Nordstrom, Inc. (JWN) Q2 2021 Earnings Call Transcript

Nordstrom, Inc. (NYSE: JWN) Q2 2021 earnings call Aug. 24, 2021

Corporate Participants:

Heather Hollander — Head of Investor Relations

Erik B. Nordstrom — Chief Executive Officer

Anne L. Bramman — Chief Financial Officer

Peter E. Nordstrom — President and Chief Brand Officer

Analysts:

Edward Yruma — KeyBanc Capital Markets — Analyst

Chuck Grom — Gordon Haskett Research Advisors — Analyst

Oliver Chen — Cowen and Company — Analyst

Matthew Boss — J.P. Morgan — Analyst

Mark Altschwager — Robert W. Baird & Co. — Analyst

Omar Saad — Evercore ISI — Analyst

Simeon Siegel — BMO Capital Markets — Analyst

Paul Lejuez — Citigroup — Analyst

Stephanie Wissink — Jefferies — Analyst

Dana Telsey — Telsey Advisory Group — Analyst

Presentation:

Operator

Greetings, and welcome to the Nordstrom Second Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I’ll turn the call over to Heather Hollander, Head of Investor Relations for Nordstrom. You may begin.

Heather Hollander — Head of Investor Relations

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

Before we begin, I want to mention that we will be referring to slides, which can be viewed in the Investor Relations section on nordstrom.com. Our discussion may include forward-looking statements, so please refer to the slide with our safe harbor language.

Participating in today’s call are Erik Nordstrom, Chief Executive Officer; and Anne Bramman, Chief Financial Officer, who will provide a business update and discuss the Company’s second quarter performance. Joining during the Q&A session will be Pete Nordstrom, President of Nordstrom, Inc. and Chief Brand Officer.

And now, I’ll turn the call over to Erik.

Erik B. Nordstrom — Chief Executive Officer

Good afternoon and thank you for joining us today. We delivered strong second quarter results, driven by broad-based momentum across banners, regions, and merchandising categories, and the performance of our Anniversary Sale, in which sales exceeded 2019 levels, an important milestone. We capitalized on improving customer demand with solid execution, healthy inventory sell-through, and continued expense management. Our performance demonstrates the power of our interconnected brands and the potential of our transformation as we execute our closer to you strategy. As consumer spending recovers, we are well-positioned to capitalize on a significant opportunity to take market share and drive profitable growth with our expanding product offer, increasing customer engagement, and integrated digital and physical assets.

We’ve now had four consecutive quarters of sequential improvement in sales trends for both our Nordstrom and Nordstrom Rack banners, with active customer counts continuing to recover and approaching 2019 levels. Customers are increasingly engaging with us both in-store and online, as evidenced by continuing improvements in our store traffic and sales, along with robust digital growth. Our loyalty program remains a powerful engagement driver, with loyalty club members contributing 70% of our Q2 sales, up 500 basis points from 2019.

We are very pleased with the performance of our Anniversary Sale with total event sales increasing 1% over 2019, including the final week of the event which fell in the third quarter. As always, our Anniversary Sale rewards and engages our loyal customers with brand new product at reduced prices for a limited time. The event was well-timed to serve increasing customer demand for wardrobe refreshes as they returned to activities outside the home. This year, we worked to further enhance the customer experience during the Anniversary Sale, adding new virtual and in-store events to drive engagement, while building on successful components of last year’s event, including digital catalogs with personalized editorial content and product recommendations, online wish list functionality, and remote selling and styling tools.

Our Anniversary performance was an encouraging example of our evolution of our merchandising capabilities. By leveraging a more data-driven approach along with our evolving partnership models with our vendors, we were able to increase event selection by 12% and reduce the rate of items sold out by 35% versus 2019, while at the same time maintaining a comparable sell-through, and finishing with a healthy position in owned inventory as we exited the event. We are encouraged by the customer response to Anniversary, with record volumes on Nordstrom.com and continued improvements in store traffic. Customers also leveraged the convenience of our integrated touchpoints, with order pickup in stores increasing 52% during the event, compared to 2019.

Our merchandising and supply chain teams, along with our brand partners, executed well, ensuring that we had the right assortment in the right place at the right time to serve demand. Overall, our outstanding employees delivered an excellent customer experience and we would like to take a moment to thank them for their contributions to a successful event.

In addition to strong top line and event performance, we made meaningful progress towards margin recovery this quarter, with reduced markdowns and solid sell-through, as well as disciplined expense management. Our second quarter performance reflects our steady execution and commitment to the strategic priorities we shared at our investor event, win in our most important markets, broaden the reach of Nordstrom Rack, and increase our digital velocity. As we work to win in our most important markets, our market strategy is a powerful enabler for the business, allowing us to better serve customers and provide greater access to product, by linking our assets at the market level. We’ve seen a positive customer response to the enhanced capabilities we launched with our market strategy in 2020, including the extension of order pick-up and ship-to-store to all Nordstrom Rack locations. In fact, during the Anniversary Sale, nearly 40% of next day pick-up orders for Nordstrom were picked up in a Rack store, evidence of the power of integrating capabilities across our two brands. Our market strategy delivers incredible convenience that provides customers with four times more product available for next day pick-up, and a one day reduction in average shipping time.

Our second growth priority is broadening the reach of Nordstrom Rack. In the quarter, total Rack sales declined 8% compared to 2019, a nearly 5 percentage point sequential improvement from the first quarter. Despite challenges with inventory flow, we are encouraged by the early results of our merchandise repositioning efforts, with price-oriented offerings in Active, Home, and Kids delivering a combined double-digit sales increase in those categories. And in the 70 Rack stores that have been repositioned for a price-oriented offering, new-to-Nordstrom customer counts increased 16% over 2019. Going forward, we are committed to building on this progress by continuing to expand our Rack offering and delivering an assortment that appeals to a wider set of customers while deepening our offering for our core customers.

Our third priority is increasing our digital velocity across Nordstrom and Nordstrom Rack. This quarter, digital sales increased 30% over last year and 24% over the second quarter of 2019. We continued to drive growth at Nordstrom.com and Rack.com even as store traffic improved, a testament to the power of our interconnected digital and physical assets. We also completed the integration of Rack.com onto the Nordstrom.com platform, delivering a more seamless shopping experience and improved reliability, while positioning us for more profitable growth as we continue to scale our Rack.com business.

During the quarter, we took another step in transforming our merchandising approach with our acquisition of a minority interest in four ASOS brands: Topshop, Topman, Miss Selfridge, and HIIT. We believe this partnership will give us new opportunities to lead digitally and extend beyond our traditional wholesale model. We’re happy to partner with ASOS, a world leader in fashion for the 20-something customer, in offering a broader assortment to better meet their needs. We look forward to updating you on new initiatives under this partnership in the second half of the year.

As we look ahead, we are excited about the opportunity that lies before us. Our transformation is gaining momentum and positioning us to capitalize on a significant opportunity to profitably grow our business as demand improves. Though there is uncertainty regarding the future of the pandemic, we are closely monitoring impacts on the customer and supply chain while prioritizing the health and safety of our teams and customers. We have demonstrated our ability to navigate a rapidly changing macro environment with agility and flexibility, and we will maintain that focus as we move through the year. While we’re pleased with our continued progress this quarter, we remain committed to the work ahead to better serve customers, capture market share, improve our profitability, and create value for our shareholders.

With that, I’ll turn it over to Anne to discuss our financial results in greater detail.

Anne L. Bramman — Chief Financial Officer

Thanks, Erik. We’re pleased with our continued progress in the second quarter. The benefits of our closer to you strategy, the performance of our Anniversary Sale, and continued financial discipline are evident in our results. Improving sales trends, a gross profit increase from healthy inventory sell-through, and continued benefits from a reduced cost structure drove strong earnings this quarter. We also generated over $900 million of operating cash flow and took steps to further strengthen our balance sheet.

Beginning with our top line performance, net sales were down 6% in the second quarter compared to the same period in fiscal 2019, representing a sequential improvement of 700 basis points from the first quarter. The timing shift of the Anniversary Sale, with roughly one week falling into the third quarter of 2021, negatively impacted second quarter sales by approximately 200 basis points. Adjusting for this impact, sales trends improved approximately 900 basis points, with sequential improvement in each month of the quarter. Sales improved across both of our banners, with Nordstrom sales improving 800 basis points sequentially, or 1,100 basis points after adjusting for the timing shift of the Anniversary Sale. Nordstrom Rack sales improved 500 basis points sequentially.

We saw strong, balanced growth across both digital and stores. Our digital sales increased 24% over 2019, and 29% after adjusting for the timing shift of the Anniversary Sale. Digital traffic increased for both Nordstrom and Rack, and Nordstrom digital conversion reached a record high. Digital sales were 40% of total sales during the quarter, a bit lower than the first quarter as store traffic and sales trends improved across all regions. Southern region stores continued to outperform our fleet average, but the gap narrowed relative to the first quarter. As Erik said, our Anniversary Sale performance contributed to our momentum this quarter, with total event sales up 1% compared with 2019. In addition to strong top line event performance, we were pleased with event profitability, supported by a compelling assortment that drove sales of higher margin non-event merchandise.

As consumer spending and mobility increased, we were well-positioned to respond to pent-up demand, as evidenced in the performance of our core categories. We saw customers refreshing their wardrobes, driving improvement in shoes, apparel and accessories compared to the first quarter. Our designer offering performed well across the business, with sales increasing over 2019. We also continued to see strength in pandemic growth categories, particularly Active and Home, where our sales increased over 50% compared to 2019 levels.

In the second quarter, gross profit, as a percentage of net sales, was flat compared with the same period in fiscal 2019, as lower markdowns enabled by healthy inventory sell-through offset deleverage on lower net sales.

Ending inventory increased 13% compared with the same period in fiscal 2019 versus a 6% decrease in sales. Inventory levels were impacted by the timing shift of the Anniversary Sale and our efforts to pull forward receipts to address continuing supply chain backlogs and support improving sales trends. New deliveries and in-transit product represented the majority of our inventory increase in the quarter. Our inventory is current and well-positioned in key categories as we move into the back half of the year. Looking ahead, we are anticipating continued global supply chain backlogs for the balance of the year and we are proactively managing our receipt flows to mitigate potential disruption and continue to meet customer demand.

Total SG&A as a percentage of net sales increased 170 basis points compared to the same period in fiscal 2019 as a result of continued freight and labor cost pressures, partially offset by continued benefits from resetting the cost structure in 2020.

We further strengthened our balance sheet, retiring $500 million in senior unsecured notes that were set to mature in October. This will reduce our annualized interest expense by $20 million, beginning in the third quarter.

Now, turning to our outlook for the remainder of the year. As you’ve heard today, we’re pleased with our performance in the second quarter and the progress we’re making on our strategic commitments. Consumer demand and engagement continue to be quite healthy. Our momentum exiting the quarter has continued into August, giving us confidence in the outlook for the balance of the year. That said, there remains uncertainty in the external environment, and we continue to prepare for a range of scenarios. Our second half outlook assumes that consumer spending will continue to be supported by economic improvement and increasing consumer mobility.

Given these macro assumptions, our first half performance, and plans for continued progress in the second half of the year, for fiscal 2021, we now expect to deliver revenue growth of more than 35% versus fiscal 2020. Depending on the pace of revenue growth and the evolution of macro-related cost pressures, we now expect to deliver EBIT margin of approximately 3% to 3.5% for the full-year.

As for the second half cadence, we expect the following quarterly progression versus 2019. We are projecting slight sequential improvement in sales trends from Q3 to Q4. We also anticipate that EBIT margin improvement will be weighted to Q4, as gross profit increasingly reflects the benefits of tighter inventory management and reduced promotions. We expect SG&A pressures, primarily related to freight and labor cost, to continue in the second half, resulting in SG&A deleverage similar to what we experienced in the first half.

We remain committed to our ongoing capital allocation priorities, with our first priority being investment in the business. We’re planning capital expenditures at normalized levels of 3% to 4% of sales, primarily to support investments in technology and supply chain capabilities. Our second priority is reducing our leverage. Through a combination of earnings improvement and debt reduction, we are on track to achieve our plan to decrease our leverage ratio to approximately 3 times by the end of this year and approximately 2.5 times by the end of 2022. Our third priority is returning cash to shareholders and we expect to be in a position to do so by the end of the year. Overall, we are pleased with our continued progress against our strategic priorities and we remain focused on the work ahead to drive market share gains, improve profitability and cash flow generation, and drive shareholder value.

I’d like to now turn it over to Heather for Q&A.

Heather Hollander — Head of Investor Relations

Thank you, Anne. Before we get started with Q&A, we are limiting participants to one question at a time to allow everyone a chance to ask one. We’ll now move to the Q&A session.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Thank you. Our first question comes from Edward Yruma with KeyBanc Capital Markets. Please proceed with your question.

Edward Yruma — KeyBanc Capital Markets — Analyst

Hey, guys. Thanks for taking the question. I guess, really on SG&A, I understand you guys had some cost pressures related to labor and shipping. Wondering if those are more transient in nature. And then, I guess, when you did the headquarter reduction and took out that SG&A, has any of that had to come back? Or have there been areas of incremental investment along the way? Thank you.

Anne L. Bramman — Chief Financial Officer

Hi, Ed. Thanks for your question. As far as SG&A is concerned, we are anticipating headwinds in supply chain, primarily in freight costs, as well as some of the disruption we’re seeing globally, as well as we’ve had some labor costs in certain markets as well. And so, we’ve baked that into our guidance for the second half of the year. And we’re looking for — we’re constantly looking for offsets to that. We’ve got a number of examples we can provide in order to achieve that.

As far as the fixed cost piece to it, as you recall, in 2020, we took out about $400 million of expenses, of which 75% was permanent, and we’re continuing with that through this year. We — at the beginning of the year, we indicated that we had reduced our fixed cost expense by about 15%, and that’s holding true. We are making investments in certain markets with labor, certainly, from a wage increase and certainly some investments in our supply chain capabilities as well. But we think that that really helps us in the long-term as far as making sure that we’ve got the right teams and the right level of staffing to ensure to serve the customer.

Edward Yruma — KeyBanc Capital Markets — Analyst

Thank you.

Operator

Next is Chuck Grom with Gordon Haskett. Please proceed with your question.

Chuck Grom — Gordon Haskett Research Advisors — Analyst

Hey, thanks a lot. You guys called out sequential improvement in each month of the quarter and some gains here in the month of August. Just wondering if you guys could quantify that. And then as a follow-up, just with regards to category performance, just curious which areas performed better in the second quarter relative to the first quarter?

Anne L. Bramman — Chief Financial Officer

Thanks. I’m going to let Pete talk to you about the category performance, and then I’ll circle back and talk about the sequential improvement.

Peter E. Nordstrom — President and Chief Brand Officer

Yeah. You know what, it really was an interesting quarter because it showed a lot of change and improvement as things stabilize out there in the macro environment. And the thing that we saw that had the biggest — the categories we saw the biggest improvement towards the end of the quarter were things related to occasions and events because people are out there more often than they were before. And so, things like dress wear, occasion wear, men’s sportswear, things like that, we had some real positive momentum. And when you add that to the fact that we had some categories that were really good during the heat of the pandemic times, namely Active and Home, we had several areas — well, pretty much all areas where we were seeing improvement and some stability there.

Anne L. Bramman — Chief Financial Officer

As far as the sales cadence, as we talked about in the opening comments and just to provide a little bit more color on that, we did see sequential improvement throughout the — or throughout the quarter, certainly, leading July into August was our strongest month. And we’re continuing to see positive results out of that and gives us confidence in the second half.

What I would say as far as the calendarization for the second half, while we’re not providing quarterly guidance, I think it’s important to note that we expect to see slight sequential sales improvement from Q3 to Q4, but really Q4 as being the momentum piece to it for a number of reasons. One, we expect to see holiday being pretty tight from an inventory position in the marketplace. It allows, I think, better sell-through and fewer markdowns, which should deliver both sales and margin flow-through. And then lastly, we also expect to see reduced promotions, and we’re actually comping a little bit of fourth quarter for 2019, we actually have — is an easier comp for us as well.

Operator

Thank you. Next is Oliver Chen with Cowen and Company. Please proceed with your question.

Oliver Chen — Cowen and Company — Analyst

Hi. The business momentum has been encouraging. What are you seeing with inventory flows and supply chain? I know you called it out, so I was curious about availability. And as — are constrained supplies limiting the top line? And as you plan going forward, how might that bode for holiday?

A follow-up on ASOS, just that’s an interesting strategic alliance. Would love your thoughts on what you may contemplate longer-term, as you mentioned, to pave the way for wider potential partnerships? Thank you.

Anne L. Bramman — Chief Financial Officer

Thanks, Oliver. I’m going to have Erik address the supply chain question and holiday. And then, Pete, if you can talk about ASOS after that, that would be great.

Erik B. Nordstrom — Chief Executive Officer

Yeah. Thanks, Oliver. We have seen real lumpiness in the global supply chain that has led to some shortages. And more so, just unevenness. It’s been difficult to plan inventory flow with much precision. We do not expect those conditions to change anytime soon. So, it’s really on us to find ways of mitigating that. So, we’ve done things like pulling forward orders, expanding lead times. We are looking to strategically use some airfreight for holiday. We’ve also, during Anniversary, increased delivery frequency to our stores to help address the flow. So, there are some things we can do internally to mitigate some of these impacts, but it has caused some disruption. And really, the shortages have been most impacted are — have most impacted our Rack business. We have some categories in our Rack business that were light in the second quarter and are looking to get caught up there in the third quarter.

Peter E. Nordstrom — President and Chief Brand Officer

Yeah. This is Pete. Relative to the ASOS partnership, it’s definitely a real highlight of last quarter. I think represents a wonderful opportunity for us. There — ASOS are great retailers and they’re real leaders in the digital space with young fashion customers. They’ve got a strong point of view. They’re really interesting and exciting people to work with, and we were thrilled when they took the lead on, I think, the investment with Topshop. They were a big customer of Topshop as were we. So, we have mutual interests in having that go well.

And it just — it seemed as we were in discussions with them about that — the mutual opportunity was great, and it was an opportunistic situation for us to be able to take an equity stake in that and invest alongside with them, which I think really helped demonstrate that we both have skin in the game which creates a lot of focus and energy about what we could do. And the reason that it was worth investing for us is, while it was a big business, we also think there was a lot of upside. And then the frosting on the cake for us with that is, ASOS also has the stable brands that we now have access to potentially, working with Nick and the team there to see how we might be able to bring some of those products to market here in North America through Nordstrom. There’s just a lot of wonderful things about that. And so, while investing in brand, and that’s where our core strategy, we do have the wherewithal to do. We’ve done it before, and we’ll be opportunistic about those types of things in the future if the potential is there. And so, I think we should read into this that there’s a lot of potentials. It’s exciting. And as these things develop and when we make decisions on what we are doing together and have results about that, we will certainly inform you about it.

Oliver Chen — Cowen and Company — Analyst

Thank you. Best regards.

Peter E. Nordstrom — President and Chief Brand Officer

Thank you.

Operator

Next is Matt Boss with J.P. Morgan. Please proceed with your question.

Matthew Boss — J.P. Morgan — Analyst

Great, thanks. So, maybe just larger picture, as we think about your second quarter sales down mid-single digits, and then the slight sequential improvement that you’re expecting from here. I guess, if we take a step back, how would you rank the headwinds that are preventing a return to revenue growth versus 2019 in the back half of the year for you?

Erik B. Nordstrom — Chief Executive Officer

Hi, Matt. Well, we’re both encouraged about — this is the clear improvement we’re seeing, not just quarter-to-quarter but month-to-month or within the quarter. And having Anniversary with an increase over 2019 is another proof point along that journey. There’s — while sales have significantly improved over previous trends, there’s plenty of areas that are not at peak efficiency. In particular, we just talked about the inventory flow. That’s been a challenge to the business. It impacts both top line and bottom line. So, that’s a big area of focus for us. There’s also lessons from Anniversary, both how we engage customers digitally and connecting them to our physical assets, as well as having more data-driven approach to our inventory mix that showed great results during Anniversary, and certainly, we’ll continue that through the back half of the year.

Operator

Thank you. Next is Mark Altschwager with Baird. Please proceed with your question.

Mark Altschwager — Robert W. Baird & Co. — Analyst

Great. Thanks for taking my question. I guess, Anne, just bigger picture on the updated guidance. I guess, the 50 basis point increase in your EBIT margin expectations at the high-end, I guess, that seemed maybe a bit modest in relation to the 10 percentage point higher sales growth expectation. So, I guess, could you help us unpack that a bit more based on the framework outlined earlier this year? And I would have thought of $14.5 billion sales run rate would get to EBIT margins maybe closer to the 5% range. So, maybe what are the — what underlying assumptions of change with respect to the flow-through the back end of the year? And then just any other changes to how you’re thinking about that multi-year sales and EBIT margin bridge versus what we’ve been talking about earlier in this year? Thank you.

Anne L. Bramman — Chief Financial Officer

Hi, Mark. Thanks for the question. So, we’re not guiding to 2022. What I can say is that, we are on track to delivering on those commitments that we laid out to our investor event. Just to remind you, the first half of the year, in particular, Q1, we knew we were entering Q1 pretty heavy in inventory and needed to work through that. That certainly put some headwinds into the year. As we’ve come out of Q2 and in the guidance we’ve given for the second half, and the progress we’re seeing on that, we are quite confident in our ability to continue to deliver on those commitments that we discussed with you.

As far as the flow-through components to it, we are — as we talked about, we can deliver the same EBIT margins on $1 billion less of sales, that is still the case. We are still tracking to that. And certainly, it’s baked into some of the guidance that we’ve given you for the second half. Having said that, we are still in a very challenging environment, and I think the thing with this team is, you’ve seen that we’ve been very agile and flexible as we see how things evolve in the marketplace. And we’ve talked a little bit about some of the supply chain challenges that we’ve seen. And we’re remaining very focused on delivering to our customers. And so, we’ve — there’s a little bit of uncertainty out there that we’ve baked into some of the guidance, as well as we thought it was pretty prudent.

Operator

Thank you. Next is Omar Saad with Evercore. Please proceed with your question.

Omar Saad — Evercore ISI — Analyst

Good afternoon. Thanks for taking my question. I’d love to get a little bit more insight in terms of how you and your merchant buying teams are going to plan to balance this shift kind of to and from or between pandemic categories like Home and Active and to some of the more reopening type categories, dressier wear to work, dressier fashions, etc? Then maybe you could also include a discussion in terms of what you’re seeing around in markets where that are more reopened, what kind of consumer behavior and category are underperforming, outperformance you’re seeing that balance shift back versus those markets that are still more locked down? Thanks.

Peter E. Nordstrom — President and Chief Brand Officer

Yeah. This is Pete. I’ll start with that. I think one of the things that makes us feel confident going forward is the little more predictability and visibility in terms of what’s happening. If you think about the beginning of the pandemic, I mean, it was so many unknowns out there and just how everyone’s lives changed so much. And it created opportunities in some areas, and we talked about that with Active and Home. But huge big parts of our business were really compromised just because the customer demand wasn’t there before.

Now, we’ve moved into a time where there’s little more stability and people are out there quite a bit more, so we’ve seen improvements in our business related to essentially, closet refresh, as Anne talked about, wardrobe refresh. People not having bought clothes to be out there, living their life and whatever better occasion they may have for a while and needing to refresh their closets. In Anniversary Sale, we did well with things that are kind of like stock up and save item type business. So, I think — we believe there will continue to be a return to similar to our legacy business around the core categories of the shoes, the women’s and men’s apparel. But then I think it’s also true that some of the things that we saw pre-pandemic around how things were evolving and changing, whether it’s the casualization of America or whatever, that just all got accelerated.

And so, there has been a time here in the last few months we’ve been chasing pretty hardback into occasion and event types of dressing, but we’ll catch up to that pretty soon. And then I think, again, we should have some stability there. But ultimately, the key for us is to make sure that we have a relatively conservative position with inventory. We’re selling through. We’re remaining open to buy and flexible because it’s just paramount, I think, given — again, the relative uncertainty that we have now. So, the work we’re really focused on, keeping that flexibility and that open to buy.

Omar Saad — Evercore ISI — Analyst

Any differences in the open markets versus the more closed markets?

Peter E. Nordstrom — President and Chief Brand Officer

Well, I think what we’ve seen is that, suburban-type stores have done better than the urban stores, and that’s really mostly for reasons of, if you think of an urban-type of store, they have three things that really drive sales. You got the people that live there. You’ve got the people that work in that environment and come from all around. And then you have tourism. And particularly, when you think about people going into the workplace and tourism, those things have really gone, in some cases, it’s practically zero. So, those stores are slower to rebound where it’s been more of a traditional kind of suburban market for us. We’ve seen all the businesses recover quite significantly. And you can see that just in terms of the sales store-by-store and region-by-region. But in terms of like categories, it’s really more common and similar I think across the North America than really regional-specific. We saw a lot of demand around things related, again, to occasions as we came into the summer and have weddings and those kinds of things, and that was true everywhere.

Omar Saad — Evercore ISI — Analyst

Thanks for the color.

Operator

Next is Simeon Siegel with BMO Capital Markets. Please proceed with your question.

Simeon Siegel — BMO Capital Markets — Analyst

Thanks. Hey, everyone. Good afternoon. Anne, did you guys talked about what price versus units were within that 1% Anniversary Sale growth over 2019? And then, I assume it’s small, but just curious if any early thoughts on the Tonal partnership. And does that rollout suggest a broader opportunity for any similar type of moves? Thank you.

Anne L. Bramman — Chief Financial Officer

Hi. We didn’t give particular feedback between price and unit on Anniversary, just we’re seeing strong customer demand. We’re seeing customers spend more and engaging with us more. I think you’ve heard commentary from all of us on the call today, there is just pent-up demand out there, and customers are looking to refresh what they’re wearing. And so, across the board we’re seeing a really positive response to the offering, which gives a lot of credit to our merchant team for picking and selecting the right offering for our customers during Anniversary.

As far as Tonal, Pete, I don’t know if you have any color commentary on that?

Peter E. Nordstrom — President and Chief Brand Officer

Yeah. I think what Tonal represents is our ability to react in the moment to great opportunities that might be out there. And anything that’s of interest to our customers is something we’re interested in pursuing. And so, in this case, Tonal had approached us, and we have a very large and growing active business and have felt like a really good synergistic thing to be able to try. We’re all for trying things like that. And I think it was a great example of a partnership that there was mutual benefit there to be had, and I give a lot of credit to our team to think a little bit outside the box on that. But it’s somewhat similar to the ASOS thing. While that’s a bigger, more commercial venture. I think it represents the creative and innovative thinking of our merchandising teams in terms of ways of creating compelling experiences and products for customers that may not have been a traditional kind of a transactional wholesale, retail model. And while the Tonal thing might be a relatively small example for that, again, I think what you guys should be thinking about and seeing there is the willingness, the openness, and the ability to be able to pursue opportunities like that.

Simeon Siegel — BMO Capital Markets — Analyst

Great. Thanks a lot, guys. Best luck for the year.

Anne L. Bramman — Chief Financial Officer

Thanks.

Peter E. Nordstrom — President and Chief Brand Officer

Thank you.

Operator

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

Paul Lejuez — Citigroup — Analyst

Hey, thanks, guys. Question on Rack. Still running well below F’19 sales, and that includes e-com growth I believe. So, just curious how you’re looking at store volumes relative to 2019, the profitability of that business as we think about that 3.5% margin, how does Rack look relative to the full-priced stores? And what are you thinking in terms of ultimate store potential if anything’s happened over the last two quarters that kind of influence how you’re thinking about the long-term on Rack? Thanks.

Erik B. Nordstrom — Chief Executive Officer

Thanks, Paul. Rack — let’s start with Rack — let’s start with meaningful progress. We’ve made good progress. Our focus across our business is market share gains and profitable growth. And from Q1 to Q2 we had meaningful progress in the Rack. In particular, we’ve had a focus and we’ve got a well-researched belief that we have opportunity to widen the aperture of our business by layering on some lower-priced product. We know we have customers in our stores, they’re looking for that product, and we have the opportunity to serve them.

And two data points I’d share with you on that. One is category-wise. Active, Home, and Kids for us in Rack are ahead in having a price-oriented offering. Those three areas together show double-digit growth versus 2019. And then we took 70 stores — 70 of our Rack stores and repositioned them for a more price-oriented offering. And one of the real goals with that is to acquire new-to-Nordstrom customers. And our new-to-Nordstrom customer account in those stores increased 16% over 2019.

Now, that being said, it has been lumping the supply chain, and so we’re — we do not have the full-priced offering that we want yet. We’re in early innings there, but — yeah, with some encouraging proof points there that give us confidence and progress. So, the headwind, as we mentioned, really has been inventory flow. In particular, women’s apparel and shoes in our Rack business have — we’ve been under inventory, and it’s been more challenging there to get the product we need. That’s starting to turn. We see some encouraging signs for Q3. So, between the progress on layering the actual price and being able to address inventory flow, we have some confidence in continued improvement out of our Rack business.

Anne L. Bramman — Chief Financial Officer

And to your question on profitability, just in general, our Rack business and our Nordstrom banner business are pretty much at parity from EBIT perspective. And just puts and takes on the P&L, typically, our Rack business will have a lower gross margin and lower SG&A than offset to that. But at the end of the day, those businesses are typically at parity.

Paul Lejuez — Citigroup — Analyst

Is that held true, Anne, even though Nordstrom has closed some stores and is doing sales volume in 2019 that’s a little bit — versus 2019 that’s a little bit better than Rack, which has opened some stores? Is that still holding true?

Anne L. Bramman — Chief Financial Officer

Yeah. Over the long-term, and look, it’s going to be in the moment in time, and maybe puts and takes here and there. But over time, it’s pretty consistent. Yeah.

Paul Lejuez — Citigroup — Analyst

Thank you. Good luck.

Operator

Next is Steph Wissink with Jefferies. Please proceed with your question.

Stephanie Wissink — Jefferies — Analyst

Thank you. We have a question on Anniversary Sale, if you could talk a little bit about traffic versus ticket? I think you mentioned traffic improving but maybe not back to 2019 levels. Just help us contextualize Anniversary Sale and then maybe how you’re thinking about back half in terms of traffic? Thank you.

Anne L. Bramman — Chief Financial Officer

We — so, this is Anne. We don’t — we haven’t given a lot of details around traffic and ticket pieces to this. In general, our traffic — we’ve seen improvements in traffic. We’re not quite at 2019 levels. We are seeing higher conversion for sure. So, as customers come in, they have a higher intent to purchase and are typically having higher — larger baskets with that as well. So, as we look at the second half, there were a lot of lessons — things that went really well with Anniversary and things that we learned that we’re going to take into holiday as well. So, I would anticipate that you’ll see some similar thinking as we approach the next event.

Heather Hollander — Head of Investor Relations

And now, we’ll take one more question.

Operator

Our final question is from Dana Telsey with Telsey Group. Please proceed with your question.

Dana Telsey — Telsey Advisory Group — Analyst

Good afternoon, everyone. As you think about the Rack and the price point expansion that you’re doing at the Rack, how is that — how do you — how are you moving that forward beyond the 70 Rack stores where you’ve positioned for a price-oriented offering? And what did you see in the performance of those stores? And then this year, it seems like one of the things that was different with the Anniversary Sale is that, you got more sales of non-event merchandise. How do you think of that in positioning for go-forward sales and also for holiday? Thank you.

Anne L. Bramman — Chief Financial Officer

Thanks, Dana. I’m going to let Erik talk about Rack, and then, Pete, maybe you could talk a little about the merchandise.

Erik B. Nordstrom — Chief Executive Officer

Yeah. For — what we’re learning on the price offering, there’s certainly some — we believe some difference in the mix by store location. But it is nuanced. It’s — depending on the category, but particularly, our strength. Our historical strength in Rack is brands that we carry — almost all of the brands that we carry in our Nordstrom brand business and our Nordstrom Rack banner. And customers know they can get those brands that they know and love. And for our brands, it helps them get introduced to new customers that often become full-priced customers. So, it’s much more of a — I think a balance of mix across price points and brands. And again, we think a lot of it is an and story, not an or story, that we can continue to take care of customers with these big brands while also layering in some more price points that would be new brands just in our Rack channel.

Peter E. Nordstrom — President and Chief Brand Officer

Hey, Dana. So, related to Anniversary, this is — I’m sure you could appreciate with a challenging Anniversary because if you think about when we bought for it, if it’s five to eight months out, and we were right just smack dab deep in the middle of the pandemic. And so, what we — there were some things we knew were performing, but we weren’t sure how we were going to come out of that or what really to expect. We did feel like there was a reasonable chance even that far out that this could represent a moment in time, a tipping point of people kind of getting back out there a little bit. That largely played out to be true.

But I think it was difficult for us to buy into categories that in that moment were like 100% not good at all. So, I think, as a result, you probably saw a fair amount of action on some stuff that was not on Anniversary just because I think our inability to be able to forecast much more accurately. But I can tell you, we increased our event selection by 12% over 2019. We also reduced our rate of items sold out by 35% over 2019 on Anniversary products. So, in a lot of ways, we executed really well against the plan to make Anniversary an efficient, profitable, improved event for customers and for the bottom line, too. And you saw a lot of progress of that.

And so, I think, again, I would probably best to look at the last Anniversary as a bit of an anomaly and a one-off and maybe not entirely indicative of how we would — I guess, how it would play out for future anniversaries. But I can tell you that the scale of the events part of it, kind of the process, and the execution of it is something that we can learn from, have improved upon, and it should benefit us even as soon as coming up on holiday, too, where there’s a lot of similar parts of kind of the scale event time frame that we will leverage the learnings of this last Anniversary.

Dana Telsey — Telsey Advisory Group — Analyst

Thank you.

Heather Hollander — Head of Investor Relations

We want to 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

[Operator Closing Remarks]