invested capital. Can you just update us to where you finished the year and what your outlook is for 2008, whether or not you think that you'll be within your targeted range?

While we haven't published our final number, we finished the year over 19% in return on invested capital. Our expectations going forward, specially during this growth period of '08 and somewhat beyond that, that those ranges will come down roughly in the 16% to 18% range, primarily due to the increase in the asset base range and the slower sales volume. Liz Dunn - Thomas Weisel: Just in the near term, but is that a longer term target or just your near term target?

Long term target we're still looking for the upwards 18% to 20%. Liz Dunn - Thomas Weisel: Okay. And then just one last question if I could sneak one in, is there any concern about retention, given the fact that compensation has declined pretty significantly with incentive compensation being a large proportion of how people are compensated throughout the organization?

Hi this Blake. When we made those comments about compensation, that's for total company and so our best performers through out the company are still receiving incentive based type compensation. We wanted to try to share with all of you that it has flexibility to it and it's not a fixed cost and so we're able to adjust accordingly. Certainly our senior management team is accountable for total company performance, you know to ratchet back, but we think that the incentive plan does continue to reward our best performers and we haven't, I mean at this early date, had any feedback or seen any cases of our folks hurting morale or their ability to reach or exceed their goals. Liz Dunn - Thomas Weisel: Okay, great. Thanks good luck.

Thanks Liz.

Thank you our next question is from Teresa Donahue from Neuberger Berman. Teresa Donahue - Neuberger Berman: Hi guys. My questions have been answered. Thanks.

Thank you.

Thanks Teresa.

Thank you. Our next question is from Michelle Tan from UBS. Michelle Tan - UBS: Great, thanks. I had a couple of questions on credit. I guess one of them was just looking roughly at the impact, I think you said $0.11?

Michelle, for the year. Michelle Tan - UBS: Yeah, for the year from the credit deterioration, it looks like that's about $45 million in pre-tax income. I was wondering if there was anyway you can split that out for us, understanding how much of that is bad debt, increases in bad debt versus step-up in the reserves and then also whether any of it relates to these items of bringing the receivables on balance sheet and also taking more higher debt levels against the portfolio or whether that's excluded from that $0.11 impact?

Sure Michelle, this is Mike. The number is closer to roughly $40 million Michelle Tan - UBS: Okay.

And that is all bad debt expense and the bad debt expense is reflective of the provisions we take to increase our reserves, based on delinquency and write-off trends. Whereas that number does not include the impact of any of the change in accounting or anything of that nature. It's totally the experience of the portfolio and the growth in the overall receivables. Michelle Tan - UBS: Okay. I guess when I look at your bad debt expense last year, I know it doesn't include the off balance sheet stuff like it's been tracking call it like $20 million or so.

Yeah. Michelle Tan - UBS: So, I guess how significant is this 40 million, it seems like its up almost, even if we assume pro-rata for the other receivables like 50% is that about right?

That's roughly in the ballpark. We felt if you look at the big picture and look at how we're performing relatively, couple of things I would point out. Number one, that the overall impact of all that was roughly 3% on our overall results. Michelle Tan - UBS: Right.

The second thing, if you look at our delinquency rates, they are measurably below what some of the industry averages and standards are. We currently -- we've been performing within our expectations and I think, you'll find that, we haven't call that out as a "surprise factor" in our expectations because our delinquency trends and write-ups have been pretty much in line what we thought they would be. Michelle Tan - UBS: Okay, cool. And then how are you planning that for next year have you given or can you give us any color on that?

Well, yeah, the color, I'd give you is the reserves that are on the books at the end of the year reflect what we believe would be continued softening in delinquencies through the first half of the year and stabilizing in the back half of the year. Michelle Tan - UBS: Okay, perfect. And then just finally, one quick follow-up on an earlier credit question that was asked, you have got the service charge income growing, I think, you were suggesting that the $25 million or $20 million to $25 million of kind of double counted bad debt from bringing the receivables on balance sheet last year in setting up the reserves…

Yes. Michelle Tan - UBS: Was in the service charge income line is that right? Because I thought all of that stuff flew through SG&A and the service charge income was more just the revenues on the portfolio?

Hi, Michelle, it's Chris. Michelle Tan - UBS: Okay.

So the $25 million, part of that it's the SG&A line is bad debt part of it it's the net finance charge line. Michelle Tan - UBS: Okay.

Yes. There was a component that relates to the onetime build of the reserve that was in the finance charge line. Michelle Tan - UBS: Okay.

Okay. Michelle Tan - UBS: Okay, perfect. Thanks for all the help.

Bye Michelle, you're welcome.

Thank you. Our next question is from Richard Jaffe from Stifel Nicolaus. Richard Jaffe - Stifel Nicolaus: Thanks very much guys. Just a question in the third quarter you talked about vendor allowances and the positive impact that had in the third quarter and wondering how this year versus last year the vendor allowances shaped up, whether either specifically or just qualitatively if you found them a more important factor in your earnings?

Sure Richard, this is Mike. We actually did perform slightly better in terms of absolute vendor allowances year-over-year, but obviously with the increased mark downs, it wasn't like there was a net improvement in the margin, as a result. But coming out of the third quarter we did feel like we had some timing difference, but our merchants I think were able to do very credible job in been able to get their fair amount of dollars in the market. Richard Jaffe - Stifel Nicolaus: Got it. Thanks very much.

Okay. You are welcome.

Thank you. Our next question is from Dana Telsey from Telsey Advisory Group. Dana Telsey - Telsey Advisory Group: Good afternoon, everyone. Can you talk a little bit about marketing spend for next year with the new store openings, any adjustments to that, that you're looking at and also with some of your growth initiatives like Rack and the multi-channel business. What are the plans there, given the current environment? Thank you.

This is Pete. I guess I'll take that one. With the marketing spend we have a plan based on new stores and what we do in it. It baked into our plans for the year. So, there isn't anything new or different than what we have been doing for the last several years that's really kind of baked into our histories and how we've opened up stores. I would say probably the one place, where we are probably spending a little bit disproportionate more it would be in Hawaii just because it's our first store in that area and it will probably be the biggest single store of all stores, we opened this year. So, that's fair to say and given the unique dynamics of Hawaii that will have a little bit of large expense to go with it with relates to marketing. And what was the second part? Dana Telsey - Telsey Advisory Group: On the Rack and the multi-channel initiatives that you been putting in place, what's the plan there, particularly this year and do you see any new brands that you're developing internally, any private brands that we should be watching for?

Hi, Dana, it's Blake. Dana Telsey - Telsey Advisory Group: Hi.

In terms of the Rack and the multi-channel, as you know we have been coining that out about the last three years as an important initiative within our strategy and it continues to do so for '08. So, there isn't any wholesale change in those plans. Rack, specifically, their growth has been somewhat limited in the last couple of years as we refine that strategy compared to the Full-Line store growth. But we'll continue to monitor that. The good news with the Rack is it doesn't require the lead times that the Full-Line stores, does to open store. So we have a degree of flexibility, but it has been a better part of our business and continues to do so. The multi-channel is a multiyear strategy and the infrastructure continues to come online. Most recently, we literally doubled the size of the fulfillment center and the call center in Cedar Rapids to be able to handle this growth. And so, there is still probably 18 months to 24 months out before we're 100% complete in all the infrastructure to try to achieve what we want in terms of being a true multi-channel retailer. But we believe it's very evident and clear from our customers that that's what they would like us to be pursuing, and so that's where our focus and resources are. Dana Telsey - Telsey Advisory Group: Thank you.

Thank you. Our next question is from Neely Tamminga from Piper Jaffray. Neely Tamminga - Piper Jaffray: Good afternoon. One quick housekeeping. Mike, what was CapEx expected to be on a gross basis not on a net basis? That would be one just a quick point of clarification. And then in terms of private label, I'm not sure that it's fully addressed. I get the sense that there's not a lot of resources yet here in women's that are kind of helping you come alongside your customer and really answer some of their needs, is this a paucity within the marketplace? Just wondering what's the role of NPG, and is Loretta looking to them to maybe increase some of the style choices for this year?

Hi, Neely. This is Mike. On the first question, I think we said our net was 540, and we haven't broken out at this point that between gross and net. Neely Tamminga - Piper Jaffray: So you will report growth rate on the balance sheet?

In the cash flow during the year you will see the gross in the developer reimbursement as it comes through. Neely Tamminga - Piper Jaffray: All right.

This is Pete. With regards to the women's strategy, merchandise strategy, I'd say NPG is probably playing as important role it's ever played for us. And I think that's mostly a result of what's happened to the better price point market, domestic market that we've relied too heavily on in the past in the women's area. It's still a huge part of what we do, but clearly there are challenges out there for everyone in that whole segment. So we need to make sure that we have really compelling merchandise that we can offer the customer regardless of whether it comes from the domestic branded markets or internally. And we have good capabilities here, and Loretta works very closely with the team, trying to identify where we have those opportunities. And I think particularly in departments like BP and Point Of View, I think you still see a fairly significant proportion of the inventory made up from our own brands, and I think categories and brands that are performing really well, if you just kind of look at the last few months, it's been some of our best performing products. Neely Tamminga - Piper Jaffray: Okay. And then, Pete, with respect to fashion just generally speaking, are you seeing newness coming from tops, from bottoms, are you seeing it come from novelty and color print patterns or fabrications? I was just kind of wondering what your perspective is, since I think you spent some time on the runway too.

Thanks for that. Color continues to be important, but I think we would say they are pretty much every time when you are looking to turn the quarter from a winter into spring. And so, for us, its early indications that color have been really good. Crop jackets have been selling pretty well. We've actually, as an improvements on bottoms as it relates to non-denim bottoms, and that's the first time we've seen that in a little while, the denim category still continues to be strong but the non-denim fabrications are performing well too. Neely Tamminga - Piper Jaffray: Thanks. Good luck to you, guys.

Thanks, Neely.

I think I'll say it for the day. Thank you for participating in our conference call this afternoon. If you have additional questions or need further information please contact me at 206-303-3290. Thank you for your interest in Nordstrom.

Thank you and this concludes today's conference. You may disconnect at this time.