The team’s really excited to be at a year where we feel like we’re on the front foot there. And so that’s nice. So, we would expect that when you think about inventory. We’re going to continue to support Beauty. We’re going to continue to support the new Rack stores. So that will continue to be a little bit of a place that will support with extra inventory. And then on promotional environment, maybe I’ll ask Erik to opine on that as we think about it going forward.
Erik Nordstrom: Yes, Neil, I’d say we really are not seeing an elevated promotional environment. We didn’t see it through Q4. We’re not seeing it right now. So as best as we can tell, we don’t anticipate an unusually elevated promotional environment.
Operator: Next question comes from the line of Michael Binetti with Evercore ISI. Please proceed with your question.
Warren Chang: This is Warren Chang on for Michael. I just had a follow-up on Brook’s question on the CFPB ruling. The last time you broke out credit income, I think that was back in 2015, late fees were low teens percentage of the credit card revenue stream. Is that still a fair benchmark used for today’s business? And I also just wanted to clarify your comment that your best estimate for the outcome is already included in the guidance today. Could you just elaborate on what that means?
Cathy Smith: Yes, happy to, Warren. So first off, I didn’t know that we actually supplied that information in 2015. So, thank you for the information there. Obviously, that’s been a long time ago, and the business continues to evolve. That said, our listeners are still our best customers. And as you know, a good portion of them pulled the Nordstrom card. The comment I shared around our best estimate of the impact of the CFPB ruling that came out today is included in our guidance. It is, it’s exactly what we had estimated. I know there’s been a ton of speculation. I don’t know if we just — we’re fortunate there, but our team, I think, estimated that we knew it’d be coming out, and there’s going to be — obviously, all of the guidance had said it’s going to be about where it came out at.
So, we tried to include that in our guidance we gave today. With regards to the amount of late fees as a percentage of our income, we haven’t disclosed that, but it is less than our competitors, given the quality of our credit portfolio.
Warren Chang: Got it. That’s very helpful. And then I just had a follow-up on the Rack business. I was wondering if we could focus for a second on the new Rack stores that have opened in the last 12 months. How does the productivity stack up against the base? And then can you also discuss the ramp behavior for these stores relative to product cohorts and also versus your expectations?
Erik Nordstrom: Sure, warren. This is Eric. Yes, our new stores productivity is a little above our average on a sales per square foot basis. So, they do tend to be smaller volume stores. As you imagine, we’ve — our portfolio to date has been in — we start with the best locations. And — but the average size of our stores is a bit smaller than what we had previously. So, productivity is really good. The ramp — we do see an opportunity for us to build upon the excitement we get at a Rack opening, particularly we go to new markets. We get really strong traffic and a lot of energy in the community for some of those communities there where we don’t have a Nordstrom store. It’s the first entry of our company into that market. So, we do think we have opportunities to build upon that knowledge at the second year — at the first year and continue to drive the growth.
And I think that’s kind of the main takeaway for Rack businesses. The focus on our key strategic brands really cuts across all aspects of the Rack business. The new stores, comp business, our online business, and we think there’s still a lot of opportunities there for us to really leverage, which we think is a competitive advantage. The access to these coveted brands that customers associate with Nordstrom. And as we continue to focus and emphasize those strategic brands, it really is lifting all boats.
Operator: Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.
Lorraine Hutchinson: I wanted to ask about the supply chain initiatives. They’ve been very successful in reducing your distribution costs. What inning would you say we’re in of that program? And where do you see the expected benefits on a go-forward basis?
Erik Nordstrom: I’ll start. Cathy can chime in if I leave something out. You may know we changed our wording a bit from optimizing supply chain to optimizing operationally. And the point with that really is internally that it’s not just about technically our supply chain network that we see opportunities in addition to continuing to drive productivity out of our network, to managing our inventory throughout its life cycle. You look at our model, it is unique. Most retailers have stores and have a digital business. We also have two banners, and the banners are connected. The life cycle of our product or a lot of it starts in the Nordstrom banner, and it ends up in the Rack. So, there’s a lot of choices for us to make in pricing and placement of that inventory, and we see opportunities to gain value in better managing product through its entire life cycle.
