Greetings, and welcome to the Nordstrom Fourth Quarter 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. [Operator Instructions] 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 a 30 minutes for your questions. Before we begin, I want to mention that we'll be referring to slides, which can be viewed by going to nordstrom.com in the Investor Relations section. Our discussion may include forward-looking statements, so please refer to the slides showing our Safe Harbor language. Participating in today's call are Erik Nordstrom, Co-President; and Anne Bramman, Chief Financial Officer, who will discuss the Company's fourth quarter performance and outlook for 2019. Joining during the Q&A session will be Pete Nordstrom, Co-President. With that, I'll turn the call over to Erik.

Thanks Trina. Good afternoon. Before we get into the call, I'd like to take a moment to comment on Blake's passing. As you can imagine, this has been a painful and difficult time for our family and our Company. Blake's impact around here is immeasurable. He loved this business and was so good at it. I think the most important impact Blake had on our Company was with our people. In many ways, he brought our culture and values to life. He was the most genuine person I have ever known, and his authenticity helped him make real connections with people inside and outside of our company, many of you included. Pete, Blake and I worked closely as a team our entire lives, most especially over the last 20 years and most recently as Co-Presidents. We miss Blake terribly but are inspired by his example, and all of us are committed to keeping his legacy alive by being the best retailer we can be, particularly me and Pete. Lastly, Pete and I would like to thank those of you who have reached out with your condolences and stories about Blake. It is greatly appreciated. Okay. I’d like to start out by saying that we are confident in our strategy to serve customers and drive market share gains. Our unique business model is a key point of difference. It allows us to serve customers in multiple ways – through Stores, Online, Full-Price, and Off-Price with meaningful synergies across Nordstrom. Heading into 2019, we’re focused on leveraging our digital and physical assets to provide our customers with a best-in-class experience. While we have the right strategies in place, we are not satisfied with our current financial results. We planned 2018 as the inflection point for improved profitability, and we missed this objective. We have a high sense of urgency to deliver on our profit margin expectations. This means executing our levers to drive our top and bottom line. We’re focused on getting back on track with our profitability goals, and we reaffirm our financial targets that we laid out during Investor Day last July. Turning now to our fourth quarter results, we had a slightly positive comp sales increase driven by momentum in Off-Price. In Full-Price, we saw an unexpected slowdown in full-line store traffic, during and after the holidays. This resulted in softness across most merchandise categories, with Women’s Apparel being the most challenging. We’re taking immediate action to improve our merchandise assortment by leveraging data analytics for inventory and allocation planning. At Investor Day, we outlined a number of initiatives supporting our customer strategy. First, we’re encouraged by our customer trends. Of our 35 million customers, nearly 10 million shopped across our multiple channels over the past year. We expect this to lead to incremental customer spend of 4x to 11x. During 2018, more than 7 million new customers were introduced to Nordstrom through our Off-Price business, our largest source of customer acquisition. This is impactful because one-third of these customers are expected to cross-shop in our Full-Price business within a year. Second, our early investments to build a robust digital business gives us a competitive advantage. Digital sales made up 30% of our business in 2018. As we shared during Investor Day, Nordstrom.com has achieved scale with contribution margins at parity with full-line stores. Customers are increasingly engaging with us across stores and online. As an example, we’ve seen annualized sales growth of 40% from buy online, pick-up in-store over the past five years. Third, we continue to leverage our strategic brand partnerships to offer customers newness and a sense of discovery. These partnerships include emerging brands such as Reformation and Something Navy, as well as established partners like La Mer and Birkenstock. We also had successful limited-time launches of digitally native brands like Away and Allbirds, with more coming this year. Our strategic brands delivered growth of 9% and made up more than 40% of our Full-Price sales. Finally, we’re pleased with our team’s execution in Off-Price to build momentum over the past year. Through focused efforts to strengthen our merchandise offering, we delivered improved topline trends and faster inventory turns. We continued our expansion into Canada with the introduction of six Nordstrom Rack stores that have outperformed our expectations. Similar to our U.S. business, we’ve already seen synergies between Nordstrom and Rack stores. For example, the Rack serves as an exhaust for full-line stores, enabling more newness and improving product margin in Canada. This year, we have two key priorities to drive sales and market share gains – our local market strategy and The Nordy Club loyalty program. Beginning with our local market strategy, we’re leveraging inventory, along with digital and store capabilities, to serve customers in new and relevant ways. We launched this strategy in Los Angeles as a proof of concept. The outsized share gains in this market give us confidence as we continue to scale. Our “Get It Fast” feature offers customers an expanded selection of merchandise available next day. We also opened two more Nordstrom Local neighborhood hubs. We’re experiencing higher customer engagement through services such as alterations and personal styling, which lead to an exponential lift in customer spend. In the L.A. market, demand for buy online, pick-up in-store increased by 4x. Customers who visit Nordstrom Local spend 2.5x more on average. This year we’re planning to reach scale in L.A. by leveraging our inventory. Our supply chain investments will give customers greater access to merchandise selection, with faster delivery, and at a lower cost to us. This spring, we plan to open a local omni-channel hub in L.A. to accelerate inventory efficiencies. We also plan to open a 1 million square-foot supply chain facility in the fall. This will enable faster delivery to the West Coast, which represents 40% of our customer base. We’re looking forward to expanding our presence in New York City. We introduced our men’s store last spring and plan to open our women’s store this October. This flagship will be the biggest and best statement of the Nordstrom brand, in one of the world’s top retail markets. We expect that our flagship, coupled with our digital presence, will contribute a meaningful sales lift in the New York City market. Our second key priority is to leverage our loyalty program. We continue to evolve our program to remain relevant with customers. In 2018, our loyalty customers contributed more than half of our sales. Last fall, we launched our enhanced program, The Nordy Club. Card members are now earning three points – up from two – for every dollar they spend. We also added experiential elements, such as exclusive access to services and experiences. For example, we offered our loyalty customers early access to our recent Something Navy drop. Going forward, we are pursuing additional opportunities to further personalize the customer experience and drive increased spend. In closing, we’re well-positioned for success through our unique business model that enables us to serve customers in differentiated ways. As we focus on delivering our profitability goals this year, we’re prepared to take further action to drive our top and bottom line. I’ll now turn the call over to Anne, who will provide additional insights into our results and expectations for 2019.

Thank you, Erik. To reiterate, we’re disappointed that we missed our EBIT margin inflection point in 2018. We’re focused on getting back on track through our levers around inventory and expense. As we approach the end of our heavy investment cycle this year, we expect our generational investments and digital capabilities to further scale and contribute to improved profitability. In addition, our strong financial position enables us to remain agile in changing business conditions. Turning to our fourth quarter performance from an EBIT perspective, our results were generally consistent with our updated expectations in our holiday preannouncement. While Full-Price sales came in lower than expected, this was offset by strong expense management. Full-Price comp sales decreased 1.6%. As Erik mentioned, we saw broad-based declines across most merchandise categories, with the exception of Shoes. To address our opportunities going forward, we took immediate action to edit our assortment, which represented about 10% of our brand portfolio. In Off-Price, our comp sales increase of 4% was in line with expectations, with gains across most divisions. This reflected successful efforts throughout the year to improve our merchandise assortment and accelerate inventory turns. Our total company gross profit rate decreased 33 basis points over last year. We took higher markdowns due to softer Full-Price trends and in response to an elevated promotional environment. We ended the year in a solid inventory position overall, with a decrease of approximately 2.5%. That said, we have some pockets of elevated levels based on our current sales trends. Our SG&A rate was down 23 basis points over last year. We managed expenses well, outperforming our expectations. We continued to bend the curve as our annual expense growth moderated to 4%, below the five-year historical average of 7%. This was driven by productivity gains in our digital capabilities particularly in marketing and technology. Our fourth quarter earnings also reflected a favorable income tax impact associated with our deferred tax assets. This included a $0.05 EPS benefit related to prior periods, in addition to a reduced effective tax rate beginning in 2018. As we look back on the year, our strong financial position is a key differentiator in the marketplace. We have a healthy balance sheet and generated annual operating cash flow of more than $1 billion for the 10th consecutive year. Our consistent and balanced capital allocation approach enabled us to return $1 billion to shareholders during the year and maintain an investment grade credit rating. As we shared during Investor Day, we are targeting increased shareholder returns through the following financial priorities: drive market share gains; improve profitability and returns; and continue our disciplined capital allocation approach. We’re focused on achieving our long-term financial targets and in fact, sales, ROIC, and free cash flow performed in line with our goals. While we fell short of our EBIT margin expectations in 2018, we’re confident that we can achieve our long-term targets. We’re focused on scaling our generational investments, leveraging our digital capabilities, and strengthening our product margin. Inventory is our biggest near-term lever of profitability. We’ve positioned our inventory plans below our sales trends, giving us flexibility to chase demand. We’re also further leveraging data analytics to inform our merchandise levels and allocation. Our second lever of improved profitability is expense. Relative to our long-term targets, we are planning incremental savings between $150 million to $200 million related to efficiency initiatives across our company. Turning to our 2019 guidance, our EPS range of $3.65 to $3.90 is based on net sales growth of 1% to 2%. This assumes consistent trends in Off-Price and gradual improvement in Full-Price throughout the year. As we have mentioned before, we’re measuring success through sales, customer, and market metrics. In 2019, we expect net sales growth to approximate comps due to the ongoing shift from stores to digital. As a result, beginning this year we will only report net sales growth. For EBIT, we expect a range of $915 to $970 million. This implies an EBIT margin range of 5.9% to 6.1%, tracking toward our 2020 goal of 6.3% to 6.5%. Relative to our long-term targets, we have assumed lower sales growth in 2019 offset by incremental expense initiatives. From a gross profit perspective, we’re planning modest expansion through efforts to increase inventory turns and grow strategic brands. Our occupancy rate is expected to be flat. Moving to SG&A, we’re planning for modest deleverage when excluding the estimated credit charge in 2018. This includes $150 million to $200 million of expense savings and ongoing productivity gains in our digital capabilities. Excluding our West Coast supply chain investments, we expect to maintain a mid-single-digit expense growth for digital capabilities. Another lever of improved profitability is our generational investments. In 2018, they contributed nearly $2 billion to our topline and exceeded our bottom line expectations. Nordstromrack.com and HauteLook became our fastest business to hit $1 billion in sales. Trunk Club sales grew 35% for the year, on track to reach its market potential of more than $500 million. In 2019, we’re planning for our generational investments to deliver sales of roughly $2.2 billion, with an EBIT improvement of approximately $15 million over last year. In terms of our quarterly cadence, we expect EBIT for the first quarter to decrease from the prior year. This assumes a continuation of current sales trends with higher markdowns to clear out pockets of excess inventory. From an expense standpoint, we assume greater deleverage on fixed expenses resulting from lower volume in the first quarter relative to the year. We’re planning for EBIT margin to leverage beginning in the second quarter. In addition, we estimate $35 million in pre-opening costs for our New York flagship leading up to our planned October opening. From a CapEx perspective, there are no material changes to our 5-year plan. We’re estimating approximately $900 million of investments in 2019, or nearly 6% of sales. This includes a shift of around $100 million in projects from last year. We’re investing in our key priorities, with 50% of our plan for technology and supply chain and 30% for the New York flagship. As we near the end of our generational investments cycle, we expect CapEx levels to moderate in 2020. Through our unique business model and strong financial position, we believe we have the appropriate plans in place to succeed. Together, as an experienced team, we’re prepared to make hard choices and pull additional levers around inventory and expenses to drive improvement in our business. Heading into 2019, we’re focused on delivering our profitability expecations and long-term financial targets. I’ll now turn it over to Trina for Q&A.

Thank you, Anne. Before we get started with Q&A, we would appreciate it if you can limit to one question to allow everyone a chance to ask a question. We'll now move to the Q&A session.

Thank you. [Operator Instructions] Our first question is from Jay Sole of UBS. Please proceed.

Great, thank you. Anne, my question is about the margin guidance. It’s interesting that you're guiding to sales up 1% to 2%, yet you're still able to increase the EBIT margin. Is the message that you're seeing investments payoff, the generational investments and you're able to do things around inventory or is it more that sales are a little bit slower and you're finding new places to sort of cut costs and maybe you didn't expect before? And if you could sort of maybe divide between the two where the margin improvement is coming from that'd be helpful. Thank you.

Yes. Thanks Jay, and I appreciate your question. So I think let's step back and broadly look at how we set the plan for 2019 and where we set our guidance. So as you mentioned the topline of 1% to 2%. I think if you’re focusing on the – I'm going to talk about the midpoint of our guidance. As you can see from the midpoint of our guidance, we are actually expecting to get inflection in EBIT rate. And the way we're getting there is modest improvement in our margins through inventory turns, tighter discipline in inventory and strategic partnerships. On the SG&A side, it's a slight deleverage, but between the two, they kind of moderate out. So what you're seeing is flow through from the topline. I would emphasize, on the SG&A piece to it. It's kind of a combination of both. We are getting a lot more leverage both in the topline and the flow through from our generational investments. We're getting scale and productivity out of the investments we've been making in our digital capabilities. And additionally, we are finding additional ways to drive productivity in the organization. In general, when I look at our SG&A rate as we're coming out of our heavy investment cycles, the good news is if you pull out what we're investing in our West Coast supply chain, our SG&A rate would be relatively flat from a rate basis year-over-year. So we're really starting to see that scale and productivity coming through the business.

Got it. Thank you so much.

Thank you. Next is Alex Walvis with Goldman Sachs. Please proceed with your question.

Hi. This is [Rossi] on for Alex. We just want to know what is embedded in your guidance as far as freight and wages, particularly on the fulfillment? And also if you could give a little bit more color on the digital capabilities planned for 2019? That would be helpful. Thank you.

Yes. So Alex, I'll take the first piece of the wage and freight. We typically don't break that in the model. What I would say is as you're hearing from everybody in the market, there is wage inflation and freight costs are going up. However, as part of our guidance, we're finding ways to offset that. Again, we've been making investments in things like the supply chain and West Coast. So that's actually helping us not only serve our customers in a better way, but it's also allowing us to open up inventory and also be more cost efficient in how we serve the customer. So we're finding ways to offset some of those increases. From a digital capability perspective, Erik talked about supply chain in his remarks. Erik, do you want to add anything else to the capability?

Yes. I’ll touch on that. I would start with inventory, being able to leverage the inventory that we have that's close to our customers, mainly in our stores, but also starting this year with the local omnichannel hub, and I mentioned in LA, allows us to do a lot with customers then it – so it's the digital investments to leverage that inventory. It's also the digital investments allow the customer to access it the inventory in very efficient way. So the result of that is a significant increase in selection for the customer. And when we executed with our local market strategy, especially same day, next day, two day, the amount of selection we can bring to customer is significant. The speed increases dramatically as well. Right now our two fulfillment centers, one is an Iowa, one is in Pennsylvania. Our delivery time to our West Coast customers, will improve significantly. And the third thing that our digital investments around inventory provide us – for us at a much lower cost. We're able to get this increased selection faster and at a lower cost. So it's a very meaningful. The other part, our digital capabilities, I would lump them together as being able to serve customers better. And a lot of that has to do with stitching together these experiences, digital experiences we've invested in the last several years. A lot of these capabilities we've tested and we know, they resonate with customers, but they especially are meaningful to the business when we can connect them together. So it can be – I guess old world services like alterations of making that experience and setting up appointments online. That's an important piece of engagement for us and our digital investments help with that.

Thank you. Next is Oliver Chen with Cowen. Please proceed.

Hi. Thank you. It was very helpful in the comments regarding the women's product and that being more challenging. What's your hypothesis for what happened there and what classifications or thoughts do you have? It sounded like you could use data to help better inform the inventory bias. Just would love your thoughts on how that process will work and the timing of working through these pockets of elevated levels? Thank you.

Yes. Hi, Oliver, this is Pete. So yes, it was a bit abrupt in terms of what happened in women's and somewhat unusual that had happened pretty much across the Board. And there's explanations for all, but if you really kind of get into it, it is troubling that we had that challenge across the Board. So the thing that we've got going for us, to your point about the data analytics, we've got really good information about what's working, what's not. And so we’re actually right in the middle of understanding better just things like our average unit retail and some what's happening in the different classifications. So the first thing we did is we had to take our inventory levels down, so that we weren't taking too many markdowns and as such, we edit it out. It's about 10% of the brands that we offer in women. So part of that gets us rightsized, and the other part of that that does creates some Open-To-Buy for us to go and buy new things that hopefully are going to be more compelling. And I think we tend to always gravitate. We've been doing this a long time, we're in the fashion business like, if it's not working it's probably because our offers is not compelling enough. And I know that sounds kind of obvious, but we've got a team of people that are currently in market right now just trying to figure out a way to improve our offer. There were some things that worked well in women's. As an example, like our Topshop business is really strong still. So there maybe some things to learn about that. I mean that would suggest to us that new product, fashion product, maybe a price sensibility. I think some indicators there that should help us as we continue to work through this.

I'll take the question on the timing. So as we talked about our Q1 guidance, part of this is getting through some of the pockets of excess inventory. As I mentioned in my comments in the script, we've been placing our buy below our sales trend in order to allow ourselves the ability to be agile and to chase demand. So we're expecting that we'll be able to come out of Q1 really having to address some of these pockets of inventory.

Okay. Very helpful. Best regards.

Thank you.

Thank you. Next is Omar Saad with Evercore ISI. Please proceed.

Thanks for taking my question. I appreciate the really thoughtful remarks around Blake's passing. My condolences. Could you talk about how you're going to fulfill his responsibilities and how you're reallocating a lot of things he did internally in the organization? And how you are thinking about the management team overall as you continue to go down this digital path and omni-channel path where you think you are on the talent front? Thank you.

Thanks, Omar. Yes, in many ways the subject aren't new to me and Pete – some ways they are. We've been co-presidents and have shared responsibilities over a number of years where we had our different areas of focus. So we've done it with Blake's passing, I am supporting finance, still supporting our Full-Price business for both full-line stores, nordstrom.com, and supporting technology. Pete supporting the Off-Price business, marketing, HR, all of our merchandising. Am I forgetting anything?

That's about it?

Okay. And I’ll say structure always follow strategy for us and we've moved things around over the years. And again, we've been involved in kind of all the subjects and some of them were more involved now than we were before. To your question about, how you view talent and our team, we really do run the business as a team and it's our executive team that ultimately runs the business for us. And we've had some additions over the last several years going back, so it's been about 3.5 years. Christine Deputy, in HR; and then Anne, our CFO; and most recently, Edmond Mesrobian, who is our Chief Technology Officer, joined us about seven months ago. I will say the common thread through all of those is going deep in subject matter expertise and adding more specific technical talent to our team, number one. And then number two is how we operate as a team. So I believe we have the best team we've ever had and feeling really confident as we move forward.

Thanks for sharing your comments.

Thanks Omar.

Thank you. Next is Ed Yruma with KeyBanc Capital Markets. Please proceed.

Hi, thanks for taking my question and my condolences. I know the New York women's flagship is opening this year, later in the year, and I know you gave some color to the shape of the year from a P&L perspective, but are there some things we should consider as you begin to kind of final preparation for opening that from a P&L perspective and kind of how should we think about the lift that you receive from it in the back part of the year? Thank you.

Ed, this is Anne. So for the New York store, we gave some commentary as far as the pre-opening expenses as you can imagine with an October opening, you will start seeing this really start to ramp Q2 more importantly Q3 as we go through the year. As far as the color around the year, when we get into the quarter we'll give some more watching as far as and guidance or color of how that market is doing as part of our generational investment. I will say that given the fact that this is opening in the fourth quarter, as you can imagine, it will slightly skew some of our guidance or EBIT delivery and topline delivered to the fourth quarter or the second half of the year versus normal. Not materially but slightly.

Got it. Thanks so much.

Thank you. Next is Erinn Murphy with Piper Jaffray. Please proceed.

Great. Thanks for taking my question and condolences to you and the family. I guess the first question for me is just on the customer centric strategy, you guys have the 10 million consumers that you have that cross shot multiple channels. I think you talked about it growing 6%. I'm curious, how would that looked over time? You guys have slice and dice the loyalty data little bit different than just trying to see what the kind of growth rate comparability is. And then I guess maybe adding on to Ed's question as it relates to the New York opening, I'm curious if there have been specific learnings more from whether it's merchandising or anything else from the men's store now that it's been open for a while that can help kind of inform things that you would change and as you prepare to open that? Thank you.

Hi Erin, this is Erik. You brought up the 10 million is cross shopping, then you mentioned loyalty. Those are two different things. So the 10 million is what a shops more than one channel for us with us, but is not limited to loyalty customer. So yes. I will say that cross shop…

Yes, please. I guess that do you used to disclose the loyalty members pretty right regularly and you've stopped disclosing that. So we're getting kind of different segmentation of how you think about kind of that customer centric model. So just thinking about that 10 million who kind of cross shops, I'm just – you talked about it growing 6%. I'm just curious kind of what has that run rate been. The growth of those consumers that are shopping across multiple channels how has that looked over the recent quarters?

I don't have that right in front of me, but my I would say it's been pretty steady that that percentage of migration and what's encouraging to us is that that continues. The as that becomes a bigger, a bigger base, that's more and more people. So we are encouraged about that in. And I would point out we talk about things like the cross shop and digital sales penetration. Our business is much more digital than even that suggest, we know that the majority of store visits start online. We know that majority of our store customers pull out their phone at some point while they're in our stores. And ultimately that could get captured as a store sale and it wouldn't be capturing that calculation that you're referring to. But it absolutely, is aided by the digital assets that we have.

And this is Pete. I'll take on the New York part and it is true. We've had a lot of learnings and one of the great advantages we've had is being able to open the men's store and advance the women's store. It did initially start out that that was our plan, but once we knew we were able to open it sooner, we made a decision because we knew we'd be able to get some learnings and when the women's store opened really be able to leverage that. And that's been true. We've been able to prove ourselves that we can hire really nice people that give great service. That's been super positive. We proved that the customers are responding super well to the integrated physical and digital experiences behalf such as express returns and same day delivery and the 24/7 Buy Online Pick Up in Store. In fact, a lot of women shoppers are using the men's store as a hub to do returns. We’ve also proven that we get a big online lift in a market when we have a physical store there. The New York market is already on before we open a physical store, our biggest online market. So we know that once the women's store opened, that's going to be great. The other thing that we confirmed ourselves the synergy of having everything all located next to each other helps. So we’ve planned this, but we've confirmed it that without the women's store opening the men's store while it's doing well and you'll meet our plans and both ways, it's going to be a lot better, when the women's store opened because we just get that lift of that many more customers. I mean, for example, in our regular Full-Price business, I think it's something that 48% of all things sold in men’s departments, sold to a woman buying it for a man. And it's obviously quite a bit less since we don't have the women's store across the street. So I think we're feeling super encouraged by that. That the other thing I would tell you is, we've got a reputation, a legacy and a foundational element around shoes. Shoes has been the best performing category in men's. We've got a lot of shoe inventory and square footage plan in women's and kids and everything [indiscernible] new tower. We're feeling really confident about that. The other thing that we've done in the tower as we've dedicated more inventory and floor space to designer, designers has been the best performing kind of as a price classification in men's. And we anticipate that that's going to carry from women's. So I guess I've used a long way of answers, but I think we've confirmed a lot of things that we knew and were feeling really great about opening up in October.

Yes, and Erinn, this is Trina. Just to let you know that we did disclose the loyalty customer. It's $11 million, that's a 16% increase year-over-year, and they contribute about 56% of our sales, and that's on it's like.

Thank you. I appreciate that. Thanks Trina.

Thank you. Next is Paul Lejuez with Citi. Please proceed.

Hey, thanks everyone. It's Tracy filling in for Paul. I was just wondering, given the challenges, you saw it full price in the quarter, what were you seeing in the competitive environment and does any of that make you change or we think you're overall promotional playbook? Thanks.

Yes, this is Pete. That's a really good question. And I think it's a real time issue for us to figure out how to compete more effectively in our promotional environment. And it was promotional, in holiday time in particular. A lot of it is, we've got what we call preferred strategic brands and these are brands that have limited distribution, but all of these brands are retailers as well. And what things that we've seen is a fair amount of them pulled a promotional trigger there in December. So we were actually having to compete on price with some of these brands that results in terms of their vertical presence as retailers. I think that everyone really is committed in our orbit of – and universe of brands we work with try to run a full price business, but there's some practical realities that come in there. So it's evolved and changed over the years from just a straight markdown to things like buy more, save more, and a lot of kind of clever ways of getting promotional activity in there. So I guess what we could tell you without declaring anything here specifically is that, we've got a lot of really good data about that and we want to make sure that our strategy is as competitive as it can be. And obviously we can't pretend that the promotional thing doesn't exist. So we continue to work on that.

Thank you very much.

Thank you. Next is Michael Binetti with Credit Suisse. Please proceed.

Hey guys, thanks for taking our question. I'll have my condolences. I just want to a couple of modeling questions on Slide 21, that 1Q commentary and does that mean below the full-year guide or below last year? And then also I don't understand the comment that diluted shares will be $162, for fiscal 2019 without buyback considering you printed about 167 and fourth quarter, so just a couple of simple modeling ones there.

Yes, thanks for the question, so on the slide, on the Q1 guidance it’s below last year, so again as we talked about it, we're seeing overall guidance for the year is that we would start to slowly get a gradual improvement in the full price trends we saw coming out of Q4. We have some pockets of inventory that we will go through. So we expect our markdowns to be higher and so that for our product margin would be a little – will be lower as well year-over-year, because of the topline coming down, we would expect to see deleverage on our fixed SG&A expenses just because you don't have the topline there. So overall, we would expect Q1 on a comparison compared to last year will be below. As far as to share pieces to what we gave you the guidance based on the – there's an average versus where we end the year and trying to come work with you offline on reconciling that.

Okay, thanks. And I guess if we try to click down a little bit into the full price business and I guess you've diagnosed it that some of the vertical brands maybe, when promotional on you and that could have affected the trend rate in the fourth quarter. If I heard your comments a minute ago were correctly, I'm trying to think why that behavior would change with given so many of the brands are building their own direct-to-consumer businesses today. What we will cause her behavior to change or this is more of unappreciated comment about things to come that you'll have to be competing with the brands in the stores a little bit more as they build out their own DTC businesses?

Well, the promotional activity is usually a reflection of some kind of deceleration of sales trends and they find themselves with too much inventory. So for us we're on top of that as best we can be. And we paid the price for a little bit to get ourselves in line, but we start the year in a pretty healthy position with inventory positions, even though we missed our sales plans. And even as we go forward, we're going to be down about 5% and our plans and receipts, if not more. I mean, we've got to respond to that as time goes on. So I don't know and I think increasingly it strikes us that our relationships with brands, particularly as we become more edited and our offer is much more strategic than it is transactional, and oftentimes we're trying to solve for the same issues. These guys have big retail initiatives and it doesn't serve them well to run a super promotional business either. I mean, it used to be the biggest cry that they would have if we’re super promotional with the business. So they know it's corrosive to the brand value that they have. So I think the biggest thing is for us to work upfront with brands to be clear about what we see in terms of sales trends, planning the business right, ensuring that we've got good flow. So that's keeping ourselves nimble and agile by having relatively lean inventories. These have been fundamental practices that we've worked on for years, but it feels like it's coming into sharper focus. And I can just tell you from my personal experience of interacting with the leaders of these different brands we do business with, they are largely very interested in partnering with us in ways that they haven't in the past about how to flow inventory. So it works to our mutual benefit.

Okay. Thank you.

Thank you. Next is Chuck Grom with Gordon Haskett. Please proceed.

Thanks. Good afternoon, Erik, Peter, our thoughts are with you and the team. Anne just a couple for you on the incremental expense savings that you talked about the $150 million to $200 million, just wondering if you could flush out what the impact is to your long-term guide in light of that? And then, my follow-up question would be just we noticed that the number of Rack openings next year is going to be down significantly. I think you guys were outlining five stores versus roughly 17 in the past couple of years. Just wondering why the deceleration. Thank you.

Yes. Chuck, let me talk to you a little bit about the SG&A pieces and the incremental. So as far as the overall, our long-term targets, as I mentioned in my comments, when we set the target from our Investor Day last summer, we have had a little bit of – we took a modest decline to sale. So that’s come down a little bit versus what we had set out was the target. But we have more SG&A productivity savings. I would expect when you see that coming through for the year, you're going to start seeing that coming through in our SG&A lines in the second quarter, and then really progressing through the rest of the year. So overall it should actually – we should be in line from an EBIT rate percentage. It's just a few different levers to get there. And I think Pete can talk about the Racks.

Yes. There is no big explicit message being sent about the number of stores were Rack stores are opened this next year. Our strategy for a long time is to be strategic there. We don't have as long as the lead time to figure that out and plan it out. And frankly we actually raise the bar on the expectations we have when planning a store in terms of the four wall profitability it needs to deliver. I think just to be cautious kind of giving the environment in terms of what's happening with physical brick and mortar retailing. But the good news is we've been able to have success really across the board regionally with new Racks are opening. So again, I wouldn't read too much into that. I think we're going to continue to be opportunistic. We believe we can have more Rack stores successfully. And what typically happens in terms of the opportunistic part of it is when times get challenging for others, oftentimes that creates great real estate opportunities for us. So that's what we're taking a hard look at here over the next 12 to 18 months.

Thank you.

We will now take one more question.

Thank you. Our last question comes from Simeon Siegel with Nomura. Please proceed.

Thanks. Good afternoon, and thanks for squeezing me in and my condolences to the family as well. Anne, how was traffic versus ticket in this past quarter between Full and Off-Price? And then just is there any update to the Analyst Day plan to repurchase? I think it was 3.5 billion to 4 billion of stock or whatever that number was. So just if we can get an update on that. Thank you.

Thanks. So on the traffic versus ticket, I would say generally when we talk about this in Full-Price, we saw a deceleration, pretty substantial deceleration in Q4. And for Off-Price the trends really didn't change. So the biggest call I would have on traffic, is the Q4 for Full-Price. As far as the share buyback, we laid out a plan and I think you saw in Q4, we’re part of that – that was part of our disciplined capital allocation approach. And we did see an opportunity to get in the market and buyback a lot of stock. So we continued to have approach. We haven't come off our plan. That was a five-year plan. But I think you're seeing that we're executing against that.

Great. Thanks a lot. Best of luck for the year ahead.

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.