UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April 30,~~October 29, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to___________

Commission File Number: 001-15059

NORDSTROM, INC.

(Exact name of registrant as specified in its charter)



Washington		91-0515058
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



1617 Sixth Avenue, Seattle, Washington		98101
(Address of principal executive offices)		(Zip Code)

206-628-2111

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



	Large accelerated filer þ		Accelerated filer ¨
	Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO þ

Common stock outstanding as of ~~May 25,~~November 23, 2016: ~~173,435,074~~173,342,135 shares

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NORDSTROM, INC.

TABLE OF CONTENTS



		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited).

	Condensed Consolidated Statements of Earnings ~~Quarters~~Quarter and Nine Months Ended ~~April 30,~~October 29, 2016 and ~~May 2,~~October 31, 2015	3

	Condensed Consolidated Statements of Comprehensive Earnings ~~Quarters~~Quarter and Nine Months Ended ~~April 30,~~October 29, 2016 and ~~May 2,~~October 31, 2015	3

	Condensed Consolidated Balance Sheets ~~April 30,~~October 29, 2016, January 30, 2016 and ~~May 2,~~October 31, 2015	4

	Condensed Consolidated Statements of Shareholders’ Equity ~~Quarters~~Nine Months Ended ~~April 30,~~October 29, 2016 and ~~May 2,~~October 31, 2015	5

	Condensed Consolidated Statements of Cash Flows ~~Quarters~~Nine Months Ended ~~April 30,~~October 29, 2016 and ~~May 2,~~October 31, 2015	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1314

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	2426

Item 4.	Controls and Procedures.	2426

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	2527

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2527

Item 6.	Exhibits.	2527

Signatures		2628

Exhibit Index		2729

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PART I –— FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Amounts in millions except per share amounts)

(Unaudited)


	Quarter Ended						Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Net sales		$3,192			$3,115			$3,472			$3,239			$10,255			$9,953
Credit card revenues, net	57			100			70			89			186			291
Total revenues	3,249			3,215			3,542			3,328			10,441			10,244
Cost of sales and related buying and occupancy costs	(2,100		)	(1,999		)	(2,261		)	(2,142		)	(6,720		)	(6,468		)
Selling, general and administrative expenses	(1,043		)	(971		)	(1,029		)	(1,031		)	(3,143		)	(2,999		)
Goodwill impairment							(197		)	—			(197		)	—
Earnings before interest and income taxes	106			245			55			155			381			777
Interest expense, net	(31		)	(33		)	(30		)	(30		)	(90		)	(94		)
Earnings before income taxes	75			212			25			125			291			683
Income tax expense	(29		)	(84		)	(35		)	(44		)	(138		)	(263		)
Net earnings		$46			$128
Net (loss) earnings								($10	)		$81			$153			$420

Earnings per share:
(Loss) Earnings per share:
Basic		$0.27			$0.67			($0.06	)		$0.43			$0.88			$2.22
Diluted		$0.26			$0.66			($0.06	)		$0.42			$0.87			$2.17

Weighted-average shares outstanding:
Basic	173.1			190.6			173.4			187.2			173.3			189.1
Diluted	175.7			194.9			173.4			191.3			175.6			193.2

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Amounts in millions)

(Unaudited)


	Quarter Ended				Quarter Ended					Nine Months Ended
	April 30, 2016		May 2, 2015		October 29, 2016			October 31, 2015		October 29, 2016		October 31, 2015
Net earnings		$46		$128
Net (loss) earnings						($10	)		$81		$153		$420
Postretirement plan adjustments, net of tax	1		2		—			2		1		5
Foreign currency translation adjustment	27		5		(9		)	—		8		(5		)
Comprehensive net earnings		$74		$135
Comprehensive net (loss) earnings						($19	)		$83		$162		$420

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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NORDSTROM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions)

(Unaudited)


	April 30, 2016			January 30, 2016			May 2, 2015			October 29, 2016			January 30, 2016			October 31, 2015
Assets
Current assets:
Cash and cash equivalents		$470			$595			$769			$531			$595			$821
Accounts receivable, net	224			196			2,266			216			196			215
Merchandise inventories	2,125			1,945			2,017			2,411			1,945			2,402
Current deferred tax assets, net	—			—			256			—			—			247
Prepaid expenses and other	173			278			110			227			278			202
Total current assets	2,992			3,014			5,418			3,385			3,014			3,887

Land, property and equipment (net of accumulated depreciation of $5,170, $5,108 and $4,793)	3,789			3,735			3,445
Land, property and equipment (net of accumulated depreciation of $5,462, $5,108 and $5,020)										3,865			3,735			3,742
Goodwill	435			435			447			238			435			447
Other assets	483			514			252			478			514			510
Total assets		$7,699			$7,698			$9,562			$7,966			$7,698			$8,586

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$1,456			$1,324			$1,573			$1,653			$1,324			$1,688
Accrued salaries, wages and related benefits	320			416			312			391			416			417
Other current liabilities	1,150			1,161			1,057			1,186			1,161			1,075
Current portion of long-term debt	10			10			8			11			10			9
Total current liabilities	2,936			2,911			2,950			3,241			2,911			3,189

Long-term debt, net	2,776			2,795			3,138			2,767			2,795			2,800
Deferred property incentives, net	536			540			540			532			540			568
Other liabilities	576			581			379			566			581			621

Commitments and contingencies (Note 6)
Commitments and contingencies (Note 5)

Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 173.4, 173.5 and 191.0 shares issued and outstanding	2,582			2,539			2,422
(Accumulated deficit) Retained earnings	(1,677		)	(1,610		)	190
Common stock, no par value: 1,000 shares authorized; 173.2, 173.5 and 185.4 shares issued and outstanding										2,651			2,539			2,519
Accumulated deficit										(1,742		)	(1,610		)	(1,047		)
Accumulated other comprehensive loss	(30		)	(58		)	(57		)	(49		)	(58		)	(64		)
Total shareholders’ equity	875			871			2,555			860			871			1,408
Total liabilities and shareholders’ equity		$7,699			$7,698			$9,562			$7,966			$7,698			$8,586

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in millions except per share amounts)

(Unaudited)


					(Accumulated			Accumulated													Accumulated
					Deficit)			Other													Other
	Common Stock				Retained			Comprehensive						Common Stock				Accumulated			Comprehensive
	Shares		Amount		Earnings			Loss			Total			Shares		Amount		Deficit			Loss			Total
Balance at January 30, 2016	173.5			$2,539		($1,610	)		($58	)		$871		173.5			$2,539		($1,610	)		($58	)		$871
Net earnings	—		—		46			—			46			—		—		153			—			153
Other comprehensive earnings	—		—		—			28			28			—		—		—			9			9
Dividends ($0.37 per share)	—		—		(63		)	—			(63		)
Dividends ($1.11 per share)														—		—		(192		)	—			(192		)
Issuance of common stock under stock compensation plans	0.7		28		—			—			28			1.4		50		—			—			50
Stock-based compensation	0.2		15		—			—			15			0.2		62		—			—			62
Repurchase of common stock	(1.0	)	—		(50		)	—			(50		)	(1.9	)	—		(93		)	—			(93		)
Balance at April 30, 2016	173.4			$2,582		($1,677	)		($30	)		$875
Balance at October 29, 2016														173.2			$2,651		($1,742	)		($49	)		$860


								Accumulated										Retained			Accumulated
								Other										Earnings			Other
	Common Stock				Retained			Comprehensive						Common Stock				(Accumulated			Comprehensive
	Shares		Amount		Earnings			Loss			Total			Shares		Amount		Deficit)			Loss			Total
Balance at January 31, 2015	190.1			$2,338		$166			($64	)		$2,440		190.1			$2,338		$166			($64	)		$2,440
Net earnings	—		—		128			—			128			—		—		420			—			420
Other comprehensive earnings	—		—		—			7			7			—		—		—			—			—
Dividends ($0.37 per share)	—		—		(71		)	—			(71		)
Dividends ($1.11 per share)														—		—		(211		)	—			(211		)
Special dividend related to the sale of credit card receivables ($4.85 per share)														—		—		(905		)	—			(905		)
Issuance of common stock for Trunk Club acquisition														0.3		23		—			—			23
Issuance of common stock under stock compensation plans	1.2		67		—			—			67			1.9		104		—			—			104
Stock-based compensation	0.1		17		—			—			17			0.1		54		—			—			54
Repurchase of common stock	(0.4	)	—		(33		)	—			(33		)	(7.0	)	—		(517		)	—			(517		)
Balance at May 2, 2015	191.0			$2,422		$190			($57	)		$2,555
Balance at October 31, 2015														185.4			$2,519		($1,047	)		($64	)		$1,408

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015
Operating Activities
Net earnings		$46			$128			$153			$420
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expenses	155			137			480			424
Goodwill impairment							197			—
Amortization of deferred property incentives and other, net	(17		)	(22		)	(57		)	(107		)
Deferred income taxes, net	6			(10		)	(14		)	(78		)
Stock-based compensation expense	20			19			68			57
Tax benefit from stock-based compensation	—			10
Tax (deficiency) benefit from stock-based compensation							(2		)	14
Excess tax benefit from stock-based compensation	(1		)	(10		)	(2		)	(14		)
Bad debt expense	—			10			—			26
Change in operating assets and liabilities:
Accounts receivable	(27		)	16			(20		)	(73		)
Proceeds from sale of credit card receivables originated at Nordstrom							—			1,297
Merchandise inventories	(212		)	(248		)	(393		)	(607		)
Prepaid expenses and other assets	94			(11		)	25			(36		)
Accounts payable	192			239			360			326
Accrued salaries, wages and related benefits	(100		)	(106		)	(30		)	(2		)
Other current liabilities	(6		)	1			33			(34		)
Deferred property incentives	13			50			54			128
Other liabilities	8			5			20			4
Net cash provided by operating activities	171			208			872			1,745

Investing Activities
Capital expenditures	(205		)	(259		)	(625		)	(857		)
Change in credit card receivables originated at third parties	—			16			—			33
Proceeds from sale of credit card receivables originated at third parties							—			890
Other, net	31			4			47			3
Net cash used in investing activities	(174		)	(239		)
Net cash (used in) provided by investing activities							(578		)	69

Financing Activities
Proceeds from long-term borrowings, net of discounts	—			16			—			13
Principal payments on long-term borrowings	(2		)	(2		)	(7		)	(6		)
Decrease in cash book overdrafts	(33		)	(10		)
Defeasance of long-term debt							—			(339		)
(Decrease) increase in cash book overdrafts							(127		)	7
Cash dividends paid	(63		)	(71		)	(192		)	(1,116		)
Payments for repurchase of common stock	(50		)	(28		)	(91		)	(517		)
Proceeds from issuances under stock compensation plans	28			58			51			90
Excess tax benefit from stock-based compensation	1			10			2			14
Other, net	(3		)	—			6			34
Net cash used in financing activities	(122		)	(27		)	(358		)	(1,820		)

Net decrease in cash and cash equivalents	(125		)	(58		)	(64		)	(6		)
Cash and cash equivalents at beginning of period	595			827			595			827
Cash and cash equivalents at end of period		$470			$769			$531			$821

Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes (refund), net		($83	)		$57
Income taxes, net								$99			$383
Interest, net of capitalized interest	17			30			83			86

Non-cash investing and financing activities:
Beneficial interest asset acquired from the sale of credit card receivables							—			62
Issuance of common stock for Trunk Club acquisition							—			23

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

NOTE 1: BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements include the balances of Nordstrom, Inc. and its subsidiaries (the “Company”). All intercompany transactions and balances are eliminated in consolidation. The interim Condensed Consolidated Financial Statements have been prepared on a basis consistent in all material respects with the accounting policies described and applied in our 2015 Annual Report on Form 10-K (“Annual Report”), and reflect all adjustments of a normal recurring nature that are, in management’s opinion, necessary for the fair presentation of the results of operations, financial position and cash flows for the periods presented.

The Condensed Consolidated Financial Statements as of and for the periods ended ~~April 30,~~October 29, 2016 and ~~May 2,~~October 31, 2015 are unaudited. The Condensed Consolidated Balance Sheet as of January 30, 2016 has been derived from the audited Consolidated Financial Statements included in our 2015 Annual Report. The interim Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and related footnote disclosures contained in our 2015 Annual Report.

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.

Our business, like that of other retailers, is subject to seasonal fluctuations. Due to our Anniversary Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third quarters of the fiscal year. In 2016, ~~our~~the Anniversary Sale ~~will shift~~event started one week later in July relative to ~~the~~ last ~~week of July and the first week of August, which will move~~year, shifting one week of the event ~~sales to~~into the third quarter. Results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Loyalty Program

Prior to the second quarter of 2016, customers who used Nordstrom Visa or Nordstrom credit or debit cards were able to participate in the Nordstrom Rewards program. During the second quarter of 2016, the Nordstrom Rewards program was expanded to enable all customers to earn benefits regardless of how they choose to pay. Customers accumulate points based on their level of spending. Upon reaching a certain points threshold, customers receive Nordstrom Notes, which can be redeemed for any goods or services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Customers who use Nordstrom private label credit or debit cards or Nordstrom Visa credit cards receive additional benefits, including reimbursements for alterations, shopping and fashion events and early access to the Anniversary Sale.

We estimate the net cost of Nordstrom Notes that will be issued and redeemed and record this cost as rewards points are accumulated. These costs, as well as reimbursed alterations, are recorded in cost of sales as we provide customers with products and services for these rewards. Other benefits of the loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses.

Reclassification

Reclassifications were made to our fiscal 2015 Condensed Consolidated Statements of Earnings and Condensed Consolidated Statement of Cash Flows to conform with current period presentation.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was subsequently modified in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In ~~early~~ 2016, the FASB issued additional ASUs which clarify the implementation guidance on principal versus agent considerations, on identifying performance obligations and licensing and on the revenue recognition criteria. This guidance is effective for us beginning in the first quarter of 2018. We are currently evaluating the impact ~~the~~these provisions will have on our Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification dictates whether lease expense is to be recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for us beginning ~~with~~in the first quarter of 2019. Though we are currently evaluating the impact of these provisions, we expect itthey will have a material impact on our Consolidated Financial Statements.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation — Improvements to Employee Share-Based Payment Accounting. This ASU ~~simplifies~~impacts several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for us beginning ~~with~~in the first quarter of 2017. We ~~are currently evaluating~~have evaluated this ASU and believe the impact ~~the provisions will have on~~to our Consolidated Financial ~~Statements.~~Statements upon adoption will be nominal, however, actual results will be dependent on unpredictable events, including the future price of our common stock, option exercise activity and forfeitures.

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~~NORDSTROM, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar and share amounts in millions except per share, per option and per unit amounts)~~

~~(Unaudited)~~

NOTE 2: CREDIT CARD RECEIVABLE TRANSACTION

On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD Bank, N.A. (“TD”) and we entered into a long-term program agreement under which TD is the exclusive issuer of our U.S. consumer credit cards.

In connection with the close of the credit card ~~receivables~~receivable transaction, we completed the defeasance of our $325 Series 2011-1 Class A Notes in order to provide the credit card receivables to TD free and clear. At close, we received $2.2 billion in cash consideration reflecting the par value of the receivables sold and incurred $32 in transaction-related expenses during the third quarter of 2015. Pursuant to the agreement, we are obligated to offer and administer our loyalty program and perform other account servicing functions. In return, we receive a portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables.

We recorded certain assets and liabilities associated with the arrangement. The beneficial interest asset is carried at fair value (see Note 5:4: Fair Value Measurements) and is amortized over approximately four years based primarily on the payment rate of the associated receivables. The deferred revenue and investment in contract asset are recognized/amortized over seven years on a straight line basis, following the delivery of the contract obligations and expected life of the agreement. We record each of these items in credit card revenue, net in our Condensed Consolidated Statements of Earnings.

~~NOTE 3: ACCOUNTS RECEIVABLE~~

~~The components of accounts receivable are as follows:~~

April 30, 2016
January 30, 2016
May 2, 2015
Credit card receivables and other, net
$225

$197

$2,336
Allowance for credit losses (1 ) (1 ) (70 )
Accounts receivable, net
$224

$196

$2,266

Credit card receivables and other, net as of April 30, 2016 and January 30, 2016 consist of employee credit card receivables and receivables from non-Nordstrom-branded cards. As of May 2, 2015, credit card receivables and other, net also included U.S. Visa and private label receivables sold to TD on October 1, 2015. There have been no material changes to the delinquency status or net credit losses of the receivables sold.

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~~NORDSTROM, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar and share amounts in millions except per share, per option and per unit amounts)~~

~~(Unaudited)~~

NOTE 4:3: DEBT AND CREDIT FACILITIES

Debt

A summary of our long-term debt, including capital leases, is as follows:


	April 30, 2016			January 30, 2016			May 2, 2015			October 29, 2016			January 30, 2016			October 31, 2015
Secured
Series 2011-1 Class A Notes, 2.28%, due October 2016		$—			$—			$325
Mortgage payable, 7.68%, due April 2020	29			30			35				$26			$30			$32
Other	4			5			9			3			5			5
Total secured debt	33			35			369			29			35			37

Unsecured
Net of unamortized discount:
Senior notes, 6.25%, due January 2018	649			649			649			650			649			649
Senior notes, 4.75%, due May 2020	499			499			499			499			499			499
Senior notes, 4.00%, due October 2021	500			500			499			500			500			499
Senior debentures, 6.95%, due March 2028	300			300			300			300			300			300
Senior notes, 7.00%, due January 2038	146			146			146			146			146			146
Senior notes, 5.00%, due January 2044	601			600			598			602			600			600
Other	58			76			86			52			76			79
Total unsecured debt	2,753			2,770			2,777			2,749			2,770			2,772

Total long-term debt	2,786			2,805			3,146			2,778			2,805			2,809
Less: current portion	(10		)	(10		)	(8		)	(11		)	(10		)	(9		)
Total due beyond one year		$2,776			$2,795			$3,138			$2,767			$2,795			$2,800

~~As a condition~~

8 of ~~closing the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction), we defeased $325~~29

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in ~~secured Series 2011-1 Class A Notes in order to provide the receivables to TD free~~millions except per share, per option and ~~clear.~~per unit amounts)

(Unaudited)

Credit Facilities

As of ~~April 30,~~October 29, 2016, we had total short-term borrowing capacity of $800 ~~which is~~under our ~~$800~~ senior unsecured revolving credit facility (“revolver”) that expires in April 2020, with an option to extend for an additional year. Under the terms of our revolver, we pay a variable rate of interest and a commitment fee based on our debt rating. The revolver is available for working capital, capital expenditures and general corporate purposes. We have the option to increase the revolving commitment by up to $200, to a total of $1,000, provided that we obtain written consent from the lenders. As of ~~April 30,~~October 29, 2016, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our revolver.

The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) leverage ratio of less than four times. As of ~~April 30,~~October 29, 2016, we were in compliance with this covenant.

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~~NORDSTROM, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar and share amounts in millions except per share, per option and per unit amounts)~~

~~(Unaudited)~~

NOTE 5:4: FAIR VALUE MEASUREMENTS

We disclose our financial assets and liabilities that are measured at fair value in our Condensed Consolidated Balance Sheets by level within the fair value hierarchy as defined by applicable accounting standards:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Other observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs that cannot be corroborated by market data that reflect the reporting entity’s own assumptions

Financial Instruments Measured at Fair Value on a Recurring Basis

We recorded a beneficial interest asset when we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio (see Note 2: Credit Card Receivable Transaction). We determined the fair value of the beneficial interest asset based on a discounted cash flow model using Level 3 inputs of the fair value hierarchy. Inputs and assumptions include the discount rate, payment rate, credit loss rate and revenues and expenses associated with the program agreement. Given our review of market participant capital structures in the banking and credit card industries and our historical and expected portfolio performance, we used the following ranges of input assumptions to determine the fair value as of ~~April 30, 2016:~~October 29, 2016 and October 31, 2015:


					October 29, 2016				October 31, 2015
	Minimum		Maximum		Minimum		Maximum		Minimum		Maximum
Discount rate	12	%	12	%	12	%	12	%	12	%	12	%
Monthly payment rate	6	%	13	%	6	%	11	%	6	%	33	%
Annual credit loss rate	2	%	4	%	3	%	4	%	1	%	4	%
Annual revenues as a percent to credit card receivables	12	%	18	%	14	%	18	%	6	%	18	%
Annual expenses as a percent to credit card receivables	4	%	9	%	5	%	9	%	2	%	9	%

We recognized ~~$10~~$5 and $22 of amortization expense for the quarter and nine months ended ~~April 30,~~October 29, 2016 on the beneficial interest asset, which had a fair value of ~~$27 at April~~$15 and $37 as of October 29, 2016 and January 30, 2016. Amortization primarily reflects payments received on the receivables sold and is recorded in credit card revenues, net.

~~We did not have any financial assets or liabilities that were measured at fair value on a recurring basis as of May 2, 2015.~~

Financial Instruments Not Measured at Fair Value

Financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable and certificates of deposit, ~~and~~which approximate fair value due to their short-term ~~nature.~~nature, and long-term debt.

We estimate the fair value of our long-term debt using quoted market prices of the same or similar issues and, as such, this is considered a Level 2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current maturities:


	April 30, 2016		January 30, 2016		May 2, 2015		October 29, 2016		January 30, 2016		October 31, 2015
Carrying value of long-term debt		$2,786		$2,805		$3,146		$2,778		$2,805		$2,809
Fair value of long-term debt	3,085		3,077		3,606		3,064		3,077		3,177

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

Non-financial Assets Measured at Fair Value on a Nonrecurring Basis

We also measure certain non-financial assets at fair value on a nonrecurring basis, primarily goodwill, investment in contract asset and long-lived tangible and intangible assets, in connection with periodic evaluations for potential impairment. ~~There were no material impairment charges for these assets for the quarters ended April 30, 2016 and May 2, 2015.~~ We estimate the fair value of ~~goodwill, investment in contract asset and long-lived tangible and intangible~~these assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements.

During the quarter, the long-term operating plan for Trunk Club was updated to reflect current expectations for future growth and profitability which were lower than previous expectations. Due to lowered expectations, we tested Trunk Club goodwill for impairment in the third quarter, one quarter prior to the annual evaluation. Step 1 test results indicated that the estimated fair value of the reporting unit was less than the carrying value.

In our Step 2 analysis, we used a combination of the expected present value of future cash flows (income approach) and comparable public companies (market approach) to determine the fair value of the reporting unit. These approaches use primarily unobservable inputs, including discount, sales growth and profit margin rates, which are considered Level 3 fair value measurements. The fair value analysis took into account recent and expected operating performance as well as the overall decline in the retail industry. Within our Retail Segment, we recognized a goodwill impairment charge of $197, reducing Trunk Club goodwill to $64 as of October 29, 2016 from $261 as of January 30, 2016.

There were no material impairment charges for the nine months ended October 31, 2015.

NOTE 6:5: COMMITMENTS AND CONTINGENCIES

Plans for our Manhattan full-line store, which we currently expect to open in 2019, ultimately include owning a condominium interest in a mixed-use tower and leasing certain nearby properties. As of ~~April 30,~~October 29, 2016, we had approximately $201 of fee interest in land, which is expected to convert to a condominium interest once the store is constructed. We have committed to make future installment payments based on the developer meeting pre-established construction and development milestones. In the ~~unlikely~~ event that this project is not completed, the opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our investment in the land.

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~~NORDSTROM, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar and share amounts in millions except per share, per option and per unit amounts)~~

~~(Unaudited)~~

NOTE 7:6: SHAREHOLDERS’ EQUITY

On October 1, 2015, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock through March 1, 2017. During the ~~quarter~~nine months ended ~~April 30,~~October 29, 2016, we repurchased ~~1.0~~1.9 shares of our common stock for an aggregate purchase price of ~~$50~~$93 and had ~~$761~~$718 remaining in share repurchase capacity as of ~~April 30,~~October 29, 2016. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission (“SEC”) rules.

In ~~May~~November 2016, subsequent to quarter end, we declared a quarterly dividend of $0.37 per share, which will be paid on ~~June 15,~~December 13, 2016.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

NOTE 8:7: STOCK-BASED COMPENSATION

The following table summarizes our stock-based compensation expense:


	Quarter Ended						Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Stock options		$8			$9			$9			$7			$28			$26
Restricted stock units	6			4			10			4			25			14
Acquisition-related stock compensation	4			5			2			5			10			14
Performance share units							—			(1		)	1			(1		)
Other	2			1			—			1			4			4
Total stock-based compensation expense, before income tax benefit	20			19			21			16			68			57
Income tax benefit	(6		)	(6		)	(7		)	(5		)	(22		)	(18		)
Total stock-based compensation expense, net of income tax benefit		$14			$13			$14			$11			$46			$39

The following table summarizes our grants:

Quarter Ended
April 30, 2016 May 2, 2015
Granted
Weighted-average grant-date fair value per unit
Granted
Weighted-average grant-date fair value per unit
Stock options 2.5

$16
1.7

$21
Restricted stock units 0.7

$49
0.4

$78
Performance share units¹
0.1

$44
0.1
N/A



	Nine Months Ended
	October 29, 2016			October 31, 2015
	Granted	Weighted-average grant-date fair value per unit		Granted	Weighted-average grant-date fair value per unit
Stock options	2.9		$15	1.8		$21
Stock options special dividend adjustment	—	N/A		0.9	N/A
Restricted stock units	1.9		$44	0.5		$77
Restricted stock units special dividend adjustment	—	N/A		0.1	N/A
Performance share units¹	0.1		$44	0.1	N/A

¹ Performance share units granted in 2015 were liability-based awards, therefore the weighted-average grant-date fair value is not meaningful.

NOTE 9:8: (LOSS) EARNINGS PER SHARE

The computation of (loss) earnings per share is as follows:

Quarter Ended
April 30, 2016
May 2, 2015
Net earnings
$46

$128

Basic shares 173.1
190.6
Dilutive effect of stock options and other 2.6
4.3
Diluted shares 175.7
194.9

Earnings per basic share
$0.27

$0.67
Earnings per diluted share
$0.26

$0.66

Anti-dilutive stock options and other 6.8
1.7



	Quarter Ended					Nine Months Ended
	October 29, 2016			October 31, 2015		October 29, 2016		October 31, 2015
Net (loss) earnings		($10	)		$81		$153		$420

Basic shares	173.4			187.2		173.3		189.1
Dilutive effect of stock options and other¹	—			4.1		2.3		4.1
Diluted shares	173.4			191.3		175.6		193.2

(Loss) Earnings per basic share		($0.06	)		$0.43		$0.88		$2.22
(Loss) Earnings per diluted share		($0.06	)		$0.42		$0.87		$2.17

Anti-dilutive stock options and other	6.5			1.9		9.0		1.8

¹Due to the anti-dilutive effect resulting from the reported net loss for the quarter ended October 29, 2016, the impact of potentially dilutive securities on the weighted-average shares outstanding has been omitted from the quarterly calculation of loss per diluted share. The impact of these potentially dilutive securities has been included in the calculation of weighted-average shares for the nine months ended October 29, 2016.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

NOTE ~~10:~~9: SEGMENT REPORTING

The following ~~tables set~~table sets forth information for our reportable segments:



	Retail		Corporate/Other			Retail Business			Credit			Total
Quarter Ended October 29, 2016
Net sales		$3,317		$155			$3,472			$—			$3,472
Credit card revenues, net	—		—			—			70			70
Earnings before interest and income taxes	18		5			23			32			55
Interest expense, net	—		(30		)	(30		)	—			(30		)
Earnings (loss) before income taxes	18		(25		)	(7		)	32			25
Assets¹	5,760		1,759			7,519			447			7,966

Quarter Ended October 31, 2015
Net sales		$3,169		$70			$3,239			$—			$3,239
Credit card revenues, net	—		—			—			89			89
Earnings (loss) before interest and income taxes	178		(30		)	148			7			155
Interest expense, net	—		(27		)	(27		)	(3		)	(30		)
Earnings (loss) before income taxes	178		(57		)	121			4			125
Assets¹	6,140		1,869			8,009			577			8,586

Nine Months Ended October 29, 2016
Net sales		$10,446		($191	)		$10,255			$—			$10,255
Credit card revenues, net	—		—			—			186			186
Earnings (loss) before interest and income taxes	590		(274		)	316			65			381
Interest expense, net	—		(90		)	(90		)	—			(90		)
Earnings (loss) before income taxes	590		(364		)	226			65			291
Assets¹	5,760		1,759			7,519			447			7,966

Nine Months Ended October 31, 2015
Net sales		$10,135		($182	)		$9,953			$—			$9,953
Credit card revenues, net	—		—			—			291			291
Earnings (loss) before interest and income taxes	836		(227		)	609			168			777
Interest expense, net	—		(82		)	(82		)	(12		)	(94		)
Earnings (loss) before income taxes	836		(309		)	527			156			683
Assets¹	6,140		1,869			8,009			577			8,586

¹Assets in Corporate/Other include unallocated assets in corporate headquarters, consisting primarily of cash, land, property and equipment and deferred tax assets.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

Retail
Corporate/Other

Retail
Business

Credit
Total
Quarter Ended April 30, 2016
Net sales
$3,258

($66 )
$3,192

$—

$3,192
Credit card revenues, net —
—
—
57
57
Earnings (loss) before interest and income taxes 189
(99 ) 90
16
106
Interest expense, net —
(31 ) (31 ) —
(31 )
Earnings (loss) before income taxes 189
(130 ) 59
16
75

Quarter Ended May 2, 2015
Net sales
$3,191

($76 )
$3,115

$—

$3,115
Credit card revenues, net —
—
—
100
100
Earnings (loss) before interest and income taxes 280
(83 ) 197
48
245
Interest expense, net —
(28 ) (28 ) (5 ) (33 )
Earnings (loss) before income taxes 280
(111 ) 169
43
212

The following table summarizes net sales within our reportable segments:


	Quarter Ended						Quarter Ended				Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016		October 31, 2015		October 29, 2016			October 31, 2015
Nordstrom full-line stores - U.S.		$1,582			$1,699			$1,568		$1,634		$5,128			$5,431
Nordstrom.com	495			480			497		414		1,675			1,518
Nordstrom	2,077			2,179			2,065		2,048		6,803			6,949

Nordstrom Rack	894			831			958		885		2,777			2,573
Nordstromrack.com/HauteLook	166			117			159		129		482			363
Off-price	1,060			948			1,117		1,014		3,259			2,936

Other retail¹	121			64			135		107		384			250
Total Retail segment	3,258			3,191			3,317		3,169		10,446			10,135
Corporate/Other	(66		)	(76		)	155		70		(191		)	(182		)
Total net sales		$3,192			$3,115			$3,472		$3,239		$10,255			$9,953

¹Other retail includes Nordstrom Canada full-line stores, Trunk Club and Jeffrey boutiques.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share and per square foot amounts)

CAUTIONARY STATEMENT

Certain statements in this Quarterly Report on Form 10-Q contain or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties including, but not limited to, anticipated financial outlook for the fiscal year ending January 28, 2017, anticipated annual total and comparable sales rates, anticipated new store openings in existing, new and international markets, anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to:

Strategic and Operational

successful execution of our customer strategy, including expansion into new domestic and international markets, acquisitions, investments in our stores and online as well as investments in technology, our ability to realize the anticipated benefits from growth initiatives and our ability to provide a seamless experience across all channels,

timely and effective execution of our ecommerce initiatives and ability to manage the costs and organizational changes associated with this evolving business model,

timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties,

our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders,

effective inventory management processes and systems, fulfillment processes and systems, disruptions in our supply chain and our ability to control costs,

the impact of any systems failures, cybersecurity and/or security breaches, including any security breach of our systems or those of a third-party provider that results in the theft, transfer or unauthorized disclosure of customer, employee or Company information or compliance with information security and privacy laws and regulations in the event of such an incident,

successful execution of our information technology strategy,

our ability to effectively utilize data in strategic planning and decision making,

efficient and proper allocation of our capital resources,

our ability to realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program agreement with TD,

our ability to safeguard our reputation and maintain our vendor relationships,

our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online, and evolve our business model,

the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry,

the timing, price, manner and amounts of share repurchases by the Company, if any, or any share issuances by the Company, including issuances associated with option exercises or other matters,

Economic and External

the impact of economic and market conditions and the resultant impact on consumer spending patterns,

weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the resulting impact on consumer spending patterns,

Legal and Regulatory

our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to banking, employment and tax and the outcome of claims and litigation and resolution of such matters,

the impact of the current regulatory environment and financial system and health care reforms, and

compliance with debt covenants, availability and cost of credit, changes in our credit rating, changes in interest rates, debt repayment patterns and personal bankruptcies.

These and other factors, including those factors described in Part I, “Item 1A. Risk Factors” in our 2015 Annual Report on Form 10-K could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

OVERVIEW

Our ~~first~~third quarter results ~~were impacted by~~reflected our team’s substantial progress to align to current business trends and make longer-term changes to our business model. The changes we’ve made in the way we operate to enhance the customer experience and increase our productivity contributed to our strong operating performance. In addition, continued focus on inventory led to a positive spread between sales and inventory growth for the quarter.

Our third quarter net loss of $10 included a non-cash goodwill impairment charge of $197 related to Trunk Club, which we acquired in August 2014. While this business continues to deliver outsized top-line growth, current expectations for future growth and profitability are lower than ~~expected sales. We~~initial estimates. To better position Trunk Club’s business, we are making a number of operational changes to improve the customer experience and improve operating results.

Total net sales in the quarter grew 7.2% and we had apositive comparable sales ~~decrease of 1.7%~~for both full-price and off-price. Total Company comparable sales for the quarter increased 2.4%, which ~~fell short~~included one week of our ~~plan. In response to~~Anniversary Sale shifting into the quarter. The combined second and third quarter comparable sales, which removes the impact of the event shift, increased 0.4%, which was generally consistent with our trends ~~we have worked aggressively to improve our inventory position. This resulted in ending~~over the ~~quarter~~past year.

Our strategy is squarely focused on serving customers on their terms with ~~inventory growth of 5.4% relative to total net sales growth of 2.5%, an improvement~~the high-quality product and service they expect from the negative 7% spread in the fourth quarter of 2015. While we were disciplined in our planned expenses, our results included unexpected credit chargeback expenses related to an industry change in liability rules and severance charges to realign our corporate support functions.

us. We continue to ~~expand our reach to serve more customers. We opened six Nordstrom Rack stores~~make progress in the areas of supply chain, marketing and technology that enhance the customer experience and improve our operating performance. This quarter, ~~which exceeded sales expectations,~~we have executed on a number of initiatives to better serve customers and ~~when combined with Nordstromrack.com/HauteLook performance, off-price net sales increased 11.8%. We plan~~drive top-line growth.

In our Nordstrom brand, we achieved another milestone related to ~~open 15 more new Nordstrom Rack stores this fall. We’re building on the continued success of~~ our Canada expansion with two ~~full-line stores opening this fall~~successful store openings in Toronto, at Eaton Centre and Yorkdale Centre. With Toronto being the ~~most productive~~fourth largest market in ~~Canada and one of the~~North America, we believe these stores will be among our top ~~markets in North America.~~volume stores. In the U.S., we ~~plan to open~~had a successful opening of our second ~~full-line~~ store in Austin, Texas, at The Domain.

Our Rack business serves as a great way of attracting new customers to Nordstrom. We expanded our reach with 15 new store openings this fall for a total of 215 Racks. These stores are complemented by our online offering at Nordstromrack.com/HauteLook, which is ~~a dynamic~~expected to reach over $700 in sales this year.

A curated product assortment is an integral element of our customer strategy and ~~growing market.~~led to the launch of new collaborations with J. Crew and denim brand Good American. Through these and other partnerships, we are able to give our customers compelling product that has limited distribution.

Our website platform has been upgraded enabling us to accelerate the continuous delivery of new customer-facing features. From a productivity standpoint, we’ve prioritized our investments toward modernizing our infrastructure and implementing the highest value customer experiences.

In May, we expanded the Nordstrom Rewards loyalty program ~~is an important enabler of growth~~ to ~~increase our engagement with new and existing customers. On average our loyalty~~enable all customers ~~spend four times more and shop three times more than non-members. On May 18th, we launched an expanded program, providing customers the flexibility~~ to earn ~~rewards~~benefits regardless of how they choose to pay. ~~Our expanded~~This represents a meaningful opportunity to directly engage with customers and drives incremental trips and sales. We now have more than 7 million customers in our overall program, ~~is expected~~up over 40% from a year ago.

As customer expectations continue to ~~drive top-line sales growth and,~~evolve, it’s even more ~~importantly, enable~~important for us to ~~better engage with our customers.~~

~~For the balance of the year, we are prioritizing our resources to assure that every dollar spent is meaningful to the customer experience. Our efforts include continued~~ focus on ~~product relevance, inventory and expense discipline, operational efficiencies and the continual evaluation and prioritization of our capital initiatives. Specifically:~~

~~We’ve seen strength in our new and emerging brands and are dedicated to offering differentiated products and will continue to introduce and grow relevant brands that are compelling to customers.~~

While we continue to invest in our future growth and view technology as a top priority, we are executing on efficiency opportunities and have implemented a new technology operating model that is expected to optimize productivity and reduce complexity.

We are realigning our corporate support functions, which is expected to reduce costs while improving our focus and execution. In our supply chain, we are making changes to improve the unit economics of product delivered to our customers, which includes refining our online assortment and improving our merchandise allocation between stores and fulfillment centers.

Given the changes we are seeing in our industry, we completed a review of our five-year capital plan, resulting in approximately $400, or 10%, of reduced spend primarily related to new stores and remodels over the next few years.

~~While we recognize that the pace of change is increasing, our unwavering goal~~how best to serve our ~~customers remains unchanged.~~customers. This guides us on how we set priorities, allocate resources and accelerate the speed of our execution to ensure that we provide a relevant, best-in-class experience for our customers. We ~~will continue~~have strong momentum in place and remain committed to ~~make the tough but necessary decisions that will~~continuing our progress to ensure ~~we are set up for continued success. We are confident that through our initiatives we are competitively~~we’re best positioned to ~~deliver the products and experiences our customers want, which in turn will deliver long-term value to our shareholders.~~achieve profitable growth.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

RESULTS OF OPERATIONS

Our reportable segments are Retail and Credit. We analyze our results of operations through earnings before interest and income taxes for our Retail Business and Credit, while interest expense, income taxes and earnings per share ~~and return on invested capital~~ are discussed on a total Company basis.

Retail Business

Our Retail Business includes our Nordstrom U.S. and Canada full-line stores, Nordstrom.com, Nordstrom Rack stores, Nordstromrack.com/HauteLook, Trunk Club, Jeffrey and our Last Chance clearance ~~store.~~stores. For purposes of discussion and analysis of our results of operations of our Retail Business, we combine our Retail segment results with revenues and expenses in the “Corporate/Other” column of Note ~~10:~~9: Segment Reporting in Item 1 (collectively, the “Retail Business”).

Certain metrics we use to evaluate the Retail Business may not be calculated in a consistent manner among industry peers. Provided below are definitions of metrics we present within our analysis of the Retail Business:

Comparable Sales – sales from stores that have been open at least one full year at the beginning of the year. Total Company comparable sales include sales from our online channels.

Gross Profit – net sales less cost of sales and related buying and occupancy costs.

Inventory Turnover Rate – annual cost of sales and related buying and occupancy costs (for all segments) divided by the trailing 4-quarter average inventory.

Total Sales Per Square Foot – net sales divided by weighted-average square footage.

4-wall Sales Per Square Foot – sales for Nordstrom U.S. and Canada full-line stores, Nordstrom Rack stores, Trunk Club clubhouses, Jeffrey boutiques and our Last Chance ~~store~~clearance stores divided by their weighted-average square footage.

Summary

The following table summarizes the results of our Retail Business:


	Quarter Ended										Quarter Ended
	April 30, 2016					May 2, 2015					October 29, 2016					October 31, 2015
	Amount			% of net sales¹		Amount			% of net sales¹		Amount			% of net sales¹		Amount			% of net sales¹
Net sales		$3,192		100.0	%		$3,115		100.0	%		$3,472		100.0	%		$3,239		100.0	%
Cost of sales and related buying and occupancy costs	(2,099		)	(65.8	%)	(1,997		)	(64.1	%)	(2,262		)	(65.2	%)	(2,140		)	(66.1	%)
Gross profit	1,093			34.2	%	1,118			35.9	%	1,210			34.8	%	1,099			33.9	%
Selling, general and administrative expenses	(1,003		)	(31.4	%)	(921		)	(29.6	%)	(990		)	(28.5	%)	(951		)	(29.3	%)
Goodwill impairment											(197		)	(5.7	%)	—			—
Earnings before interest and income taxes		$90		2.8	%		$197		6.3	%		$23		0.6	%		$148		4.6	%

											Nine Months Ended
											October 29, 2016					October 31, 2015
											Amount			% of net sales¹		Amount			% of net sales¹
Net sales												$10,255		100.0	%		$9,953		100.0	%
Cost of sales and related buying and occupancy costs											(6,718		)	(65.5	%)	(6,463		)	(64.9	%)
Gross profit											3,537			34.5	%	3,490			35.1	%
Selling, general and administrative expenses											(3,024		)	(29.5	%)	(2,881		)	(28.9	%)
Goodwill impairment											(197		)	(1.9	%)	—			—
Earnings before interest and income taxes												$316		3.1	%		$609		6.1	%

¹Subtotals and totals may not foot due to rounding.

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(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

Retail Business Net Sales

In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our channels. While our customers may engage with us through multiple channels, we know they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. To provide additional transparency into our net sales by channel, we present the following summary of our Retail Business:


	Quarter Ended						Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Net sales by channel:
Nordstrom full-line stores - U.S.		$1,582			$1,699			$1,568			$1,634			$5,128			$5,431
Nordstrom.com	495			480			497			414			1,675			1,518
Full-price	2,077			2,179			2,065			2,048			6,803			6,949

Nordstrom Rack	894			831			958			885			2,777			2,573
Nordstromrack.com/HauteLook	166			117			159			129			482			363
Off-price	1,060			948			1,117			1,014			3,259			2,936

Other retail¹	121			64			135			107			384			250
Retail segment	3,258			3,191			3,317			3,169			10,446			10,135
Corporate/Other	(66		)	(76		)	155			70			(191		)	(182		)
Total net sales		$3,192			$3,115			$3,472			$3,239			$10,255			$9,953

Net sales increase	2.5		%	9.8		%	7.2		%	6.6		%	3.0		%	8.5		%

Comparable sales increase (decrease) by channel:
Nordstrom full-line stores - U.S.	(7.7		%)	0.5		%	(4.5		%)	(2.2		%)	(6.3		%)	(0.2		%)
Nordstrom.com	3.1		%	19.8		%	20.1		%	11.4		%	10.3		%	17.6		%
Full-price	(5.4		%)	4.2		%	0.5		%	0.3		%	(2.6		%)	3.2		%
Nordstrom Rack	(0.8		%)	(0.2		%)	0.9		%	(2.2		%)	0.4		%	(0.2		%)
Nordstromrack.com/HauteLook	41.8		%	51.2		%	23.2		%	38.8		%	32.9		%	46.1		%
Off-price	4.6		%	4.9		%	3.9		%	2.4		%	4.6		%	4.6		%
Total Company	(1.7		%)	4.4		%	2.4		%	0.9		%	(0.2		%)	3.5		%

Sales per square foot:
Total sales per square foot		$111			$115			$119			$116			$355			$361
4-wall sales per square foot	89			94			90			93			283			296
Full-line sales per square foot - U.S.	76			83			76			79			247			264
Nordstrom Rack sales per square foot	123			130			127			130			376			389

¹Other retail includes Nordstrom Canada full-line stores, Trunk Club and Jeffrey boutiques.

Total Company net sales increased ~~2.5%~~7.2% for the ~~first~~quarter and 3.0% for the nine months ended October 29, 2016, compared with the same periods in 2015, while comparable sales increased 2.4% for the quarter and decreased 0.2% for the nine months ended October 29, 2016. Current period results include a favorable comparison resulting from one week of the Anniversary Sale, historically the Company's largest event of the year, shifting into the third quarter. Combined second and third quarter comparable sales, which removes the impact of the event shift, increased 0.4% compared with the same period last year.

Total sales per square foot improved for the quarter ended October 29, 2016, compared with the same period in 2015, ~~while comparable~~due to an increase in sales from our online channels as well as the shift in the Anniversary Sale. Total sales per square foot decreased ~~1.7%~~ for the ~~first quarter~~nine months ended ~~2016. During the quarter, we relocated one full-line store and opened six Nordstrom Rack stores.~~

~~Full-price net sales, which consists of U.S. full-line and Nordstrom.com channels, decreased 4.7% for the first quarter ended~~October 29, 2016 compared with the same period in 2015, ~~while comparable sales decreased 5.4%. These decreases were driven by softer sales across~~due to store expansion. To date in fiscal 2016, we opened 26 stores, relocated three stores and online, merchandise categories and regions. On a comparable basis, full-price experienced a decrease in the total number of items sold, partially offset by an increase in the average selling price per item sold. The top-performing merchandise category was Beauty. The younger customer-focused departments in Women's Apparel continued to reflect strength with positive comparable sales increases. The Midwest was the top-performing full-price geographic region.

U.S. full-line stores’ net sales decreased 6.9% and comparable sales decreased 7.7% for the quarter ended April 30, 2016, compared with the same period in 2015. Nordstrom.com net sales increased 3.1% for the quarter ended April 30, 2016, on top of last year’s 19.8% increase.closed one store.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

~~Within our off-price offering,~~Full-price net sales, which consists of U.S. full-line and Nordstrom.com channels, increased 0.8% for the quarter and decreased 2.1% for the nine months ended October 29, 2016, compared with the same periods in 2015, while on a comparable basis, sales increased 0.5% in the third quarter and decreased 2.6% for the nine months ended October 29, 2016. Also on a comparable basis for the quarter, full-price experienced an increase in the number of items sold, partially offset by a decrease in the average selling price per item sold. For the nine months ended October 29, 2016, there was a decrease in the number of items sold, partially offset by an increase in the average selling price per item sold.

Full-price top-performing merchandise categories for the third quarter were Women's Apparel and Men's Apparel. The top-performing merchandise category for the nine months ended October 29, 2016 was Beauty. The West was the top-performing geographic region for the quarter and nine months ended October 29, 2016.

Off-price net sales, which consists of Nordstrom Rack and Nordstromrack.com/HauteLook channels, increased 10.1% for the quarter and 11.0% for the nine months ended October 29, 2016, compared with the same periods in 2015, while on a comparable basis, sales increased 3.9% in the third quarter and 4.6% for the nine months ended October 29, 2016. Nordstrom Rack net sales increased ~~7.5%,~~8.2% and 7.9% for the ~~first~~ quarter and nine months ended ~~April 30,~~October 29, 2016, compared with the same ~~period~~periods in 2015, attributable to 2321 new store openings since the end of the ~~first~~third quarter of 2015. ~~Nordstrom Rack comparable sales decreased 0.8% for the first quarter ended April 30, 2016. Also on~~On a comparable basis for the quarter and nine months ended October 29, 2016, the number of ~~transactions decreased~~items sold increased at Nordstrom Rack, partially offset by ~~an increase~~a decrease in the average ~~transaction size. Accessories~~selling price per item sold. Kids was the top-performing merchandise category ~~while~~for the ~~Northeast~~quarter and nine months ended October 29, 2016. The East was the top-performing geographic ~~region. Nordstrom Rack sales per square foot decreased 5.2%~~region for both the ~~first~~ quarter and nine months ended ~~April 30, 2016 primarily due to store expansion.~~

~~Nordstromrack.com/HauteLook continued to experience outsized growth, with a net sales increase of 41.8%.~~October 29, 2016.

Retail Business Gross Profit

The following table summarizes the Retail Business gross profit (“Retail GP”):


	Quarter Ended						Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Retail gross profit		$1,093			$1,118			$1,210			$1,099			$3,537			$3,490
Retail gross profit as a % of net sales	34.2		%	35.9		%	34.8		%	33.9		%	34.5		%	35.1		%

													October 29, 2016			October 31, 2015
Ending inventory per square foot		$73.87			$73.28									$80.94			$83.98
Inventory turnover rate	4.42			4.53									4.31			4.32

Our Retail GP rate increased 93 basis points for the ~~first~~ quarter ended ~~April 30,~~October 29, 2016, compared with the same period in 2015, reflecting strong inventory execution in addition to leverage of buying and occupancy costs. Our strong inventory execution also led to improvements in ending inventory per square foot as of October 29, 2016. Our Retail GP decreased ~~165~~57 basis points for the nine months ended October 29, 2016 primarily due to higher markdowns to better align inventory to current trends. Our Retail GP decreased $25 primarily due to decreased sales at our U.S. full-line stores and higher markdowns across most channels. While sales trends were below expectations, we ended the period with inventory growth of 5.4% and net sales growth of 2.5% resulting in a negative spread of 3%, which represents an improvement over the negative spread of 7% in the ~~fourth quarter~~first half of ~~2015.~~

Our inventory turnover rate decreased to 4.42 for the trailing 12 months ended April 30, 2016, from 4.53 for the same period 2015, due to softer sales trends experienced since the third quarter of 2015.2016.

Retail Business Selling, General and Administrative Expenses

Retail Business selling, general and administrative expenses (“Retail SG&A”) are summarized in the following table:


	Quarter Ended						Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Retail selling, general and administrative expenses		$1,003			$921			$990			$951			$3,024			$2,881
Retail selling, general and administrative expenses as a % of net sales	31.4		%	29.6		%	28.5		%	29.3		%	29.5		%	28.9		%

~~Our Retail SG&A increased $82 and~~For the quarter ended October 29, 2016, our Retail SG&A rate ~~increased 188~~decreased 82 basis points primarily due to a shift in sales volume from the Anniversary Sale resulting in expense leverage, while Retail SG&A expenses increased $39 primarily due to increased fulfillment expenses. For the nine months ended October 29, 2016, our Retail SG&A increased 55 basis points and $143 primarily due to increased fulfillment expenses and technology investments.

Retail Business Goodwill Impairment

We recognized a goodwill impairment charge of $197 for the quarter and nine months ended ~~April 30,~~October 29, 2016 ~~primarily due to higher credit chargeback expenses associated with an industry change in liability rules effective October 2015, severance charges~~ related to ~~the realignment of corporate support functions and planned fulfillment and technology costs supporting the Company’s growth initiatives.~~Trunk Club (see Note 4: Fair Value Measurements in Item 1).

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

Credit Segment

As we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD on October 1, 2015, and entered into a long-term program agreement under which TD is the exclusive issuer of our U.S. consumer credit cards, our Credit Segment business has changed. With these changes, although we receive a smaller share of available profits under the program agreement, we no longer fund this portfolio alleviating significant working capital requirements (see Note 2: Credit Card Receivable Transaction in Item 1).

Summary

The table below provides a detailed view of the operational results of our Credit segment, consistent with Note ~~10:~~9: Segment ~~Reporting:~~Reporting in Item 1:


	Quarter Ended						Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Credit card revenues, net		$57			$100			$70			$89			$186			$291
Credit expenses	(41		)	(52		)	(38		)	(50		)	(121		)	(152		)
Credit transaction, net							—			(32		)	—			29
Earnings before interest and income taxes	16			48			32			7			65			168
Interest expense¹	—			(5		)	—			(3		)	—			(12		)
Credit segment earnings before income taxes		$16			$43
Earnings before income taxes								$32			$4			$65			$156

Credit and debit card volume²:
Outside		$1,016			$1,053			$1,023			$1,059			$3,106			$3,209
Inside	1,267			1,269			1,239			1,243			4,215			4,242
Total volume		$2,283			$2,322			$2,262			$2,302			$7,321			$7,451

¹Prior to the credit card receivable transaction, interest expense was allocated to the Credit segment as if it carried debt of up to 80% of the credit card receivables.

²Volume represents sales on the total portfolio plus applicable taxes.

Credit Card Revenues, net

The following is a summary of our credit card revenues, net:


	Quarter Ended				Quarter Ended				Nine Months Ended
	April 30, 2016		May 2, 2015		October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
Finance charge revenue		$1		$64		$2		$45		$5		$173
Interchange fees	1		22		1		15		4		60
Late fees and other	1		14		—		14		1		43
Credit program revenues, net	54		—		67		15		176		15
Total credit card revenues, net		$57		$100		$70		$89		$186		$291

Prior to the close of the credit card receivable transaction on October 1, 2015, credit card revenues included finance charges, interchange fees, late fees and other revenue, recorded net of estimated uncollectible finance charges and fees. Finance charges represent interest earned on unpaid balances while interchange fees are earned from the use of Nordstrom Visa credit cards at merchants outside of Nordstrom. Late fees are assessed when a credit card account becomes past due. We continue to recognize revenue in this manner for the credit card receivables retained subsequent to the close of the credit card receivable transaction.

Following the close of the transaction and pursuant to the program agreement with TD, we receive our portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables, which is recorded in credit program revenues, net. Revenue earned under the program agreement is impacted by the credit quality of receivables ~~both owned and serviced,~~ and factors such as deteriorating economic conditions, declining creditworthiness of cardholders and the execution of account management and collection activities may heighten the risk of credit losses. Asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the transaction are also ~~recorded~~recognized in credit program revenues, net.

Credit card revenues, net decreased ~~$43~~$19 and $105 for the quarter and nine months ended ~~April 30,~~October 29, 2016, compared with the same ~~period~~periods in 2015, primarily due to the impact of the program agreement with ~~TD.~~TD and the amortization of our beneficial interest asset.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

Credit Expenses

~~Credit expenses are summarized in the following table:~~

Quarter Ended
April 30, 2016
May 2, 2015
Operational expenses
$40

$40
Bad debt expense —
10
Occupancy expenses 1
2
Total credit expenses
$41

$52

Total credit expenses decreased ~~$11~~$12 and $31 for the quarter and nine months ended ~~April 30,~~October 29, 2016, compared with the same ~~period~~periods in 2015 due to a decrease in bad debt expense since the sale of our credit card receivables in the third quarter of 2015.

Credit Transaction, net

Credit transaction, net of $(32) for the quarter ended October 31, 2015 represents transaction costs associated with the sale. Credit transaction, net of $29 for the nine months ended October 31, 2015 was primarily due to the reversal of the allowance for credit losses on accounts receivable that were reclassified to “held for sale” during the second quarter of 2015, partially offset by transaction costs related to the sale.

Total Company Results

Interest Expense, net

Interest expense, net ~~was $31~~of $30 for ~~the first quarter ended April 30, 2016, compared with $33 for the same period in 2015. The decrease was primarily due to the defeasance of our $325 Series 2011-1 Class A Notes in~~ the third quarter ~~of 2015 as a result of~~and $90 for the ~~credit card receivable transaction.~~nine months ended October 29, 2016 was relatively flat compared with the same periods in 2015.

Income Tax Expense

Income tax expense is summarized in the following table:


	Quarter Ended						Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Income tax expense		$29			$84			$35			$44			$138			$263
Effective tax rate	38.4		%	39.8		%	140.3		%	35.2		%	47.4		%	38.5		%

The effective tax rate ~~decreased~~increased for the ~~first~~ quarter and nine months ended ~~April 30,~~October 29, 2016, compared with the same ~~period~~periods in 2015, primarily due to ~~increased~~the non-deductible goodwill impairment charge of $197 related to Trunk Club (see Note 4: Fair Value Measurements in Item 1). Excluding the impact of the Trunk Club impairment, our effective tax rate for the quarter and nine months ended October 29, 2016 would have decreased approximately 2% compared with prior year primarily due to the favorable resolution of certain federal income tax ~~credits.~~issues.

(Loss) Earnings Per Share

(Loss) Earnings per share (EPS) is as follows:



	Quarter Ended					Nine Months Ended
	October 29, 2016			October 31, 2015		October 29, 2016		October 31, 2015
Basic		($0.06	)		$0.43		$0.88		$2.22
Diluted:
Actual		($0.06	)		$0.42		$0.87		$2.17
Adjusted¹		$0.84		N/A			$1.77	N/A

¹A reconciliation of adjusted earnings per share, a non-GAAP financial measure, to the closest GAAP measure is included below.

Quarter Ended
April 30, 2016
May 2, 2015
Basic
$0.27

$0.67
Diluted
$0.26

$0.66

~~Earnings~~(Loss) earnings per diluted share decreased for the ~~first~~ quarter and nine months ended ~~April 30,~~October 29, 2016, compared with the same ~~period~~periods in 2015, primarily due to a decrease in comparable sales and an increase in expenses, resulting in lower net earnings. This was partially offset by a decrease in weighted average shares outstanding resulting from increased share repurchases in the ~~second, third and fourth quarters~~goodwill impairment charge of ~~2015.~~$197 related to Trunk Club.

~~2016 Outlook~~

~~We updated our annual~~Excluding the goodwill impairment charge, adjusted earnings per diluted share ~~expectations, reflecting~~increased for the quarter ended October 29, 2016 compared with diluted EPS for the quarter ended October 31, 2015, primarily due to increased sales and margin and a reduction of credit expenses from 2015 related to the credit transaction. Adjusted earnings per diluted share decreased for the nine months ended October 29, 2016, compared with diluted EPS for the nine months ended October 31, 2015, primarily due to higher fulfillment expenses and planned technology investments supporting our ~~updated sales outlook and expectations for a continued promotional environment. Our current outlook expectations for fiscal 2016 are as follows:~~



~~Net sales (percent)~~	~~2.5 to 4.5 increase~~
~~Comparable sales (percent)~~	~~1 decrease to 1 increase~~
~~Retail EBIT (percent)~~	~~10 to 20 decrease~~
~~Credit EBIT~~	~~$70 to $80 million~~
~~Earnings per diluted share (excluding the impact of any future share repurchases)~~	~~$2.50 to $2.70~~

The Anniversary Sale, which historically is our largest sale event of the year, is planned to start one week later in July relative to last year. This event shift is expected to result in a less favorable comparison in the second quarter, offset by a favorable comparison in the third quarter. Comparable sales are expected to be impacted by approximately 200 basis points in the second quarter and approximately 250 basis points in the third quarter.growth initiatives.

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(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

Adjusted Earnings and Adjusted Earnings Per Share (Non-GAAP financial measures)

We believe that Adjusted Earnings and Adjusted Earnings Per Share provide useful information to investors in evaluating our business performance for the quarter and nine months ended October 29, 2016. The effect of excluding certain items from net (loss) earnings provides management and shareholders an alternative measure to use in evaluating our business performance period over period.

Adjusted Earnings and Adjusted Earnings Per Share are not measures of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in addition to, and not as a substitute for, net (loss) earnings, (loss) earnings per share and diluted earnings per share or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ financial measures and therefore may not be comparable to methods used by other companies. The financial measures calculated under GAAP which are most directly comparable to Adjusted Earnings and Adjusted Earnings Per Share are net (loss) earnings and diluted earnings per share, which are reconciled below:



	Quarter Ended October 29, 2016						Nine Months Ended October 29, 2016
	Amount			Amount Per Share			Amount			Amount Per Share
Net (loss) earnings¹		($10	)		($0.06	)		$153			$0.87
Trunk Club goodwill impairment	197			1.12			197			1.12
Tax effect of non-deductible charges in interim period²	(39		)	(0.22		)	(39		)	(0.22		)
Adjusted Earnings		$148			$0.84			$311			$1.77

¹Due to the anti-dilutive effect resulting from the reported net loss, the impact of potentially dilutive securities on the per share amounts has been omitted from the quarterly calculation of weighted-average shares for diluted EPS for the quarter ended October 29, 2016. The impact of these potentially dilutive securities has been included in the calculation of weighted-average shares for diluted EPS for the nine months ended October 29, 2016.

²The effect of taxes on the adjustments used to arrive at Adjusted Earnings is calculated based on applying the estimated annual effective tax rate to Adjusted Earnings plus other tax items for each interim period. The impact of this tax effect will reverse in the fourth quarter of 2016.

2016 Outlook

Excluding the impairment charge, we raised our annual earnings per diluted share expectations to incorporate our third quarter results, which exceeded expectations primarily due to our efforts to realign inventory and improve operational efficiencies. Our expectations for fiscal 2016 are as follows:



	Prior Outlook	Current Outlook, excluding impairment charge	Current Outlook
Net sales (percent)	2.5 to 4.5 increase	Approximately 3.5 increase	Approximately 3.5 increase
Comparable sales (percent)	1 decrease to 1 increase	Approximately flat	Approximately flat
Retail EBIT (percent)	10 to 15 decrease	5 to 10 decrease	30 to 35 decrease
Credit EBIT	Approximately $80	Approximately $90	Approximately $90
Earnings per diluted share (excluding the impact of any future share repurchases)	$2.60 to $2.75	$2.85 to $2.95	$1.70 to $1.80

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

Return on Invested Capital (“ROIC”) and Adjusted ROIC (Non-GAAP financial ~~measure)~~measures)

We believe ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important component of ~~shareholders’~~shareholders' return over the long term. In addition, we incorporate ROIC in our executive incentive compensation measures. The effect of excluding certain items from ROIC to arrive at an Adjusted ROIC provides management and shareholders an alternative measure to use in evaluating our results period over period. For the 12 fiscal months ended ~~April 30,~~October 29, 2016, our ROIC and Adjusted ROIC decreased ~~to 10.0%~~ compared with ~~12.2% for~~ the 12 fiscal months ended ~~May 2,~~October 31, 2015, primarily due to reduced earnings.

We define ROIC as our net operating profit after tax divided by our average invested capital using the trailing 12-month average. ROIC isand Adjusted ROIC are not ~~a measure~~measures of financial performance under ~~generally accepted accounting principles (“GAAP”)~~GAAP and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other ~~companies’~~companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to ROIC and Adjusted ROIC is return on assets. The following is a reconciliation of the components ofand adjustments to ROIC and return on assets:


							12 Fiscal Months Ended
	12 Fiscal Months Ended						October 29, 2016								October 31, 2015
	April 30, 2016			May 2, 2015			Unadjusted			Adjustments¹		Adjusted
Net earnings		$518			$709			$333			$197		$530			$675
Add: income tax expense	321			459			252			—		252			438
Add: interest expense	123			136			121			—		121			129
Earnings before interest and income tax expense	962			1,304			706			197		903			1,242

Add: rent expense	182			143			195			—		195			165
Less: estimated depreciation on capitalized operating leases¹	(96		)	(76		)
Less: estimated depreciation on capitalized operating leases²							(103		)	—		(103		)	(88		)
Net operating profit	1,048			1,371			798			197		995			1,319

Less: estimated income tax expense	(402		)	(539		)	(383		)	—		(383		)	(519		)
Net operating profit after tax		$646			$832			$415			$197		$612			$800

Average total assets		$8,719			$9,069			$7,987			$—		$7,987			$9,362
Less: average non-interest-bearing current liabilities	(3,039		)	(2,806		)	(3,105		)	—		(3,105		)	(2,965		)
Less: average deferred property incentives	(552		)	(510		)	(541		)	—		(541		)	(536		)
Add: average estimated asset base of capitalized operating leases²	1,312			1,085
Add: average estimated asset base of capitalized operating leases³							1,452			—		1,452			1,171
Average invested capital		$6,440			$6,838			$5,793			$—		$5,793			$7,032

Return on assets	5.9		%	7.8		%	4.2		%						7.2		%
ROIC	10.0		%	12.2		%
ROIC/Adjusted ROIC							7.2		%			10.6		%	11.4		%

¹The adjustment for the 12 fiscal months ended October 29, 2016 includes the goodwill impairment charge of $197 related to Trunk Club (see Note 4: Fair Value Measurements in Item 1).

²Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property. Asset base is calculated as described in footnote 23 below.

²³Based upon the trailing 12-month average of the monthly asset base. The asset base for each month is calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1.2.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

LIQUIDITY AND CAPITAL RESOURCES

We strive to maintain a level of liquidity sufficient to allow us to cover our seasonal cash needs and to maintain appropriate levels of short-term borrowings. We believe that our operating cash flows, available credit facilities and potential future borrowings are sufficient to finance our cash requirements for the next 12 months and beyond.

Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial position, manage refinancing risk and allow flexibility for strategic initiatives. We regularly assess our debt and leverage levels, capital expenditure requirements, debt service payments, dividend payouts, potential share repurchases and other future investments. We believe that as of ~~April 30,~~October 29, 2016, our existing cash and cash equivalents on-hand of ~~$470,~~$531, available credit facilities of $800 and potential future operating cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives.

Operating Activities

Net cash provided by operating activities decreased ~~$37~~$873 for the ~~first quarter~~nine months ended ~~April 30,~~October 29, 2016, compared with the same period in 2015, primarily due to ~~a decrease~~$1,297 of proceeds received in ~~earnings~~2015 related to the sale of credit card receivables originated at Nordstrom, partially offset by favorable changes in working ~~capital.~~capital, which includes our efforts to align inventory levels with sales trends.

Investing Activities

Net cash used in investing activities was ~~$174~~$578 for the ~~first quarter~~nine months ended ~~April 30,~~October 29, 2016, compared with net cash ~~used~~provided by investing activities of ~~$239~~$69 for the same period in 2015, primarily due to proceeds of $890 received in 2015 related to the sale of the credit card receivables originated at third parties. This was partially offset by a decrease in capital expenditures related to lower spend on full-line store openings and relocations and our East Coast Fulfillment Center, which was completed in the third quarter of 2015.

At the beginning of our second quarter, we completed a review of our five-year capital plan, resulting in reduced spend of approximately $400, or 10%, primarily related to new ~~U.S. full-line~~ stores and ~~relocations.~~remodels over the next few years.

Financing Activities

Net cash used in financing activities was ~~$122~~$358 for the ~~first quarter~~nine months ended ~~April 30,~~October 29, 2016, compared with ~~$27~~$1,820 for the same period in 2015. This decrease was largely attributed to the $1.8 billion we returned to shareholders in 2015 ~~primarily due to lower proceeds from~~through a special cash dividend and repurchases of common stock ~~issuances,~~as a ~~decrease in cash book overdrafts and an increase in share repurchases.~~result of the sale of our credit card receivables.

Free Cash Flow (Non-GAAP financial measure)

Free Cash Flow is one of our key liquidity measures, and when used in conjunction with GAAP measures, provides investors with a meaningful analysis of our ability to generate cash from our business. For the ~~first quarter~~nine months ended October 29, 2016, we had ~~negative~~ Free Cash Flow of ($~~130)~~72) compared with ~~($116)~~$702 for the ~~first quarter~~nine months ended October 31, 2015.

Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow:


	Quarter Ended						Nine Months Ended
	April 30, 2016			May 2, 2015			October 29, 2016			October 31, 2015
Net cash provided by operating activities		$171			$208			$872			$1,745
Less: capital expenditures	(205		)	(259		)	(625		)	(857		)
Less: cash dividends paid	(63		)	(71		)	(192		)	(1,116		)
Add: proceeds from sale of accounts receivable originated at third parties							—			890
Add: change in credit card receivables originated at third parties	—			16			—			33
Less: change in cash book overdrafts	(33		)	(10		)
(Less) Add: change in cash book overdrafts							(127		)	7
Free Cash Flow		($130	)		($116	)		($72	)		$702

Net cash used in investing activities		($174	)		($239	)
Net cash (used in) provided by investing activities								($578	)		$69
Net cash used in financing activities	(122		)	(27		)	(358		)	(1,820		)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

Credit Capacity and Commitments

As of ~~April 30,~~October 29, 2016, we had total short-term borrowing capacity of $800 ~~which is~~under our ~~$800~~ senior unsecured revolving credit facility (“revolver”) that expires in April 2020, with an option to extend for an additional year. Under the terms of our revolver, we pay a variable rate of interest and a commitment fee based on our debt rating. The revolver is available for working capital, capital expenditures and general corporate purposes. We have the option to increase the revolving commitment by up to $200, to a total of $1,000, provided that we obtain written consent from the lenders. From time to time we utilize our commercial paper program to fund working capital needs, which has the effect of reducing our available liquidity under the revolver until repaid.

As of ~~April 30,~~October 29, 2016, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our revolver.

Impact of Credit Ratings

Under the terms of our revolver, any borrowings we may enter into will accrue interest for Euro-Dollar Rate Loans at a floating base rate tied to LIBOR, for Canadian Dealer Offer Rate Loans at a floating rate tied to CDOR, and for Base Rate Loans at the highest of: (i) the Euro-Dollar rate plus 100 basis points, (ii) the federal funds rate plus 50 basis points and (iii) the prime rate.

The rate depends upon the type of borrowing incurred, plus in each case an applicable margin. This applicable margin varies depending upon the credit ratings assigned to our long-term unsecured debt. At the time of this report, our long-term unsecured debt ratings, outlook and resulting applicable margin were as follows:



	Credit Ratings	Outlook
Moody’s	Baa1	Stable
Standard & Poor’s	BBB+	~~Stable~~Negative



	Base Interest Rate	Applicable Margin
Euro-Dollar Rate Loan	LIBOR	1.02	%
Canadian Dealer Offer Rate Loan	CDOR	1.02	%
Base Rate Loan	various	—

Should the ratings assigned to our long-term unsecured debt improve, the applicable margin associated with any such borrowings may decrease, resulting in a lower borrowing cost under this facility. Should the ratings assigned to our long-term unsecured debt worsen, the applicable margin associated with our borrowings may increase, resulting in a higher borrowing cost under this facility.

Debt Covenants

The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) leverage ratio of less than four times (see the following additional discussion of Adjusted Debt to EBITDAR). As of ~~April 30,~~October 29, 2016, we were in compliance with this covenant.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Continued) (Dollar and share amounts in millions except per share and per square foot amounts)

Adjusted Debt to EBITDAR (Non-GAAP financial measure)

Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of less than four times. As of ~~April 30,~~October 29, 2016, our Adjusted Debt to EBITDAR was ~~2.4,~~2.5, compared with 2.1 as of ~~May 2,~~October 31, 2015. This increase was primarily driven by reduced earnings.

Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted Debt to EBITDAR is debt to net earnings. The following is a reconciliation of the components of Adjusted Debt to EBITDAR and debt to net earnings:


	2016¹			2015¹			2016¹			2015¹
Debt		$2,786			$3,146			$2,778			$2,809
Add: estimated capitalized operating lease liability²	1,459			1,147			1,561			1,320
Less: fair value hedge adjustment included in long-term debt	(21		)	(33		)	(14		)	(26		)
Adjusted Debt		$4,224			$4,260			$4,325			$4,103

Net earnings		$518			$709			$333			$675
Add: income tax expense	321			459			252			438
Add: interest expense, net	123			136			121			129
Earnings before interest and income taxes	962			1,304			706			1,242

Add: depreciation and amortization expenses	593			526			631			557
Add: rent expense	182			143			195			165
Add: non-cash acquisition-related charges	9			14
Add: non-cash acquisition-related charges³							197			13
EBITDAR		$1,746			$1,987			$1,729			$1,977

Debt to Net Earnings	5.4			4.4			8.3			4.2
Adjusted Debt to EBITDAR	2.4			2.1			2.5			2.1

¹The components of Adjusted Debt are as of ~~April 30,~~October 29, 2016 and ~~May 2,~~October 31, 2015, while the components of EBITDAR are for the 12 months ended ~~April 30,~~October 29, 2016 and ~~May 2,~~October 31, 2015.

²Based upon the estimated lease liability as of the end of the period, calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property.

³ Non-cash acquisition-related charges for the 12 months ended October 29, 2016 include the goodwill impairment charge of $197 related to Trunk Club (see Note 4: Fair Value Measurements in Item 1).

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We discussed our interest rate risk and our foreign currency exchange risk in Part II, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2015 Annual Report on Form 10-K filed with the ~~Securities and Exchange Commission~~SEC on March 14, 2016. There have been no material changes to these risks since that time.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company performed an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the design and effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II -— OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits alleging violations of state and/or federal wage and hour and other employment laws, privacy and other consumer-based claims. Some of these lawsuits include certified classes of litigants, or purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We believe the recorded reserves in our Condensed Consolidated Financial Statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any currently identified claim, proceeding or litigation, either alone or in the aggregate, will have a material impact on our results of operations, financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(Dollar and share amounts in millions, except per share amounts)

The following is a summary of our ~~first~~third quarter share repurchases:

Total Number
of Shares
Purchased

Average
Price Paid
Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Approximate Dollar Value
of Shares that May
Yet Be Purchased Under
the Plans or Programs¹

February 2016
(January 31, 2016 to February 27, 2016) 1.0

$49.36
1.0

$761
March 2016
(February 28, 2016 to April 2, 2016) —
—
—
761
April 2016
(April 3, 2016 to April 30, 2016) —
—
—
761
Total 1.0

$49.36
1.0



	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs¹
August 2016 (July 31, 2016 to August 27, 2016)²	—		$41.54	—		$750
September 2016 (August 28, 2016 to October 1, 2016)	0.4	50.32		0.4	730
October 2016 (October 2, 2016 to October 29, 2016)	0.2	53.29		0.2	718
Total	0.6		$50.89	0.6

¹On October 1, 2015, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock through March 1, 2017. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules.

² In August 2016, the total number of shares repurchased was less than 0.1 shares.

Item 6. Exhibits.

Exhibits are incorporated herein by reference or are filed or furnished with this report as set forth in the Exhibit Index on page 2729 hereof.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



NORDSTROM, INC.
(Registrant)

/s/ Michael G. Koppel
Michael G. Koppel
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Date:	~~June 1,~~November 29, 2016

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NORDSTROM, INC.

Exhibit Index



Exhibit		Method of Filing
~~10.1~~	~~Form of the 2016 Nonqualified Stock Option Grant Agreement~~	~~Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2016, Exhibit 10.1~~

~~10.2~~	~~Form of the 2016 Restricted Stock Unit Award Agreement~~	~~Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2016, Exhibit 10.2~~

~~10.3~~	~~Form of the 2016 Performance Share Unit Award Agreement~~	~~Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2016, Exhibit 10.3~~

~~10.4~~	~~Amendment 2016-1 to Nordstrom Leadership Separation Plan~~	~~Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2016, Exhibit 10.4~~

~~10.5~~	~~First Amendment to Revolving Credit Agreement dated March 31, 2016, between Registrant, Bank of America, N.A. as Agent and the Lenders party thereto~~	~~Incorporated by reference from the Registrant’s Form 8-K filed on April 6, 2016, Exhibit 10.1~~

31.1	Certification of Co-President required by Section 302(a) of the Sarbanes-Oxley Act of 2002	Filed herewith electronically

31.2	Certification of Chief Financial Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002	Filed herewith electronically

32.1	Certification of Co-President and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith electronically

101.INS	XBRL Instance Document	Filed herewith electronically

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith electronically

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith electronically

101.LAB	XBRL Taxonomy Extension Labels Linkbase Document	Filed herewith electronically

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith electronically

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith electronically

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