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Nordstrom Inc (JWN) Q1 2019 Earnings Call Transcript

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Nordstrom Inc (NYSE: JWN)
Q1 2019 Earnings Call
May 21, 2019, 4:45 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Nordstrom First 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 will turn the call over to Trina Schurman, Director of Investor Relations for Nordstrom. You may begin.

Trina Schurman -- Director of Investor Relations

Good afternoon and thank you for joining us. Today's earnings call will last 45 minutes, and will include 30 minutes for your questions.

Before we begin, I want to mention that we'll be referring to slides, which can be viewed by going to the Investor Relations section on nordstrom.com. Our discussion may include forward-looking statements, so please refer to the slide 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 first 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.

Erik B. Nordstrom -- Co-President

Thank you for joining us today. While we believe our customer strategy and business model position us for long-term success, our first quarter top line results were well below our expectations. We had planned for a continuation of soft sales trends from the fourth quarter, but saw further deceleration.

Relative to the plans we shared at the beginning of the year, we successfully executed on inventory and expense, which helped mitigate our sales miss. We ended the quarter with inventories in solid shape and our financial position remains strong. We're confident in our leadership team's ability to better serve customers on their terms, and remain focused on achieving profitable growth.

During the first quarter, we had some executional misses with the customer experience. That had an impact on sales across the Full-Price and Off-Price, both in stores and online. We know we disappointed our customers and we own it. We've identified three factors that contributed to the sales miss; loyalty, digital marketing and merchandise. These areas are within our control to turn around, and we are already taking steps to course correct and drive to top line. I'd like to provide insight into what happens, and how we're addressing all three areas.

Beginning with loyalty. We have a well-established program with nearly 12 million active customers contributing more than 60% of sales in the first quarter. Last fall, we evolved the program with the introduction of the Nordy Club, which allows customers to earn reward notes faster and provides early access to product and events. However, the execution of our rollout was not as successful as we had planned. As part of our decision to move to digital first program, we eliminated paper notes, but later discovered that a segment of our customer base relies on receiving these notes by mail. As a result, we saw a reduction in traffic across Full-Price and Off-Price. We are resolving these issues, and our initial results showed improving trends for engagement, traffic and spend from our loyalty customers.

The second factor is related to digital marketing. We deliberately reduced our digital marketing, as we shifted resources to loyalty. With the Nordy Club rollout not ramping as we have projected, we experienced incremental traffic declines in our business. We have since increased our investments in digital marketing to drive traffic and sales.

The third factor is merchandise. The breadth of our offering across brands, price points and styles is the key differentiator in serving customers. We have opportunities to rebalance our assortment mix to better resonate with customers in Full-Price and Off-Price. This includes women's apparel, which continue to have the toughest results in Full-Price. Beauty was another call out for the quarter, given the highly promotional environment and increased out of stock levels. It will take some time to adjust our merchandise assortment. We have already started this process. We expect improvement in the second half of the year.

All three factors, loyalty, digital marketing and merchandise contributed to a slowdown in digital sales growth of 7% in the first quarter, relative to last year's annual growth of 16%. We're making the changes we believe are necessary to drive our top line, as we continue our aggressive focus on expenses, which Anne will discuss in more detail. Our strength is our commitment to the customer, and we know we have areas for improvement. Over the years, we have managed through many cycles, which give us confidence in our ability to adjust our business to better serve customers.

Our entire leadership team has a high degree of urgency to improve our top line and profitability. Additionally, the team is focused on executing the following three key strategies this year. First, our local market strategy enables increased customer engagement through services in greater access to merchandise selection with faster delivery and at a lower cost to us. Last year, we launched in Los Angeles, our largest market with four full-line stores and three Nordstrom local service hubs. During the first quarter, we continued to see positive outcomes with outsized growth in digital sales and store traffic in this market. In addition, nearly one-third of order pickup services are done in our three Nordstrom locals. We're planning to reach scale in the LA market, including 16 full-line stores, but further leveraging inventory through our supply chain investments.

Moving to our second key strategy, our market share gains in Los Angeles give us added confidence, as we expand our presence in New York City, our largest market for online sales. We are on track to open our flagship on October 24 along with two Nordstrom local hubs this fall. We expect these physical assets to greatly add to our ability to engage with customers across multiple touch points. We know that engaged customers spend more, which is expected to result in a meaningful sales lift for this important market.

With our third strategy, we're focused on improving the customer experience during our two key events. Our Anniversary Sale is a unique event, offering brand new arrivals at reduced prices for a limited time. We're curating our assortment to focus on our customers favorite brands. We're also extending the pre-shop period for our top loyalty customers. For holiday, we're aiming to make Nordstrom more of a gift giving destination for both new and existing customers. This includes amplifying our gifting assortment across categories and with more accessible price points.

In closing, we own our results and we're focused on getting our sales back on track. As always, the customers at the center of everything we do and through that lens, we're committed to better serving them on their terms.

Now, Anne will discuss our financial results and outlook.

Anne L. Bramman -- Chief Financial Officer

Thank you, Erik. I would like to reiterate that we take an immediate action to better serve our customers for our top line and improve profitability. As we continue to focus on making our business more efficient and productive, we're collectively bending the expense curve and managing our inventory.

Turning to our top line results. Total Company sales were down 3.5% with Full-Price down 5.1% and Off-Price down 0.6%. The drivers of our sales shortfall, loyalty, digital marketing and merchandise, contributed to decelerating trends in our key operating metrics, which includes trips and customer engagement. Although we missed our sales expectations by several hundred basis points, we were able to offset roughly half of this through our merchandise margins and expense performance. In fact, the sales shortfall in Off-Price was fully offset by the team's ability to control expenses and manage inventory levels down significantly.

Moving to gross profit. Our rate was down 60 basis points relative to last year, due to planned markdowns and occupancy deleverage. We ended the quarter in a solid inventory position with a positive spread of 180 basis points relative to sale. This allows us to be agile in responding to changes in customer expectation. As we continue into the second quarter, we have planned inventory based on current sales trends, and we remain disciplined in our buys as we work to improve our merchandise offering.

From an expense standpoint, our SG&A rate increased 168 basis points relative to last year. This was entirely due to fixed cost leverage on lower sales. We're making further structural enhancements to our operating model, as we implement several efficiency initiatives related to three areas; improvements to our store operating model; productivity gains in technology and supply chain; and reduced discretionary spend. We expect these initiatives to ramp up over the year, and we're ahead of our plans with $35 million realized in the first quarter. This included operational changes in stores to better align with how customers are shopping.

For example, for improving services that have a direct customer impact, such as order fulfillment in full-line stores and faster checkout at the Rack. All these initiatives represent permanent reductions in our cost structure, which positions us well for strong EBIT flow-through going forward.

Another lever of improved profitability is our generational investment. Over the past decade, we've invested early in our digital capabilities and new markets. This is the last year of our generational investment cycle, which we're already seeing return. These investments are continuing to scale and are expected to deliver top line growth and improved profitability this year.

Our financial position remains strong, enabling us to be flexible in changing business conditions. We have a healthy balance sheet, and generated annual operating cash flow of more than $1 billion over the last decade. Our consistent and balanced capital allocation approach enables us to maintain an investment-grade credit rating. We also returned approximately $250 million to shareholders through dividends and share repurchases during the first quarter.

Moving to our annual outlook, we revised EPS from a range of $3.65 to $3.90 to a range of $3.25 to $3.65. This incorporates a sales decline of 2% to flat growth for the year, relative to our prior outlook of 1% to 2% increase. We expect it's going to take some time to see improved mix, as we further adjust our merchandise offerings and lap the operational issues from the Nordy Club rollout.

We anticipate first quarter trends to continue into the second quarter, with gradual improvement beginning in the second half of the year. Our credit revenue was planning for a low-to-mid single-digit increase based on our current sales trend.

From a bottom line perspective, we expect an EBIT margin range of 5.3% to 5.8% compared to our prior outlook of 5.9% to 6.1%. From a gross profit and SG&A perspective, the change in our assumption is driven by greater fixed cost deleverage and lower sales expectations. We expect gross profit at the midpoint of our outlook to be relatively flat to last year. This reflects improved merchandise margin, offset by occupancy deleverage. For SG&A, we expect moderate deleverage, but excluding the estimated credit charge in 2018.

We have also incorporated expense savings at the high end of our original range of $150 million to $200 million. These savings are expected to be back-half weighted, as we make further progress on our various initiatives.

For the second quarter, we expect our anniversary event to perform in line with our current sales trend, which has been our historical experience. Our second quarter gross profit rate deleverages similar to Q1, due to lower sales. We also expect SG&A to deleverage, but to a lesser extent in Q1, due to further expense savings.

Specific to anniversary, we're making changes to improve the overall economics of the event. As a result, we expect extended merchandise margins in the third quarter for better sell-through of anniversary product, which should result lower markdown. Please refer to our slides for additional color on our quarterly timing assumptions.

In closing, we're making hard choices, as we focus on better serving customers, driving top line and improving profitability. We know we must demonstrate this commitment with our results in the coming months, and we look forward to updating you on our progress.

I'll now turn it over to Trina for Q&A.

Trina Schurman -- Director of Investor Relations

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.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Thank you. Our first question is from the line of Ed Yruma with KeyBanc Capital Markets. Please proceed with your question.

Ed Yruma -- KeyBanc Capital Markets -- Analyst

Hey, good afternoon. Thanks for taking my question. Thanks for giving the diagnostic on the issues you suffered during the quarter. I guess, if you could click down a little bit, and maybe talk more specifically about Rack. It seems like a lot of what you spoke about, was related to the e-com business and the full-line. And as you look at Rack, kind of how should we think of that progression improving through the course of the year? Thank you.

Erik B. Nordstrom -- Co-President

Hi, Ed, I will take that one. Well, first of all, I'll start with the subject we touched on, kind of across Full-Price and Off-Price. So the notes, digital marketing, certainly affected our Off-Price business as well, both in-store and online. We also have merchandise mix issues to get after within Off-Price as well. When you get into the details, Off-Price is a little different than Full-Price. There's some variance department-by-department. But that mix and you know as well -- that mix is so vital. That mix we have across Off-Price to Full-Price, that mix of price points that we have, the mix of styles. We have a pretty broad range of customers that we look to serve, and our size mix is super important in delivering that. And when we get out of balance, it really affects our top line. So we have those issues in Off-Price.

The other bucket, I'd call out is, we did enter the year with a plan to improve our profitability in Off-Price, and part of that plan was eliminating some unprofitable events. Specifically, we reduced a number of flash events that we've had on HauteLook. Some of those were not profitable. We reduced and cleared the Racks event in the quarter. And we did eliminate some of the very lowest price point merchandise we had on our Off-Price e-commerce business.

We did get the profitability improvement from those decisions. The effect on the top line was greater than we had planned, and we look at that and we see opportunities to not blow up that strategy, but to make some adjustments to it that we then can and will help our top line.

Ed Yruma -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

Thank you. Next is Alexandra Walvis with Goldman Sachs. Please proceed.

Alexandra Walvis -- Goldman Sachs -- Analyst

Hi, there. Thanks so much for taking my question. You outlined the drivers of the change to the guidance for this full year. I wonder as we reflect from the last couple of quarters, whether you're thinking any differently at this stage about some of the long-term guidance that you gave at the Investor Day from last year or even the trajectory to move toward that?

Anne L. Bramman -- Chief Financial Officer

Hi, Alex. This is Anne. So, on the long-term profitability target, at this stage we have a lot of year or less to deliver. So that's 70% less delivery as we talked about, the path that we gave in the Investor Day financial goals. We're playing that out a little bit differently. So we can talk a little bit about the gross profit levers we were pulling their. We're proceeding on those and are getting the terms that we need, but we're also accelerating the expense savings productivity and are making structural changes on that. So the good news is, once we get the top line back on course, the flow through is actually be greater than what we had signaled at Investor day. So right now, we just want to play out the rest of the year, get back on track with the initiatives we've talked about, and then see where we land in here before we update these things.

Alexandra Walvis -- Goldman Sachs -- Analyst

Okay. Thank you.

Operator

Thank you. Next is Mark Altschwager with Robert W. Baird. Please proceed.

Mark Altschwager -- Robert W. Baird -- Analyst

Great. Good afternoon. Thanks for taking my question. Just following up on the earlier comments about taking some steps to drive the profit improvement at Rack. I'm wondering on the slide where you show the generational investment detail, it looks like you've reduced your profit expectations for the rack.com, Trunk Club, Canada, bucket, could you just talk a little bit about that, I mean presumably that some of the sales reduction that you're seeing? But just any other clarity on how you're looking at kind of the profit contribution from that generational investment? And sort of what the path should look like over the course of the next one to two years? Thank you.

Anne L. Bramman -- Chief Financial Officer

Hi, Mark. Yes, see, you are right. We did take slightly down the top line, and the profit piece to it, and it's really about NRHL Trunk Club businesses, and it's just in line with the sales decline that we've seen in general in fourth quarter and what we'll even guide on for the year. There's nothing else structurally different with that. It's -- once we can pull those levers and get back on track, we should see better flow through coming through on that.

Mark Altschwager -- Robert W. Baird -- Analyst

Okay. Thank you.

Operator

Thank you. Next is Paul Trussell with Deutsche Bank. Please proceed.

Paul Trussell -- Deutsche Bank -- Analyst

Hi, thank you for taking the question. I'm also referring to the slide that you give some assistance with timing of assumptions. I just wanted to inquire about some of the second half comments that you make, if you could just maybe walk us through how we should think about the impact of the NYC opening to revenues? What are the drivers behind the second half merchandise margin expansion? And then anything else, just to be mindful of as it relates to second half versus first half? Thank you.

Anne L. Bramman -- Chief Financial Officer

Yes. So maybe some high-level commentary on it, as you've mentioned we really did try to expand out the assumptions that we've been given -- that we're giving you as far as how the first half, second half of the quarter plays out. So for detailed model questions, I would just refer you to Trina for -- after the earnings call. But just stepping back and looking at the high level story, so we would expect to see some gradual improvement, but really more toward the back half of second half of the year on the top line component to it. New York is a piece of it as far as the tower opening and entering that market with our local market strategy. But really the pieces that we're seeing coming through in on the EBIT side is really getting more benefit out of the expected initiatives we've got with SG&A, and continuing to hold the strategy we have on our merch margins. And primarily with anniversary that I talked about, my opening comments, having a higher sell-through should help, particularly in Q3. And then as we exit out a year, we expect to see the flow through from that as well as the SG&A savings.

Paul Trussell -- Deutsche Bank -- Analyst

Thank you.

Operator

Thank you. Next is Matthew Boss with JPMorgan. Please proceed.

Matthew Boss -- JP Morgan -- Analyst

Thanks. At Full-Price, I guess as you dissect the softness that you're currently seeing in women's apparel in the beauty category, how are you thinking about the timing for improvement? Do you think the issue is differentiation of the merchandise? Or is it more value proposition, and like you talked about some more entry level price points? And I guess just near-term, what are the actions you're taking to stabilize these two businesses?

Peter E. Nordstrom -- Co-President

Yes, this is Pete. I would -- they're different. With beauty, we have some things happened to us that they're relatively discrete, I think, in nature. We had some out-of-stock issues that with the result of just to be in stock and really getting it from the vendor -- our vendor partners, there -- there were some issues there that we think will mostly be behind us pretty quick. We also have a lot of price promotion issues in beauty, and that caused some problems with it. But I think it's -- beauty has been such a consistently good performer for us over years, if you kind of look at that track record. We expect that that will get back on track pretty quickly.

With women's apparel, we have some more broad-based issues, a lot of it has to do with balanced price that Erik talked a little bit about. I think in particular, we're finding ways to appeal more to young customers, kind of in the range of what we do there in women's apparel. I think we know we need to do there, and the good news is that part of the business turns relatively quickly. But I think in terms of really being able to make the changes we feel like we need a make, that's going to take a few months.

So, I think on the whole, the women's apparel and beauty is a subset of all. But I think it's fair to say that more broadly, we definitely have an opportunity to be better connected with customers in terms of the relevant we have to offer, and the balance of price was probably the biggest lever there.

Matthew Boss -- JP Morgan -- Analyst

Thanks for the color.

Operator

Thank you. Next is Simeon Siegel with Nomura. Please proceed.

Simeon Siegel -- Nomura -- Analyst

Thanks. Good afternoon, guys. Anne, could you just remind us what percent of your expense structure is fixed versus variable now? Just recognizing the deleverage from the lower sales. I thought you had a pretty variable expense model. So, any thoughts or help there? And then just any way to quantify, maybe on a full year basis what each point of comp pressure does to the annual margin? Thanks.

Anne L. Bramman -- Chief Financial Officer

Yes, I don't think we've given the explicit details between fixed and variable. What I can say is, in the Full-Price business, in particular is much more of a variable model than our Off-Price business, given the business structure (inaudible). Having said that, as far as the comp piece to it, I think what you can see even in Q1, we haven't given guidance for the year is that we're actually shifting that a bit. So if you think through, our mid-point, which is down 1%, the flow through actually is a little bit better given the fact that we are holding out strategy on our gross margin as well as SG&A. So, I think, if you do the reversed logistics on that, you can see that it's -- over time as we make these structural changes, you will need less of a top line growth in order to that flow through.

Simeon Siegel -- Nomura -- Analyst

All right, thanks. Best of luck for the rest of year.

Anne L. Bramman -- Chief Financial Officer

Thanks.

Operator

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

Chuck Grom -- Gordon Haskett -- Analyst

Hey, thanks. Good afternoon. I'm just trying to reconcile your comments about you're taking some time to fix some of the issues on the merchandise side of the issues here for you guys with your comp, the implied acceleration on the two-year stack. So, maybe just help us walk through how it's going to improve both on the full-line and then also on the Rack?

Anne L. Bramman -- Chief Financial Officer

So, I think let me just frame up a little bit as far as the guidance we've given. So, when you look at the waiting between first half and second half, we're not offset significantly based if you could look at the top line sales growth or top line sales guidance that we've given between first half and second half is not all that awful you've seen historically. The only change is the fact that you've got the newer market opening up, which is slightly higher for the second half lift in top line.

So, when we look at the -- so that when we look at the overall stack, what we're assuming is that it's going to take a few months to get back on track on the assortment side. And the good news is our inventory position is in very good place. We've got a couple that are still coming through, but exiting out of the quarter allows us to be very agile, and we're active as we start rebalancing these moment to get back to what we need to. So, that's the great news on (inaudible) expense productivity that we saw is allowing us to mitigate some of the top line issues.

Operator

Thank you. Next is Kimberly Greenberger with Morgan Stanley. Please proceed.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Great, thank you so much. Anne, you talked about making SG&A more efficient. I'm just wondering if the Company has considered making more aggressive cost cuts across the organization? And if not, do you think there are areas that are opportunities or represent opportunities for that kind of initiative? Thank you.

Anne L. Bramman -- Chief Financial Officer

Yeah, Kimberly. So, when I talk about the savings that we're going after, we're actually ahead of our plan and we'll be at the higher end of the $200 million we have planned, that's better than what we had shared at the Investor Day last year. And let me put those in three broad buckets that we're going after. First is, productivity. End-to-end productivity primarily in technology and supply chain. So, those are some very structural pieces. It takes some time to work through those, but those are some big buckets that we're going after productivity perspective.

The second piece we've already implemented was just to our operating model changes that I talked about in my opening comments. And that was a piece -- it actually gets us back in line with what the customer wants, but also helps drive the expense efficiency in the stores as well. And then I think the smaller bucket I would talk about is the discretionary spend. So, it's really not that -- it's the smallest component of what we're looking at in the cost savings in past. And so that's how I would frame that. Now, what I would also say is that we're continuing to look for opportunities to drive more productivity at the end of the business. And so, as we will continue to invest in doing the right thing for the customer, we will continue invest in this business, but we're also going to look to how we can make sure that our expense structure stays in line with whatever trends we see in our top line.

Operator

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

Paul Lejuez -- Citigroup -- Analyst

Thanks. Just a follow-up on the last question and one other. Do you think there is anything that you might cut back on from an SG&A perspective, it might be negatively impacting the top line, either on the Full-Price business or the Rack business? And then just separately, curious about the reduction on the credit line, if that is simply a reflection of lower sales expectations or if there's something going on in the credit portfolio that you could share with us. Thanks.

Anne L. Bramman -- Chief Financial Officer

Hi, Paul. So, I will start with the cost component to it and I don't know if Erik, if you want to chime as well and I can give you (technical difficulty) credit. So, when we look at the SG&A component to it, I think we'll see if it's really driving more efficiency and we don't believe it's impacting the top line. And we talked about the drivers of top line, it was really about the executional opportunities we had with Nordy Club, some of the digital marketing component as well as the assortment. We have gotten back into these marketing components which is baked into our SG&A line, so you can see we're offsetting that.

And then on the credit side, we had talked about this in the last call, if you recall, that we are anniversarying a credit acquisition or customer acquisition of that from last year, we'll finish anniversarying that in the second quarter and we look at the guidance for the year, it's really consistent with what we're seeing with sales trend. So, nothing else protecting our credit.

Erik B. Nordstrom -- Co-President

Yeah, I'll add a little color on that. With loyalty and marketing, our missteps were not motivated by cutting expenses. We actually invested in a loyalty program. We upped the points from two points for every dollar spent to three points. We added a number of experiences to the program, which actually are resonating very well with the customers. But in having executional issues around the notes, directly affected our digital marketing plan, by investing in loyalty, we moved marketing dollars there and away from retention activation in our digital marketing.

So, our missteps with the loyalty program exacerbated our issues in digital marketing and they're certainly connected, they are not driven by expense. The other thing I would call out is in our stores, both in Racks and in our Full-Line stores, we have executed some model changes in our stores. Again, not driven mainly by expense, but we've been on this journey for a while of -- clearly, our model needs to change, our business model of which is born in bricks-and-mortar stores and define what the role stores are.

We think we have role to clarity on that. Our stores still that role of having great sales people, who are taking care of one customer at a time and making some genuine human connections, that's in our D&A, that's continuing, has to be important. But increasingly, stores play a fulfillment role. There are locations where customers can pickup online orders and there are locations that we still online orders from. So, we have moved our labor model in our stores to reflect what customers want and need. And there are efficiency opportunities in there.

But I wouldn't say that it's been a blunt force of Ganatra expense cut. I would say that that's been done with the board, how is the customers' needs changing, what are they looking for, how can we leverage the physical assets we have in stores and the people in our stores and the inventory in our stores to better serve them on their terms. And that's actually gone really well this quarter.

Paul Lejuez -- Citigroup -- Analyst

Thank you. Good luck.

Operator

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

Michael Binetti -- Credit Suisse -- Analyst

Hey, guys, thanks for taking our question here. So that -- if I look at the -- I'm just looking a quick upper tactical question on the lease accounting. I know there are some changes in the accounting, but it looks like it was in the ROIC calculation you guys gave in the press release significantly lower than last year, I think you report just over 200 versus 250 last year. I think that would be one of the positive contributors to the gross margin in the quarter and it's just since it's down so much in that, I wonder if you could maybe help us think through, how much that contributed to growth in the quarter and is that kind of level that we'll see going forward under the new accounting? And then I had a quick follow-up.

Anne L. Bramman -- Chief Financial Officer

Yeah, on the lease accounting, we actually have a disclosure in the press release and there is a supplemental, Trina can walk you through that. What I would say probably is, it really had no material impact at all to our financials and ROIC, it was less than a 10th of a point, so of the turn. So, I think, so Trina, can walk you through, but as far as the overall balance sheet and the income statement, there is virtually no materials impact at all.

Michael Binetti -- Credit Suisse -- Analyst

Okay, thanks for that. So, I guess I just wanted to step back a minute and think a little bit bigger picture here and you guys have given some good tactical thoughts on how you approach in merchandising and loyalty and everything in light of the recent sales volatility. But if we look at full price, the dollar level of that business is in the same place it was in 2014. And you guys did on a nice job of one of the premier.com businesses in the sector. Obviously, it's well known that brick-and-mortar department stores have had traffic challenges. But how do you think bigger picture about what you think the full price business needs to become bigger business as back on track to higher revenue base, if these current dynamics that we see in the marketplace continue to be headwinds going forward.

Erik B. Nordstrom -- Co-President

Yeah, Michael, it's Erik, I would like to take that. Specifically, we would point to our local market strategy and let me be clear that is our model for the future. We started in late last year and really started with engagement. How do we engage with customers by leveraging both our digital and physical assets and that included experimenting with new physical assets in the Nordstrom local service hubs. That engagement part across services and across channels and we know we've got a lot of data on that and we know the more we engage with customers across channels and services, the more they spend, that's gone really, really well.

The second part of local market strategy is leveraging the inventory that is close to our customers either in our stores or in our supply chain facilities. That's we're not as deep into that yet, we've started to leverage the inventory, starting with our four core stores in Los Angeles. And a good example would be BOPUS, Buy Online, Pick Up at Store, where we went from the available inventory for BOPUS being one specific stores inventory to connecting the four stores and deal to pick it up, either at those four stores or one of the three Nordstrom local service hubs we have.

And we talked about it before the outsized growth we're seeing in BOPUS across our company. The growth in BOPUS in Los Angeles is about two times that we're are seeing elsewhere in the Company. So here is a massive piece of engagement that customers love that we think we can do in a fairly unique way and really do it on customers terms that drives higher engagement drives bigger spend. Ultimately, our local market strategy success metric is gaining market share in these markets. And we have seen that in Los Angeles.

We're in the midst right now of expanding our local market services from those core four stores to all 16 full-line stores in Los Angeles. We are on pace to bring our learnings to New York when we opened the tower. We have two Nordstrom local service hubs planned on the island and we're well positioned to execute that in New York. And then, our plan is next year to take that to our biggest markets across our portfolio. So that is our model. It leads with service engagement across channels and services and the leads with leveraging inventory to get customers a greater selection to them faster and at better economics for us. And we think that's the future of our Full-Price business.

Michael Binetti -- Credit Suisse -- Analyst

Thanks a lot. That's helpful.

Anne L. Bramman -- Chief Financial Officer

Thanks, Michael. We'll now take one more question.

Operator

Thank you. Our last question comes from Priya Ohri-Gupta with Barclays. Please proceed.

Priya Ohri-Gupta -- Barclays -- Analyst

Hey, thank you so much for squeezing me. In light of the revised guidance, it looks like you're still going to be outside of your targeted leverage range. So wondering if you could share with us any conversations you might have had with the rating agencies as to whether there might be any change in how they're looking at your current ratings or potentially the outlooks that they have on those ratings? Thank you.

Anne L. Bramman -- Chief Financial Officer

Yeah. So we remain very comfortable with our range and we expect to be in line with our expectations, our historical levels at the end of the year. And as you -- and we've talked about this a lot, we have a very consistent capital allocation approach. And so, we remain committed to gain investment grade company and we look at our balance sheet. And so, as we think about the guiding principle around cap allocation, that is a big piece of that.

Priya Ohri-Gupta -- Barclays -- Analyst

Great. Thank you so much.

Trina Schurman -- Director of Investor Relations

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.

Operator

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

Duration: 40 minutes

Call participants:

Trina Schurman -- Director of Investor Relations

Erik B. Nordstrom -- Co-President

Anne L. Bramman -- Chief Financial Officer

Peter E. Nordstrom -- Co-President

Ed Yruma -- KeyBanc Capital Markets -- Analyst

Alexandra Walvis -- Goldman Sachs -- Analyst

Mark Altschwager -- Robert W. Baird -- Analyst

Paul Trussell -- Deutsche Bank -- Analyst

Matthew Boss -- JP Morgan -- Analyst

Simeon Siegel -- Nomura -- Analyst

Chuck Grom -- Gordon Haskett -- Analyst

Kimberly Greenberger -- Morgan Stanley -- Analyst

Paul Lejuez -- Citigroup -- Analyst

Michael Binetti -- Credit Suisse -- Analyst

Priya Ohri-Gupta -- Barclays -- Analyst

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