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 May ~~5, 2018~~4, 2019



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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, without par value	JWN	New York Stock Exchange

Common stock outstanding as of May 30, ~~2018: 167,388,443~~2019: 154,651,759 shares

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~~NORDSTROM, INC.~~

TABLE OF CONTENTS



		Page
FORWARD-LOOKING STATEMENTS		3

DEFINITIONS		5

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited).

	Condensed Consolidated Statements of Earnings Quarters Ended May 4, 2019 and May 5, 2018 ~~and April 29, 2017~~	36

	Condensed Consolidated Statements of Comprehensive Earnings Quarters Ended May 4, 2019 and May 5, 2018 ~~and April 29, 2017~~	36

	Condensed Consolidated Balance Sheets May 4, 2019, February 2, 2019, and May 5, 2018 ~~February 3, 2018, and April 29, 2017~~	47

	Condensed Consolidated Statements of Shareholders’ Equity Quarters Ended May 4, 2019 and May 5, 2018 ~~and April 29, 2017~~	58

	Condensed Consolidated Statements of Cash Flows Quarters Ended May 4, 2019 and May 5, 2018 ~~and April 29, 2017~~	69

	Notes to Condensed Consolidated Financial Statements	710

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1417

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	2425

Item 4.	Controls and Procedures.	2425

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	2526

Item 1A.	Risk Factors.	2526

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2526

Item 6.	Exhibits.	2526

Exhibit Index		2627

Signatures		2728

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “pursue,” “going forward,” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, our anticipated financial outlook for the fiscal year ending February 1, 2020, our anticipated annual total sales rates, our anticipated new store openings in existing, new and international markets, our anticipated Adjusted Return on Invested Capital, trends in our operations and the following:

Strategic and Operational

timely and effective implementation of evolving our business model and successful execution of our customer strategy to provide a differentiated and seamless experience across all Nordstrom channels,

our ability to execute and manage the costs of our evolving business model, including the execution of new supply chain capabilities and enhancement of existing ones, development of applications for electronic devices, improvement of customer-facing technologies, timely delivery of products purchased digitally, enhancement of inventory management systems, more fluid inventory availability between our digital channels and retail stores through our local market strategy, and greater consistency in marketing strategies,

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

our ability to properly balance our investments in existing and new store locations, technology and supply chain facilities, especially our investments in our Nordstrom NYC and our Los Angeles market integration,

successful execution of our information technology strategy, including engagement with third-party service providers,

our ability to effectively utilize internal and third-party data in strategic planning and decision making,

our ability to maintain or expand our presence, including timely completion of construction associated with new, relocated and remodeled stores, and Supply Chain Network facilities, all of which may be impacted by third parties, consumer demand and other natural or man-made disruptions,

efficient and proper allocation of our capital resources,

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

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 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,

our ability to safeguard our reputation and maintain relationships with our vendors and third-party service providers,

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

our ability to realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program agreement with TD Bank, N.A. (“TD”),

the effectiveness of our loyalty program, including the implementation of any changes in our program, planned advertising, marketing and promotional campaigns in the highly competitive and promotional retail industry,

market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real estate,

potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames,

compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,

the timing, price, manner and amounts of future share repurchases by us, if any, or any share issuances by us,

Economic and External

the impact of the seasonal nature of our business and cyclical customer spending,

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

the impact of economic, environmental 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 and supply chain disruptions, including the effects of tariffs, or the prospects of these events and the resulting impact on consumer spending patterns or information technology systems and communications,

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Legal and Regulatory

our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to employment and tax, information security and privacy, consumer credit and the outcome of any claims and litigation and resolution of such matters,

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

the impact of changes in accounting rules and regulations, changes in our interpretation of the rules or regulations, or changes in underlying assumptions, estimates or judgments,

the impact of claims, litigation and regulatory investigations, including those related to information security, privacy and consumer credit.

Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

All references to “Nordstrom,” “we,” “us,” “our,” or the “Company” mean Nordstrom, Inc. and its subsidiaries.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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DEFINITIONS

The following table includes definitions of Nordstrom commonly used terms:



Term	Definition
2018 Annual Report	Annual Report on Form 10-K filed on March 18, 2019
Adjusted EBITDA	Adjusted earnings before interest, income taxes, depreciation and amortization (a non-GAAP financial measure)
Adjusted EBITDAR	Adjusted earnings before interest, income taxes, depreciation, amortization and rent (a non-GAAP financial measure)
Adjusted ROIC	Adjusted return on invested capital (a non-GAAP financial measure)
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
BOPUS	Buy Online, Pickup in Store
CODM	Chief operating decision maker
Estimated Non-recurring Charge	Estimated non-recurring credit-related charge recognized during the third quarter of 2018
Digital sales	Online sales and digitally assisted store sales, which include BOPUS, Ship to Store and Style Board, a digital selling tool
EBIT	Earnings before interest and income taxes
EPS	Earnings per share
ESPP	Employee Stock Purchase Plan
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
First quarter of 2019	13 fiscal weeks ending May 4, 2019
First quarter of 2018	13 fiscal weeks ending May 5, 2018
Fiscal year 2019	52 fiscal weeks ending February 1, 2020
Fiscal year 2018	52 fiscal weeks ending February 2, 2019
FLS	Full-line stores
Full-Price	Nordstrom U.S. FLS, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local
GAAP	Generally accepted accounting principles
Generational Investments	NRHL, Canada, Trunk Club and Nordstrom NYC
Gross profit	Net sales less cost of sales and related buying and occupancy costs
Inventory turnover rate	Trailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter average inventory
IRS	Internal Revenue Service
Lease Standard	ASU No. 2016-02, Leases, and all related amendments
LIBOR	London Inter-bank Offered Rate
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Nordstrom Local	Nordstrom Local neighborhood hubs
Nordstrom NYC	Our Manhattan, New York FLS store, including the existing Men’s store and the Women’s store (upon opening in October 2019)
The Nordy Club	Our evolved customer loyalty program launched in October 2018
NRHL	Nordstromrack.com/HauteLook
NYSE	New York Stock Exchange
Off-Price	Nordstrom U.S. Rack stores, NRHL and Last Chance clearance stores
Operating Lease Cost	Fixed rent expense, including fixed common area maintenance expense, net of developer reimbursement amortization
PCAOB	Public Company Accounting Oversight Board (United States)
Property incentives	Developer and vendor reimbursements
PSU	Performance share units
Revolver	Senior unsecured revolving credit facility
ROU asset	Operating lease right-of-use asset
RSU	Restricted stock units
SEC	Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
SERP	Unfunded defined benefit Supplemental Executive Retirement Plan
SG&A	Selling, general and administrative
Supply Chain Network	Consists of fulfillment centers that process and ship orders to our customers, distribution centers that process and ship merchandise to our stores and other facilities and Omni-channel centers that both fulfill customer orders and ship merchandise to our stores
TD	TD Bank, N.A.
XBRL	eXtensible Business Reporting Language
2010 Plan	2010 Equity Incentive Plan

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Amounts in millions except per share amounts)

(Unaudited)


	Quarter Ended						Quarter Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Net sales		$3,469			$3,279			$3,349			$3,469
Credit card revenues, net	92			75			94			92
Total revenues	3,561			3,354			3,443			3,561
Cost of sales and related buying and occupancy costs	(2,288		)	(2,155		)	(2,228		)	(2,288		)
Selling, general and administrative expenses	(1,120		)	(1,048		)	(1,138		)	(1,120		)
Earnings before interest and income taxes	153			151			77			153
Interest expense, net	(28		)	(48		)	(24		)	(28		)
Earnings before income taxes	125			103			53			125
Income tax expense	(38		)	(40		)	(16		)	(38		)
Net earnings		$87			$63			$37			$87

Earnings per share:
Basic		$0.52			$0.38			$0.24			$0.52
Diluted		$0.51			$0.37			$0.23			$0.51

Weighted-average shares outstanding:
Basic	167.8			167.3			155.0			167.8
Diluted	170.2			169.1			156.2			170.2

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

NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Amounts in millions)

(Unaudited)


	Quarter Ended						Quarter Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Net earnings		$87			$63			$37			$87
Foreign currency translation adjustment	(11		)	(12		)	(9		)	(11		)
Post retirement plan adjustments, net of tax	1			1			—			1
Cumulative effect of adopting accounting standard	(5		)	—
Comprehensive net earnings		$72			$52			$28			$77

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)


	May 5, 2018			February 3, 2018			April 29, 2017			May 4, 2019			February 2, 2019			May 5, 2018
Assets
Current assets:
Cash and cash equivalents		$966			$1,181			$653			$448			$957			$966
Accounts receivable, net	186			145			209			233			148			186
Merchandise inventories	2,120			2,027			2,160			2,006			1,978			2,120
Prepaid expenses and other	291			150			147			271			291			291
Total current assets	3,563			3,503			3,169			2,958			3,374			3,563

Land, property and equipment (net of accumulated depreciation of $6,227, $6,105 and $5,742)	3,887			3,939			3,872
Land, property and equipment (net of accumulated depreciation of $6,678, $6,647 and $6,227)										3,963			3,921			3,887
Operating lease right-of-use assets										1,833			—			—
Goodwill	249			238			238			249			249			249
Other assets	317			435			492			335			342			317
Total assets		$8,016			$8,115			$7,771			$9,338			$7,886			$8,016

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$1,575			$1,409			$1,590			$1,619			$1,469			$1,575
Accrued salaries, wages and related benefits	317			578			319			315			580			317
Current portion of operating lease liabilities										237			—			—
Other current liabilities	1,307			1,246			1,225			1,222			1,324			1,307
Current portion of long-term debt	56			56			11			499			8			56
Total current liabilities	3,255			3,289			3,145			3,892			3,381			3,255

Long-term debt, net	2,680			2,681			2,731			2,177			2,677			2,680
Deferred property incentives, net	495			495			530			6			457			495
Non-current operating lease liabilities										1,951			—			—
Other liabilities	516			673			688			661			498			516

Commitments and contingencies (Note 6)
Commitments and contingencies (Note 7)

Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 167.8, 167.0 and 166.0 shares issued and outstanding	2,852			2,816			2,730
Common stock, no par value: 1,000 shares authorized; 154.6, 157.6 and 167.8 shares issued and outstanding										3,067			3,048			2,852
Accumulated deficit	(1,738		)	(1,810		)	(1,999		)	(2,370		)	(2,138		)	(1,738		)
Accumulated other comprehensive loss	(44		)	(29		)	(54		)	(46		)	(37		)	(44		)
Total shareholders’ equity	1,070			977			677			651			873			1,070
Total liabilities and shareholders’ equity		$8,016			$8,115			$7,771			$9,338			$7,886			$8,016

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 February 2, 2019														157.6			$3,048		($2,138	)		($37	)		$873
Cumulative effect of adopted accounting standard														—		—		(25		)	—			(25		)
Net earnings														—		—		37			—			37
Other comprehensive loss														—		—		—			(9		)	(9		)
Dividends ($0.37 per share)														—		—		(58		)	—			(58		)
Issuance of common stock under stock compensation plans														0.3		10		—			—			10
Stock-based compensation														0.8		9		—			—			9
Repurchase of common stock														(4.1	)	—		(186		)	—			(186		)
Balance at May 4, 2019														154.6			$3,067		($2,370	)		($46	)		$651


								Accumulated													Accumulated
								Other													Other
	Common Stock				Accumulated			Comprehensive						Common Stock				Accumulated			Comprehensive
	Shares		Amount		Deficit			Loss			Total			Shares		Amount		Deficit			Loss			Total
Balance at February 3, 2018	167.0			$2,816		($1,810	)		($29	)		$977		167.0			$2,816		($1,810	)		($29	)		$977
Cumulative effect of adopting accounting standards	—		—		60			(5		)	55
Cumulative effect of adopted accounting standards														—		—		60			(5		)	55
Net earnings	—		—		87			—			87			—		—		87			—			87
Other comprehensive loss	—		—		—			(10		)	(10		)	—		—		—			(10		)	(10		)
Dividends ($0.37 per share)	—		—		(62		)	—			(62		)	—		—		(62		)	—			(62		)
Issuance of common stock under stock compensation plans	0.6		24		—			—			24			0.6		24		—			—			24
Stock-based compensation	0.5		12		—			—			12			0.5		12		—			—			12
Repurchase of common stock	(0.3	)	—		(13		)	—			(13		)	(0.3	)	—		(13		)	—			(13		)
Balance at May 5, 2018	167.8			$2,852		($1,738	)		($44	)		$1,070		167.8			$2,852		($1,738	)		($44	)		$1,070


								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	—		—		63			—			63
Other comprehensive loss	—		—		—			(11		)	(11		)
Dividends ($0.37 per share)	—		—		(62		)	—			(62		)
Issuance of common stock under stock compensation plans	0.3		11		—			—			11
Stock-based compensation	0.3		12		—			—			12
Repurchase of common stock	(4.6	)	—		(206		)	—			(206		)
Balance at April 29, 2017	166.0			$2,730		($1,999	)		($54	)		$677

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

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NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Quarter Ended						Quarter Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Operating Activities
Net earnings		$87			$63			$37			$87
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization expenses	169			161
Amortization of deferred property incentives and other, net	(18		)	(26		)
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization expenses and other, net							165			169
Amortization of deferred property incentives							—			(18		)
Non-cash lease expense (including developer reimbursement amortization of $19)							43			—
Deferred income taxes, net	6			(21		)	18			6
Stock-based compensation expense	23			16			20			23
Change in operating assets and liabilities:
Accounts receivable	(42		)	(10		)	(2		)	(42		)
Merchandise inventories	(201		)	(266		)	(89		)	(201		)
Prepaid expenses and other assets	(2		)	(11		)	(12		)	(2		)
Accounts payable	212			272			181			212
Accrued salaries, wages and related benefits	(259		)	(136		)	(266		)	(259		)
Other current liabilities	(24		)	9			(74		)	(24		)
Deferred property incentives	24			32			3			24
Lease liabilities (including operating lease interest of $23)							(59		)	—
Other liabilities	(3		)	6			4			(3		)
Net cash (used in) provided by operating activities	(28		)	89
Net cash used in operating activities							(31		)	(28		)

Investing Activities
Capital expenditures	(129		)	(153		)	(249		)	(129		)
Other, net	(20		)	9			1			(20		)
Net cash used in investing activities	(149		)	(144		)	(248		)	(149		)

Financing Activities
Proceeds from long-term borrowings, net of discounts	—			635
Principal payments on long-term borrowings	(3		)	(653		)	—			(3		)
Increase (decrease) in cash book overdrafts	27			(21		)
Increase in cash book overdrafts							40			27
Cash dividends paid	(62		)	(62		)	(58		)	(62		)
Payments for repurchase of common stock	(13		)	(211		)	(210		)	(13		)
Proceeds from issuances under stock compensation plans	24			11			10			24
Tax withholding on share-based awards	(11		)	(5		)	(12		)	(11		)
Other, net	—			7
Net cash used in financing activities	(38		)	(299		)	(230		)	(38		)

Net decrease in cash and cash equivalents	(215		)	(354		)	(509		)	(215		)
Cash and cash equivalents at beginning of period	1,181			1,007			957			1,181
Cash and cash equivalents at end of period		$966			$653			$448			$966

Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes, net		$8			$4			$8			$8
Interest, net of capitalized interest	35			50			31			35

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”).~~subsidiaries. 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 ~~2017~~2018 Annual Report, ~~on Form 10-K (“Annual Report”),~~ except as described in Note 2: ~~Revenue,~~Leases, 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 May 4, 2019 and May 5, 2018 ~~and April 29, 2017~~ are unaudited. The Condensed Consolidated Balance Sheet as of February ~~3, 2018~~2, 2019 has been derived from the audited Consolidated Financial Statements included in our ~~2017~~2018 Annual Report. The interim Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and related footnote disclosures contained in our ~~2017~~2018 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. Our sales are typically higher during our Anniversary Sale in July and the holidays in the fourth quarter. ~~Our Anniversary Sale will shift to the second quarter in 2018 compared with the second and third quarters in 2017.~~ Results for any one quarter are not indicative of the results that may be achieved for a full fiscal year.

~~Goodwill~~Recent Accounting Pronouncements

~~We continue~~In March 2019, the SEC adopted the final rule under SEC Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K. The amendment aims to ~~make investments in evolving~~modernize and simplify certain reporting requirements and improve readability and navigability between disclosures. This final rule was effective for the ~~customer experience, with~~first quarter of 2019. Our adoption of this final rule did not have a ~~strong emphasis~~material effect on ~~integrating technology across~~ our ~~business. To support these efforts, we have acquired two retail technology companies.~~ Consolidated Financial Statements.

NOTE 2: LEASES

During the first quarter of ~~2018,~~fiscal 2019, we ~~recorded $11 of goodwill as~~adopted the Lease Standard using the transition method provided in ASU 2018-11. As a result, reporting periods beginning in the first quarter of ~~these acquisitions.~~

~~Recent Accounting Pronouncements~~

~~In February 2016,~~2019 are presented under the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,~~Lease Standard while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840 — Leases. ~~This ASU increases transparency~~

Adoption of the Lease Standard did not have a material impact on our Condensed Consolidated Statement of Earnings, Condensed Consolidated Statement of Comprehensive Earnings, Condensed Consolidated Statement of Cash Flows or Condensed Consolidated Statement of Shareholders’ Equity. The impact of adopting the Lease Standard resulted in the following on February 3, 2019:

Increase in total assets and ~~comparability~~total liabilities of $1,849 primarily due to recognizing ROU assets and operating lease liabilities for most leases previously classified as operating leases.

Reclassification of deferred property incentives, net of $568 to ROU assets on the Condensed Consolidated Balance Sheet.

Reclassification of deferred property incentives, net of $339 from ROU assets to other current liabilities and other liabilities on the Condensed Consolidated Balance Sheet for property incentives that exceed the associated ROU asset. Property incentives that exceed the associated ROU asset are primarily due to leases with low fixed lease costs that may also have variable lease costs that are excluded from the ROU asset.

Increase in beginning accumulated deficit of $25 primarily due to the net impact of removing a building and associated financial obligation from land, property and equipment and long-term debt, net on the Condensed Consolidated Balance Sheet related to a failed sale-leaseback transaction.

Upon adoption of the Lease Standard, we record leases, which consist primarily of operating leases, on the Condensed Consolidated Balance Sheet as operating lease ROU assets, current portion of operating lease liabilities and non-current operating lease liabilities. Operating lease liabilities are initially recognized based on the net present value of the fixed portion of our lease and common area maintenance payments from lease commencement through the lease term. To calculate the net present value, we apply an incremental borrowing rate. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that we would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use quoted interest rates obtained from financial institutions as an input to derive our incremental borrowing rate as the discount rate for the lease. We recognize ROU assets based on operating lease liabilities reduced by ~~recognizing a lessee’s rights~~property incentives. ROU assets are tested for impairment in the same manner as long-lived assets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

We elected the following practical expedients permitted under the Lease Standard:

Upon adoption, we did not reassess our prior conclusions about lease identification, lease classification or initial direct costs, and we did not use hindsight for leases ~~by recording them~~existing at adoption date.

We do not record leases with an initial term of 12 months or less on the balance sheet ~~as right-of-use assets and lease liabilities. The new standard requires lessees~~but continue 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~~them on a straight-line basis over the lease term.

We combine lease and non-lease components.

We lease the land, buildings, or land and buildings for many of our stores, office facilities and Supply Chain Network facilities. We also lease equipment and have service contracts including transportation agreements and warehouse agreements where we control identified assets such as vehicles, warehouse space and equipment and therefore represent embedded leases under the Lease Standard.

The majority of our fixed, non-cancellable lease terms are 15 to 30 years for Nordstrom FLS, 10 to 15 years for Nordstrom Rack stores and 5 to 20 years for office facilities and Supply Chain Network facilities. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period up to 15 years for Nordstrom FLS and 10 years for Nordstrom Rack stores. At the commencement of a lease, we generally include only the initial lease term as we have determined that options to extend are not reasonably certain to occur. The exercise of lease renewal options is generally at our sole discretion. At the renewal of an expiring lease, we reassess our options in the agreement and include all reasonably certain extensions in the measurement of our lease term.

Most of our leases also provide for payment of operating expenses, such as common area maintenance charges, real estate taxes and other executory costs, the fixed portion of which is included in Operating Lease Cost. We recognize Operating Lease Cost on a straight-line basis over the lease term. Variable lease cost includes payments for variable common area maintenance charges and additional payments based on a percentage of sales, which are recognized when probable. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table summarizes the components of lease cost for 2019:



	Quarter Ended
	May 4, 2019
Operating Lease Cost
Store locations (net of developer reimbursement amortization of $19)		$55
Other¹	15
Variable lease cost²	12
Sublease income	(2		)
Total lease cost		$80

¹ Other includes Supply Chain Network facilities, office facilities and equipment.

² Variable lease cost includes short-term lease cost, which was immaterial for quarter ended May 4, 2019.

The following table summarizes future lease payments as of May 4, 2019:



Fiscal year	Operating Leases
2019 (excluding the three months ended May 4, 2019)		$249
2020	353
2021	335
2022	310
2023	283
2024	238
Thereafter	1,040
Total lease payments	2,808

Less: amount representing interest	(620		)
Present value of net lease payments¹		$2,188

¹ Total lease payments exclude $5 of lease payments for an operating lease that was signed but has not yet commenced.

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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 includes supplemental information:



	Quarter Ended
	May 4, 2019
Cash paid related to operating lease liabilities		$86
Operating lease liabilities arising from obtaining ROU assets	2,248
Cash received from developer reimbursements	26

Weighted-average remaining lease term	10 years
Weighted-average discount rate	4.7		%

Previous Lease Standard Disclosures

Before fiscal year 2019, we recognized minimum rent expense, net of developer reimbursements, on a straight-line basis over the minimum lease term from the time we controlled the leased property. For scheduled rent escalation clauses during the lease terms, we recorded minimum rent expense on a straight-line basis over the terms of the ~~lease. Additional qualitative~~leases, with the adjustments accrued as current and ~~quantitative disclosures will be required to give financial statement users information~~non-current deferred rent and included in other current liabilities and other liabilities on our Condensed Consolidated Balance Sheet. Contingent rental payments, typically based on a percentage of sales, were recognized in rent expense when payment of the ~~amount, timing and judgments related to a reporting entity’s cash flows arising from leases. This ASU is effective~~contingent rent was probable.

The following table summarizes rent expense for ~~us beginning in~~ the first quarter of fiscal 2019. The standard requires recognizing and measuring leases using a modified retrospective approach. However, the FASB recently proposed an optional transition alternative, currently subject to approval, which would allow for application2018, before adoption of the ~~guidance at~~Lease Standard:



	Quarter Ended
	May 5, 2018
Minimum rent:
Store locations		$70
Other¹	11
Percentage rent	2
Property incentives	(21		)
Total rent expense		$62

¹ Other includes Supply Chain Network facilities, office facilities and equipment.

The rent expense above does not include common area maintenance charges, real estate taxes and other executory costs, which were $37 for the ~~beginning~~first quarter of 2018.

The following table summarizes future minimum lease payments as of February 2, 2019, before adoption of the period in which it is adopted, rather than at the beginning of the earliest comparative period presented. We continue to monitor and evaluate the impact this guidance would have on our adoption methodology and anticipate that this standard will have a material impact on our Consolidated Financial Statements.Lease Standard:

~~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. This guidance is effective prospectively for fiscal years and interim periods within those years beginning 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 this guidance would have on our Consolidated Financial Statements.

~~In February 2018, the FASB issued ASU No. 2018-02,~~ ~~Income Statement — Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ This new guidance allows a reclassification from accumulated other comprehensive loss to accumulated deficit for certain tax effects resulting from the 2017 Tax Cuts and Job Act (“Tax Act”), which could not be recorded under prior guidance. We elected to early adopt this standard and reclassified $5 of tax impacts resulting from the change in the federal corporate tax rate, decreasing the beginning accumulated deficit for the quarter ended May 5, 2018.



Fiscal year	Operating Leases
2019		$322
2020	313
2021	294
2022	271
2023	249
Thereafter	1,160
Total minimum lease payments		$2,609

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

NOTE 2:3: REVENUE

Contract Liabilities

~~During~~Contract liabilities represent our obligation to transfer goods or services to customers and include deferred revenue for The Nordy Club (including loyalty points and Nordstrom Notes) and gift cards. Our contract liabilities are classified as current on the ~~first quarter~~Condensed Consolidated Balance Sheet and are as follows:



	Contract Liabilities
Opening balance as of February 4, 2018		$498
Balance as of May 5, 2018	460

Balance as of February 2, 2019	548
Balance as of May 4, 2019	504

The amount of ~~fiscal 2018, we adopted ASU No. 2014-09,~~ ~~Revenue~~revenue recognized from ~~Contracts with Customers,~~ ~~and all related amendments (“Revenue Guidance”),using the modified retrospective adoption method. Results for reporting periods~~our beginning contract liability balance was $148 in the first quarter of ~~2018 are presented under~~2019 and $150 in the ~~new~~first quarter of 2018.

Disaggregation of Revenue ~~Guidance while prior period amounts are not adjusted and continue to be reported in accordance with~~

The following table summarizes our ~~historic accounting under ASC 605 —~~ ~~Revenue Recognition. Upon adoption, we recorded a~~disaggregated net cumulative effect adjustment to decrease beginning accumulated deficit of $55. The impact of adopting the new Revenue Guidance was not material to our Condensed Consolidated Statement of Earnings for the quarter ended May 5, 2018. The impact of adoption on our Condensed Consolidated Balance Sheet for the period ended May 5, 2018 was as follows:sales:

May 5, 2018
As Reported
Revenue Guidance Adjustment
Excluding Impact of Revenue Guidance
Assets
Merchandise inventories
$2,120

$52

$2,172
Prepaid expenses and other 291
(153 ) 138
Other assets 317
94
411

Liabilities and Shareholders’ Equity
Other current liabilities 1,307
(101 ) 1,206
Other liabilities 516
159
675
Accumulated deficit (1,738 ) (65 ) (1,803 )

~~Revenue Recognition~~



	Quarter Ended
	May 4, 2019			May 5, 2018
Full-Price		$2,127			$2,240
Off-Price	1,222			1,229
Total net sales		$3,349			$3,469

Digital sales as a % of total net sales	31		%	28		%
Digital sales increase	7		%	21		%

~~NET SALES~~

~~We recognize sales revenue~~The following table summarizes the percent of net of estimated returns and excluding sales taxes. Revenue from sales to customers shipped from our fulfillment centers, stores and directly from our vendors (“shipped revenues”), which includes shipping revenue when applicable, is recognized at shipping point, the point in time where control has transferred to the customer. Shipping and handling costs incurred when shipped to the customer are expensed as a fulfillment activity and commissions from sales at our full-line stores are expensed as incurred and both are recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the customer.

~~We reduce sales and cost of~~ sales by ~~an estimate of customer~~ merchandise returns, which is calculated based on historical return patterns, and record a sales return reserve and an estimated returns asset. Our sales return reserve is classified in other current liabilities and our estimated returns asset, calculated based on the cost of merchandise sold, is classified in prepaid expenses and other on the Condensed Consolidated Balance Sheet. Prior to 2018, the estimated cost of merchandise returned was netted with our sales return reserve in other current liabilities.category:

~~CREDIT CARD REVENUES, NET~~

~~Credit program revenues, net include our portion of the ongoing credit card revenue, net of credit losses, pursuant to the program agreement with TD Bank N.A. (“TD”).~~

Upon adoption of the new Revenue Guidance, the remaining unamortized balances of the investment in contract asset and deferred revenue associated with the sale of the credit card receivables to TD in 2015 and 2017 were eliminated as part of a cumulative-effect adjustment reducing the opening balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded in credit card revenues, net. Prior to 2018, investment in contract asset was classified in prepaid expenses and other and other assets, while the deferred revenue was classified in other current liabilities and other liabilities on the Condensed Consolidated Balance Sheet.



	Quarter Ended
	May 4, 2019		May 5, 2018
Women’s Apparel	33	%	33	%
Shoes	24	%	24	%
Men’s Apparel	15	%	15	%
Women’s Accessories	11	%	11	%
Beauty	10	%	11	%
Kids’ Apparel	4	%	3	%
Other	3	%	3	%
Total net sales	100	%	100	%

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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)

~~LOYALTY PROGRAM~~

The Nordstrom Rewards loyalty program allows customers to accumulate points based on their level of spending, regardless of how they choose to pay. Upon reaching certain point thresholds, customers receive Nordstrom Notes (“Notes”), which can be redeemed for goods or services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardholders can also earn rewards at Trunk Club. Customers who participate in our loyalty program through our credit and debit cards receive additional benefits, including Notes or reimbursements for alterations, Personal Triple Points days, shopping and fashion events and early access to the Anniversary Sale.

As our customers earn points and Notes in the loyalty program, a portion of underlying sales revenue is deferred until the Notes are ultimately redeemed and revenue recognized. The related deferred revenue is estimated based on the stand-alone selling price, including loyalty points and alterations and included in other current liabilities on the Condensed Consolidated Balance Sheet. Other benefits of the loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a material right of the program.

Our outstanding performance obligation for the Nordstrom Rewards loyalty program consists of unredeemed points and Notes and was $146 as of May 5, 2018. Almost all Notes are redeemed within six months of issuance. We record breakage revenue of unused points and unredeemed Notes based on expected customer redemption. We estimate, based on historical usage, that 5% of Notes will be unredeemed and recognized as revenue. Prior to 2018, we recorded the cost of Notes and points in cost of sales.

~~GIFT CARDS~~

We record deferred revenue from the sale of gift cards at the time of purchase. As gift cards are redeemed, we recognize revenue and reduce our contract liability. Though our gift cards do not have an expiration date, we include this deferred revenue in other current liabilities on the Condensed Consolidated Balance Sheet as customers can redeem gift cards at any time.

As of May 5, 2018, our outstanding performance obligation for unredeemed gift cards was $314. Almost all gift cards are redeemed within two years of issuance. We record breakage revenue on unused gift cards based on expected customer redemption. We estimate, based on historical usage, that 2% will be unredeemed and recognized as revenue. Prior to 2018, gift card breakage was recorded in selling, general and administrative expenses and was estimated based on when redemption was considered remote.

~~Contract Balances~~

Under the new Revenue Guidance, contract liabilities represent our obligation to transfer goods or services to customers and include deferred revenue for our loyalty program (including points and Notes) and gift cards. Our contract liabilities are classified as current on the Condensed Consolidated Balance Sheet. Our contract liabilities are as follows:



	~~Contract Liabilities~~
~~Opening balance as of February 4, 2018~~		~~$498~~
~~Ending balance as of May 5, 2018~~	~~460~~

~~The amount of revenue recognized from our beginning contract liability balance was $150 in the first quarter ended 2018.~~

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

~~Disaggregation of Revenue~~

~~The following table summarizes our disaggregated net sales:~~

Quarter Ended

May 5, 2018²

April 29, 2017
Full-price¹

$2,240

$2,156
Off-price¹
1,229
1,152
Other¹
—
(29 )
Total net sales
$3,469

$3,279

¹ We present our sales for 2018 and 2017 to align with how management views our results internally, including presenting 2018 under the new Revenue Guidance and allocating our sales return reserve to our Full-price and Off-price businesses. For 2017, Other primarily included unallocated sales return reserve, in-transit reserve and loyalty related adjustments necessary to reconcile sales by business to total net sales.

²Total net sales in the first quarter of 2018 increased approximately 250 basis points due to the shift of a Nordstrom Rewards loyalty event into the first quarter of 2018 relative to the second quarter of 2017 and the adoption of the new Revenue Guidance. Full-price and Off-price net sales increased approximately 200 basis points and 100 basis points for the same impacts as total company, in addition to allocating sales return reserve and loyalty related adjustments to the Full-price and Off-price businesses.

Digitally enabled sales, comprised of sales from Nordstrom.com, Nordstromrack.com/HauteLook and Trunk Club, as well as digitally assisted store sales, which include Buy Online, Pickup in Store (“BOPUS”), Reserve Online, Try on in Store (Store Reserve) and Style Board, a digital selling tool, were 29% and 25% as a percent of total net sales for the first quarter of 2018 and 2017.

~~The following table summarizes the percent of net sales by merchandise category:~~



	~~Quarter Ended May 5, 2018~~
~~Women’s Apparel~~	33	%
~~Shoes~~	24	%
~~Men’s Apparel~~	15	%
~~Women’s Accessories~~	11	%
~~Beauty~~	11	%
~~Kids’ Apparel~~	3	%
~~Other~~	3	%
~~Total~~	~~100~~	%

NOTE 3:4: SEGMENT REPORTING

We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments. In the first quarter of 2018, as a result of the evolution of our operations, our reportable segments have become progressively more integrated such that we have changed to one reportable “Retail” segment to align with how management operates, evaluates and views the results of our operations. Our principal executive officer, who is our chief operating decision maker (“CODM”), reviews results on a total company, Full-price and Off-price basis and uses earnings before interest and taxes as a measure of profitability. We completed the reporting and budgeting in the first quarter of 2018 to better align with how the CODM allocates resources and assesses business performance. As part of this evolution, we now allocate our previous Credit segment results across our other businesses while credit assets are now included in Corporate/Other.

Our Retail segment aggregates our two operating segments, Full-price and Off-price. Full-price consists of Nordstrom U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local. Off-price consists of Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores.

Our Full-price and Off-price operating segments each earn revenue as a leading fashion retailer by offering customers an extensive selection of high-quality, brand-name and private label merchandise which includes apparel, shoes, cosmetics and accessories for women, men, young adults and children. We continue to focus on omni-channel initiatives by integrating the operations, merchandising and technology necessary to be consistent with our customers’ expectations of a seamless shopping experience regardless of channel or business. Full-price and Off-price have historically had similar economic characteristics and are expected to have similar economic characteristics and long-term financial performance in future periods. They also have other similar qualitative characteristics, including suppliers, method of distribution, type of customer and regulatory environment. Due to their similar qualitative and economic characteristics, we have aggregated our Full-price and Off-price operating segments into a single reportable segment.

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~~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 sets forth information for our reportable segment:


	Quarter Ended						Quarter Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Retail segment earnings before interest and income taxes¹		$216			$187
Retail segment EBIT¹								$142			$207
Corporate/Other loss before interest and income taxes¹	(63		)	(36		)	(65		)	(54		)
Interest expense, net	(28		)	(48		)	(24		)	(28		)
Earnings before income taxes		$125			$103			$53			$125

¹~~Amounts related~~ Certain reclassifications were made to ~~segment change have been recast for the quarter ended April 29, 2017~~fiscal 2018 amounts to conform towith current period ~~presentation. Amounts related to adoption of~~presentation, which is in the ~~new Revenue Guidance have not been recast for any prior periods due to the modified retrospective method of adoption described in~~way that management views our results internally.

For information about disaggregated revenues, see Note 2:3: Revenue.

NOTE 4:5: DEBT AND CREDIT FACILITIES

Debt

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


	May 5, 2018			February 3, 2018			April 29, 2017			May 4, 2019			February 2, 2019			May 5, 2018
Secured
Mortgage payable, 7.68%, due April 2020		$16			$17			$23
Other	1			1			2
Total secured debt	17			18			25

Unsecured
Net of unamortized discount:
Long-term debt, net of unamortized discount:
Senior notes, 4.75%, due May 2020	500			500			499				$500			$500			$500
Senior notes, 4.00%, due October 2021	500			500			500			500			500			500
Senior notes, 4.00%, due March 2027	349			349			349			349			349			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	892			892			890			895			895			892
Other¹	32			32			33			(14		)	(5		)	49
Total unsecured debt	2,719			2,719			2,717
Total long-term debt										2,676			2,685			2,736

Total long-term debt	2,736			2,737			2,742
Less: current portion	(56		)	(56		)	(11		)	(499		)	(8		)	(56		)
Total due beyond one year		$2,680			$2,681			$2,731			$2,177			$2,677			$2,680

¹Other ~~unsecured~~long-term debt includes our deferred bond issue costs as of May 4, 2019. As of February 2, 2019 and May 5, 2018, Other included our secured mortgage payable and Puerto Rico unsecured borrowing facility, partially offset by deferred bond issue costs.

During the first quarter of 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and an additional $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 one-time payment of $24 to 2018 Senior Note holders under a make-whole provision, which represents the net present value of expected coupon payments had the notes been outstanding through the original maturity date.

Credit Facilities

As of May ~~5, 2018,~~4, 2019, we had total short-term borrowing capacity of $800 under ~~our senior unsecured revolving credit facility (“revolver”)~~the revolver that expires in ~~April 2020. Under the~~September 2023. The revolver contains customary representations, warranties, covenants and terms, ~~of our revolver, we pay~~including paying 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. WeProvided that we obtain written consent from the lenders, we have the option to increase the ~~revolving commitment~~revolver by up to $200, to a total of $1,000, ~~provided that we obtain written consent from~~and two options to extend the ~~lenders.~~

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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)~~

revolver by one year.

The revolver requires that we maintain an adjusted debt to ~~earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”)~~EBITDAR leverage ratio of no more than four times. As of May ~~5, 2018,~~4, 2019, we were in compliance with this covenant.

Our $800 commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding, of reducing available liquidity under the revolver by an amount equal to the principal amount of commercial paper.

As of May ~~5, 2018,~~4, 2019, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our revolver.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

Our wholly owned subsidiary in Puerto Rico ~~maintains~~maintained a $52 unsecured borrowing facility to support our expansion into that market. ~~The facility expires in Fall 2018 and borrowings~~Borrowings on this facility ~~incur~~incurred interest at an annual rate based upon ~~the~~ LIBOR plus 1.275% ~~per annum~~ and also ~~incur~~incurred a fee based on any unused commitment. ~~As of May 5,~~In September 2018, we ~~had~~fully repaid $47 outstanding on this facility ~~which is included~~and did not renew the facility upon expiration in the ~~current portion~~fourth quarter of ~~long-term debt.~~2018.

NOTE 5:6: 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 Not Measured at Fair Value

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

~~We estimate the fair value of~~If our long-term debt ~~using~~was measured at fair value on the Condensed Consolidated Balance Sheets, we would use quoted market prices of the same or similar issues, ~~and, as such, this~~which 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:


	May 5, 2018		February 3, 2018		April 29, 2017		May 4, 2019		February 2, 2019		May 5, 2018
Carrying value of long-term debt		$2,736		$2,737		$2,742		$2,676		$2,685		$2,736
Fair value of long-term debt	2,772		2,827		2,921		2,741		2,692		2,772

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 and long-lived tangible and intangible assets, in connection with periodic evaluations for potential impairment. 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 ~~quarters~~quarter ended May 4, 2019 and May 5, ~~2018 and April 29, 2017.~~2018.

NOTE 6:7: COMMITMENTS AND CONTINGENCIES

Plans for our Nordstrom NYC store, which we ~~currently~~ expect to open in October 2019, ultimately include owning a condominium interest in a mixed-use tower and leasing certain nearby properties. As of May ~~5, 2018,~~4, 2019, we had approximately ~~$289~~$302 of fee interest in land, which is expected to convert to the 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.~~investment.

NOTE 7:8: SHAREHOLDERS’ EQUITY

In ~~February 2017,~~August 2018, our Board of Directors authorized a program to repurchase up to ~~$500~~$1,500 of our outstanding common stock, ~~through~~with no expiration date. Under the August ~~31, 2018. During the quarter ended May 5,~~ 2018 program, we repurchased ~~0.3~~4.1 shares of our common stock for an aggregate purchase price of ~~$13 and~~$186 during the quarter ended May 4, 2019. We had ~~$401~~$707 remaining in share repurchase capacity as of May ~~5, 2018.~~4, 2019. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and applicable ~~Securities and Exchange Commission (“SEC”)~~SEC rules.

In May ~~2018,~~2019, subsequent to quarter end, we declared a quarterly dividend of $0.37 per share, which will be paid on June ~~4, 2018~~18, 2019 to holders of record as of ~~May 18, 2018.~~June 3, 2019.

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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 8:9: STOCK-BASED COMPENSATION

The following table summarizes our stock-based compensation expense:


	Quarter Ended						Quarter Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Restricted stock units		$18			$12
RSUs								$14			$18
Stock options	3			3			4			3
Other	2			1
Other¹							2			2
Total stock-based compensation expense, before income tax benefit	23			16			20			23
Income tax benefit	(6		)	(6		)	(5		)	(6		)
Total stock-based compensation expense, net of income tax benefit		$17			$10			$15			$17

¹Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards.

The following table summarizes our grant allocations:

Quarter Ended
May 5, 2018 April 29, 2017
Granted
Weighted-average grant-date fair value per unit
Granted
Weighted-average grant-date fair value per unit
Restricted stock units 2.1

$49
1.7

$43
Stock options —

—
0.3

$16
Performance share units —
—
0.1

$40



	Quarter Ended
	May 4, 2019			May 5, 2018
	Granted	Weighted-average grant-date fair value per unit		Granted	Weighted-average grant-date fair value per unit
RSUs	1.1		$41	2.1		$49
Stock options	1.0		$15	—		$—
PSUs	0.3		$42	—		$—

NOTE 9:10: EARNINGS PER SHARE

The computation of ~~earnings per share~~EPS is as follows:


	Quarter Ended				Quarter Ended
	May 5, 2018		April 29, 2017		May 4, 2019		May 5, 2018
Net earnings		$87		$63		$37		$87

Basic shares	167.8		167.3		155.0		167.8
Dilutive effect of common stock equivalents	2.4		1.8		1.2		2.4
Diluted shares	170.2		169.1		156.2		170.2

Earnings per basic share		$0.52		$0.38		$0.24		$0.52
Earnings per diluted share		$0.51		$0.37		$0.23		$0.51

Anti-dilutive common stock equivalents	9.6		12.1		9.3		9.6

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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 February 2, 2019, 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 our management and are subject to significant risks and uncertainties. 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 to provide a differentiated and seamless experience across all Nordstrom channels,~~

timely and effective implementation of our plans to evolve our business model, including development of applications for electronic devices, improvement of customer-facing technology, timely delivery of products purchased digitally, enhancement of inventory management systems, greater and more fluid inventory availability between our digital channels and retail store locations, and greater consistency in marketing and pricing strategies, as well as our ability to manage the costs associated with this evolving business model,

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

our ability to properly balance our investments in existing and new store locations, especially our investments in our Nordstrom Men’s Store NYC and Nordstrom NYC and our Los Angeles market integration,

~~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 and consumer traffic to the locations,

~~efficient and proper allocation of our capital resources,~~

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

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

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

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

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

~~market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real estate,~~

~~compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,~~

~~the timing, price, manner and amounts of future share repurchases by us, if any, or any share issuances by us,~~

~~Economic and External~~

~~the impact of the seasonal nature of our business and cyclical customer spending,~~

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

~~the impact of economic, environmental 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 and supply chain 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 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, health care, and tax reforms,~~

~~the impact of changes in accounting rules and regulations, changes in our interpretation of the rules or regulations, or changes in underlying assumptions, estimates or judgments.~~

These and other factors, including those factors described in Part I, “Item 1A. Risk Factors” in our 2017 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, 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)~~ ~~(Amounts in millions except per share amounts)~~

OVERVIEW

While we believe our customer strategy and business model position us for long-term success, our first quarter top-line results were below our expectations. For the first quarter of 2019, total net sales decreased 3.5% and net earnings were $37, or $0.23 per diluted share.

Although we planned for a continuation of soft sales trends from the fourth quarter of 2018, we saw further deceleration in the first quarter of 2019. We ~~had a~~ended the quarter with inventories in solid ~~start to the year, reflecting strong digitally enabled sales growth, continued~~shape, and our financial position remains strong. The strength of our inventory and expense execution helped mitigate our sales miss. We continue to bend the expense curve, tracking ahead of our expense savings plan of $150 to $200 through our various efficiency initiatives this year.

During the quarter, we had executional misses with the customer experience that had an impact on sales across Full-Price and ~~strength~~Off-Price, both in ~~regular~~stores and online. We identified three factors that contributed to our sales shortfall, all within our control to turn around:

Loyalty — We have a well-established program with nearly 12 million active customers contributing more than 60% of sales in the first quarter. However, we had executional issues associated with the launch of The Nordy Club last fall. We are resolving these issues, with initial results showing improving trends for engagement, traffic and spend from our loyalty customers.

Digital marketing — With the rollout of The Nordy Club, we deliberately reduced our digital marketing as we shifted resources to loyalty. This resulted in incremental traffic declines in our business. We have since increased our investments in digital marketing to help drive incremental traffic and sales.

Merchandise — The breadth of our offering, across brands, price ~~selling trends. Our first~~points and styles, is a key differentiator in the way we serve customers. We have opportunities to rebalance our assortment mix to better resonate with customers in Full-Price and Off-Price. We have started this process and expect improvement in the second half of the year.

We took action during the quarter ~~net earnings were $87, or $0.51 per diluted share. Net sales increased 5.8% for~~and are taking further steps to drive top-line growth, as well as execute our key strategies:

We are scaling our local market strategy in Los Angeles by providing customers with greater access to merchandise selection, with faster delivery and at a lower cost to us. In the first quarter, which was consistent with our expectations. This reflected an increase of approximately 250 basis points due to the shift of a Nordstrom Rewards loyalty event into the first quarter this year relative to the second quarter last year and the adoption of the new Revenue Guidance.

~~During a time of transformation in the industry,~~ we ~~continue to invest in new market opportunities and~~delivered outsized growth in digital ~~capabilities to~~sales and store traffic in this market.

We will expand our customer reach and engagement. We believe this uniquely positions us to increase market share and drive growth. Our first quarter results reflected our ongoing efforts to integrate our digital and physical assets to serve customers in new and relevant ways. We made the following achievements during the quarter:

~~We reached a significant milestone in our history with the opening of our full-line Men’s store~~presence in New York City, (“NYC”). This store features our latest service experiences to help serve customers on their terms, including express returns kiosks, same-day delivery, 24/7 Buy Online & Pick Up in Store, and unique brand partnerships.

We expanded our presence in Canada with the introduction of Nordstrom Rack, opening three stores in the Toronto and Calgary markets. Similar to our experience in the U.S., we expect strong synergies between our Full-price and Off-price businesses.

We increased sales enabled through our digital capabilities by 18% in the first quarter compared with the same period last year. Digitally enabled sales represented 29% of first quarter sales, up from 25% in the same period last year.

~~Our Nordstrom Rewards customers contributed 53% of sales, compared with 47% a year ago.~~

In our top markets, we continue to integrate our supply chain, technology, marketing, and merchandising capabilities to deliver differentiated services and experiences. This year we will launch efforts to link our capabilities in our largest market ~~Los Angeles, and recently kicked off our efforts with a group of highly engaged customers to co-create unique customer shopping journeys. We intend to apply our learnings to scale to other markets.~~

~~We expect 2018 to be an inflection point~~ for ~~improved profitability based on the following drivers:~~

~~We anticipate operating improvements as our generational investments in Canada and Manhattan and our acquisitions of HauteLook and Trunk Club continue to scale.~~

We plan to benefit from productivity gains as a result of foundational investments in our capabilities. We expect ongoing opportunities for improved expense leverage, particularly in marketing and technology. In supply chain, we continue to invest in creating end-to-end value and improving the customer experience.

~~Our strategic brand partnerships represent another lever that enables us to provide a compelling product offering and strengthen our regular-price selling.~~

As we aspire to be the best fashion retailer, our customer strategy is centered on three strategic pillars: providing a compelling product offering, delivering exceptional services and experiences, and leveraging the strength of our brand.online sales. We are ~~well-positioned~~on track to ~~execute~~open our flagship store on ~~our customer strategy~~October 24th and ~~remain~~two Nordstrom Locals this fall. These physical assets are expected to drive engagement with customers across multiple touch points and contribute to a meaningful sales lift for this market.

Finally, we are focused on improving the customer ~~experience.~~experience during our two key events, our Anniversary Sale and the holidays. Our Anniversary Sale is a unique event, offering new arrivals at reduced prices for a limited time. We are curating our assortment to reflect our customers’ favorite brands and extending the pre-shop period for our top loyalty customers. For the holidays, we are amplifying our gifting assortment across categories, with more accessible price points.

As always, our customers are at the center of everything we do, and through that lens, we are focused on better serving them on their terms. We are confident in our ability to drive top-line growth and achieve long-term profitable growth.

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

(Continued) (Amounts in millions except per share amounts)

RESULTS OF OPERATIONS

In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our channels. We invested early in our ~~omni-channel~~Omni-channel capabilities, integrating our operations, merchandising and technology across our stores and online, in both our ~~Full-price~~Full-Price and ~~Off-price~~Off-Price businesses. 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. We have one Retail reportable segment ~~in 2018~~ and analyze our results on a total ~~Company~~company basis.

We ~~may not calculate certain metrics used to evaluate~~measure our ~~business in a consistent manner among industry peers. Provided below are definitions of metrics we present within our analysis:~~

~~Comparable Sales~~ – performance through market share, customers and net sales ~~from stores that have been open at least one full year at the beginning of the year~~

~~Comparable sales include sales from our online channels~~

~~Due to the 53rd week in 2017, our 2018~~metrics. As comparable sales ~~are calculated using a realigned period in 2017 for comparability~~

Digitally Enabled Sales – online sales and digitally assisted store sales which include Buy Online, Pickup in Store (“BOPUS”), Reserve Online, Try on in Store (Store Reserve) and Style Board, a digital selling tool

~~Gross Profit –~~growth is expected to approximate net sales ~~less cost of sales and related buying and occupancy costs~~

~~Inventory Turnover Rate – trailing 12-months cost of sales and related buying and occupancy costs divided by the trailing 4-quarter average inventory~~growth in 2019, we only report changes in net sales.

Net Sales

During the first quarter of 2018, we adopted the new revenue recognition guidance using the modified retrospective adoption method. Results beginning in the first quarter of 2018 are presented under the new guidance, while prior period amounts are not adjusted. Also beginning in 2018, we aligned our sales presentation with how we view the results of our operations internally and how our customers view us, by our Full-price and Off-price businesses.

~~Full-price – Nordstrom U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local~~

~~Off-price – Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores~~

The following table summarizes net sales ~~and comparable~~by business:



	Quarter Ended
	May 4, 2019			May 5, 2018
Net sales by business:
Full-Price		$2,127			$2,240
Off-Price	1,222			1,229
Total net sales		$3,349			$3,469

Net sales increase (decrease) by business:
Full-Price	(5.1		%)	3.9		%
Off-Price	(0.6		%)	6.7		%
Total Company	(3.5		%)	5.8		%

Digital sales as a % of total net sales	31		%	28		%
Digital sales increase	7		%	21		%

Total company net sales decreased 3.5% for the first quarter ~~ended 2018~~of 2019, compared with the same period in ~~fiscal 2017:~~

Quarter Ended
May 5, 2018
April 29, 2017
Net sales by business:
Full-price
$2,240

$2,156
Off-price 1,229
1,152
Other¹
—
(29 )
Total net sales
$3,469

$3,279

Comparable sales increase (decrease) by business:
Full-price 0.7 % (2.8 %)
Off-price 0.4 % 2.3 %
Total Company 0.6 % (0.8 %)

Digitally enabled sales as % of total net sales 29 % 25 %

¹ ~~For 2017, Other primarily included unallocated sales return reserve, in-transit reserve and loyalty related adjustments necessary to reconcile sales by business to total net sales.~~

~~Total Company net~~2018. Digital sales increased ~~5.8% for~~7% in the first quarter ~~ended May 5, 2018,~~of 2019, compared with the same period in ~~2017, including an increase of approximately 250 basis points due~~2018. To date in fiscal 2019, we opened three Nordstrom Rack stores and closed two FLS locations. While we expected softer trends from the fourth quarter to ~~the shift of a Nordstrom Rewards loyalty event~~continue into the first quarter, we experienced further sales deceleration. Our results were impacted by three areas: loyalty, digital marketing and merchandise, across Full-Price and Off-Price, in both stores and online. We took action during the quarter and are taking further steps to address executional issues associated with the launch of ~~2018 relative~~our enhanced loyalty program, further investing in our digital marketing and re-balancing our merchandise offering to improve sales trends over the ~~second quarter of 2017 and the adoption~~remainder of the ~~new Revenue Guidance. Digitally enabled~~year.

Full-Price net sales ~~increased 18% in~~decreased 5.1% for the first quarter of ~~2018~~2019, compared with the same period in ~~2017. To date in fiscal 2018, we opened our Nordstrom Men’s Store NYC, opened seven Nordstrom Rack stores and closed one full-line store.~~

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

~~(Continued)~~ ~~(Amounts in millions except per share amounts)~~

~~Full-price net~~2018. Full-Price sales ~~increased 3.9% for the quarter ended May 5, 2018, compared with the same period in 2017, which includes~~reflected a ~~net increase of approximately 200 basis points~~decrease in the ~~first quarter~~number of 2018 due to the shift of a Nordstrom Rewards loyalty event, the adoption of the new Revenue Guidance and the allocation of sales return reserve and loyalty related adjustments. The top-ranking merchandise categories were Kids' Apparel and Men's Apparel.

~~Off-price net sales increased 6.7% for the quarter ended May 5, 2018, compared with the same period~~items sold, partially offset by an increase in 2017, which includes a net increase of approximately 100 basis points in the first quarter of 2018 due to the shift of a Nordstrom Rewards loyalty event, the adoption of the new Revenue Guidance and the allocation of sales return reserve and loyalty related adjustments.average selling price per item sold. Shoes was the top-performing merchandise category.

Off-Price net sales decreased 0.6% for the first quarter of 2019, compared with the same period in 2018. Off-Price sales reflected a decrease in the average selling price per item sold, partially offset by an increase in the number of items sold. Women’s, Active and Coats were the top-performing merchandise categories.

Credit Card ~~Revenue,~~Revenues, Net

TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. Credit ~~program~~card revenues, net ~~includes~~include our portion of the ongoing credit card revenue, net of credit losses, ~~from credit card receivables~~ pursuant to our program agreement with TD. Credit card revenue, net was ~~$92~~$94 for the quarter ended May ~~5, 2018,~~4, 2019, which was relatively flat when compared with ~~$75~~$92 for the same period in ~~2017. The increase of $17 was a result of our strategic partnership with TD to responsibly grow our receivables and associated revenues as well as efforts to drive new account growth.~~

~~Gross Profit~~

~~The following table summarizes gross profit:~~

Quarter Ended
May 5, 2018
April 29, 2017
Gross profit
$1,181

$1,125
Gross profit as a % of net sales 34.1 % 34.3 %
Inventory turnover rate 4.63
4.47

Our gross profit rate decreased 21 basis points for the first quarter ended 2018, compared with the same period in 2017, due to higher occupancy expenses related to U.S. and Canada Rack openings in addition to planned pre-opening expenses associated with the Nordstrom Men's Store NYC. Continued inventory execution led to improvements in inventory turnover rate as of May 5, 2018.

~~Selling, General and Administrative Expenses~~

~~Selling, general and administrative expenses (“SG&A”) are summarized in the following table:~~

Quarter Ended
May 5, 2018
April 29, 2017
Selling, general and administrative expenses
$1,120

$1,048
Selling, general and administrative expenses as a % of net sales 32.3 % 32.0 %

For the quarter ended May 5, 2018, SG&A increased $72 primarily due to higher supply chain and marketing costs associated with our sales growth. Our SG&A rate increased 32 basis points primarily due to planned pre-opening expenses associated with the Nordstrom Men's Store NYC.

~~Earnings Before Interest and Income Taxes~~

~~Earnings before interest and income taxes (“EBIT”) are summarized in the following table:~~

Quarter Ended
May 5, 2018
April 29, 2017
Earnings before interest and income taxes
$153

$151
Earnings before interest and income taxes as a % of net sales 4.4 % 4.6 %

For the quarter ended May 5, 2018, EBIT increased $2 primarily due to an increase in digitally enabled sales. Our EBIT rate decreased 18 basis points primarily due to planned pre-opening expenses associated with the Nordstrom Men’s Store NYC.

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

(Continued) (Amounts in millions except per share amounts)

Gross Profit

The following table summarizes gross profit:



	Quarter Ended
	May 4, 2019			May 5, 2018
Gross profit		$1,121			$1,181
Gross profit as a % of net sales	33.5		%	34.1		%
Inventory turnover rate	4.68			4.63

Our gross profit rate decreased 60 basis points for the first quarter of 2019, compared with the same period in 2018, due to planned markdowns to realign inventory to sales trends and deleverage of occupancy expenses on lower sales. Continued inventory execution led to improvements in inventory turnover rate as of May 4, 2019.

Selling, General and Administrative Expenses

SG&A is summarized in the following table:



	Quarter Ended
	May 4, 2019			May 5, 2018
SG&A expenses		$1,138			$1,120
SG&A expenses as a % of net sales	34.0		%	32.3		%

For the first quarter of 2019, SG&A expenses increased $18 primarily due to higher marketing costs and planned supply chain investments. Our SG&A rate increased 168 basis points primarily due to fixed expense deleverage on lower sales volume.

Earnings Before Interest and Income Taxes

EBIT is summarized in the following table:



	Quarter Ended
	May 4, 2019			May 5, 2018
EBIT		$77			$153
EBIT as a % of net sales	2.3		%	4.4		%

For the first quarter of 2019, EBIT decreased $76 and EBIT rate decreased 212 basis points due primarily to lower sales volume.

Interest Expense, ~~net~~Net

Interest expense, net was ~~$28~~$24 for the first quarter ~~ended 2018,~~of 2019, compared with ~~$48~~$28 for the same period in ~~2017.~~2018. The decrease was primarily due to ~~a net~~higher capitalized interest ~~expense charge of $18 related to the $650 debt refinancing completed~~ in ~~the first quarter of 2017 (see Note 4: Debt and Credit Facilities~~2019 associated with investments in ~~Item 1).~~our Supply Chain Network.

Income Tax Expense

Income tax expense is summarized in the following table:


	Quarter Ended						Quarter Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Income tax expense		$38			$40			$16			$38
Effective tax rate	30.4		%	38.7		%	31.0		%	30.4		%

The effective tax rate ~~decreased~~increased for the first quarter ~~ended May 5, 2018,~~of 2019, compared with the same period in ~~2017, primarily~~2018, due to the ~~lower statutory tax rate enacted under~~unfavorable impact of stock compensation, partially offset by the ~~2017 Tax Cuts~~reduced impact of the mix of income between the U.S. and ~~Job Act (“Tax Act”).~~Canada.

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

(Continued) (Amounts in millions except per share amounts)

Earnings Per Share

~~Earnings per share~~EPS is as follows:


	Quarter Ended				Quarter Ended
	May 5, 2018		April 29, 2017		May 4, 2019		May 5, 2018
Basic		$0.52		$0.38		$0.24		$0.52
Diluted		$0.51		$0.37		$0.23		$0.51

Earnings per diluted share ~~increased $0.14~~decreased $0.28 for the first quarter ~~ended May 5, 2018,~~of 2019, compared with the same period in ~~2017~~2018, primarily due to an increase in revenues and a decrease in the tax rate, partially offset by an increase in higher supply chain and marketing costs. Additionally, in the first quarter of 2017, there was an interest expense charge of $18, or $0.06 per diluted share related to the $650 debt refinancing.lower sales.

~~2018~~Fiscal Year 2019 Outlook

We ~~updated~~remain focused on three strategic objectives in driving shareholder returns: gaining market share, improving profitability and returns and maintaining disciplined capital allocation. We revised our annual outlook ~~expectations for earnings per diluted share~~ to ~~incorporate our first quarter results. Our~~reflect current ~~expectations for fiscal 2018 are as follows:~~trends:



	Prior Outlook	Current Outlook
Net sales	~~$15.2~~1 to ~~$15.4 billion~~2 percent increase	~~No change~~2 percent decrease to flat
~~Comparable sales (percent)~~Credit card revenues, net	~~0.5~~Mid to ~~1.5~~high single-digit growth	~~No change~~Low to mid single-digit growth
EBIT	$~~885~~915 to ~~$940~~$970 million	$~~895~~805 to ~~$940~~$890 million
EBIT margin	5.9 to 6.1 percent	5.3 to 5.8 percent
Earnings per diluted share (excluding the impact of any potential future share repurchases)	$~~3.30~~3.65 to ~~$3.55~~$3.90	$~~3.35~~3.25 to ~~$3.55~~$3.65

~~Our updated annual outlook expectations incorporated the following assumptions:~~

The shift in the Anniversary Sale event into the second quarter relative to the second and third quarters in 2017 and the adoption of the new revenue recognition guidance is expected to impact total sales percentage by an increase of approximately 150 basis points in the second quarter and a decrease of approximately 150 basis points in the third quarter.

~~Credit card revenue growth in the mid-teens range.~~

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

(Continued) (Amounts in millions except per share amounts)

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

We believe that Adjusted ROIC is a useful financial measure for investors and credit agencies in evaluating the efficiency and effectiveness of the capital we have invested in our business to generate ~~returns. Adjusted ROIC adjusts~~returns over time. In addition, we have incorporated it in our executive incentive measures and it is an important indicator of shareholders’ return over the long term.

For 2019, income statement activity for adjusted net operating profit and balance sheet amounts for average invested capital are comprised of one quarter of activity under the Lease Standard for 2019, and the last three quarters of 2018 under the previous lease standard. Under the previous lease standard, we estimated the value of our operating leases as if they met the criteria for capital leases or we had purchased the properties. This ~~provides~~provided additional supplemental information that ~~reflects~~estimated the investment in our ~~off-balance sheet~~operating leases. Estimated depreciation on capitalized operating leases ~~controls~~and average estimated asset base of capitalized operating leases are not calculated in accordance with, nor an alternative for, ~~differences~~GAAP and should not be considered in ~~capital structure between us and our competitors and provides investors and credit agencies with another way to comparably evaluate the efficiency and effectiveness~~isolation or as a substitution of our ~~capital investments over time. In addition, we incorporate Adjusted ROIC into our executive incentive measures and it is an important component of shareholders’ return over the long term.~~results as reported under GAAP.

~~We define Adjusted ROIC as our net operating profit after tax divided by our average invested capital using the trailing 12-month average.~~ Adjusted ROIC is not a measure of financial performance under ~~generally accepted accounting principles (“GAAP”)~~GAAP and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other GAAP financial ~~measures prepared in accordance with GAAP.~~measures. 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. Estimated depreciation on capitalized operating leases and average estimated asset base of capitalized operating leases are not calculated in accordance with, or an alternative for, GAAP and should not be considered in isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP which is most directly comparable to Adjusted ROIC is return on assets.

For the 12 fiscal months ended May 5, 2018, our Adjusted ROIC increased to 9.9% compared with 8.7% for the 12 fiscal months ended April 29, 2017. Results for the prior period were negatively impacted by approximately 320 basis points due to the Trunk Club non-cash goodwill impairment charge in the third quarter of 2016.

The following is a reconciliation of the components of Adjusted ROIC and return on assets:


	12 Fiscal Months Ended						Four Quarters Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Net earnings		$461			$371			$513			$461
Add: income tax expense¹	351			341
Add: income tax expense							147			351
Add: interest expense	123			140			115			123
Earnings before interest and income tax expense	935			852			775			935

Add: operating lease interest¹							23			—
Add: rent expense, net	254			212			189			254
Less: estimated depreciation on capitalized operating leases²	(135		)	(113		)	(101		)	(135		)
Adjusted net operating profit	1,054			951			886			1,054

Less: estimated income tax expense	(456		)	(436		)	(198		)	(456		)
Adjusted net operating profit after tax		$598			$515			$688			$598

Average total assets		$8,067			$7,977			$8,591			$8,067
Less: average non-interest-bearing current liabilities³	(3,306		)	(3,013		)
Less: average deferred property incentives and deferred rent liability³	(642		)	(644		)
Less: average non-interest-bearing current liabilities							(3,438		)	(3,306		)
Less: average deferred property incentives in excess of ROU assets³							(77		)	—
Add: average estimated asset base of capitalized operating leases²	1,893			1,570			1,508			1,893
Less: average deferred property incentives and deferred rent liability							(459		)	(642		)
Average invested capital		$6,012			$5,890			$6,125			$6,012

Return on assets⁴	5.7		%	4.7		%	6.0		%	5.7		%
Adjusted ROIC⁴	9.9		%	8.7		%	11.3		%	9.9		%

¹ ~~Results for~~As a result of the ~~12 fiscal months ended May 5, 2018 include~~Lease Standard, we add back the operating lease interest to reflect how we manage our business. Operating lease interest is a ~~$42 impact related to~~component of operating lease cost recorded in occupancy costs and is calculated in accordance with the ~~Tax Act.~~Lease Standard.

²Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating under the previous lease standard if they had met the criteria for a ~~capital~~finance lease or we had purchased the property. The asset base ~~is calculated based upon the trailing 12-month average of the monthly asset base. The asset base~~ for each ~~month~~quarter is calculated as the trailing ~~12 months~~four quarters of rent expense multiplied by ~~eight. The multiple of~~ eight, ~~times rent expense is~~ a commonly used method ~~of estimating~~to estimate the asset base we would record for our capitalized operating leases.

³ ~~Balances associated~~For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities. As a result of the Lease Standard, we reduce average total assets, as this better reflects how we manage our ~~deferred rent liability have been classified as long-term liabilities as of January 28, 2017.~~business.

⁴Results for the ~~12 fiscal months~~four quarters ended ~~April 29, 2017 include~~May 4, 2019 included the ~~$197~~$72 impact ofrelated to the ~~Trunk Club non-cash goodwill impairment charge in the third quarter of 2016,~~Estimated Non-recurring Charge, which negatively impacted ~~the prior period~~ return on assets by approximately ~~240~~60 basis points and Adjusted ROIC by approximately ~~320~~70 basis points. In addition, the impact of the Lease Standard negatively impacted return on assets by approximately 30 basis points and Adjusted ROIC by approximately 20 basis points.

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

(Continued) (Amounts in millions except per share 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 facility and potential future borrowings are sufficient to meet 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 May ~~5, 2018,~~4, 2019, our existing cash and cash equivalents on-hand of ~~$966,~~$448, available credit facility of $800 and potential future operating cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives.

The following is a summary of our cash flows by activity:


	Quarter Ended						Quarter Ended
Fiscal year	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Net cash (used in) provided by operating activities		($28	)		$89
Net cash used in operating activities								($31	)		($28	)
Net cash used in investing activities	(149		)	(144		)	(248		)	(149		)
Net cash used in financing activities	(38		)	(299		)	(230		)	(38		)

Operating Activities

Net cash used in operating activities ~~was $28~~increased $3 for the ~~quarter~~period ended May ~~5, 2018,~~4, 2019, compared with ~~net cash provided by operating activities of $89 for~~ the ~~quarter ended April 29, 2017,~~same period in 2018, primarily due to ~~the timing of payroll and increased incentive compensation payouts, which included $16 for our one-time investment~~a decrease in ~~employees in response to the Tax Act.~~sales, partially offset by less inventory purchased.

Investing Activities

Net cash used in investing activities increased $5$99 for the ~~quarter~~period ended May ~~5, 2018,~~4, 2019, compared with the same period in ~~2017,~~2018, primarily due to ~~the acquisitions of two retail technology companies, which were classified in other investing activities, net (see Note 1: Basis of Presentation in Item 1), partially offset by a decrease~~an increase in capital ~~expenditures.~~expenditures related to our Supply Chain Network, including our Omni-channel center in Riverside, California opening in late 2019.

Financing Activities

Net cash used in financing activities ~~decreased $261~~increased $192 for the ~~quarter~~period ended May ~~5, 2018,~~4, 2019, compared with the same period in ~~2017,~~2018, primarily due to ~~decreased~~increased share repurchase activity.

~~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 result of the issuance in other financing activities, net in 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.

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

~~(Continued)~~ ~~(Amounts in millions except per share amounts)~~

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, we believe it provides investors with a meaningful analysis of our ability to generate cash from our business. ~~For the quarter ended May 5, 2018, we had Free Cash Flow of ($130) compared with ($85) for the first quarter ended 2017.~~

Beginning in the first quarter of fiscal 2018, we no longer adjust free cash flow for cash dividends paid. We believe that no longer reducing free cash flow by dividends paid is more reflective of our operating performance and more consistent with the way we manage our business, how our peers calculate free cash flows, and prevailing industry practice. Prior period Free Cash Flow financial measures have been recast to conform with current period presentation.

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~~used in operating activities. The following is a reconciliation of net cash ~~provided by~~used in operating activities to Free Cash Flow:


	Quarter Ended						Quarter Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Net cash (used in) provided by operating activities		($28	)		$89
Net cash used in operating activities								($31	)		($28	)
Less: capital expenditures	(129		)	(153		)	(249		)	(129		)
Add (Less): change in cash book overdrafts	27			(21		)
Add: change in cash book overdrafts							40			27
Free Cash Flow		($130	)		($85	)		($240	)		($130	)

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

(Continued) (Amounts in millions except per share amounts)

Adjusted EBITDA (Non-GAAP financial measure)

Adjusted ~~earnings before interest, income taxes, depreciation and amortization (“EBITDA”)~~EBITDA is our key financial metric to reflect our view of cash flow from net earnings. Adjusted EBITDA excludes significant items which are non-operating in nature in order to evaluate our core operating performance against prior ~~periods and increase comparability with our peers.~~periods. The financial measure calculated under GAAP which is most directly comparable to Adjusted EBITDA is net earnings. ~~As of May 5, 2018 and April 29, 2017, Adjusted EBITDA was $301 and $293.~~

Adjusted EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for net earnings, overall change in cash or liquidity of the business as a whole. 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 following is a reconciliation of net earnings to Adjusted EBITDA:


	Quarter Ended						Quarter Ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
Net earnings		$87			$63			$37			$87
Add: income tax expense	38			40			16			38
Add: interest expense, net	28			48			24			28
Earnings before interest and income taxes	153			151			77			153

Add: depreciation and amortization expenses	169			161			163			169
Less: amortization of deferred property incentives	(21		)	(19		)
Less: amortization of developer reimbursements							(19		)	(21		)
Adjusted EBITDA		$301			$293			$221			$301

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

~~(Continued)~~ ~~(Amounts in millions except per share amounts)~~

Credit Capacity and Commitments

~~As of May 5, 2018, we had~~We have total short-term borrowing capacity of $800 under ~~our senior unsecured revolving credit facility (“revolver”)~~the revolver that expires ~~in April 2020. Under the terms of~~September 2023. Provided that we obtain written consent from our ~~revolver,~~lenders, 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~~revolver by up to $200, to a total of $1,000, ~~provided that we obtain written consent from~~and two options to extend the ~~lenders.~~

Our wholly owned subsidiary in Puerto Rico maintains a $52 unsecured borrowing facility to support our expansion into that market. The facility expires in Fall 2018 and borrowings on this facility incur interest based upon the LIBOR plus 1.275% per annum and also incur a fee based on any unused commitment.revolver by one year. As of May ~~5, 2018,~~4, 2019, we had ~~$47 outstanding on this facility.~~

~~As of May 5, 2018, we had no issuances outstanding under our commercial paper program and~~ no borrowings outstanding under our revolver. For more information about our credit facilities, see Note 5: Debt and Credit Facilities in Item 1.

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~~or (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~~Stable



	Base Interest Rate	Applicable Margin
Euro-Dollar Rate Loan	LIBOR	~~1.02~~1.03	%
Canadian Dealer Offer Rate Loan	CDOR	~~1.02~~1.03	%
Base Rate Loan	various	—0.03	%

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”)~~EBITDAR leverage ratio of no more than four ~~times (see the following additional discussion of Adjusted Debt to EBITDAR).~~times. As of May ~~5, 2018,~~4, 2019, 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) (Amounts in millions except per share 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.~~measure, as it provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. 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 no more than four times. As

For 2019, income statement activity for adjusted EBITDAR is comprised of ~~May 5,~~one quarter of activity under the Lease Standard for 2019, and the last three quarters of 2018 ~~our Adjusted Debt to EBITDAR was 2.6, and~~under the previous lease standard. Balance sheet amounts are as of ~~April 29, 2017, it was 2.3.~~the end of the quarter, and under the new Lease Standard for 2019 and the previous lease standard for 2018. Under the previous lease standard, we estimated the value of our operating leases as if they met the criteria for capital leases or we had purchased the properties. This provided additional supplemental information that estimated the investment in our operating leases. Estimated capitalized operating lease liability is not calculated in accordance with, nor an alternative for, GAAP and should not be considered in isolation or as a substitution of our results as reported under GAAP.

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 GAAP financial ~~measures prepared in accordance with GAAP.~~measures. 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:


	2018¹		2017¹		2019¹		2018¹
Debt		$2,736		$2,742		$2,676		$2,736
Add: operating lease liabilities					2,188		—
Add: estimated capitalized operating lease liability²	2,029		1,700		—		2,029
Adjusted Debt		$4,765		$4,442		$4,864		$4,765

Net earnings		$461		$371		$513		$461
Add: income tax expense	351		341		147		351
Add: interest expense, net	116		138		100		116
Earnings before interest and income taxes	928		850		760		928

Add: depreciation and amortization expenses	674		649		663		674
Add: operating lease cost³					69		—
Add: rent expense, net	254		212		189		254
Add: non-cash acquisition-related charges³	1		207
Add: non-cash acquisition-related charges					—		1
Adjusted EBITDAR		$1,857		$1,918		$1,681		$1,857

Debt to Net Earnings⁴	5.9		7.4		5.2		5.9
Adjusted Debt to EBITDAR	2.6		2.3
Adjusted Debt to EBITDAR⁴					2.9		2.6

¹The components of Adjusted Debt are as of May 4, 2019 and May 5, 2018, ~~and April 29, 2017,~~ while the components of Adjusted EBITDAR are for the ~~12 months~~four quarters ended May 4, 2019 and May 5, ~~2018 and April 29, 2017.~~2018.

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

³ ~~Non-cash acquisition-related charges for~~As a result of the ~~12 months ended April 29, 2017 include~~Lease Standard, we add back the ~~goodwill impairment charge of $197 related~~operating lease cost to ~~Trunk Club.~~calculate Adjusted EBITDAR.

⁴Results for the ~~period~~four quarters ended ~~April 29, 2017 include~~May 4, 2019 included the ~~$197~~$72 impact related to the Estimated Non-recurring Charge, which negatively impacted Debt to Net Earnings by approximately 50 basis points and Adjusted Debt to EBITDAR by approximately 10 basis points. In addition, the impact of the ~~Trunk Club goodwill impairment charge, which approximates 260~~Lease Standard had no impact on Debt to Net Earnings and negatively impacted Adjusted Debt to EBITDAR by approximately 10 basis points.

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

(Continued) (Amounts in millions except per share amounts)

Off-Balance Sheet Arrangements

As of May 4, 2019 there have been no material changes to our off-balance sheet arrangements as disclosed in our 2018 Annual Report except for our operating leases, which are recorded on the balance sheet as a result of adopting the Lease Standard.

CRITICAL ACCOUNTING ESTIMATES

The preparation of our financial statements requires that we make estimates and judgments 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. We believe that the estimates, assumptions and judgments involved in the accounting policies referred to in our 2018 Annual Report ~~on Form 10-K for the year ended February 3, 2018~~ have the greatest potential effect on our financial statements, so we consider these to be our critical accounting policies and estimates. Our management has discussed the development and selection of these critical accounting estimates with the Audit & Finance Committee of our Board of Directors.

Except as disclosed in Note 2: ~~Revenue~~Leases of Item 1, pertaining to our adoption of the ~~new Revenue Guidance,~~Lease Standard, there have been no significant changes to our significant accounting policies or critical accounting estimates as described in ~~the~~ our 2018 Annual ~~Report on Form 10-K filed with the SEC on March 19, 2018.~~Report.

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 ~~2017~~2018 Annual ~~Report on Form 10-K filed with the SEC on March 19, 2018.~~Report. There have been no material changes to these risks since that time.

Item 4. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, ~~the Company~~we 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

During the quarter ended May 4, 2019, we adopted the Lease Standard. As a result of our adoption of the Lease Standard, we implemented a new lease accounting information system and modified our processes and internal controls over lease accounting.

There ~~have been~~were no other 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~~accruals 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.

On March 20, 2018, the Special Committee of the Board of Directors of Nordstrom announced the termination of discussions with members of the Nordstrom family of a possible “going private transaction.” There have been no ~~other~~ material changes to the risk factors we discussed in ~~Part I, “Item 1A. Risk Factors” of~~ our ~~2017~~2018 Annual ~~Report on Form 10-K filed with the SEC on March 19, 2018 for the quarter ended May 5, 2018.~~Report.

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

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

The following is a summary of our first 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 Programs

February 2018
(February 4, 2018 to March 3, 2018) —
—
—

$414
March 2018
(March 4, 2018 to April 7, 2018) 0.1

$47.80
0.1

$410
April 2018
(April 8, 2018 to May 5, 2018) 0.2

$47.46
0.2

$401
Total 0.3

$47.55
0.3



	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 Programs
February 2019 (February 3, 2019 to March 2, 2019)	3.5		$45.37	3.5		$736
March 2019 (March 3, 2019 to April 6, 2019)	0.6		$44.08	0.6		$707
April 2019 (April 7, 2019 to May 4, 2019)	—	—		—		$707
Total	4.1		$45.17	4.1

In ~~February 2017,~~August 2018, our Board of Directors authorized a program to repurchase up to ~~$500~~$1,500 of our outstanding common stock, ~~through August 31, 2018.~~ with no expiration date. The actual timing, price, manner and 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 2627 hereof.

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NORDSTROM, INC.

Exhibit Index



Exhibit		Method of Filing
~~10.1~~3.1	~~Form of 2018 Restricted Stock Unit Award Agreement~~	~~Incorporated by reference from the Registrant’s Form 8-K filed~~Bylaws, as amended and restated on ~~March 8, 2018, Exhibit 10.1~~

~~10.2~~	~~Form of Restricted Stock Unit Award Agreement – Supplemental Award~~May 22, 2019	Incorporated by reference from the Registrant’s Form 8-K filed on ~~March 8, 2018,~~May 29, 2019, Exhibit ~~10.2~~3.1

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

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

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

101.INS	XBRL Instance Document	Filed herewith electronically

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith electronically

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

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

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

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

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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/ Anne L. Bramman
Anne L. Bramman
Chief Financial Officer
(Principal Financial Officer)

Date:	June ~~7, 2018~~5, 2019

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	May 5, 2018
	As Reported			Revenue Guidance Adjustment			Excluding Impact of Revenue Guidance
Assets
Merchandise inventories		$2,120			$52			$2,172
Prepaid expenses and other	291			(153		)	138
Other assets	317			94			411

Liabilities and Shareholders’ Equity
Other current liabilities	1,307			(101		)	1,206
Other liabilities	516			159			675
Accumulated deficit	(1,738		)	(65		)	(1,803		)



	Quarter Ended
	May 5, 2018²		April 29, 2017
Full-price¹		$2,240		$2,156
Off-price¹	1,229		1,152
Other¹	—		(29		)
Total net sales		$3,469		$3,279



	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 Programs
February 2018 (February 4, 2018 to March 3, 2018)	—	—		—		$414
March 2018 (March 4, 2018 to April 7, 2018)	0.1		$47.80	0.1		$410
April 2018 (April 8, 2018 to May 5, 2018)	0.2		$47.46	0.2		$401
Total	0.3		$47.55	0.3