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 July ~~30, 2016~~29, 2017



¨	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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth 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 ¨
			Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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 August ~~24, 2016: 173,440,084~~23, 2017: 166,239,726 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 Quarter and Six Months Ended July 29, 2017 and July 30, 2016 ~~and August 1, 2015~~	3

	Condensed Consolidated Statements of Comprehensive Earnings Quarter and Six Months Ended July 29, 2017 and July 30, 2016 ~~and August 1, 2015~~	3

	Condensed Consolidated Balance Sheets July 29, 2017, January 28, 2017 and July 30, 2016 ~~January 30, 2016 and August 1, 2015~~	4

	Condensed Consolidated Statements of Shareholders’ Equity Six Months Ended July 29, 2017 and July 30, 2016 ~~and August 1, 2015~~	5

	Condensed Consolidated Statements of Cash Flows Six Months Ended July 29, 2017 and July 30, 2016 ~~and August 1, 2015~~	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1514

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	2625

Item 4.	Controls and Procedures.	2625

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	2726

Item 1A.	Risk Factors.	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	27

Item 6.	Exhibits.	27

Signatures		28

Exhibit Index		29

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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						Six Months Ended						Quarter Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
Net sales		$3,592			$3,598			$6,784			$6,714			$3,717			$3,592			$6,996			$6,784
Credit card revenues, net	59			103			116			202			76			59			152			116
Total revenues	3,651			3,701			6,900			6,916			3,793			3,651			7,148			6,900
Cost of sales and related buying and occupancy costs	(2,359		)	(2,327		)	(4,459		)	(4,326		)	(2,451		)	(2,359		)	(4,607		)	(4,459		)
Selling, general and administrative expenses	(1,071		)	(997		)	(2,114		)	(1,968		)	(1,125		)	(1,071		)	(2,173		)	(2,114		)
Earnings before interest and income taxes	221			377			327			622			217			221			368			327
Interest expense, net	(30		)	(32		)	(61		)	(65		)	(29		)	(30		)	(76		)	(61		)
Earnings before income taxes	191			345			266			557			188			191			292			266
Income tax expense	(74		)	(134		)	(103		)	(218		)	(78		)	(74		)	(119		)	(103		)
Net earnings		$117			$211			$163			$339			$110			$117			$173			$163

Earnings per share:
Basic		$0.67			$1.11			$0.94			$1.78			$0.66			$0.67			$1.04			$0.94
Diluted		$0.67			$1.09			$0.93			$1.74			$0.65			$0.67			$1.02			$0.93

Weighted-average shares outstanding:
Basic	173.5			189.4			173.3			190.0			166.4			173.5			166.8			173.3
Diluted	174.8			193.5			175.2			194.2			168.5			174.8			168.8			175.2

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						Six Months Ended					Quarter Ended					Six Months Ended
	July 30, 2016			August 1, 2015			July 30, 2016		August 1, 2015			July 29, 2017		July 30, 2016			July 29, 2017		July 30, 2016
Net earnings		$117			$211			$163		$339			$110		$117			$173		$163
Foreign currency translation adjustment												32		(10		)	20		17
Postretirement plan adjustments, net of tax	—			1			1		3			1		—			2		1
Foreign currency translation adjustment	(10		)	(10		)	17		(5		)
Comprehensive net earnings		$107			$202			$181		$337			$143		$107			$195		$181

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)


	July 30, 2016			January 30, 2016			August 1, 2015			July 29, 2017			January 28, 2017			July 30, 2016
Assets
Current assets:
Cash and cash equivalents		$892			$595			$423			$919			$1,007			$892
Accounts receivable held for sale	—			—			2,391
Accounts receivable, net	263			196			241			320			199			263
Merchandise inventories	2,032			1,945			2,004			2,077			1,896			2,032
Current deferred tax assets, net	—			—			256
Prepaid expenses and other	163			278			117			157			140			163
Total current assets	3,350			3,014			5,432			3,473			3,242			3,350

Land, property and equipment (net of accumulated depreciation of $5,330, $5,108 and $4,912)	3,812			3,735			3,570
Land, property and equipment (net of accumulated depreciation of $5,866, $5,596 and $5,330)										3,930			3,897			3,812
Goodwill	435			435			447			238			238			435
Other assets	533			514			251			520			481			533
Total assets		$8,130			$7,698			$9,700			$8,161			$7,858			$8,130

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$1,604			$1,324			$1,589			$1,704			$1,340			$1,604
Accrued salaries, wages and related benefits	381			416			389			397			455			381
Other current liabilities	1,326			1,161			1,145			1,339			1,223			1,326
Current portion of long-term debt	10			10			333			11			11			10
Total current liabilities	3,321			2,911			3,456			3,451			3,029			3,321

Long-term debt, net	2,772			2,795			2,808			2,729			2,763			2,772
Deferred property incentives, net	530			540			560			524			521			530
Other liabilities	570			581			385			672			675			570

Commitments and contingencies (Note 6)
Commitments and contingencies (Note 4)

Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 173.3, 173.5 and 188.2 shares issued and outstanding	2,612			2,539			2,460
(Accumulated deficit) Retained earnings	(1,635		)	(1,610		)	97
Common stock, no par value: 1,000 shares authorized; 166.2, 170.0 and 173.3 shares issued and outstanding										2,757			2,707			2,612
Accumulated deficit										(1,951		)	(1,794		)	(1,635		)
Accumulated other comprehensive loss	(40		)	(58		)	(66		)	(21		)	(43		)	(40		)
Total shareholders’ equity	937			871			2,491			785			870			937
Total liabilities and shareholders’ equity		$8,130			$7,698			$9,700			$8,161			$7,858			$8,130

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
																					Other
														Common Stock				Accumulated			Comprehensive
														Shares		Amount		Deficit			Loss			Total
Balance at January 28, 2017														170.0			$2,707		($1,794	)		($43	)		$870
Net earnings														—		—		173			—			173
Other comprehensive earnings														—		—		—			22			22
Dividends ($0.74 per share)														—		—		(124		)	—			(124		)
Issuance of common stock under stock compensation plans														0.4		14		—			—			14
Stock-based compensation														0.4		36		—			—			36
Repurchase of common stock														(4.6	)	—		(206		)	—			(206		)
Balance at July 29, 2017														166.2			$2,757		($1,951	)		($21	)		$785


								Accumulated													Accumulated
								Other													Other
	Common Stock				Accumulated			Comprehensive						Common Stock				Accumulated			Comprehensive
	Shares		Amount		Deficit			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	—		—		163			—			163			—		—		163			—			163
Other comprehensive earnings	—		—		—			18			18			—		—		—			18			18
Dividends ($0.74 per share)	—		—		(128		)	—			(128		)	—		—		(128		)	—			(128		)
Issuance of common stock under stock compensation plans	0.9		31		—			—			31			0.9		31		—			—			31
Stock-based compensation	0.2		42		—			—			42			0.2		42		—			—			42
Repurchase of common stock	(1.3	)	—		(60		)	—			(60		)	(1.3	)	—		(60		)	—			(60		)
Balance at July 30, 2016	173.3			$2,612		($1,635	)		($40	)		$937		173.3			$2,612		($1,635	)		($40	)		$937


								Accumulated
								Other
	Common Stock				Retained			Comprehensive
	Shares		Amount		Earnings			Loss			Total
Balance at January 31, 2015	190.1			$2,338		$166			($64	)		$2,440
Net earnings	—		—		339			—			339
Other comprehensive loss	—		—		—			(2		)	(2		)
Dividends ($0.74 per share)	—		—		(142		)	—			(142		)
Issuance of common stock under stock compensation plans	1.5		84		—			—			84
Stock-based compensation	0.1		38		—			—			38
Repurchase of common stock	(3.5	)	—		(266		)	—			(266		)
Balance at August 1, 2015	188.2			$2,460		$97			($66	)		$2,491

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)


	Six Months Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016
Operating Activities
Net earnings		$163			$339			$173			$163
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expenses	319			277			320			319
Amortization of deferred property incentives and other, net	(34		)	(95		)	(48		)	(35		)
Deferred income taxes, net	(53		)	(24		)	(71		)	(53		)
Stock-based compensation expense	47			41			41			47
Tax (deficiency) benefit from stock-based compensation	(1		)	13
Excess tax benefit from stock-based compensation	(1		)	(13		)
Bad debt expense	—			20
Change in operating assets and liabilities:
Accounts receivable	(66		)	(216		)	(120		)	(66		)
Merchandise inventories	(59		)	(280		)	(141		)	(59		)
Prepaid expenses and other assets	96			(19		)	(24		)	96
Accounts payable	262			240			319			262
Accrued salaries, wages and related benefits	(40		)	(30		)	(58		)	(36		)
Other current liabilities	175			56			117			175
Deferred property incentives	31			97			46			31
Other liabilities	12			9			20			12
Net cash provided by operating activities	851			415			574			856

Investing Activities
Capital expenditures	(407		)	(521		)	(341		)	(407		)
Change in credit card receivables originated at third parties	—			(64		)
Other, net	33			4			33			33
Net cash used in investing activities	(374		)	(581		)	(308		)	(374		)

Financing Activities
Proceeds from long-term borrowings, net of discounts	—			16			635			—
Principal payments on long-term borrowings	(5		)	(4		)	(655		)	(5		)
(Decrease) increase in cash book overdrafts	(18		)	49
Increase (decrease) in cash book overdrafts							6			(18		)
Cash dividends paid	(128		)	(142		)	(124		)	(128		)
Payments for repurchase of common stock	(59		)	(267		)	(211		)	(59		)
Proceeds from issuances under stock compensation plans	30			71			14			30
Excess tax benefit from stock-based compensation	1			13
Tax withholding on share-based awards							(6		)	(4		)
Other, net	(1		)	26			(13		)	(1		)
Net cash used in financing activities	(180		)	(238		)	(354		)	(185		)

Net increase (decrease) in cash and cash equivalents	297			(404		)
Net (decrease) increase in cash and cash equivalents							(88		)	297
Cash and cash equivalents at beginning of period	595			827			1,007			595
Cash and cash equivalents at end of period		$892			$423			$919			$892

Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes (refund), net		($50	)		$209			$188			($50	)
Interest, net of capitalized interest	67			70			84			67

Non-cash investing and financing activities:
Accounts receivable reclassified from held for investment to held for sale	—			2,391

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~~2016 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 July 29, 2017 and July 30, 2016 ~~and August 1, 2015~~ are unaudited. The Condensed Consolidated Balance Sheet as of January ~~30, 2016~~28, 2017 has been derived from the audited Consolidated Financial Statements included in our ~~2015~~2016 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~~2016 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 sales are typically higher during our Anniversary Sale ~~in July~~ and the holidays in the fourth ~~quarter,~~quarter. Consistent with the timing in 2016, our ~~sales are typically higher in the second and fourth quarters than in the first and third quarters of the fiscal year. In 2016, the~~2017 Anniversary Sale ~~event started one week later~~began in July ~~relative to last year, shifting~~and extended one week of the event 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~~Accounts Receivable

~~Prior~~On July 31, 2017, we entered into an agreement with TD Bank USA, N.A. (“TD”) to sell our employee credit card receivables for an amount equal to the ~~second quarter~~gross value of ~~2016, customers who used Nordstrom~~the outstanding receivables. Additionally, we entered into an amended long-term program agreement under which TD will continue to be the exclusive issuer of all our U.S. 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~~we will continue to perform account servicing functions. The transaction is subject to regulatory approvals and ~~early access~~other customary conditions, and is expected to close by 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 benefitsend of the ~~loyalty program, including shopping and fashion events, are recorded~~year. As of July 29, 2017, our employee credit card receivables of $58, included in ~~selling, general and administrative expenses.~~

~~Reclassification~~

~~Reclassifications were made to our fiscal 2015~~accounts receivable, net on the Condensed Consolidated ~~Statements~~Balance Sheets, is “held for sale” and, as such, is recorded at the lower of ~~Earnings and Condensed Consolidated Statement of Cash Flows to conform with current period presentation.~~cost or fair value (see Note 3: Fair Value Measurements).

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~~criteria and other technical corrections. In our ongoing evaluation of this ASU, we have determined that the new standard will primarily impact the following areas: gift card breakage will be estimated based on expected customer redemption periods, rather than when redemption is ~~effective for us beginning~~considered remote; sales attributable to the loyalty program benefits (e.g., points, alterations) will be deferred rather than recorded as an increase to cost of sales; revenue related to our online sales will be recognized at the shipping point rather than receipt by the customer; and estimated costs of returns will be recorded as a current asset rather than netted with our sales return reserve. We plan to adopt this ASU in the first quarter of ~~2018. We~~2018 and are ~~currently evaluating~~continuing to evaluate the ~~impact these provisions~~impacts this ASU and related disclosures will have on our Consolidated Financial ~~Statements.~~Statements, as well as our preferred transition method.

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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 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~~right-of-use 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. Additional qualitative and quantitative disclosures will be required to give financial statement users information on the amount, timing and judgments related to a reporting entity’s cash flows arising from leases. This ASU is effective for us beginning ~~with~~in the first quarter of 2019. ~~Though we~~We are currently evaluating the ~~impact~~standard, which will require recognizing and measuring leases at the beginning of ~~these provisions, we~~the earliest period presented using a modified retrospective approach. We expect itadoption of this standard 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 No. 2016-09, Compensation — Stock Compensation — Improvements to Employee Share-Based Payment Accounting~~. This ASU impacts~~, which simplifies several aspects of the accounting for share-based ~~payment transactions, including~~payments and presentation within the financial statements. We adopted ASU No. 2016-09 with an effective date of January 29, 2017. The impact of the adoption resulted in the following:

Excess tax benefits and deficiencies resulting from stock-based compensation arrangements are now recorded within income tax ~~consequences, classification of awards as either equity or liabilities and classification~~expense on the ~~statement~~Condensed Consolidated Statement of Earnings when the awards vest or are settled, rather than within equity. Additionally, excess tax benefits are now excluded from assumed future proceeds in our calculation of diluted shares for purposes of determining diluted earnings per share. The prospective adoption of this provision did not have a material effect on the Condensed Consolidated Financial Statements for the six months ended July 29, 2017. We had no previously unrecognized excess tax benefits that would have resulted in a cumulative-effect adjustment to beginning retained earnings.

Forfeitures on share-based awards are recorded as they occur, rather than our historical method of estimating forfeitures at the grant date. In evaluating the impact of this change, the adjustment to adopt on a modified retrospective basis was immaterial, therefore no adjustment has been made to beginning retained earnings.

Excess tax benefits from stock-based compensation arrangements are classified as cash ~~flows.~~flows from operations, rather than as cash flows from financing activities. We adopted this change retrospectively, which resulted in an increase to net cash provided by operating activities and an increase in cash flows used in financing activities of $1 for the six months ended July 30, 2016. Additionally, cash flows related to withholding shares for tax purposes on net-settled awards are classified as financing activities, rather than operating activities. This classification change was also adopted retrospectively, resulting in an increase of $4 to net cash provided by operating activities with an offsetting increase to net cash used in financing activities on the Condensed Consolidated Statement of Cash Flows for the six months ended July 30, 2016.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test. Under this new guidance, if the carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The ASU is effective prospectively for usfiscal years and interim periods within those years beginning ~~with the first quarter of~~after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact ~~these provisions will~~this guidance would have on our Condensed Consolidated Financial Statements.

~~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 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: 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:~~

July 30, 2016
January 30, 2016
August 1, 2015
Credit card receivables and other, net
$264

$197

$242
Allowance for credit losses (1 ) (1 ) (1 )
Accounts receivable, net
$263

$196

$241

Accounts receivable held for sale
$—

$—

$2,391

~~Credit card receivables and other, net primarily consist of employee credit card receivables and receivables from non-Nordstrom-branded cards.~~

In connection with our May 2015 purchase and sale agreement with TD, the accounts receivable discussed in Note 2: Credit Card Receivable Transaction, were recorded at the lower of cost (par) or fair value and reclassified as “held for sale.” This resulted in the recognition of a $64 benefit in the second quarter of 2015, due to the reversal of the allowance for credit losses. We subsequently sold the receivables 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 4:2: DEBT AND CREDIT FACILITIES

Debt

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


	July 30, 2016			January 30, 2016			August 1, 2015			July 29, 2017			January 28, 2017			July 30, 2016
Secured
Series 2011-1 Class A Notes, 2.28%, due October 2016		$—			$—			$325
Mortgage payable, 7.68%, due April 2020	27			30			33				$22			$24			$27
Other	4			5			9			1			3			4
Total secured debt	31			35			367			23			27			31

Unsecured
Net of unamortized discount:
Senior notes, 6.25%, due January 2018	649			649			649			—			650			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			500
Senior notes, 4.00%, due March 2027										349			—			—
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			599			890			602			601
Other	56			76			82			33			50			56
Total unsecured debt	2,751			2,770			2,774			2,717			2,747			2,751

Total long-term debt	2,782			2,805			3,141			2,740			2,774			2,782
Less: current portion	(10		)	(10		)	(333		)	(11		)	(11		)	(10		)
Total due beyond one year		$2,772			$2,795			$2,808			$2,729			$2,763			$2,772

During the ~~third~~first quarter of ~~2015, as~~2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300 aggregate principal amount of 5.00% senior unsecured notes due January 2044. With the proceeds of these new notes, we retired our $650 senior unsecured notes that were due January 2018. We incurred $18 of net interest expense related to the refinancing, which included the write-off of unamortized balances associated with the debt discount, issue costs and fair value hedge adjustment resulting from the sale of our interest rate swap agreements in 2012. It also included a ~~condition~~one-time payment of ~~closing~~$24 to 2018 Senior Note holders under a make-whole provision, which represents the ~~credit card receivable transaction (see Note 2: Credit Card Receivable Transaction), we defeased $325 in secured Series 2011-1 Class A Notes in order to provide~~net present value of expected coupon payments had the ~~receivables to TD free and clear.~~notes been outstanding through the original maturity date.

Credit Facilities

As of July ~~30, 2016,~~29, 2017, we had total short-term borrowing capacity of $800 under our senior unsecured revolving credit facility (“revolver”) that expires in April ~~2020, with an option to extend for an additional year.~~2020. 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 available liquidity under the revolver until repaid.

As of July ~~30, 2016,~~29, 2017, 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~~no more than four times. As of July ~~30, 2016,~~29, 2017, 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 5:3: 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 July 30, 2016:

Minimum
Maximum
Discount rate 12 % 12 %
Monthly payment rate 6 % 11 %
Annual credit loss rate 3 % 4 %
Annual revenues as a percent to credit card receivables 13 % 18 %
Annual expenses as a percent to credit card receivables 5 % 9 %

We recognized $7 and $17 of amortization expense for the quarter and six months ended July 30, 2016 on the beneficial interest asset, which had a fair value of $20 and $37 as of July 30, 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 August 1, 2015.~~

~~Financial Instruments Measured at Fair Value on a Nonrecurring Basis~~

~~We did not have any financial assets or liabilities that were measured at fair value on a nonrecurring basis as of July 30, 2016 and January 30, 2016.~~

As of August 1, 2015, our U.S. Visa and private label credit card receivables were “held for sale” and were recorded at the lower of cost (par) or fair value. We estimated the fair value of our credit card receivables “held for sale” based on a discounted cash flow model using estimates and assumptions regarding future credit card portfolio performance. This fair value estimate was primarily based on Level 3 inputs in the fair value hierarchy, including the discount rate, payment rate, credit losses, revenues and expenses. The estimated fair value of our credit card receivables “held for sale” was approximately 3% above par. This premium was solely associated with our credit card receivables “held for sale,” and did not encompass other terms and elements within our agreement with TD.

~~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 (excluding employee credit card receivables “held for sale”), accounts payable and certificates of deposit, which approximate fair value due to their short-term 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:


	July 30, 2016		January 30, 2016		August 1, 2015		July 29, 2017		January 28, 2017		July 30, 2016
Carrying value of long-term debt		$2,782		$2,805		$3,141		$2,740		$2,774		$2,782
Fair value of long-term debt	3,076		3,077		3,526		2,908		2,949		3,076

Financial Instruments Measured at Fair Value on a Nonrecurring Basis

10Our employee credit card receivables are classified as “held for sale” (“receivables held for sale”) and are recorded at the lower of 29

~~Table~~cost or fair value (see Note 1: Basis of ~~Contents~~

~~NORDSTROM, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar~~Presentation). We estimate the fair value of our receivables held for sale based on a discounted cash flow model using estimates and ~~share amounts~~assumptions regarding future credit card portfolio performance. This fair value estimate is primarily based on Level 3 inputs in ~~millions except per share, per option and per unit amounts)~~

~~(Unaudited)~~

the fair value hierarchy. Based upon this assessment, the carrying value of the receivables held for sale approximated fair value at July 29, 2017.

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 six months ended July 30, 2016 and August 1, 2015.~~ We estimate the fair value of these assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements. There were no material impairment charges for these assets for the six months ended July 29, 2017 and July 30, 2016.

NOTE 6:4: 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 July ~~30, 2016,~~29, 2017, we had approximately ~~$201~~$249 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 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.

NOTE 7:5: SHAREHOLDERS’ EQUITY

~~On October 1, 2015,~~In February 2017, our Board of Directors authorized a program to repurchase up to ~~$1,000~~$500 of our outstanding common stock through August 31, 2018. Our October 1, 2015 Board authorized share repurchase program expired in March ~~1, 2017.~~ 2017, which had $409 of unused capacity upon program expiration.

During the six months ended July ~~30, 2016,~~29, 2017, we repurchased ~~1.3~~4.6 shares of our common stock for an aggregate purchase price of ~~$60~~$206 and had ~~$751~~$414 remaining in share repurchase capacity as of July ~~30, 2016.~~29, 2017. The actual ~~number,~~timing, price, manner and ~~timing~~amounts of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission (“SEC”) rules.

In August ~~2016,~~2017, subsequent to quarter end, we declared a quarterly dividend of $0.37 per share, which will be paid on September ~~13, 2016.~~12, 2017.

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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 8:6: STOCK-BASED COMPENSATION

On May 16, 2017, our shareholders approved an amendment to the 2010 Equity Incentive Plan (“Plan”). The amendment increases common stock available for issuance by 6.2. As of July 29, 2017, the aggregate number of shares to be issued under the Plan may not exceed 36.6, plus any shares currently outstanding under the 2004 Plan that are forfeited or expire during the term of the 2010 plan.

The following table summarizes our stock-based compensation expense:


	Quarter Ended						Six Months Ended						Quarter Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
Restricted stock units														$15			$9			$28			$15
Stock options		$11			$10			$19			$19		5			11			8			19
Restricted stock units	9			6			15			10
Acquisition-related stock compensation	4			4			8			9			1			4			1			8
Performance share units	1			—			1			—
Other	2			2			4			3			3			3			4			5
Total stock-based compensation expense, before income tax benefit	27			22			47			41			24			27			41			47
Income tax benefit	(9		)	(7		)	(15		)	(13		)	(9		)	(9		)	(16		)	(15		)
Total stock-based compensation expense, net of income tax benefit		$18			$15			$32			$28			$15			$18			$25			$32

In 2014, restricted stock units became a growing component of our stock-based compensation mix. In the first half of 2017, this trend continued as our annual grant allocation shifted towards more restricted stock units and less options to better align with our compensation program’s guiding principles. The following table summarizes our grants:


	Six Months Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016
	Granted	Weighted-average grant-date fair value per unit		Granted	Weighted-average grant-date fair value per unit		Granted	Weighted-average grant-date fair value per unit		Granted	Weighted-average grant-date fair value per unit
Restricted stock units							1.8		$43	1.6		$43
Stock options	2.9		$15	1.7		$21	0.3		$16	2.9		$15
Restricted stock units	1.6		$43	0.4		$78
Performance share units							0.1		$40	0.1		$44

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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 9:7: EARNINGS PER SHARE

The computation of earnings per share is as follows:


	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	July 30, 2016		August 1, 2015		July 30, 2016		August 1, 2015		July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016
Net earnings		$117		$211		$163		$339		$110		$117		$173		$163

Basic shares	173.5		189.4		173.3		190.0		166.4		173.5		166.8		173.3
Dilutive effect of stock options and other	1.3		4.1		1.9		4.2
Dilutive effect of common stock equivalents									2.1		1.3		2.0		1.9
Diluted shares	174.8		193.5		175.2		194.2		168.5		174.8		168.8		175.2

Earnings per basic share		$0.67		$1.11		$0.94		$1.78		$0.66		$0.67		$1.04		$0.94
Earnings per diluted share		$0.67		$1.09		$0.93		$1.74		$0.65		$0.67		$1.02		$0.93

Anti-dilutive stock options and other	13.6		1.7		10.2		1.7
Anti-dilutive common stock equivalents									10.3		13.6		11.2		10.2

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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:~~8: SEGMENT REPORTING

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


															Retail		Corporate/Other			Retail Business			Credit		Total
Quarter Ended July 29, 2017
Net sales																$4,039		($322	)		$3,717			$—		$3,717
Credit card revenues, net															—		—			—			76		76
Earnings (loss) before interest and income taxes															388		(211		)	177			40		217
Interest expense, net															—		(29		)	(29		)	—		(29		)
Earnings (loss) before income taxes															388		(240		)	148			40		188
	Retail		Corporate/Other			Retail Business			Credit			Total
Quarter Ended July 30, 2016
Net sales		$3,871		($279	)		$3,592			$—			$3,592			$3,871		($279	)		$3,592			$—		$3,592
Credit card revenues, net	—		—			—			59			59			—		—			—			59		59
Earnings (loss) before interest and income taxes	383		(179		)	204			17			221			383		(179		)	204			17		221
Interest expense, net	—		(30		)	(30		)	—			(30		)	—		(30		)	(30		)	—		(30		)
Earnings (loss) before income taxes	383		(209		)	174			17			191			383		(209		)	174			17		191

Quarter Ended August 1, 2015
Six Months Ended July 29, 2017
Net sales		$3,775		($177	)		$3,598			$—			$3,598			$7,347		($351	)		$6,996			$—		$6,996
Credit card revenues, net	—		—			—			103			103			—		—			—			152		152
Earnings (loss) before interest and income taxes	378		(115		)	263			114			377			600		(308		)	292			76		368
Interest expense, net	—		(27		)	(27		)	(5		)	(32		)	—		(76		)	(76		)	—		(76		)
Earnings (loss) before income taxes	378		(142		)	236			109			345			600		(384		)	216			76		292

Six Months Ended July 30, 2016
Net sales		$7,129		($345	)		$6,784			$—			$6,784			$7,129		($345	)		$6,784			$—		$6,784
Credit card revenues, net	—		—			—			116			116			—		—			—			116		116
Earnings (loss) before interest and income taxes	572		(278		)	294			33			327			572		(278		)	294			33		327
Interest expense, net	—		(61		)	(61		)	—			(61		)	—		(61		)	(61		)	—		(61		)
Earnings (loss) before income taxes	572		(339		)	233			33			266			572		(339		)	233			33		266

Six Months Ended August 1, 2015
Net sales		$6,966		($252	)		$6,714			$—			$6,714
Credit card revenues, net	—		—			—			202			202
Earnings (loss) before interest and income taxes	658		(197		)	461			161			622
Interest expense, net	—		(55		)	(55		)	(10		)	(65		)
Earnings (loss) before income taxes	658		(252		)	406			151			557

~~Credit segment earnings before interest and income taxes for the quarter and six months ended August 1, 2015 included~~Retail Business represents a ~~$64 benefit due to the reversal~~subtotal of the ~~allowance for credit losses on accounts receivable that were reclassified to “held for sale” (see Note 3: Accounts Receivable).~~Retail segment and Corporate/Other and is not a reportable segment.

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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)

The following table summarizes net sales within our reportable segments:


	Quarter Ended						Six Months Ended						Quarter Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
Nordstrom full-line stores - U.S.		$1,978			$2,097			$3,560			$3,796			$1,887			$1,978			$3,369			$3,560
Nordstrom.com	683			625			1,178			1,105			819			683			1,367			1,178
Nordstrom	2,661			2,722			4,738			4,901
Full-price													2,706			2,661			4,736			4,738

Nordstrom Rack	926			857			1,819			1,688			990			926			1,944			1,819
Nordstromrack.com/HauteLook	157			117			323			234			199			157			397			323
Off-price	1,083			974			2,142			1,922			1,189			1,083			2,341			2,142

Other retail¹	127			79			249			143			144			127			270			249
Total Retail segment	3,871			3,775			7,129			6,966
Retail segment													4,039			3,871			7,347			7,129
Corporate/Other	(279		)	(177		)	(345		)	(252		)	(322		)	(279		)	(351		)	(345		)
Total net sales		$3,592			$3,598			$6,784			$6,714			$3,717			$3,592			$6,996			$6,784

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, our anticipated financial outlook for the fiscal year ending ~~January 28, 2017,~~February 3, 2018, our anticipated annual total and comparable sales rates, our anticipated new store openings in existing, new and international markets, our anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of ~~the Company’s~~our management and are subject to significant risks and uncertainties. ~~Actual~~Our 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,

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

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

successful execution of our information technology strategy,

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

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,

efficient and proper allocation of 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,~~capital resources,

the impact of any systems or network failures, cybersecurity and/or security breaches, including any security breach of our systems or those of a ~~third-party~~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~~effective inventory management processes and systems, fulfillment processes and systems, disruptions in our supply chain and our ability to control costs,

the effect of the announcement by the members of the Nordstrom family relating to the exploration of a possible “going private transaction” on our ~~information technology strategy,~~relationships with our customers, employees, suppliers and partners, operating results and business generally,

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

our ability to maintain relationships with and motivate our employees and to effectively ~~utilize data in strategic planning~~attract, develop and ~~decision making,~~

~~efficient and proper allocation~~retain our future leaders, which could be impacted by the uncertainty about the possibility of ~~our capital resources,~~a “going private transaction,”

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, Bank USA, N.A. (“TD”),

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

the timing, price, manner and amounts of future 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,

the impact of economic or political conditions in the U.S. and countries where our third party vendors operate,

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 or information technology systems and communications,

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~~2016 Annual Report on Form 10-K and Part II, “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q 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.~~circumstances, except as may be required by law.

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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 second quarter net earnings of $110, or $0.65 per diluted share, achieved our expectations, reflecting our positive Anniversary Sale results, ongoing inventory and expense discipline, and continued strength of our financial position.

Our net sales increased 3.5%, and comparable sales increased 1.7% driven by our digital businesses and our Anniversary Sale, our biggest event of the year, with significant volumes rivaling the holiday period. This event outperformed our recent sales trends as customers responded favorably to newness and the ability to shop the way they prefer, whether in stores, with a mobile device, or online. Sales outside of this event were more consistent with our recent trends, and therefore, our Anniversary Sale results may not necessarily inform our second half performance.

We continued our progress in executing our customer strategy while maintaining discipline around inventory and expenses:

As a result of our ongoing efforts to provide newness and limited-distribution product to customers, our Nordstrom proprietary labels represented three of the top five selling brands during the Anniversary Sale.

In executing our digital strategy, we delivered online sales growth of 20% at Nordstrom.com, reflecting our largest online volume day in our history, and 27% at Nordstromrack.com/HauteLook.

The Nordstrom Rewards loyalty program continues to play an important role in reaching new customers and strengthening existing customer relationships. We had 9.4 million active Rewards customers in the U.S. and Canada, up approximately 50%, from 6.2 million a year ago. Sales from Nordstrom Rewards customers represented 56% of second quarter sales, compared with 48% a year ago.

Looking to the second half of the year, we continue to focus on enhancing the customer experience and reaching new customers by leveraging our digital capabilities and investing in our top markets:

As part of our customer strategy, we continually test and roll out new ways to connect the physical and digital shopping experiences. We plan to expand our Reserve Online and Try In Store service from six stores to approximately 50 stores by the end of the year. We have been encouraged to find that around 80% of customers who try this service choose to shop this way again.

We are executing on our digital strategy to meet our ambition for continued double-digit online growth. We continue to modernize our platform, enabling us to increase the speed and agility of enhancements to our product pages, navigation, and content.

In our efforts to gain market share, we continue to prioritize our investments in the top North American markets. In September, we will complete our planned full-line store expansion into Canada with a sixth store – at Sherway Gardens in Toronto. In October, we will relocate two full-line stores in California – one from Westside Pavilion to Century City in Los Angeles, and the other into a new space in University Towne Centre in La Jolla.

Our Nordstrom Rack business is an important way to attract new customers to Nordstrom. We opened six stores this spring with 11 more opening this fall, which will bring our total Rack store count to 232 at year end. These stores incorporate our latest store designs, with improvements to the layout and fitting room experience.

Through strategic partnerships with our vendors, we continue to focus on providing customers with newness and relevant product. Our efforts to expand product with limited distribution helps us provide customers with the most relevant brands while strengthening our regular-price business.

We are well-positioned in the market, with the combination of our physical and digital assets representing a competitive advantage. Our omni-channel business model provides favorable economics related to the cost of serving customers and strengthening our brand. Our local market assets – our stores, salespeople, product, and services – are the core of our brand and play an important role in engaging with our customers. Nearly 80% of customers who shop with us across multiple channels began at our stores. With our customers at the center of everything we do, our ongoing efforts to better serve them in more ways have contributed positively to our second quarter results.

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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 Anniversary Sale kicked off in July, which is our largest event of the year outside of the holiday season. We were pleased with the customer response to the event. This year marked one of the best events in our history, with an all-time high in sales volume. The strength of the Anniversary Sale, along with our inventory and expense execution, drove better than expected results for the second quarter.

Second quarter net earnings were $117 compared with net earnings of $211 during the same period in fiscal 2015 which included a $64 benefit from a non-cash accounting adjustment. Our earnings per diluted share of $0.67 exceeded expectations. We believe these results are reflective of our ongoing efforts to realign our resources and priorities to better serve customers.

~~Our Nordstrom Rewards program is one area that enables us to strengthen relationships with customers. It also serves as a powerful tool to drive incremental sales and trips. On May 18,~~we expanded the program so that all of our customers can earn rewards regardless of how they choose to pay. Based on the strong customer response, we now have approximately 6 million Nordstrom Rewards customers, up significantly from 4.7 million last quarter.

In continuing our efforts to improve our operating model, we recognize that the shift toward ecommerce is having an impact on our financial results. As we accelerated investments to support changes in customer expectations, our expenses -- particularly in supply chain, marketing and technology -- grew faster than sales. To address this, we are executing on several initiatives to enhance the customer experience and improve our operating performance:

In supply chain, we are optimizing our supplier network for both inbound and outbound carriers, reducing split shipments through a greater allocation of merchandise to our fulfillment centers and editing out less profitable items online. Since the opening of our East Coast fulfillment center last fall, our delivery times for customers we serve on the East Coast improved by more than 30% while reducing unit shipping costs due to the increased proximity to our customers.

In marketing, we are repositioning our organization to better align with the customer journey and our strategic priorities around customer acquisition and retention. This includes strengthening our capabilities around customer analytics and digital engagement so that we can reach customers in a more efficient and cost-effective manner.

In technology, we’re on a path to modernize our platform and increase the productivity of delivering features that will improve the customer experience. We implemented a new technology solution that supports our expanded loyalty program, which enables us to better serve customers and increase their lifetime value.

Over the past several quarters, we have been actively addressing our inventory, expense and capital investments as we align with current sales trends. In the second quarter, we made substantial progress by bringing down inventory levels relative to sales. As we head into the second half of the year, we are focused on a number of initiatives to improve the customer experience and drive top-line growth:

We’re expanding our reach to serve more customers. We’re building on the success of our Canada expansion with two full-line store openings in Toronto in the third quarter. In the U.S., we plan to open a second full-line store in Austin, Texas and 15 Nordstrom Rack stores this fall.

Continuing our efforts to grow relevant brands that have limited distribution play an important role in creating excitement and attracting new customers. These brands now make up the majority of our top 20 fastest-growing vendors, and we’re continuing to expand highly sought-after brands, like Ivy Park, Madewell and Charlotte Tilbury, with new partnerships to come.

We are making digital enhancements to better serve customers no matter how they choose to shop with us. We have several initiatives underway that include new mobile features, improvements to our website and enhanced selling tools. This fall we are piloting a mobile feature that gives customers the ability to reserve merchandise online and try on in our stores.

These efforts to improve our operations are expected to result in a more productive use of financial resources, which is beginning to positively impact our results. As our business evolves, we will continue to aggressively prioritize our resources to ensure that we can serve customers with high-quality products and services while achieving profitable growth. Through these ongoing efforts, we believe we will be well-positioned for future success.

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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 boutiques 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:~~8: 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 – includes sales from stores that have been open at least one full year at the beginning of the ~~year.~~ year

Total Company comparable sales ~~include~~includes sales from our online ~~channels.~~channels

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

Inventory Turnover Rate – ~~annual~~trailing 12-months cost of sales and related buying and occupancy costs (for all segments) divided by the trailing 4-quarter average ~~inventory.~~inventory

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

Summary

The following table summarizes the results of our Retail Business:


	Quarter Ended										Quarter Ended
	July 30, 2016					August 1, 2015					July 29, 2017					July 30, 2016
	Amount			% of net sales¹		Amount			% of net sales¹		Amount			% of net sales¹		Amount			% of net sales¹
Net sales		$3,592		100.0	%		$3,598		100.0	%		$3,717		100.0	%		$3,592		100.0	%
Cost of sales and related buying and occupancy costs	(2,358		)	(65.6	%)	(2,326		)	(64.6	%)	(2,449		)	(65.9	%)	(2,358		)	(65.6	%)
Gross profit	1,234			34.4	%	1,272			35.4	%	1,268			34.1	%	1,234			34.4	%
Selling, general and administrative expenses	(1,030		)	(28.7	%)	(1,009		)	(28.0	%)	(1,091		)	(29.4	%)	(1,030		)	(28.7	%)
Earnings before interest and income taxes		$204		5.7	%		$263		7.3	%		$177		4.8	%		$204		5.7	%

	Six Months Ended										Six Months Ended
	July 30, 2016					August 1, 2015					July 29, 2017					July 30, 2016
	Amount			% of net sales¹		Amount			% of net sales¹		Amount			% of net sales¹		Amount			% of net sales¹
Net sales		$6,784		100.0	%		$6,714		100.0	%		$6,996		100.0	%		$6,784		100.0	%
Cost of sales and related buying and occupancy costs	(4,456		)	(65.7	%)	(4,323		)	(64.4	%)	(4,603		)	(65.8	%)	(4,456		)	(65.7	%)
Gross profit	2,328			34.3	%	2,391			35.6	%	2,393			34.2	%	2,328			34.3	%
Selling, general and administrative expenses	(2,034		)	(30.0	%)	(1,930		)	(28.7	%)	(2,101		)	(30.0	%)	(2,034		)	(30.0	%)
Earnings before interest and income taxes		$294		4.3	%		$461		6.9	%		$292		4.2	%		$294		4.3	%

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~~The following is a summary of our net sales by channel ~~we present the following summary of~~for our Retail Business:


	Quarter Ended						Six Months Ended						Quarter Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
Net sales by channel:
Nordstrom full-line stores - U.S.		$1,978			$2,097			$3,560			$3,796			$1,887			$1,978			$3,369			$3,560
Nordstrom.com	683			625			1,178			1,105			819			683			1,367			1,178
Full-price	2,661			2,722			4,738			4,901			2,706			2,661			4,736			4,738

Nordstrom Rack	926			857			1,819			1,688			990			926			1,944			1,819
Nordstromrack.com/HauteLook	157			117			323			234			199			157			397			323
Off-price	1,083			974			2,142			1,922			1,189			1,083			2,341			2,142

Other retail¹	127			79			249			143			144			127			270			249
Retail segment	3,871			3,775			7,129			6,966			4,039			3,871			7,347			7,129
Corporate/Other	(279		)	(177		)	(345		)	(252		)	(322		)	(279		)	(351		)	(345		)
Total net sales		$3,592			$3,598			$6,784			$6,714			$3,717			$3,592			$6,996			$6,784

Net sales (decrease) increase	(0.2		%)	9.2		%	1.0		%	9.5		%
Net sales increase (decrease)													3.5		%	(0.2		%)	3.1		%	1.0		%

Comparable sales increase (decrease) by channel:
Nordstrom full-line stores - U.S.	(6.5		%)	0.8		%	(7.0		%)	0.7		%	(4.4		%)	(6.5		%)	(5.3		%)	(7.0		%)
Nordstrom.com	9.4		%	20.4		%	6.7		%	20.1		%	19.8		%	9.4		%	16.0		%	6.7		%
Full-price	(2.8		%)	4.8		%	(4.0		%)	4.5		%	1.8		%	(2.8		%)	—		%	(4.0		%)
Nordstrom Rack	1.1		%	1.7		%	0.2		%	0.8		%	(1.0		%)	1.1		%	(0.9		%)	0.2		%
Nordstromrack.com/HauteLook	34.7		%	49.6		%	38.3		%	50.4		%	26.7		%	34.7		%	22.8		%	38.3		%
Off-price	5.3		%	6.5		%	4.9		%	5.7		%	3.1		%	5.3		%	2.7		%	4.9		%
Total Company	(1.2		%)	4.9		%	(1.5		%)	4.6		%	1.7		%	(1.2		%)	0.6		%	(1.5		%)

Sales per square foot:
Total sales per square foot		$125			$131			$236			$245			$125			$125			$235			$236
4-wall sales per square foot	104			109			193			204			100			104			186			193
Full-line sales per square foot - U.S.	95			102			171			185			91			95			163			171
Nordstrom Rack sales per square foot	126			129			249			259			123			126			243			249

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

Total Company net sales ~~decreased 0.2%~~increased 3.5% for the quarter and ~~increased 1.0%~~3.1% for the six months ended July ~~30, 2016,~~29, 2017, compared with the same periods in ~~2015,~~2016, while comparable sales ~~decreased 1.2%~~increased 1.7% for the quarter and ~~1.5%~~0.6% for the six months ended July ~~30, 2016.~~29, 2017. The Anniversary Sale, historically the largest event of the year, performed better than recent trends. This event started one week later in July relative to last year, shifting one week of the event into the third quarter. The shift had an unfavorable comparison to comparable sales of approximately 250 basis points in the second quarter.

To date in fiscal ~~2016,~~2017, we ~~relocated~~closed 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, increased 1.7% for the quarter and was flat for the six months ended July 29, 2017, compared with the same periods in 2016, while comparable sales increased 1.8% for the quarter and was flat for the six months ended July 29, 2017. Also on a comparable basis for the quarter, full-price experienced increases in the average selling price per item sold and the total number of items sold. For the six months ended July 29, 2017, there was 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 categories were Women’s Apparel and Beauty for the quarter and six months ended July 29, 2017. The top-performing U.S. geographic region was the East for the quarter and the West for the six months ended July 29, 2017.

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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)

~~Full-price~~Off-price net sales, which consists of ~~U.S. full-line~~Nordstrom Rack and ~~Nordstrom.com~~Nordstromrack.com/HauteLook channels, ~~decreased 2.2%~~increased 9.8% for the quarter and ~~3.3%~~9.3% for the six months ended July ~~30, 2016,~~29, 2017, compared with the same periods in ~~2015,~~2016, while ~~on a~~ comparable ~~basis,~~ sales ~~decreased 2.8%~~increased 3.1% and ~~4.0%~~2.7% for the quarter and six months ended July ~~30, 2016. Also on~~29, 2017. On a ~~comparable~~quarter and year-to-date basis, Nordstrom Rack experienced a decrease in the average selling price per item sold, partially offset by an increase in the total number of items sold. Men’s Apparel was the top-performing Nordstrom Rack merchandise category for the quarter and six months ended July ~~30, 2016, 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.~~29, 2017. The ~~top-performing merchandise categories were Beauty and Shoes for the quarter and six months ended July 30, 2016.~~

U.S. full-line stores’ net sales decreased 5.7% and comparable sales decreased 6.5% for the quarter ended July 30, 2016, while for the six months ended July 30, 2016, net sales decreased 6.2% and comparable sales decreased 7.0%, compared with the same periods in 2015. Southern California was the top-performing geographic region for the quarter and six months ended July 30, 2016. Nordstrom.com net sales increased 9.4% for the quarter and 6.7% for the six months ended July 30, 2016.

Within our off-price offering, Nordstrom Rack net sales increased 8.0% and 7.8% for the quarter and six months ended July 30, 2016, compared with the same periods in 2015, attributable to 22 new store openings since the end of the second quarter of 2015. Nordstrom Rack comparable sales increased 1.1% for the quarter and 0.2% for the six months ended July 30, 2016. Also on a comparable basis for the quarter and six months ended July 30, 2016, the number of items sold increased at Nordstrom Rack, partially offset by a decrease in the average retail price. Handbags was the top-performing merchandise category and the East was the top-performing geographic region for the quarter and six months ended July ~~30, 2016.~~29, 2017.

~~Nordstromrack.com/HauteLook continued to experience outsized growth, as~~Other retail net sales increased ~~34.7%~~ for the quarter and ~~38.3% for the~~ six months ended July ~~30, 2016.~~29, 2017, compared with the same periods in 2016 due to new store openings in Canada, partially offset by decreases in Trunk Club.

Retail Business Gross Profit

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


	Quarter Ended						Six Months Ended						Quarter Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
Retail gross profit		$1,234			$1,272			$2,328			$2,391			$1,268			$1,234			$2,393			$2,328
Retail gross profit as a % of net sales	34.4		%	35.4		%	34.3		%	35.6		%	34.1		%	34.4		%	34.2		%	34.3		%

							July 30, 2016			August 1, 2015									July 29, 2017			July 30, 2016
Ending inventory per square foot								$70.51			$72.72									$69.69			$70.51
Inventory turnover rate							4.43			4.49									4.53			4.43

Our Retail GP rate decreased ~~100~~25 basis points ~~or $38~~ for the quarter ended July 29, 2017 and ~~130~~10 basis points ~~or $63~~ for the six months ended July ~~30, 2016~~29, 2017, compared with the same periods in ~~2015. These decreases were~~2016, primarily due to higher ~~markdowns~~occupancy expenses related to new store growth for Nordstrom Rack and Canada in addition to ~~increased occupancy costs related~~higher loyalty expenses during the Anniversary Sale. This decrease was partially offset by improved merchandise margins, reflecting the continued strength in regular-price selling. Continued inventory execution led to ~~Nordstrom Rack’s continued store expansion.~~

~~Through our actions to realign inventory levels and the performance of our Anniversary Sale, inventory growth slowed to 1.4% which drove improvement to our~~improvements in both ending inventory per square ~~foot.~~foot and the inventory turnover rate as of July 29, 2017.

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						Six Months Ended						Quarter Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
Retail selling, general and administrative expenses		$1,030			$1,009			$2,034			$1,930			$1,091			$1,030			$2,101			$2,034
Retail selling, general and administrative expenses as a % of net sales	28.7		%	28.0		%	30.0		%	28.7		%	29.4		%	28.7		%	30.0		%	30.0		%

For the quarter ended July ~~30, 2016,~~29, 2017, Retail SG&A increased $61 and our Retail SG&A rate increased 6467 basis points primarily ~~attributable to expense deleverage from the shift in sales volume into the third quarter related to the Anniversary Sale event, while Retail SG&A expenses increased $21 primarily~~ due to ~~increased~~planned increases in technology ~~investments.~~and supply chain expenses associated with our growth initiatives. For the six months ended July ~~30, 2016, our Retail SG&A rate increased 123 basis points and our~~29, 2017, Retail SG&A increased ~~$104~~$67 primarily ~~reflecting~~due to planned technology ~~investments~~ and ~~higher~~supply chain expenses partially offset by 2016 credit chargeback expenses associated with an industry change in liability ~~rules effective October 2015.~~rules.

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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

The Nordstrom credit and debit card products are designed to strengthen customer relationships and grow retail sales by providing loyalty benefits, valuable services and payment products. We believe our credit business allows us to build deeper relationships with our customers by fully integrating the Nordstrom Rewards program with our retail business and provide better service, which in turn fosters greater customer loyalty. Nordstrom cardholders tend to visit our stores more frequently and spend more than non-cardholders. Nordstrom private label credit and debit cards can be used at all of our U.S. retail channels, while Nordstrom Visa credit cards may also be used for purchases outside of Nordstrom (“outside volume”).

Summary

The table below provides a detailed view of the operational results of our Credit segment, consistent with Note 8: Segment Reporting in Item 1:



	Quarter Ended						Six Months Ended
	July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
Credit card revenues, net		$76			$59			$152			$116
Credit expenses	(36		)	(42		)	(76		)	(83		)
Earnings before interest and income taxes		$40			$17		76			33

Credit and debit card volume¹:
Outside		$1,061			$1,068			$2,062			$2,084
Inside	1,760			1,708			2,997			2,975
Total volume		$2,821			$2,776			$5,059			$5,059

¹Credit and debit card volume represents sales on the total portfolio plus applicable sales taxes.

Credit Card Revenues, net

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



	Quarter Ended				Six Months Ended
	July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016
Credit program revenues, net		$73		$56		$145		$109
Other	3		3		7		7
Total credit card revenues, net		$76		$59		$152		$116

Pursuant to our program agreement with TD, we receive our portion of the ongoing credit card revenue, net of credit losses, from both sold and newly generated credit card receivables, which is recorded in credit program revenues, net. Asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the transaction are also recognized 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. Other credit card revenues include finance charge revenue, interchange fees and late fees on our accounts receivable retained (including debit, employee and Canadian receivables).

Credit card revenues, net increased $17 for the quarter and $36 for the six months ended July 29, 2017, compared with the same periods in 2016, reflecting our strategic partnership with TD to responsibly grow our receivables and associated revenues. There was also a reduction in amortization expense related to the sale of the credit card portfolio.

Credit Expenses

Total credit expenses decreased $6 for the quarter and $7 for the six months ended July 29, 2017, compared with the same periods in 2016, primarily due to lower processing costs driven by operational efficiencies.

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~~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: Segment Reporting in Item 1:~~

Quarter Ended Six Months Ended
July 30, 2016
August 1, 2015
July 30, 2016
August 1, 2015
Credit card revenues, net
$59

$103

$116

$202
Credit expenses (42 ) (50 ) (83 ) (102 )
Credit transaction, net —
61
—
61
Earnings before interest and income taxes 17
114
33
161
Interest expense¹
—
(5 ) —
(10 )
Earnings before income taxes
$17

$109

$33

$151

Credit and debit card volume²:

Outside
$1,068

$1,097

$2,084

$2,150
Inside 1,708
1,730
2,975
2,999
Total volume
$2,776

$2,827

$5,059

$5,149

¹~~Prior 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.~~

²~~Volume 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 Six Months Ended
July 30, 2016
August 1, 2015
July 30, 2016
August 1, 2015
Finance charge revenue
$1

$64

$3

$128
Interchange fees 1
23
3
44
Late fees and other 1
16
1
30
Credit program revenues, net 56
—
109
—
Total credit card revenues, net
$59

$103

$116

$202

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 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 recognized in credit program revenues, net.

Credit card revenues, net decreased $44 and $86 for the quarter and six months ended July 30, 2016, compared with the same periods in 2015, primarily due to the impact of the program agreement with 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 Six Months Ended
July 30, 2016
August 1, 2015
July 30, 2016
August 1, 2015
Operational expenses
$41

$39

$80

$79
Bad debt expense —
10
—
20
Occupancy expenses 1
1
3
3
Total credit expenses
$42

$50

$83

$102

Total credit expenses decreased $8 and $19 for the quarter and six months ended July 30, 2016, compared with the same periods in 2015, primarily 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~~ ~~$61~~ for the quarter and six months ended August 1, 2015 is primarily due to the reversal of the allowance for credit losses on accounts receivable that were reclassified to “held for sale” (see Note 3: Accounts Receivable).

Total Company Results

Interest Expense, net

Interest expense, net was $29 for the quarter ended July 29, 2017, compared with $30 for the ~~second quarter~~same period in 2016, and ~~$61~~$76 for the six months ended July ~~30, 2016,~~29, 2017, compared with ~~$32~~$61 for the ~~second quarter and $65~~same period in 2016. The increase for the six months ended ~~August 1, 2015. These decreases were~~July 29, 2017 was primarily due to a net interest expense charge of $18 related to the ~~defeasance of our $325 Series 2011-1 Class A Notes~~$650 debt refinancing completed in the ~~third~~first quarter of ~~2015 as a result of the credit card receivable transaction.~~2017 (see Note 2: Debt and Credit Facilities in Item 1).

Income Tax Expense

Income tax expense is summarized in the following table:


	Quarter Ended						Six Months Ended						Quarter Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
Income tax expense		$74			$134			$103			$218			$78			$74			$119			$103
Effective tax rate	38.7		%	38.9		%	38.7		%	39.2		%	41.8		%	38.7		%	40.7		%	38.7		%

The effective tax rate ~~was relatively flat~~increased for the quarter and six months ended July ~~30, 2016,~~29, 2017, compared with the same ~~period~~periods in ~~2015. The effective tax rate decreased for~~2016, as a result of the ~~six months ended July 30, 2016, compared with the same period in 2015, primarily due to increased federal income tax credits.~~jurisdictional mix of income.

Earnings Per Share

Earnings per share is as follows:


	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	July 30, 2016		August 1, 2015		July 30, 2016		August 1, 2015		July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016
Basic		$0.67		$1.11		$0.94		$1.78		$0.66		$0.67		$1.04		$0.94
Diluted		$0.67		$1.09		$0.93		$1.74		$0.65		$0.67		$1.02		$0.93

Earnings per diluted share ~~decreased~~remained relatively consistent for the quarter ~~and~~ended July 29, 2017, compared with the same period in 2016. Earnings per diluted share increased for the six months ended July ~~30, 2016, compared with the same periods~~29, 2017, reflecting increased sales in ~~2015, primarily due~~addition to a ~~$64 benefit in fiscal 2015~~favorable comparison related to higher credit chargeback expenses associated with an industry change in liability rules in 2016.

2017 Outlook

We updated our annual earnings per diluted share expectations to incorporate our second quarter results. Nordstrom’s expectations for fiscal 2017, which include the ~~sale~~impact of the ~~credit card portfolio~~53rd week, are as follows:



	Current Outlook
Net sales (percent)	Approximately 4
Comparable sales (percent)	Approximately flat
Retail EBIT	$790 to $840
Credit EBIT	Approximately $145
Earnings per diluted share (excluding the impact of any future share repurchases)	$2.85 to $3.00

The income tax rate is estimated at 40% for fiscal 2017. The 53rd week is expected to add approximately $200 to net sales and ~~higher 2016 planned technology and fulfillment expenses supporting the Company’s growth initiatives. This was partially offset by a decrease~~approximately $0.02 to $0.03 to earnings per diluted share. The 53rd week is not included in ~~weighted average shares outstanding resulting from increased share repurchases in the second half of 2015.~~comparable sales calculations.

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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)

~~2016 Outlook~~

~~We updated our annual earnings per diluted share expectations to incorporate our second quarter results. Our expectations for fiscal 2016 are as follows:~~



	~~Prior Outlook~~	~~Current Outlook~~
~~Net sales (percent)~~	~~2.5 to 4.5 increase~~	~~2.5 to 4.5 increase~~
~~Comparable sales (percent)~~	~~1 decrease to 1 increase~~	~~1 decrease to 1 increase~~
~~Retail EBIT (percent)~~	~~10 to 20 decrease~~	~~10 to 15 decrease~~
~~Credit EBIT~~	~~$70 to $80 million~~	~~Approximately $80 million~~
~~Earnings per diluted share (excluding the impact of any future share repurchases)~~	~~$2.50 to $2.70~~	~~$2.60 to $2.75~~

Return on Invested Capital (“ROIC”) (Non-GAAP financial measure)

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’ return over the long term. In addition, we incorporate ROIC in our executive incentive compensation measures. For the 12 fiscal months ended July ~~30, 2016,~~29, 2017, our ROIC decreased to ~~9.1%~~8.9% compared with ~~12.3%~~9.1% for the 12 fiscal months ended ~~August 1, 2015, primarily~~July 30, 2016. Results for the current period were negatively impacted by approximately 310 basis points due to ~~reduced earnings.~~the Trunk Club non-cash goodwill impairment charge in the third quarter of 2016.

We define ROIC as our net operating profit after tax divided by our average invested capital using the trailing 12-month average. ROIC is not a measure of financial performance under generally accepted accounting principles (“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’ 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 is return on assets. The following is a reconciliation of the components of ROIC and return on assets:


	12 Fiscal Months Ended						12 Fiscal Months Ended
	July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016
Net earnings		$424			$736			$364			$424
Add: income tax expense	261			481			346			261
Add: interest expense	121			133			139			121
Earnings before interest and income tax expense	806			1,350			849			806

Add: rent expense	190			154			230			190
Less: estimated depreciation on capitalized operating leases¹	(101		)	(83		)	(123		)	(101		)
Net operating profit	895			1,421			956			895

Less: estimated income tax expense	(341		)	(561		)	(438		)	(341		)
Net operating profit after tax		$554			$860			$518			$554

Average total assets		$8,332			$9,275			$8,018			$8,332
Less: average non-interest-bearing current liabilities	(3,062		)	(2,892		)
Less: average deferred property incentives	(549		)	(521		)
Add: average estimated asset base of capitalized operating leases²	1,388			1,117
Less: average non-interest-bearing current liabilities²							(3,173		)	(3,062		)
Less: average deferred property incentives and deferred rent liability²							(646		)	(549		)
Add: average estimated asset base of capitalized operating leases³							1,636			1,388
Average invested capital		$6,109			$6,979			$5,835			$6,109

Return on assets	5.1		%	7.9		%
ROIC	9.1		%	12.3		%
Return on assets⁴							4.5		%	5.1		%
ROIC⁴							8.9		%	9.1		%

¹Capitalized 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.

² Balances associated with our deferred rent liability have been classified as long-term liabilities in the current period.

³Based 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.

⁴ Results for the 12 fiscal months ended July 29, 2017 include the $197 impact of the Trunk Club non-cash goodwill impairment charge in the third quarter of 2016, which negatively impacted the current period return on assets by 234 basis points and ROIC by 310 basis points.

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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 July ~~30, 2016,~~29, 2017, our existing cash and cash equivalents on-hand of ~~$892,~~$919, 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 ~~increased $436~~decreased $282 for the six months ended July ~~30, 2016,~~29, 2017, compared with the same period in ~~2015,~~2016, primarily due to ~~favorable changes~~a tax refund received in ~~working capital, which includes~~2016, as well as the timing of credit card receivables from the higher volume of our ~~efforts to align inventory levels with sales trends, partially offset by a decrease in earnings.~~Anniversary Event sales.

Investing Activities

Net cash used in investing activities ~~was $374~~decreased $66 for the six months ended July ~~30, 2016,~~29, 2017, compared with ~~net cash used of $581 for~~ the same period in ~~2015,~~2016, primarily due to a ~~decrease~~planned reduction in capital expenditures ~~related to lower spend on full-line~~associated with fewer store openings and ~~relocations and our East Coast Fulfillment Center which was completed during the third quarter of 2015.~~

At the beginning of the second quarter, 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.decreased technology investments.

Financing Activities

Net cash used in financing activities ~~was $180~~increased $169 for the six months ended July ~~30, 2016,~~29, 2017, compared with ~~$238 for~~ the same period in ~~2015,~~2016, primarily due to increased share repurchase activity.

Short-term and Long-term Borrowing Activity

During the first quarter of 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300 aggregate principal amount of 5.00% senior unsecured notes due January 2044. We recorded debt issuance costs incurred as a ~~decrease~~result of the issuance in ~~share repurchases, partially offset by a decrease~~other financing activities, net in ~~cash book overdrafts.~~the Condensed Consolidated Statements of Cash Flows in Item 1. With the proceeds of these new notes, we retired our $650 senior unsecured notes that were due January 2018. See Note 2: Debt and Credit Facilities in Item 1 for additional information.

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 six months ended July ~~30, 2016,~~29, 2017, we had Free Cash Flow of ~~$298~~$115 compared with ~~($263)~~$303 for the six months ended ~~August 1, 2015.~~July 30, 2016.

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:


	Six Months Ended						Six Months Ended
	July 30, 2016			August 1, 2015			July 29, 2017			July 30, 2016
Net cash provided by operating activities		$851			$415			$574			$856
Less: capital expenditures	(407		)	(521		)	(341		)	(407		)
Less: cash dividends paid	(128		)	(142		)	(124		)	(128		)
Less: change in credit card receivables originated at third parties	—			(64		)
(Less) Add: change in cash book overdrafts	(18		)	49
Add (less): change in cash book overdrafts							6			(18		)
Free Cash Flow		$298			($263	)		$115			$303

Net cash used in investing activities		($374	)		($581	)
Net cash used in financing activities	(180		)	(238		)

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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 July ~~30, 2016,~~29, 2017, we had total short-term borrowing capacity of $800 under our senior unsecured revolving credit facility (“revolver”) that expires in April ~~2020, with an option to extend for an additional year.~~2020. 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 July ~~30, 2016,~~29, 2017, 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+	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~~no more than four times (see the following additional discussion of Adjusted Debt to EBITDAR). As of July ~~30, 2016,~~29, 2017, 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~~no more than four times. As of July ~~30, 2016,~~29, 2017, our Adjusted Debt to EBITDAR was ~~2.6,~~2.4, compared with ~~2.1~~2.6 as of ~~August 1, 2015. This increase was primarily driven by reduced earnings.~~July 30, 2016.

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			2017¹		2016¹
Debt		$2,782			$3,141			$2,740		$2,782
Add: estimated capitalized operating lease liability²	1,518			1,231			1,841		1,518
Less: fair value hedge adjustment included in long-term debt	(18		)	(30		)	—		(18		)
Adjusted Debt		$4,282			$4,342			$4,581		$4,282

Net earnings		$424			$736			$364		$424
Add: income tax expense	261			481			346		261
Add: interest expense, net	121			133			136		121
Earnings before interest and income taxes	806			1,350			846		806

Add: depreciation and amortization expenses	617			541			646		617
Add: rent expense	190			154			230		190
Add: non-cash acquisition-related charges	7			16			204		7
EBITDAR		$1,620			$2,061			$1,926		$1,620

Debt to Net Earnings	6.6			4.3			7.5		6.6
Adjusted Debt to EBITDAR	2.6			2.1			2.4		2.6

¹The components of Adjusted Debt are as of July 29, 2017 and July 30, 2016, ~~and August 1, 2015,~~ while the components of EBITDAR are for the 12 months ended July 29, 2017 and July 30, ~~2016 and August 1, 2015.~~2016.

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.

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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~~2016 Annual Report on Form 10-K filed with the SEC on March ~~14, 2016.~~20, 2017. There have been no material changes to these risks since that time.

Item 4. Controls and Procedures.

~~Disclosure Controls~~DISCLOSURE CONTROLS AND PROCEDURES

On May 4, 2017, the Company filed an 8-K announcing the retirement of Michael G. Koppel as an officer, employee and ~~Procedures~~the Company’s principal financial officer for the purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Blake W. Nordstrom served as the Company’s interim principal financial officer until June 2, 2017, at which point Anne L. Bramman assumed the position of Chief Financial Officer and the Company’s principal financial officer.

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~~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 1A. Risk Factors.

We discussed our risk factors in Part I, “Item 1A. Risk Factors” in our 2016 Annual Report on Form 10-K filed with the SEC on March 20, 2017. The following is an update to our risk factors as previously disclosed:

The exploration of a possible “going private transaction” by the Nordstrom family could impact our relationships with our customers, employees, suppliers and partners, operating results and business.

In June 2017, members of the Nordstrom family formed a group (the “Group”) to explore the possibility of pursuing a “going private transaction” involving the acquisition by the Group of 100% of our outstanding shares of common stock (a “Going Private Transaction”). The Group has not made a proposal to us regarding any such Going Private Transaction and may never make such a proposal. Our Board of Directors has formed a special committee (the “Special Committee”) comprised of independent directors to act on our behalf in connection with such exploration by the Group and any possible transaction, which may or may not be accepted by the Special Committee. We do not plan to disclose developments or provide updates on the progress or status of any potential Going Private Transaction until the Special Committee deems further disclosure is appropriate or required. Accordingly, speculation regarding any developments related to the review of a Going Private Transaction and perceived uncertainties related to our future could cause our stock price to fluctuate significantly.

The exploration of a potential Going Private Transaction or alternative may expose us and our operations to a number of risks and uncertainties, including the potential failure to retain, attract or strengthen our relationships with key personnel, current and potential customers, suppliers, and partners which may cause them to terminate, or not to renew or enter into, arrangements with us; the potential incurrence of expenses associated with the retention of legal, financial and other advisors regardless of whether any transaction is consummated; distractions and disruptions in our business; and exposure to potential litigation in connection with this process and effecting any transaction, any of which could adversely affect our business, financial condition and results of operations as well as the market price of our common stock.

If we do not effectively design and implement our strategic and business planning processes to attract, retain, train and develop talent and future leaders, our business may suffer.

We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace, and the talents of our workforce to execute our business strategies and objectives. If unexpected turnover occurs without adequate succession plans, the loss of the services of any of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our business. Additionally, our ability to maintain relationships with and motivate our employees and to effectively attract, develop and retain our future leaders, could be impacted by the uncertainty about the possibility of a Going Private Transaction.

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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 second 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

May 2016
(May 1, 2016 to May 28, 2016) —

$—
—

$761
June 2016
(May 29, 2016 to July 2, 2016) —
—
—
761
July 2016
(July 3, 2016 to July 30, 2016) 0.3
39.78
0.3
751
Total 0.3

$39.78
0.3

¹~~On October 1, 2015,~~In February 2017, our Board of Directors authorized a program to repurchase up to ~~$1,000~~$500 of our outstanding common stock through ~~March 1,~~August 31, 2018.During the second quarter of 2017, we did not repurchase any shares of our common stock and do not plan to do so while the Group explores the possibility of a “going private transaction.” We had $414 remaining in share repurchase capacity as of July 29, 2017. The actual ~~number,~~timing, price, manner and ~~timing~~amounts of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules.

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 29 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~~Anne L. Bramman
~~Michael G. Koppel~~Anne L. Bramman
~~Executive Vice President and~~ Chief Financial Officer
(Principal Financial Officer)

Date:	August ~~30, 2016~~29, 2017

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NORDSTROM, INC.

Exhibit Index



Exhibit		Method of Filing
~~10.1~~ 3.1	~~Nordstrom, Inc. Employee Stock Purchase Plan,~~ Bylaws, as amended and restated as of June 7, 2017	Incorporated by reference from the Registrant’s Form 8-K filed on June ~~1, 2016~~8, 2017, Exhibit 3.1

10.1	Letter Agreement, dated as of June 7, 2017	Incorporated by reference from the Registrant’s Form 8-K filed on June 8, 2017, Exhibit 99.2, and the Registrant’s SC 13D filed on June 8, 2017, Exhibit 3

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

~~10.2~~ 31.2	~~Form~~ Certification of ~~2016 Nonqualified Stock Option Grant Agreement, Supplemental Award~~Chief Financial Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002	Filed herewith electronically

~~10.3~~ 32.1	~~Form of 2016 Restricted Stock Unit Award Agreement, Supplemental Award~~	~~Filed herewith electronically~~

~~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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	Minimum		Maximum
Discount rate	12	%	12	%
Monthly payment rate	6	%	11	%
Annual credit loss rate	3	%	4	%
Annual revenues as a percent to credit card receivables	13	%	18	%
Annual expenses as a percent to credit card receivables	5	%	9	%



	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
May 2016 (May 1, 2016 to May 28, 2016)	—		$—	—		$761
June 2016 (May 29, 2016 to July 2, 2016)	—	—		—	761
July 2016 (July 3, 2016 to July 30, 2016)	0.3	39.78		0.3	751
Total	0.3		$39.78	0.3