Rob Campbell - Treasurer and VP of IR Blake Nordstrom - President Mike Koppel - EVP and CFO

Deborah Weinswig - Citigroup Lorraine Hutchinson - Bank of America Edward Yruma - Keybanc Charles Grom - JPMorgan Jennifer Black - Jennifer Black & Associates Adrianne Shapira - Goldman Sachs Neely Tamminga - Piper Jaffray Wayne Hood - BMO Capital Richard Jaffe - Stifel Nicolaus Bob Drbul - Barclays Erika Maschmeyer - Robert W. Baird

Hello and welcome to the Nordstrom 2010 second quarter conference call. (Operator Instructions) I will now introduce Rob Campbell, Treasurer and Vice President of Investor Relations for Nordstrom.

Good afternoon, everyone, and thank you for joining us. Today's earnings call will last approximately 45 minutes and will include about 30 minutes for your questions. As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions discussed due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Forms 10-Q and 10-K. Participating in today's call are Blake Nordstrom, President of Nordstrom, Inc.; and Mike Koppel, Executive Vice President and Chief Financial Officer, who will discuss the company's second quarter 2010 performance and outlook for the remainder of 2010. And now, I will turn the call over to Blake.

Thanks, Rob, and good afternoon, everyone. I wanted to let you know that both Peter and Erik Nordstrom have previous commitments that prevent them from being on this call today. So Mike and I will do our best in our remarks and in the Q&A section to address any questions you may have at this juncture. On behalf of our team, we feel we had a solid second quarter and the first half of the year has exceeded our expectations. We're particularly encouraged by our sales results and how the customer is responding to our merchandize and services. Our merchants continue to strive, to have an offering that is compelling with fresh fashionable goods, while also striving to provide a seamless multi-channel shop in experience. July typically represents the second highest sales month of the year, reflecting the impact of the anniversary sale, it was a great event overall. Throughout the event we offered a quality mix of merchandize with strong brand names that attracted prices that resonated with our customers. We also benefited from having a shared inventory platform for both our full-line and direct channels, including having more anniversary sale items in our direct fulfillment center, which allowed us to better fulfill customer demand. This helped us achieve an anniversary event multi-channel same-store sales increase of 9%. For sometime now, we worked hard to maintain strong disciplines in both inventory management and SG&A. Some of you may recall that last year at this time, we found ourselves slightly below our plans on inventory, and we were chasing a few things. As the first half of the year progressed, our merchants made some adjustments to their inventory plans for the anniversary sale that in aggregate was closer to our peak performance from 2007. So, though we had a very good performance with a 9% comp store gain, our actual inventory came in a little higher. We've been very forthcoming about how critical the content, balance and quantity of our inventory is to our bottomline results. While we continue to be very disciplined with our overall inventory management, we do recognize there are some pockets that need some adjustments. We were able to address this very quickly. On the expense side of the business, Mike will give you some more detailed information in his comments. I would note that at the beginning of the year, we felt it prudent to budget a slightly higher expense level for the year to address some initiatives that we felt were important with our business and our customers. At the beginning of the year, we gave you our year-end guidance, and we still felt good about meeting or beating those plans. Obviously, one of the big questions is the economy and the overall say of the customer. From our point of view, we have not seen any change throughout this year, nor do we expect in the foreseeable future a change upward or downward with our customers. We're fully prepared to continue to operate in that market and feel good about the strengths within our portfolio to take advantage of those opportunities. We've often shared with you, how our customers are choosing those establishments that provide an efficient seamless multi-channel experience. For over five years now, we've been behind the scenes investing capital and people towards this. The anniversary sale in the first half of the year, are reflective of our ability to respond to the customer in that manner, and their appreciation of this functionality. We're serving the customer in more ways as a result of our one view of inventory and able to say, "Yes," more often to the customer. By no means how we arrived or exhausted, what needs to be done. As a matter of fact, we're even more committed to pursuing those initiatives that will continue to allow our company to operate as the customer expects from us. We're learning everyday new rhythms, approaches and where we should be focusing our resources to best execute. It's an exciting part of the business. I want to emphasize again on behalf of our team, how encouraged we are. But mindful of the economy, our customers and the challenges we face. I'd like to now turn it over to Mike, and then we look forward to answering your questions.

Thanks Blake, and good afternoon, everyone. Our second quarter performance was a continuation of the positive trends we've seen in our business since last fall. We experienced the same-store sales increase of 8.4% resulting in a 37.5% increase in earnings per share compared with the same period in fiscal 2009. This marks the fourth straight quarter of sales and earnings growth, giving us momentum as approach the back half of the year. During the second quarter, we held three of our five annual sales events consisting of the men's and women's half yearly sales and the anniversary sale. These events had very good results, reinforcing our efforts to improve the customer experience and merchandise offerings. While we are pleased with this momentum, there are economic factors that remind us to be cautious as we plan the remainder of the year. Second quarter earnings per diluted share were $0.66 and earnings before interest and taxes of EBIT totaled $272 million, this is an increase of 37.5% in EPS and an increase of 31.6% in EBIT compared with the same period in 2009. This increase in earnings per share includes an approximate $0.04 impact due to the reduction of our bad debt reserve. Total retail sales increased to $2.4 billion up 12.7% and same store-sales increased 8.4%. Multi-channel same-store sales increased 9.9% compared to the same period in fiscal 2009. Top performing multi-channel merchandise categories were jewelry, dresses and women's shoes. The top performing regions for our full-line stores were the mid-west and south. Throughout this past year, we have talked about our business from a multi-channel basis as opposed to discussing separate full-line and direct business channels. We are going to continue to focus reporting on a multi-channel basis and will eventually phase out any differentiation between the full-line and the direct channel. This is how the customer thinks of our brand and it is how we internally think about our business. Same-store in our Rack division declined 0.9%, while we are disappointed with this result, our Rack continues to be a productive business model and our new stores are performing above plan. As we increase the focus on procuring the best brands, improving the overall merchandise offering and communicating the value it represents, we are confident this business will continue to grow. In the second quarter, gross profit as percentage of net sales increased 133 basis points to 35.2%. Merchandise margin accounted for the majority of this improvement along with slight leverage from buying and occupancy costs. We ended the second quarter with sales per square foot up 8.3% and inventory per square foot up 8.7%. Since a peak in sales and inventory per square foot in the second quarter of 2007, our inventory per square foot has declined 16.7% versus an 11.9% decline in sales per square foot. Our focus continues to be to improve our turns and assure our customers are experiencing the most current and fresh offering available. We have made slight adjustments to our inventory plans and expect to achieve continued improvement in inventory turns over the second half of the year. Retail SG&A increased $82 million over the same period last year. Over half of the increase is volume and new store related. Marketing and information technology account for the next largest component or approximately $30 million over the same period last year. As part of our 2010 plans, we have made thoughtful and intentional decisions to invest in certain areas including online marketing, social media and updated website and infrastructure for improved merchandise allocation and assortment. There are all long term investments focused on improving our customers experience and necessary to connect with customers as their shopping habits continue to evolve. The remaining portion of the higher retail SG&A expense is reflective of increased fulfillment cost with more items shipped to customers as a result of having a shared inventory platform between our full-line and online stores. Although we've had this capability since last September, the impact on SG&A was not meaningful until this quarter as a result of increased multi-channel fulfillment activity experienced during the anniversary sale. We expect over time, that this activity will moderate as we improve our assortment and allocation tools. Earnings before interest and taxes or EBIT flow-through for the second quarter was 24%, at the low end of our targeted range of 25% to 35%. We expect flow-through to be below this range for the third quarter, while the fourth quarter should significantly improve and will be above the range as we anniversary the increases in both the reserve for bad debt and in performance related expenses that we incurred in the fourth quarter of last year. Moving on to credit, we continue to see improving credit metrics. Second quarter credit card revenue increased $11 million over the same period last year. Our delinquency rate at the end of the second quarter was 3.5% down from 4.2% at the end of the first quarter of 2010 and 3.6% at the end of the second quarter of last year. Write-off dollars decreased $500,000 year-over-year to a rate of 9% of average accounts receivable which was better than our internal plans. Payment rates also continued to improve moving back to normal levels. As a result of these trends and improved expectations, we are reducing our bad debt reserves by $15 million or approximately 8% of the total reserve balance. We will continue to closely monitor these metrics and reevaluate the bad debt reserve as appropriate. We finished the quarter with an adjusted debt to EBITDA ratio of 2.4 times. This is line with our plans better than the industry average and well within the range to maintain our investment grade ratings. We ended the second quarter with a cash balance of $1.1 billion, and generated year to date free cash flow of $162 million. As we continue to grow our cash balances, we have had ongoing dialogue with our senior management team and Board regarding our capital structure. Our historical range of adjusted debt to EBITDA continues to make sense for us, enabling us to maintain an investment grade rating and ensuring that we have sufficient liquidity to weather economic challenges and to take advantage of opportunities that might arise. We continue to look for opportunities to profitably reinvest in our business. This coupled with lingering uncertainty about the macro environment, suggests that holding more cash in our balance sheet than historically has been the case. We will continue to maintain the right balance and flexibility as it relates to managing our business, and creating and returning value to shareholders. Overall, our second quarter performance was in line with our expectations. We are maintaining our previous annual guidance range of $2.50 to $2.65 with minor light item adjustments as noted in the earnings release. We have not reflected any additional reduction of our bad debt reserve in the annual guidance. Although credit trends continue to improve, it is difficult to project the magnitude and timing of the possible reductions of the reserve due to the remaining economic uncertainty and the high credit exposure to California. In closing, we are well positioned as we approach the second half of the year. We continue to see improvements in both the top and bottomline, and while we don't expect significant market growth in the near term, we believe we have opportunities to enhance our execution to increase our share of the market. With that I'll now turn the call back to Rob.

Before taking the first question, we want to request that each person limit himself or herself to one question, and if necessary one follow-up in order to give as many persons possible an opportunity to ask a question. If you have additional questions, we'll ask that you return to the queue. With that we'll take the first question.

Our first question today is form Deborah Weinswig from Citigroup. Deborah Weinswig - Citigroup: As we look at the back-half of 2010 and into 2011, we certainly hear a lot about inflationary pressures, not only in terms of cost of the garments relative in terms of shipping, can you just talk about your outlook?

We've been reading the same things. At this point in time, we haven't seen anything that would materially affect our business or our plans going forward. So we'll continue to monitor it, but in terms of any adjustment to the back-half of the year or next year, there is nothing material to report. Deborah Weinswig - Citigroup: And then as a follow-up, can you just talk about your plans around what you're doing in terms of not only your private little business but also exclusives as this as well?

We've talked in the past about, from the exclusive point of view, I think we just start with the premise with our merchants to aspire to try to procure the best product that's out there period. And then hard enough doing that, let alone than trying to play in something too exclusive in nature. What makes a compelling assortment is that, coloring or editing process in our lifestyle departments that we think the customer really values. Certainly, our private label division, which we call NPG, Nordstrom Private Group, does though represent a point of difference and exclusive for us. And we feel strongly that brands should be our primary focus, but the private label part of the business has been improving. Our team there is highly integrated with the merchandising team and our full line and direct channels. And we are seeing improvements there. And so we allow the customer to give us feedback as to how we will buy and sort that mix.

And our next question is from Lorraine Hutchinson from Bank of America. Lorraine Hutchinson - Bank of America: Just wanted to ask a quick follow-up on the credit card reserve takedown what are the key factors that you're looking for, and what should we try to monitor going forward to see how that reserve will trend?

Traditionally, it's the basic forward looking metrics of the business. One is delinquencies, we monitor the 30 plus day delinquencies. Obviously, internally we do that regularly, and from our external press reports or from our quarterly reports, you can monitor that externally. The trend in our write-offs in particular, we look at it by segment. As of right now, what we're focusing on is the continued trends in California as a sign that we think the overall portfolio continues to improve. But those are the two main ones. And then I think a third one that does have an importance, but leads to the other two are the payment rates. And one of the good things we are seeing is that our customers are becoming more consistent and paying a higher percentage of their outstanding balances, all good signs relative to the health of the portfolio. Lorraine Hutchinson - Bank of America: It looks like you've reduced your estimate a little bit for credit card revenues for the year. Can you just talk a little bit about that?

Yes we did and that is a direct result of the higher payment rates, we are just seeing lower outstanding balances than our plans had earlier in the year. And as a result we are earning less credit card revenue of that.

Our next question is from Michelle Clark from Morgan Stanley.

It's actually Chris (inaudible) here filling in for Michelle. I just wanted to circle back on the inventory question. I think you have called out pockets that need adjustments. I was wondering if you could just give us some color on that, whether it's from a category and/or geographic perspective? And then looking forward, how should we think about inventory in the back half of the year, on the year-over-year basis?

On the inventories, I was trying to relay that in aggregate in total. But what we did want to share is that, it's not mature to the point where we think there is going to be adverse impact, i.e. down the road they're like markdowns or what have you. So we think, we are addressing this soon but there (audio gap) were some areas, within women's accessories and others that in essence was going back to their peak performance in '08, and though we had a total good result, they fell a little short of what the inventory plan was. And so that means some adjustments are taking place, we've got some great vendor partnerships. So there is some things taking place there. We have our Rack division, but we don't think that is very material, in terms of we already have natural flow and rhythm there. We've got some replenishment inventory stocks that were a little heavy that over the next 30 to 60 days, will get adjusted. So we just wanted to be as transparent and forthcoming with you that they were slightly higher. What's driven our business the last two to three years, is maintaining a slight open to buy, , keeping it fluid, and be able to react to the customer. The key thing today is, our inventories are as current as they've ever been. We think they are fresh, we think we are making those adjustments, so that 30, 60, 90 days from now we are not in a position where we don't have to open to buy and we can't respond because clearly in this environment, the customer is responding to newness.

On the second half of your question regarding inventories in the back half. We've planning our inventories consistent with how the math would out play out on our overall sales for the year. And that is a very low single digit sales plan for the back half and that's how the inventories are being planned.

Just one quick follow-up. I think last quarter you had called up momentum within designer categories. Could you talk about whether or not that momentum in fact continues?

I think what we tried to share last time and I think it will be continued now is that, we got question a about price. That has been for the last two or three years, with some of the challenges in the economy as the customer having a pendulum swing with price and some of the pockets that have really shown some of our biggest gains have been in more of the designer areas that are reflective of fashion and contemporary offerings. And I think that was true throughout the second quarter and especially to the anniversary. So it's less about price, but it is everything about the total value. And value, it can be the brand and the quality value relationship, in the sizes, in the color, in the quality of the fabrication. Is this product exceeding the customer's expectation? Our vendors are able to partner with us on that, we're just getting a very enthusiastic response.

Our next question is from Edward Yruma from Keybanc. Edward Yruma - Keybanc: You had mentioned in California within the context of your credit business, but I was wondering if you could address maybe that market or just kind of specific regions in general. Particularly, as it relates to the weakness I think that they had been comping below the company average for some period of time?

From a retail sales perspective, California continues to comp below our multi-channel or full-line comp store average, probably a little softer in Southern California than Northern California. Now that being said in the aggregate, California continues to be one of our stronger geographic regions from a sales productivity standpoint. But clearly that's an area where we have a number of metrics whether it's retail, sales or credit metrics that tell us that that geography in that market is still slowly recovering.

And I would add, we're not seeing it decline, it's improved slightly but it's still, as Mike said, below our average. And because of the strength or penetration or productivity it's an important part of the business. Edward Yruma - Keybanc: And one follow-up if I may, I know that you've taken out the number of Racks relative to full-line stores in recent years, as the Rack business has grown. Has the recent performance of the Rack caused you to rethink that ratio?

With the Rack, we've talked about, had been sensitive to its growth and the relationship with the full-line stores and the product offering mix in it, and the integrity of our pricing. And the customers have been very receptive to it. And in over the last couple of years, we've enjoyed some pretty good results. I think most importantly that model is a highly productive efficient strong model within our portfolio. And the growth came about a number of years ago, even prior to this economic slowdown that we felt it was a good use of our shareholders money. One of the charms of the Rack is that, the key time on those new stores is very short. So we're not happy with the fact that in the last 10, 12 months some of our competitors in that group have been slightly ahead of us from a comp stores sales gain. And then for the last four or five months we've been low single-digit decline. And so the new stores, as we mentioned in our remarks, are beating the plans, the comp stores there are some opportunities. Generally as these things go, it's a of lot of little things. It's not one thing contributing it to it; our merchandizing team is working on it within the Rack and our leaders there. And well we felt really good about our Rack division and it'll continue to be an important part of the deal. But for the foreseeable future, what we've announced in our new store growth, we're still very enthusiastic about it.

And I would just add one other thing to that. If you look at the overall sales growth of the company this year, which is going to be in the range of $850 million to $900 million, roughly a third of that is coming from the Rack. So Rack continues to be a healthy area for us to continue to consider as a growth opportunity.

And our next question is from Charles Grom from JPMorgan. Charles Grom - JPMorgan: Just a couple of questions, on the comp guidance it implies a pretty big deceleration from what you've been able to do successfully so far in the front half of the year. Is this just because of tougher compares from a year ago or you think something in recent trends it has you more guarded? And then my second question is on SG&A, Mike, can you just explain why you're expecting to see less leverage in the third quarter and more leverage in the fourth quarter?

Yes, Charles, in terms of the comp guidance, no, it's nothing about anything we're seeing currently. We pretty much maintained our expectations that we had in the first and second quarter. Where we felt it was at that point is similar to where we feel it is today. So nothing there currently that would suggest any difference. In terms of the SG&A, a lot of it relates to the timing of expenses this year, but also the timing of expenses last year. Last year, the back half of the year, particularly in the fourth quarter, we had an acceleration of bad debt reserve and performance related expenses that we're not going to have this year. So it gives us a lot of year-over-year good news in the fourth quarter. And then in the third quarter, we're still seeing some build-up and acceleration this year, due to new stores and some of the other investments versus last year. So it's pretty much all about timing. If you look at our SG&A guidance for the year, where it was at the end of May and where it is now, we're pretty much in the same range.

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

I wonder if you can talk about the women's apparel businesses and the aggregate. It seems like Loretta has made significant progress of her team, and I wonder what opportunities, you still have in the women's businesses? Jennifer Black & Associates: I wonder if you can talk about the women's apparel businesses and the aggregate. It seems like Loretta has made significant progress of her team, and I wonder what opportunities, you still have in the women's businesses?

For women's, we've talked about a common theme of contemporary and again a newness and freshness. And you said, Loretta and her team are really working on both the women's apparel strategy and the strategies within each lifestyle department. And point of view which is very important part for us as for the last nine months or so, really been contributing (invigilis) just to name a few. TBD and Savvy have been two that have been underperforming, a little bit of late. And so we've got some work to do there to get more focused or zeroed in on our customer their. But I think overall, women's continues to improve and as you know, we went through a number of years, where it was relatively flat or declining. And as a percent to our total merchandise offering, wasn't contributing as much. So Loretta and her team have really turned that around, and they have been a lot better on the turn the flow subject and so, they've reduced markdowns greatly. Their regular price selling, has considerably improved.

And then I wonder if you can talk about your viral marketing and also when will you be offering a mobile application. I know that you are redesigning your website, and it says there will be new ways to connect. So I wonder if you could expand on that? Jennifer Black & Associates: And then I wonder if you can talk about your viral marketing and also when will you be offering a mobile application. I know that you are redesigning your website, and it says there will be new ways to connect. So I wonder if you could expand on that?

Those are good questions too, and a good lead in for our website, that we've been working on for about 18 to 24 months, and I believe it's August 21 that we will unveil a new website or evolved website. The whole subject about mobile technology and social networking, we've been doing a lot of tests in the last 12 months, and our technology, efforts as company for the last ten years have been really important to adding the tools and the ability to generate these kinds of returns. I think some of the heavy lifting is starting to get behind this, and now the technology efforts will be of the nature that you are describing. And we need to make sure that were in lockstep with our customer and certainly some of our competition or at least alternatives or options that our customers have, from whether that's online or retail outlets like Apple. The customer is starting to utilize some of this functionality, and we need to be there. And so we think we've got the necessary groundwork being laid and we hope over the next 12 months to be able to articulate with you more kind of our plans and how we will be taking advantage of building on our multi-channel platform. Jennifer Black - Jennifer Black & Associates: So we won't see a mobile application in the near term, it'll be a bit longer.

No, you have the ability right now to utilize some aspects of mobile technology, but to have a full blown program from Nordstrom, and we've talked about apps and other things, you will be hearing that from us towards year-end about how we will be explicitly, hopefully taking advantage of those opportunities.

Your next question is from Adrianne Shapira from Goldman Sachs. Adrianne Shapira - Goldman Sachs: Question just related to the comp growth. I know we've been hearing traffic has been the big driver of comps. Maybe you can give us an update there in terms of trends and what you're seeing on ticket in terms of AUR and perhaps units per transaction?

We don't have traffic counters in the stores. We're certainly able to measure that online in other ways. I don't think we feel like our traffic has gone up or down, and that's both some facts anecdotally. But we do think we've done a better job with conversion and we think we're selling more units. Our average unit retail hasn't changed dramatically, we've talked about for the last year or two that our price points had been down slightly and they're more aligned with the customer purchases. But there hasn't been any material change in 2010 with average unit retail, but it has been a function of more units. Adrianne Shapira - Goldman Sachs: And then, Mike, maybe just talk about growth profit expectations, it sounds like there is no change in the guidance. But obviously, in the back half we're lapping some pretty big improvements from a year ago. Help us think about as we're heading into the back half and it sounds like a little bit heavy on some pockets of inventory, how we should be thinking about margin opportunity.

I think how we shared it in the guidance is very consistent with how we feel about it. Last year we had a pretty substantial expansion in our margin. So far this year, if you look at our plans right now, it's not the highest margin performance that we've had historically, including in our top years of '06 and '07. So we feel like we've made very good progress there. We feel the back half of the year, there is certainly not nearly the opportunity we had in the front half. And in terms of, I think the comments around the inventory and the pockets there, it really didn't have an impact on our margin expectations. I think what we were trying to articulate was the fact that we're very sensitive to our overall disciplines about controlling inventories and we recognize it was a little bit of a blip there and we're dealing with it, but nothing that's having an impact on the financial performance.

Our next question is from Neely Tamminga from Piper Jaffray. Neely Tamminga - Piper Jaffray: I wanted to talk a little bit about the planning and allocation efforts that you guys have underway and what we can expect form a return for a list perspective? Why one would invest in planning and allocation? And then just a very specific follow-up, you'd indicated TBD and Savvy were underperforming a little bit year to date, some opportunity to work there. I guess the question if you were on the call would be, it's a very denim heavy type of department, is it more of a denim cycle trend issue or are there other issues at work?

As you know, because we've talked both on these calls and different conferences, that at this juncture that we think can really add value and provide better service because it's rooted in having the right arm at the right time, the right location is this allocation tool. And so we still have a good 18 months to 24 months to go internally on that, but those efforts really started some time ago and they're a natural progression of the steps we've been taking the last 10 years. But the ability to be able to buy it right upfront and have less touches, Mike commented briefly about some slightly higher fulfillment cost. So we're able to, with the ability to find one view of inventory and say, "I can get the item to the customer," it just might be more expensive or laborious behind the scenes to get them there. So ideally, you'd have it in the right spot whereas that particular fulfillment center or particular store. And so the allocation tool has the ability to improve our volume, improve service, help our vendor relationships with some more efficient supply chain. With the amount of touches and reduce markdowns. So that is something that you're not going to see a huge change in the next year to two, but the work that we're doing behind the scenes should start to 18 months, 24 months from now, start to have an impact on our bottomline result. So as Mike said, we're starting to come up on some historical highs in margin. This gives us confidence to continue to build upon that. Your other question was TBD and Savvy, and you're correct particularly in TBD, that it's been highly weighted to premium denim. We still have a very strong and robust premium denim business. I think on average, it was mentioned earlier about AUR, those price points are down a little bit, that's probably more acute than other areas of the business. But we still have a good denim business. But we do think in TBD and Savvy that the bottom business needs to be expanded just beyond denim, which I think our team is doing. But there is a lot of things in there that need some adjustment. We don't think they're wholesale, but our merchants are aware of it, they're closer to customers. And those results should hopefully improve down the road with those initiatives.

Our next question is from Wayne Hood from BMO Capital. Wayne Hood - BMO Capital: On the Rack division, given the comparison that you're up against in the recent trend would make it look like things may get worse before they get a little bit better. And comps could be down three to five, should we be thinking that until you're able to get better inventory into those stores, just kind of set us some expectations around the back-half of the year. As we commented, it's a difficult comparison to Rack?

On the Rack, it's certainly not a quantity subject. Again, we enjoyed good vendor partnerships and relationships, and we have fairly good access to inventory and we haven't had a problem filling our stores, but it's always been to us, and I think it's probably more acute now about having the most sought after goods. And we're getting first crack at it and those supplies up that inventory, we're trying to watch our markdowns and our inventory risk and improve our flow and so are vendors as well. So we think we're in a position though compared to some of the other alternatives out there, at least to be able to have the first opportunity to look at that merchandise. We are anniversarying some tougher numbers, but that is through the full-line source too. They have an opportunity just like full-line to work on the amount of units we're selling and maximizing share lot with each customer. We don't have a crystal ball on that. Your notion of three to five, but it has been in the 1% or 2% down the last four, five months. And obviously, we're hopeful over time that we get back on the plus side. Because this thing works when we're having increases. And for a long duration, having comp store decline, really makes it difficult. The positive build of the Rack is either very high, sales per square foot, high productivity stores and they still provide a very good return for us. Wayne Hood - BMO Capital: Do you think like related to this, it's going to require more human resources or more dedicated human resources capital to make sure that you don't disappoint the customer, you can't absorb the growth and digest all of this?

It's not a human resource subject. Matter of fact, that was one of the things we were excited about. That we could leverage this foundation, scale a little bit. There is a variable cost with the stores on the floor, but the back of the house buying and merchandising for the most part, I mean it's lean, being in a rack operation, doesn't mean to have much of a change. I think the opportunity is Geevy Thomas and the team that oversee the Rack are working closely with Pete and our general merchandise managers that we're one voice in the marketplace, and that across all channels that we're becoming the avenue of choice for our key vendors. And we've made tremendous progress over the last couple of years, which is demonstrating results with these vendors. We just think there's continued more opportunities there. So we're going to keep working on that, that's in our control. It's encouraging for us to have the new stores being received so well. So the model is strong, but when the day is done, comps are damn important measurement.

Our next question is from Richard Jaffe from Stifel Nicolaus. Richard Jaffe - Stifel Nicolaus: A follow-on question, I guess, given the importance of comps and the inventory position where it is today. Do you have an internal inventory turnover goal and how does that drive with driving topline with continuing comp momentum?

Yes, we do have. We measure our inventory productivity not only with churn but with (Jim Roy 14-1:00), which is something I know you're familiar with as well. And yes, we do have targets for those. Even though our inventory is worst slightly up this quarter, we still did have an improvement in churn year-over-year, although it was slightly below our internal plan. So that's the reason we are concerned, because we expected even better improvement. And going into the back half of the year and going into next year, we continue to expect low single-digit improvements in our churn. Richard Jaffe - Stifel Nicolaus: So should we assume that internal goal would be to grow sales back to the inventory?

That's always the internal goal.

Our next question is from Bob Drbul from Barclays. Bob Drbul - Barclays: You talked about some of the encouraging new store results, I think mainly on the Rack. Can you talk a little bit about the New York store and what you've learnt there so far since the opening? And ultimately when you look at the back half of the year, I guess, in both full-line and in the Rack stores, what are the biggest drivers that you see from like a category basis that is most encouraging that we should be looking for.

On the Manhattan Rack location, which is there in Union Square, we're very pleased with that store. We've learned a lot so far, we were really encouraged at the opening with the quality of people we were able to attract a part of our team. And they're far exceeding our expectation so far. We've got a great team there, led by Leanne Herman our store manager. I think we probably, and this is minor, but are guilty of sitting here in Seattle and maybe not planning it, as accurately as we could because we underestimate the summer in Manhattan and what that does to some of the rhythm of the business. It's a little bit different than the other stores in terms of the flow. But what we've seen so far, what our year-end goals are, it's been terrific. We've learned a lot about supply chains and how to flow the goods in, and if we don't have the same amount of stocks basis we do in some other stores. But the customer's been terrific so far and we're really encouraged by that. Your other question was the second half of the year on categories what would drive the business. We're going against, as we've been talking about here some improvement. And so we think it's less about one area having a dramatic impact, and how does that across the board everyone contribute low single-digits to combine to its aggregate total to reach our goals. So we think those opportunities across the board, no questions, I think that the anniversary in last year around September was when we literally threw the switch with our one view of inventory from our direct business; so that the customer and our team to be able to look at all the stores together. And that really helped our comps towards the end of the third quarter and fourth quarter. So we're going to go against that, but we've learned a lot since then. So I think what I try to say in my remarks is, on this multi-channel platform there is new things about the business everyday. And in merchandizing there is new approaches and tools. So I just think, we think, we by no means have exhausted the opportunities we have. And we still continue to believe it's less about what are we going to do next, and how are we going to edit and stay focused and improve our execution.

And our final question is from Erika Maschmeyer from Robert W. Baird. Erika Maschmeyer - Robert W. Baird: Could you talk about your recent earnings from your credit card in terms of customer spending behavior at Nordstrom versus other retailers?

I can comment more about our customer's behavior with our business versus others. Interestingly enough, as you may know we've had an enhanced fashion awards program now for about three years. And through the three major events of the second quarter, we saw continued increase in the amount of volume that we were seeing with our fashion reward customers, at a pace faster than the average of all other customers. So we continue to have a very, very high loyalty base with our credit card holders. Interestingly enough, during a period like this our new account openings have continued to grow. We're seeing a lot of customers that are attracted, not only to the offer of our credit card, but solidifying a relationship with our retail business. And as a result, we're receiving more and more accounts opened. The overall quality of the opening and the portfolio from a FICO score basis continues to improve. And so we are seeing, what we believe are positive trends, in terms of the quality of our portfolio, and our ability to continue to create a great experience with our customers.

Thank you. I'll turn the call back to Rob for closing remarks.

Thank you for joining us today for our second quarter earnings call. As a reminder, a webcast replay of this call will be available for many days on the investor relations section, www.nordstrom.com under webcast. Thanks for your interest in Nordstrom.

Thank you. This does conclude today's conference. Thank you for participating. You may now disconnect.