El Puerto de Liverpool, S.A.B. de C.V. (PLV1.F) Earnings Call Transcript & Summary

Good morning. My name is Sophia, and I will be your conference operator. [Operator Instructions] This is Liverpool's Second Quarter 2025 Earnings Call. [Operator Instructions] Today, we have with us Mr. Gonzalo Gallegos, Chief Financial Officer; Mr. Enrique Grinan, Investor Relations Officer; and Ms. Nida Garrido, Investor Relations. They will be discussing the company's performance as per the earnings release for the second quarter 2025 issued last Monday, July 28. If you did not receive the report, please contact Liverpool's IR department, and they will e-mail it to you or you can download it at its IR website. To ensure focused discussion, this call is for investors and analysts only, and we will be taking questions exclusively from them. Any forward-looking statements made during this earnings call are based on information that is currently available. They are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in El Puerto Liverpool's most recent annual report. Please refer to the disclaimer in the earnings release for guidance on this matter. I will now turn the call over to Mr. Gonzalo Gallegos.

Good morning, everyone, and welcome to our second quarter 2025 conference call. Also, we achieved robust top line growth, this quarter was shaped by a combination of key milestones and challenges that influenced our overall results. The recovery has been slower than anticipated amid mixed consumer confidence and ongoing uncertainty. We are satisfied with the progress of our long-term strategy even as we recognize opportunities for further improvement. Later in the call, I will provide an overview of the successful closing of our Nordstrom transaction, along with a review of its immediate and midterm effects on our financial statements. With that, let's begin the presentation. During the second quarter, consolidated revenue reached $56.4 billion, representing an 8% increase year-over-year, with retail revenue growing by 7.3%, our financial services revenue rising notably by 15.7% and our retail state division increasing by 6.9%. Starting with retail, our Commercial segment experienced a 7.3% increase in the second quarter. While this growth was mainly driven by strong results during our flagship sales events, Mother's Day and Hotesale, Father's Day performance was somewhat below expectations. Mother's Day, one of our most successful annual events, delivered solid results, led by home-related goods, cosmetics and women's and children's apparel. Similarly, the hotesale event was a major success. As an omnichannel retailer, this activity involves both our online and physical stores, showcasing strong performance across categories, particularly in men's apparel and accessories, children's products, cosmetics and home decor. However, calendar effects negatively impacted our results, including the absence of weekend of promotional activity compared to Q2 2024. Additionally, the spring/summer sale was rescheduled by a week to help reduce the impact on profitability. Liverpool same-store sales increased by 4.7%, primarily driven by a 5.8% rise in average ticket, partially offset by the previously mentioned negative effects and a 1.1% decrease in traffic. Also sales are below our typical performance, we remain focused on factors within our control. Key highlights of our strategic progress include growth in cosmetics, home goods and sports categories, solid e-commerce performance and the start-up of our new logistics hub. On the other hand, Suburbia same-store sales increased by 8.2%, mainly driven by a 10.2% improvement in average ticket. This rise is linked to a shift in product mix with hardlines categories outpacing growth in apparel. Moving to margin. Our consolidated retail margin for the quarter declined by 210 basis points to 31%, largely due to an extensive calendar of promotional events aimed at stimulating sales and effectively managing inventory levels. Additionally, unfavorable exchange rates as well as tariffs introduced in Mexico in December 2024 on certain textile imports from countries without a free trade agreement increased our import costs and pose further challenges. Rising logistics expenses, particularly those linked to the ongoing migration to our new sublines logistics center at Arco Norte also contributed to this decline. During the quarter, we incurred approximately MXN 216 million in onetime relocation costs associated with this transition. From an operations perspective, we are pleased to report that approximately 70% of SKUs have now been migrated to a new facility, and we anticipate this transitional costs will return to normal levels as the operation achieves full stability. Total inventory increased by 22.6% overall. There are 2 different explanations for this growth. First, in Liverpool, inventory rose by 20%. This increase is driven by 2 reasons. Approximately half of the growth aligns with the overall sales increase, reflecting normal inventory needs and in line with the inventory reduction plans we shared at the beginning of the year. Most of the other half results from advance in-transit merchandise for the upcoming fall/winter season. This reflects a decision to accelerate some imports to help mitigate potential delays and ensure timely receipt of seasonal goods. We expect inventory levels to normalize during the third quarter. Secondly, in Suburbia, inventory grew by 40%, mainly driven by a slowdown in store openings, increased market share in certain categories, rising import costs and a high baseline from the beginning of the year. While the level of obsolete inventory remains within normal ranges, monitoring and control efforts are ongoing. We're confident in our promotional plans for Q3 and expect inventory levels to normalize by early Q4. Now moving to e-commerce. Our omnichannel strategy continues to deliver strong results, leading to an almost 24% year-over-year increase in total GMV. Liverpool's digital share has increased substantially, reaching 33% and surpassing the significant 30% threshold and also reflecting a substantial 440 basis point improvement. Additionally, monthly active users of the Liverpool Pocket app increased by 17%. Suburbia also showed robust digital growth with its digital share of sales rising to 8.6%, a 180 basis point increase, while its monthly active users expand by almost 25%. Kiosks now account for 2.3% of total sales, achieving a 71% increase compared to the same period last year. In our marketplace, we experienced significant growth, reaching 21.6% versus last year with an impressive 30% increase in June and reflecting a significant step-up from the level posted in Q1. To give some perspective, in the third quarter of last year, we launched an initiative to align third-party products more closely with the Liverpool core offerings, aiming to enhance clarity and improve the overall shopping experience for our customers. As part of this effort, we streamlined our product selection, which resulted in a reduction of SKUs. This allowed us to focus on higher demand items and deliver a more coherent and seamless shopping journey. Special emphasis was placed on categories such as cell phones, women's and sports shoes, mattresses and other furniture and newborn items. In addition, we enhanced our services and support for sellers, including improvements in logistics and other administrative areas. These changes allowed us to see an inflection point in performance during the second quarter. We are encouraged by these early results and look forward to maintaining and building on this momentum in the months ahead. Our fulfillment channel showed that Click & Collect made up 42% of total orders. Additionally, almost 55% of Liverpool's offline deliveries were completed within 2 days, demonstrating our ongoing commitment to speed and efficiency in delivery. Turning to Financial Services. Revenue increased by 15.7% year-over-year, primarily fueled by a strong 13.2% growth in our credit portfolio. Currently, growth in our financial revenue exceeds that of our retail segment due to a growing cardholder base, increased adoption of our own credit cards as a preferred payment method, particularly on our e-commerce platform and a rise in of purchases. Our total cardholders grew by 6.7%, surpassing the 8 million milestone for the first time and marking a significant achievement in our ecosystem. I'd like to take a moment to highlight that later this year, we will celebrate the 100th anniversary of Liverpool's credit business, making these milestones a fitting part of that historic occasion. Additionally, Liverpool's internal payment methods reached almost 53% of sales, representing a 210 basis point improvement, while Suburbia's internal payment share rose by 180 basis points to reach 35%. NPLs ended the quarter at 4% flat, a 42 basis point increase. As we have indicated before, this rise is in line with our expectation and demonstrates our internal approach to gradual risk expansion, supported by effective risk management practices. During the quarter, we adopted a more conservative approach to our overall coverage ratio, increasing it by 50 basis points to 9.9% of the gross credit portfolio. Additionally, our bad debt reserve remains robust at 2.7x the NPL balance. Accordingly, we recorded a provision for credit losses of MXN 1.6 billion, representing a 56% increase compared to the previous year. This increase was driven by growth in our credit portfolio as well as the previously mentioned rise in NPLs and the more conservative coverage ratio discussed earlier. Importantly, despite the substantial increase in reserves, this impact was offset by a corresponding increase in revenues from our Financial Services segment. Given our cumulative credit loss provisions to date, we now expect full year NPL provisions to increase between 30% and 35% relative to our 2024 full year figures. Importantly, this increase does not alter our guidance for the NPL ratio at year-end nor do we anticipate a reduction in profitability as we expect to offset higher provisions with increased income within the same segment. Moving to real estate. Our division's revenue increased by 6.9%, primarily driven by improved lease spreads and expansion of net leasable area. This growth was supported by expansion across various shopping centers, most notably the previously announced addition of a new wing to our Galerías Metepec shopping center, which added 55,000 square meters, effectively doubling its original size. The slight decline of 40 basis points in overall occupancy to 93.6% is directly attributable to the increased leasable space. Given the factors discussed, our consolidated gross profit margin for the quarter declined by 140 basis points. This decrease is primarily driven by a reduction in retail margin, partially offset by a higher contribution from financial services, which improved the overall profitability mix. Operating expenses for the quarter rose by 12.4%, primarily driven by increased costs related to minimum wage adjustments impacting both our internal payroll and labor-intensive services provided by third parties. Additionally, we made seasonal investments in marketing and as previously noted, further strengthened reserves for nonperforming loans, all of which contributed to the overall increase in expenses. Quarterly EBITDA reached MXN 8.6 billion, representing a 7.1% decrease year-over-year, leading to an EBITDA margin of 15.3%, 2.5 points lower than last year. Regarding nonoperating items, 2 additional factors impacted our P&L. First, we faced higher financial expenses following the $1 billion bond offering completed in January. And additionally, part of our cash position was allocated to the Nordstrom transaction, which reduced interest income. Second, currency translation losses related to our dollar-denominated cash holdings. Accordingly, consolidated net profit after tax was MXN 3.3 billion, reflecting a 47% year-over-year decrease. Turning to capital expenditures. Our investments in Q2 reached MXN 2.1 billion, bringing the cumulative investment to MXN 4.2 billion. These funds are primarily allocated to strengthening our logistics infrastructure and renovating our existing store network. Compared to 2024, CapEx decreased by 18%, primarily driven by the investment in the Altama Tampico shopping mall made earlier last year. Our cash flow from operations for the quarter was a positive MXN 2.1 billion, mainly driven by our strong operating profit and the gradual normalization of our inventory position. As previously announced, our net debt-to-EBITDA ratio has changed following the Nordstrom acquisition. Nevertheless, we continue to maintain a strong financial position, ending the quarter with $9 billion in cash and a healthy net debt-to-EBITDA ratio of 0.96x. We are proud to showcase an important achievement for our company. On May 20, the Puerto Liverpool, along with certain members of the Nordstrom family, completed the acquisition of Nordstrom Inc. for a cash purchase price of MXN 24.25 per share. Shareholders of Nordstrom immediately before the closing also received a special dividend of MXN 0.25 per share as well as a dividend of MXN 14.62 per share for the current quarter. As a result of the transaction, Nordstrom shares were delisted from the New York Stock Exchange on May 21, taking the iconic retailer private. Following the acquisition, Ecuador Liverpool owns a 49.9% equity stake, while the Nordstrom family holds the remaining 50.1%, establishing a strong partnership for the future. For Liverpool, this transaction involved a new investment of MXN 1.23 billion in addition to the close to MXN 300 million invested in 2022 to acquire our original 10% stake. This investment was funded through a combination of internal resources and external financing. The latter was secured in mid-January via the successful placement of $1 billion in senior notes. This debt offering included 2 tranches of $500 million each with maturities of 7 and 12 years. From a risk management perspective, the principal of these notes was hedged, resulting in a weighted average rate of 10.34% in pesos. This acquisition aligns with our long-term strategic objectives and is supported by several key factors. Most importantly, we expect a sound and sustained return on our investment over time. It also provides geographic and currency diversification, generating hard currency cash flows through dividends. Additionally, we see potential for collaboration in areas such as e-commerce, advanced analytics, logistics, private label development, loyalty programs and customer services. Furthermore, this partnership broadens our access to brands and opens doors to new and promising opportunities for our portfolio. For the February, April 2025 quarter, Nordstrom performance showed a 3.4% increase in total net sales. Adjusted EBITDA margin improved by 280 basis points, reaching 6.4%. Net income for the period was $49 million, a significant recovery from a $39 million loss in the same period last year. Liverpool's share of Nordstrom earnings contributed to MXN 144 million this quarter. This amount accounts for the contribution for May from the closing date to month end. Since Nordstrom follows a different accounting calendar than Liverpool, we plan to report Nordstrom's results with a 1-month lag, except for December when we expect to include the full monthly results within our fiscal year. Consequently, our Q4 results will reflect a 4-month contribution from September to December. We are currently in the process of reviewing the acquisition accounting entries under IFRS 3 with completion anticipated in Q3. This, along with our proportional share of acquisition-related expenses will be incorporated into our financial statements as soon as available. The main changes you should anticipate in our P&L are driven primarily by 3 factors: equity accounting adjustments, acquisition-related costs and interest expenses, reflecting changes in our debt position following the transaction. Looking ahead under the equity method of accounting, we anticipate recognizing a benefit of approximately $210 million, representing 49.9% of Nordstrom's net income for June to December. This benefit already includes a portion of the estimated $80 million in acquisition-related expenses. Lastly, as previously announced, while interest expenses will be incurred from the $1 billion bond issued in January, our interest income will also be reduced as we use part of our cash to fund the transaction. On a cash basis, we will benefit by dividends received from our investment. For perspective, dividends collected through June represent $9.2 million, and we anticipate to receive approximately $17 million during the second half of the year. Regarding corporate governance, Nordstrom new Board of Directors consists of 7 members, 3 are appointed by Liverpool, 3 by the Nordstrom family and 1 independent director who is appointed jointly. Decision-making requires a majority of votes, which must include at least 1 vote from Liverpool and one from the Nordstrom family, thereby ensuring balance influence and fostering collaboration in the company's governance. We are thrilled to partner with a highly respected and trusted brand like Nordstrom, benefiting from their strong 120-year legacy in the U.S. retail industry. We also extend our best wishes to Eric and Peter Nordstrom as they assume the roles of co-CEOs. Their proven leadership will be crucial to the ongoing success of this iconic brand. Moving to recent events. We are pleased to announce that we have surpassed 80% occupancy in the new wing of our Metepec shopping center, marking a significant milestone in this expansion. With a total investment of approximately $2.7 billion and spanning almost 55,000 square meters, effectively doubling the size of the existing mall and allowing us to expand the Liverpool store by over 4,000 square meters. This development offers a highly attractive array of fashion and entertainment options. The 2 wins of the shopping center are now connected through a new selected culinary journey, which enhances the overall visitor experience. We believe this strategic development will generate long-term value and foster a more diversified and appealing tenant mix within our portfolio. We continued our expansion with 6 new Liverpool Express units, bringing our total to 52 locations. We also opened 2 new Suburbia stores, one located in Acapulco and the other one in Aguascalientes. On June 10, we announced the termination of our distribution agreement with BYD. This strategic decision allows us to further strengthen our core commercial offerings and focus resources on areas that deliver the most value to our customers. During these transitions, we are committed to maintaining high service standards and ensuring a seamless uninterrupted experience for our clients. We sincerely appreciate the trust BYD has placed on us over the past 3 years, and we also wish to recognize our employees for their ongoing dedication and hard work. Also in June 10, Fitch Ratings recently affirmed Ecuador Liverpool's rating as AAA MAX and A1+ MAX with a stable outlook alongside international risk ratings of BBB+ in local and foreign currency. Beyond our physical growth and transformation, we're proud to share some recent awards and recognitions for our achievements. Ecuador Liverpool has been included in the Forbes Global 2000 for 2025, ranking 56 within the retail sector, highlighting our commitment to excellence and growing global impact. In the recent Corporate Sustainable Pools 2025 report by Roland Berger and University of Panamericana, we were recognized for excellence in corporate sustainability, positioning Liverpool among the top 3 leading companies in Mexico. For the third consecutive year, Merco Talento 2025 recognized Liverpool as a top company for attracting, developing and retaining talent, securing first place in the self-service and department store category and 11 overall. We achieved a perfect score of 100 points in the annual Corporate Integrity Index 500 report by International Transparency and Mexicans against corruption and immunity, ranking among only 60 companies to do so, reaffirming our strong commitment to business integrity. Liverpool was honored with the e-commerce Award Mexico 2025 in the fashion and style category by the E-commerce Institute and the Mexican Online Sales Association, highlighting our leadership in online retailing. Finally, [ MODA Fashion Map ] 2025 ranked Liverpool as the 7 among the top 10 department stores worldwide, recognizing our increasing competitiveness on the international stage. In conclusion, despite the challenges faced in Q2, we remain confident that our ongoing investments will deliver strong results, enhance our margins and drive solid performance in the future. Thank you all for joining us today. We appreciate your participation. And with that, we are now ready to open the floor for your questions.

[Operator Instructions] Our first question comes from the line of Ben Theurer. Please state your company name and ask your question.

This is Ben Theurer from Barclays. Two questions, Gonzalo, thanks for the presentation. So first one on Nordstrom. Obviously, now that the deal closed, finally, we can ask questions, hopefully get some answers. The very first one really is, I know it's early on, but you've had a stake of about 10% for a while. So could you share with us maybe some initial thoughts as to what you expect to get out of this investment in terms of like learnings maybe back to Liverpool and what you think you can contribute towards the JV with the family from Mexico into the U.S. in order to make this investment really worth the efforts. So that would be my very first question. And I have a quick follow-up.

Thank you, Ben. I think there are some areas where we have identified potential opportunities. Liverpool and Nordstrom have some aspects of the business that are similar between each other. So the things that we expect to get of this partnership, first and foremost, is a strong return on the investments through growth and through dividends. And on the Liverpool business, there are some areas of potential opportunities. Nordstrom has a very robust e-commerce capability. For perspective, their share of e-commerce is 40% of sales compared to the 30% that we have in Liverpool. So there may be some best practices that we can share. And together with that, in items like advanced analytics, they generate a lot of data and they have all these practice to explore that data similar to what we do. They have a full logistics developed in the U.S. and we do in Mexico. And given the economic integration between the 2 countries, there may be some opportunities about the overall logistics and maybe we can have some vendors providing services on both sides of the borders. So maybe there are some opportunities there. Then they have private labels that they develop on their own, and they do a lot of this production in Asia, similar to what we do. and they have a strong loyalty program and we're in the process of relaunching our own loyalty program. So there may be some pitfalls that we can avoid based on their experience. And quite frankly, the overall customer services, as you know, Nordstrom is renowned because of their customer service and Liverpool and so is Liverpool. So there may be some opportunities on collaboration. In the short term, we are benchmarking what they do versus what we do in order to confirm whether there is an opportunity, but those are the type of things that we're looking at. And in terms of the overall merchandising, they have access to brands that we -- at the moment, we don't have access to. So that may expand the opportunities to grow our portfolio. So those are the type of things that we expect to get out of these investments, then.

Okay. Perfect. And then a quick one. I mean, you've highlighted you've had a very good promotion period with only Father's Day being a little bit on the softer side. So as it relates to the Liverpool banner same-store sales growth of 4.7%, could you share us how much of that was driven by traffic versus ticket, just given that there was so much promotioning in there. Wondering how the composition was, if you could at least maybe give a little bit of a guideline around that?

Sure. In Liverpool, most of the growth was driven by average ticket of almost 6%. And that was partially offset by some negative calendar effects and a 1% decrease in overall traffic.

Our next question comes from the line of Renata Cabral at Citibank.

My question is related to Arco Norte. Regarding the overlap cost from the existing distribution centers, how do you see these expenses trending down into next year? And when do you expect the full efficiencies from the Arco Norte to materialize? And yes, on the Arco Norte, but my second question is last quarter, you gave some overview about the the conclusion of the project. Just to understand if the time line is still in place to have a lower impact on fourth quarter this year in terms of expenses?

Thank you, Renata. We are happy with the start-up of this operation. For perspective, we have now migrated about 70% of total SKUs from the previous warehouse to the new warehouse. So even though we have had some challenges, the overall time line remains on track, and we're happy with how things are going. In terms of onetime expenses, we anticipate about MXN 1.2 billion of onetime expenses and out of those, about MXN 500 million, they are already reserved. The amounts that are reserved are related to potential people expenses and write-offs on assets on the previous warehouse. And the rest are the expenses related to operating on 2 warehouses simultaneously. So up until June, we have posted a little over MXN 200 million out of those MXN 1.2 billion, and that is slightly below our original expectation. So we feel pretty confident that the actuals will be in line or slightly below the MXN 1.2 billion that we anticipated. And we are not anticipating those onetime expenses to go into our 2026 P&L. So in terms of the stabilization of the new operation, we expect to achieve a stabilization around September or early October in order to be ready to cope with the high demand of the fourth quarter. And we expect to derive operational efficiencies somewhere next year. As you can imagine, this is a very complex project. So we expect 2025 to be focused on the start-up and the stabilization of the operation. And once the stabilization point is reached, we intend to focus on efficiencies, and we expect to derive some of the benefits of those efficiencies throughout 2026.

Our next question comes from the line of Andrew Ruben.

Andrew Ruben from Morgan Stanley. I'm curious to dig in a bit more on the sales trends. We saw that both banners lagged the ANTAD index for the quarter, whereas the past handful of quarters, you guys have been above. So I'm curious what you see driving that divergence? And then the related question, it seems like some of your commentary on kind of macro and consumer conditions was incrementally negative. And I'm curious how to reconcile that with what we're seeing for the industry, which was a quite strong 12% growth for the quarter.

Thank you, Andrew. So let me start with the sales comparison versus [ Santa ]. Our sales growth for the second quarter was somewhat below the ANTAD average. This mainly comes down to 2 things: Liverpool's numbers, which were impacted by having one less promotion weekend and that we reschedule our summer sale for a few days. But also last year's ANTAD figures were relatively soft. And we believe some of our peers posted somewhat low numbers, which affects the overall comparison. That said, our cumulative sales growth still looks strong and it's actually a bit ahead of the ANTAD growth. So this quarter's numbers don't tell the full story. And we don't think they are indicative of our overall trajectory. Now talking about the the consumer, as you know, the overall environment is a bit uncertain, and we are certainly noticing customers are becoming more selective about where they stand. For example, in apparel over the past few weeks, the products that have shown weaker performance are those with no or relatively low discounts. But in contrast, seasonal and clearance items are moving pretty strongly, which is a positive sign, especially considering our current inventory position. So in that environment, we think we have to focus on the things that we can control, like good customer service, plenty of inventory and great merchandise because they will be very important throughout the second quarter. So we're encouraged for the results, particularly in some categories like cosmetics, goods and sports. And all of those are backed by our solid e-commerce performance that, as I said earlier, had a very strong quarter.

Our next question comes from the line of Robert Ford.

Bob Ford, BofA Merrill. Gonzalo, in your prepared remarks, in your response on synergies, you excluded developing Nordstrom or the Rack or other off-price concepts in Mexico. How should we think about those possibilities? And then with respect to just sales in July, can you discuss the trend month-to-date? And then maybe how you're thinking about merchandising strategies over the balance of the year and any inventory exit plans you may have?

At the moment, we are not planning to bring the Nordstrom brand to Mexico, not in the full-line format nor in the Northern Rack format. So that's something we -- in paper, it seems like an obvious discussion. However, it's a very complex discussion about how to bring value into the market and capital allocation and a number of things. So -- and it's a really complex discussion. So at the moment, we have no plans to bring either of those 2 brands to the Mexican market. And on the other way, we're not thinking on exporting the Liverpool brand into the U.S. Now talking about July, let me start by saying that July numbers are not entirely comparable given that we rescheduled the summer sales for a few days. So the peak of the sale is still to come in early August. Having said that, July sales have been somewhat soft. As I said, the products that have shown weaker performance are those with no discounts or with relatively low discounts. But given that seasonal and clearance items are moving very strongly, that's good because it provides an opportunity to clear our inventory. So with about 10 days remaining in the promotion and if the current sales trend persists, we expect a similar percentage of obsolete merchandise as last year at the end of the summer. I'm talking about the inventory exit and implication in margin. We expect the margin to bounce back in the second semester. And there are a number of reasons for that. So number one, we're comfortable with how things are going with the Liverpool inventory. So we don't expect a second half of the year to be as promotion heavy as the first half. Second, the current exchange rate is working in our favor in the sense that we have a number of imports not only done directly, but also through our vendors. So the exchange rate should help improve our margins in the coming quarters. And third, last year, we experienced some delays with imported merchandise, but we don't expect that this year. So that should also help the overall performance because we have the merchandise available earlier. And sales vary -- sales -- even in the second quarter, sales vary across categories like cosmetics and [indiscernible] and sports. So taking everything into account, we expect inventory in Liverpool to normalize during the third quarter and Sur at the beginning of the fourth quarter. And talking about our wheat on margin that we currently had a contraction of about 2 points versus last year. We expect a margin decrease of around 25 basis points in the second half, which means that our average margin for the year will be roughly 100 basis points below 2024.

Our next question comes from the line of Irma Sgarz.

I was hoping to just get a little bit of follow-up on both the Nordstrom as well as on sort of the macro outlook. So maybe starting in Mexico initially, just in the context of an environment where the consumer is near term a little bit weaker. How are you thinking about risk taking in your consumer finance operation? I saw you obviously took your your coverage ratios up sort of from a perspective of taking a conservative stance. And I heard your earlier comments about provisioning for the full year expectations. But just in terms of sort of when you think about approval rates and portfolio growth into the next 2 quarters, I'd love to hear just how you're thinking about your risk appetite and cost of risk? And then the second question, just regarding Nordstrom, it would just be helpful if you could just lay out a little bit more of sort of from -- through the Board perspective and sort of on the back of the second quarter results, how you're thinking about sort of the outlook into the second half of the year? Any type of sort of feedback on the actual operational results would be incrementally helpful.