UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 1, 2021April 30, 2022
or
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| ☐ | 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.
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)
206-628-2111
(Registrant’s telephone number, including area code)
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 |
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☑ 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 | ☐ | Accelerated filer |
| ☐ | Non-accelerated filer | ☐ | 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 ☑
Common stock outstanding as of May 28, 2021: 158,898,67627, 2022: 160,579,123 shares
TABLE OF CONTENTS
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| Item 1. | | |
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| Condensed Consolidated Statements of Earnings | |
| Condensed Consolidated Statements of Comprehensive Earnings | |
| Condensed Consolidated Balance Sheets | |
| Condensed Consolidated Statements of Shareholders’ Equity | |
| Condensed Consolidated Statements of Cash Flows | |
| Notes to Condensed Consolidated Financial Statements | |
| Note 1: Basis of Presentation | |
| Note 2: Revenue | |
| Note 3: Debt and Credit Facilities | |
| Note 4: Fair Value Measurements | |
| Note 5: Commitments and ContingenciesStock-based Compensation | |
| Note 6: Shareholders’ Equity | |
| Note 7: Stock-based CompensationCommitments and Contingencies | |
| Note 8: Earnings Per Share | |
| Note 9: Segment Reporting | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 2. | | |
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| Item 6. | | |
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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, youforward-looking statements can identify forward-looking statementsbe identified 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 January 29, 2022,28, 2023, trends in our operations and the following:
Strategic and Operational
•the novel coronavirus (“COVID-19”) global pandemic and civil unrest, each ofCOVID-19, which may make it necessary to close our physical stores and facilities in affected areas, and may have a negative impact on our business and results, any of whichand may exacerbate the risks below,
•successful execution of our customer strategy to provide customers superior service, products and experiences online, through our fulfillment capabilities and in stores,
•timely and effective implementation and execution of our evolving business model, including:
◦scalingwinning at our market strategy by providing a differentiated and seamless experience, which consists of the integration of our digital and physical assets, development of new supply chain capabilities and timely delivery of products,
◦expandingbroadening the reach of Nordstrom Rack, including expanding our price range and selection and leveraging our digital and physical assets,
◦increasing our digital velocity by enhancing our platforms and processes to deliver core capabilities to drive customer, employee and partner experiences both digitally and service,in-store,
•our ability to effectively manage our merchandise strategy, including our ability to offer compelling assortments
• and optimize ourour abilityinventory to effectively utilize internal and third-party data in strategic planning and decision making,get it closer to the customer,
•our ability to effectively allocate and scale our marketing strategies and resources, as well as realize the expected benefits between The Nordy Club, advertising and promotional campaigns,
•our ability to respond to the evolving retail environment, including new fashion trends, environmental considerations and our customers’ changing expectations of service and experience in stores and online, and our development of new market strategies and customer offerings,
•our ability to prevent or mitigate the effects of disruptions in the global supply chain, including factory closures, transportation challenges or stoppages of certain imports, and rising prices of raw materials and freight expenses, and
•our ability to control costs through effective inventory management, fulfillment and supply chain processes and systems,
•our ability to acquire, develop and retain qualified and diverse talent by providing appropriate training, compelling work environments and competitive compensation and benefits, especially in areas with increased market compensation,
•our ability to realize the expected benefits, anticipate and respond to potential risks and appropriately manage costs associated with our credit card revenue sharing program,
•our ability to acquire, develop and retain qualified talent and offer competitive compensation and benefits, especially in areas with increased market compensation,
•potential goodwill impairment charges, future impairment charges, fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames or our strategic direction changes,
Data, Cybersecurity and Information Technology
•successful execution of our information technology strategy, including engagement with third-party service providers,
•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 that results in the interruption of business processes, and our compliance with information security and privacy laws and regulations, as well as third-party contractual obligations in the event of such an incident,
Reputation and Relationships
•our ability to maintain our reputation and relationships with our customers, employees, vendors and third-party partners and landlords,
•our ability to maintain relationshipsact responsibly and with transparency with respect to our corporate social responsibility practices and motivate our employeesinitiatives, and to effectively attract, develop and retain our top talent and future leaders,meet any communicated targets, goals or milestones,
•our ability to market our brand onand distribute our products through a variety of third-party publisher or platform channels, as well as our access to mobile operating systemssystem and website identifiers for personalized delivery of targeted advertising,
Investment and Capital
•efficient and proper allocation of our capital resources,
•our ability to properly balance our investments in technology, Supply Chain Network facilities and existing and new store locations, including the expansion of our market strategy,
•our ability to maintain or expand our presence, including timely completion of construction associated with Supply Chain Network facilities and new, relocated and remodeled stores, as well as any potential store closures, all of which may be impacted by third parties, consumer demand and other natural or man-made disruptions, and government responses to any such disruptions,
•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 actual timing, price, manner and amounts of future share repurchases, dividend payments or share issuances, if any,
Economic and External
•the length and severity of epidemics or pandemics, such as the COVID-19 pandemic, or other catastrophic events, and the related impact on customer behavior, store and online operations and supply chain functions, as well as our future consolidated financial position, results of operations and cash flows,
•the impact of the seasonal nature of our business and cyclical customer spending,
•the impact of economic and market conditions in the U.S. and Canada, including inflation and the resulting changes to our customer purchasing behavior, unemployment and bankruptcy rates, as well as any fiscal stimulus, or the cessation of any fiscal stimulus and the resultantresulting impact on consumer spending and credit patterns,
•the impact of economic, environmental or political conditions, in the U.S. and Canada and countries where our third-party vendors operate,
•the impact of changing traffic patterns at shopping centers and malls,
•financial insecurity or potential insolvency experienced by our vendors, suppliers, developers, landlords, peers,competitors or customers as a result of any economic downturn,
•weather conditions, natural disasters, climate change, national security concerns, civil unrest, other market and supply chain disruptions, the effects of tariffs, or the prospects of these events, and the resulting impact on consumer spending patterns or information technology systems and communications,
Legal and Regulatory
•our, and our vendors’, compliance with applicable domestic and international laws, regulations and ethical standards, including those related to COVID-19, minimum wage, employment and tax, information security and privacy, consumer credit and environmental regulations and the outcome of any claims, litigation and regulatory investigations and resolution of such matters,
•the impact of the current regulatory environment, financial system 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 we discussed in Part II, Item 1A: Risk Factors, could affect our financial results and cause our actual results to differ materially from any forward-looking information we may provide. Given these risks, uncertainties and other factors, youundue reliance should not place undue reliancebe placed 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 thisThis Quarterly Report on Form 10-Q should be read 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 “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.
DEFINITIONS
The following table includes definitions of our commonly used terms: OF COMMONLY USED TERMS
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| Term | | Definition |
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| 2019 Plan | | 2019 Equity Incentive Plan |
20202021 Annual Report | | Annual Report on Form 10-K filed on March 15, 202111, 2022 |
Adjusted EBITDAEPS | | Adjusted earnings (loss) before interest, income taxes, depreciation and amortization (a non-GAAP financial measure) |
Adjusted EBITDAR | | Adjusted earnings (loss) before interest, income taxes, depreciation, amortization and rent, as defined by our Revolver covenantper diluted share (a non-GAAP financial measure) |
| Adjusted ROIC | | Adjusted return on invested capital (a non-GAAP financial measure) |
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| ASC | | Accounting Standards Codification |
| ASU | | Accounting Standards Update |
| CARES Act | | Coronavirus Aid, Relief and Economic Security Act |
| CODM | | Chief operating decision maker |
| COVID-19 | | Novel coronavirus |
| Digital sales | | Sales conducted through a digital platform such as our websites or mobile apps. Digital sales may be self-guided by the customer, as in a traditional online order, or facilitated by a salesperson using a virtual styling or selling tool, such as Nordstrom Trunk Club or Style Board.tool. Digital sales may be delivered to the customer or picked up in our Nordstrom stores, Nordstrom Rack stores or Nordstrom Local service hubs. Digital sales also includeincludes a reserve for estimated returns. |
| EBIT | | Earnings (Loss)(loss) before interest and income taxes |
| EBITDA | | Earnings (loss) before interest, income taxes, depreciation and amortization |
| EBITDAR | | Earnings (loss) before interest, income taxes, depreciation, amortization and rent, as defined by our Revolver covenant |
| EPS | | Earnings (Loss)(loss) per share |
| ESPP | | Employee Stock Purchase Plan |
| Exchange Act | | Securities Exchange Act of 1934, as amended |
Express Services | | Nordstrom order pickups and returns offered at certain Nordstrom Rack stores |
| FASB | | Financial Accounting Standards Board |
| First quarter of 2022 | | 13 fiscal weeks ending April 30, 2022 |
| First quarter of 2021 | | 13 fiscal weeks ending May 1, 2021 |
First quarter of 2020Fiscal year 2022 | | 1352 fiscal weeks ending May 2, 2020 |
First quarter of 2019 | | 13 fiscal weeks ending May 4, 2019January 28, 2023 |
| Fiscal year 2021 | | 52 fiscal weeks ending January 29, 2022 |
Fiscal year 2020 | | 52 fiscal weeks ending January 30, 2021 |
| GAAP | | GenerallyU.S. generally accepted accounting principles |
| GMV | | Gross merchandise value |
| 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 |
Lease Standard | | ASU No. 2016-02, Leases, and all related amendments (ASC 842) |
| Leverage Ratio | | The sum of the preceding twelve months of rent expense under the previousour funded debt and operating lease guidance multiplied by six and funded debtliabilities divided by the preceding twelve months of Adjusted EBITDAR as defined by our debtRevolver covenant |
| MD&A | | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| Nordstrom | | Nordstrom.com, TrunkClub.com, Nordstrom-branded U.S. stores, Canada, which includes Nordstrom.ca, Nordstrom Canadian stores and Nordstrom Rack Canadian stores, and Nordstrom Local |
| Nordstrom Local | | Nordstrom Local service hubs, which offer Nordstrom order pickups, returns, alterations and other services |
| Nordstrom NYC | | Our New York City Nordstrom flagship store, including the Men’s location |
| Nordstrom Rack | | Nordstromrack.com,NordstromRack.com, Nordstrom Rack-branded U.S. stores and Last Chance clearance stores and, prior to the first quarter of 2021, HauteLook.com |
| The Nordy Club | | Our customer loyalty program |
| NYSE | | New York Stock Exchange |
| 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 unit |
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| Revolver | | Senior revolving credit facility |
| ROU asset | | Operating lease right-of-use asset |
| RSU | | Restricted stock unit |
| SEC | | Securities and Exchange Commission |
| SERP | | Unfunded defined benefit Supplemental Executive Retirement Plan |
| Secured Notes | | 8.750% senior secured notes due May 2025 |
| SG&A | | Selling, general and administrative |
| Supply Chain Network | | Fulfillment centers that primarily process and ship orders to our customers, distribution centers that primarily 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 |
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| TD | | Toronto-Dominion Bank, N.A. |
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PART I — FINANCIAL INFORMATION
Item 1.1: Financial Statements (Unaudited).
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in millions except per share amounts)
(Unaudited)
| | | | Quarter Ended | | | Quarter Ended |
| | | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | May 1, 2021 |
| Net sales | Net sales | | $2,921 | | | $2,026 | | Net sales | | $3,467 | | $2,921 | |
| Credit card revenues, net | Credit card revenues, net | | 88 | | | 93 | | Credit card revenues, net | | 102 | | 88 | |
| Total revenues | Total revenues | | 3,009 | | | 2,119 | | Total revenues | | 3,569 | | 3,009 | |
| Cost of sales and related buying and occupancy costs | Cost of sales and related buying and occupancy costs | | (2,019) | | | (1,810) | | Cost of sales and related buying and occupancy costs | | (2,331) | | (2,019) | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | | (1,075) | | | (1,122) | | Selling, general and administrative expenses | | (1,165) | | (1,075) | |
| Loss before interest and income taxes | | (85) | | | (813) | | |
| Earnings (loss) before interest and income taxes | | Earnings (loss) before interest and income taxes | | 73 | | (85) | |
| Interest expense, net | Interest expense, net | | (137) | | | (34) | | Interest expense, net | | (35) | | (137) | |
| Loss before income taxes | | (222) | | | (847) | | |
| Income tax benefit | | 56 | | | 326 | | |
| Net loss | | ($166) | | | ($521) | | |
| Earnings (loss) before income taxes | | Earnings (loss) before income taxes | | 38 | | (222) | |
| Income tax (expense) benefit | | Income tax (expense) benefit | | (18) | | 56 | |
| Net earnings (loss) | | Net earnings (loss) | | $20 | | ($166) | |
| | Loss per share: | | | |
| Earnings (loss) per share: | | Earnings (loss) per share: | | |
| Basic | Basic | | ($1.05) | | | ($3.33) | | Basic | | $0.13 | | ($1.05) | |
| Diluted | Diluted | | ($1.05) | | | ($3.33) | | Diluted | | $0.13 | | ($1.05) | |
| | Weighted-average shares outstanding: | Weighted-average shares outstanding: | | | Weighted-average shares outstanding: | | |
| Basic | Basic | | 158.5 | | | 156.4 | | Basic | | 160.1 | | 158.5 | |
| Diluted | Diluted | | 158.5 | | | 156.4 | | Diluted | | 162.9 | | 158.5 | |
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 1, 2021 | | May 2, 2020 | | | April 30, 2022 | May 1, 2021 |
| Net loss | | ($166) | | | ($521) | | |
| Net earnings (loss) | | Net earnings (loss) | | $20 | | ($166) | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | | 10 | | | (24) | | Foreign currency translation adjustment | | (1) | | 10 | |
| Post retirement plan adjustments, net of tax | Post retirement plan adjustments, net of tax | | 1 | | | 2 | | Post retirement plan adjustments, net of tax | | 1 | | 1 | |
| Comprehensive net loss | | ($155) | | | ($543) | | |
| Comprehensive net earnings (loss) | | Comprehensive net earnings (loss) | | $20 | | ($155) | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
(Unaudited)
| | | May 1, 2021 | | January 30, 2021 | | May 2, 2020 | | April 30, 2022 | January 29, 2022 | May 1, 2021 |
| Assets | Assets | | Assets | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $377 | | | $681 | | | $1,355 | | Cash and cash equivalents | $484 | | $322 | | $377 | |
| Accounts receivable, net | Accounts receivable, net | 238 | | | 245 | | | 154 | | Accounts receivable, net | 297 | | 255 | | 238 | |
| Merchandise inventories | Merchandise inventories | 1,961 | | | 1,863 | | | 1,489 | | Merchandise inventories | 2,426 | | 2,289 | | 1,961 | |
| Prepaid expenses and other | Prepaid expenses and other | 923 | | | 853 | | | 669 | | Prepaid expenses and other | 332 | | 306 | | 923 | |
| Total current assets | Total current assets | 3,499 | | | 3,642 | | | 3,667 | | Total current assets | 3,539 | | 3,172 | | 3,499 | |
| | Land, property and equipment (net of accumulated depreciation of $7,322, $7,159 and $6,683) | 3,642 | | | 3,732 | | | 3,974 | | |
| Land, property and equipment (net of accumulated depreciation of $7,834, $7,737 and $7,322) | | Land, property and equipment (net of accumulated depreciation of $7,834, $7,737 and $7,322) | 3,505 | | 3,562 | | 3,642 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 1,560 | | | 1,581 | | | 1,722 | | Operating lease right-of-use assets | 1,497 | | 1,496 | | 1,560 | |
| Goodwill | Goodwill | 249 | | | 249 | | | 249 | | Goodwill | 249 | | 249 | | 249 | |
| Other assets | Other assets | 383 | | | 334 | | | 357 | | Other assets | 384 | | 390 | | 383 | |
| Total assets | Total assets | $9,333 | | | $9,538 | | | $9,969 | | Total assets | $9,174 | | $8,869 | | $9,333 | |
| | Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | Liabilities and Shareholders’ Equity | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Borrowings under revolving line of credit | Borrowings under revolving line of credit | $200 | | | $0 | | | $800 | | Borrowings under revolving line of credit | $— | | $— | | $200 | |
| Accounts payable | Accounts payable | 1,676 | | | 1,960 | | | 1,125 | | Accounts payable | 1,898 | | 1,529 | | 1,676 | |
| Accrued salaries, wages and related benefits | Accrued salaries, wages and related benefits | 330 | | | 352 | | | 280 | | Accrued salaries, wages and related benefits | 241 | | 383 | | 330 | |
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | 246 | | | 260 | | | 243 | | Current portion of operating lease liabilities | 250 | | 242 | | 246 | |
| Other current liabilities | Other current liabilities | 1,056 | | | 1,048 | | | 1,351 | | Other current liabilities | 1,198 | | 1,160 | | 1,056 | |
| Current portion of long-term debt | Current portion of long-term debt | 500 | | | 500 | | | 0 | | Current portion of long-term debt | — | | — | | 500 | |
| Total current liabilities | Total current liabilities | 4,008 | | | 4,120 | | | 3,799 | | Total current liabilities | 3,587 | | 3,314 | | 4,008 | |
| | Long-term debt, net | Long-term debt, net | 2,847 | | | 2,769 | | | 3,264 | | Long-term debt, net | 2,854 | | 2,853 | | 2,847 | |
| | Non-current operating lease liabilities | Non-current operating lease liabilities | 1,662 | | | 1,687 | | | 1,836 | | Non-current operating lease liabilities | 1,566 | | 1,556 | | 1,662 | |
| Other liabilities | Other liabilities | 650 | | | 657 | | | 673 | | Other liabilities | 578 | | 565 | | 650 | |
| | Commitments and contingencies (Note 5) | 0 | | 0 | | 0 | |
| Commitments and contingencies (Note 7) | | Commitments and contingencies (Note 7) | 0 |
| | Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
| Common stock, no par value: 1,000 shares authorized; 158.9, 157.8 and 157.0 shares issued and outstanding | 3,221 | | | 3,205 | | | 3,148 | | |
| Common stock, no par value: 1,000 shares authorized; 160.5, 159.4 and 158.9 shares issued and outstanding | | Common stock, no par value: 1,000 shares authorized; 160.5, 159.4 and 158.9 shares issued and outstanding | 3,301 | | 3,283 | | 3,221 | |
| Accumulated deficit | Accumulated deficit | (2,996) | | | (2,830) | | | (2,661) | | Accumulated deficit | (2,662) | | (2,652) | | (2,996) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (59) | | | (70) | | | (90) | | Accumulated other comprehensive loss | (50) | | (50) | | (59) | |
| Total shareholders’ equity | Total shareholders’ equity | 166 | | | 305 | | | 397 | | Total shareholders’ equity | 589 | | 581 | | 166 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $9,333 | | | $9,538 | | | $9,969 | | Total liabilities and shareholders’ equity | $9,174 | | $8,869 | | $9,333 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in millions except per share amounts)
(Unaudited)
| | | | Quarter Ended | | | Quarter Ended |
| | | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | May 1, 2021 |
| Common stock | Common stock | | | Common stock | | |
| Balance, beginning of period | Balance, beginning of period | | $3,205 | | | $3,129 | | Balance, beginning of period | | $3,283 | | $3,205 | |
| Issuance of common stock under stock compensation plans | Issuance of common stock under stock compensation plans | | 7 | | | 11 | | Issuance of common stock under stock compensation plans | | 8 | | 7 | |
| Stock-based compensation | Stock-based compensation | | 9 | | | 8 | | Stock-based compensation | | 10 | | 9 | |
| Balance, end of period | Balance, end of period | | $3,221 | | | $3,148 | | Balance, end of period | | $3,301 | | $3,221 | |
| | Accumulated deficit | Accumulated deficit | | | Accumulated deficit | | |
| Balance, beginning of period | Balance, beginning of period | | ($2,830) | | | ($2,082) | | Balance, beginning of period | | ($2,652) | | ($2,830) | |
| | Net loss | | (166) | | | (521) | | |
| Net earnings (loss) | | Net earnings (loss) | | 20 | | (166) | |
| Dividends | Dividends | | 0 | | | (58) | | Dividends | | (30) | | — | |
| | Balance, end of period | Balance, end of period | | ($2,996) | | | ($2,661) | | Balance, end of period | | ($2,662) | | ($2,996) | |
| | Accumulated other comprehensive loss | Accumulated other comprehensive loss | | | Accumulated other comprehensive loss | | |
| Balance, beginning of period | Balance, beginning of period | | ($70) | | | ($68) | | Balance, beginning of period | | ($50) | | ($70) | |
| | Other comprehensive income (loss) | | 11 | | | (22) | | |
| Other comprehensive income | | Other comprehensive income | | — | | 11 | |
| Balance, end of period | Balance, end of period | | ($59) | | | ($90) | | Balance, end of period | | ($50) | | ($59) | |
| | Total Shareholders’ Equity | | $166 | | | $397 | | |
| Total shareholders’ equity | | Total shareholders’ equity | | $589 | | $166 | |
| | Dividends per share | Dividends per share | | $0 | | | $0.37 | | Dividends per share | | $0.19 | | $— | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
| | | Quarter Ended | | Quarter Ended |
| | May 1, 2021 | | May 2, 2020 | | April 30, 2022 | May 1, 2021 |
| Operating Activities | Operating Activities | | Operating Activities | |
| Net loss | ($166) | | | ($521) | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | |
| Net earnings (loss) | | Net earnings (loss) | $20 | | ($166) | |
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | | Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | |
| Depreciation and amortization expenses | Depreciation and amortization expenses | 162 | | | 176 | | Depreciation and amortization expenses | 152 | | 162 | |
| Asset impairment | 0 | | | 117 | | |
| | Right-of-use asset amortization | Right-of-use asset amortization | 43 | | | 44 | | Right-of-use asset amortization | 47 | | 43 | |
| Deferred income taxes, net | Deferred income taxes, net | 8 | | | (54) | | Deferred income taxes, net | (13) | | 8 | |
| Stock-based compensation expense | Stock-based compensation expense | 22 | | | 13 | | Stock-based compensation expense | 19 | | 22 | |
| Other, net | Other, net | 86 | | | 2 | | Other, net | (45) | | 86 | |
| Change in operating assets and liabilities: | Change in operating assets and liabilities: | | Change in operating assets and liabilities: | |
| Accounts receivable | Accounts receivable | 7 | | | 25 | | Accounts receivable | (18) | | 7 | |
| Merchandise inventories | Merchandise inventories | (16) | | | 228 | | Merchandise inventories | (19) | | (16) | |
| Prepaid expenses and other assets | Prepaid expenses and other assets | (126) | | | (393) | | Prepaid expenses and other assets | (24) | | (126) | |
| Accounts payable | Accounts payable | (296) | | | (292) | | Accounts payable | 233 | | (296) | |
| Accrued salaries, wages and related benefits | Accrued salaries, wages and related benefits | (22) | | | (227) | | Accrued salaries, wages and related benefits | (143) | | (22) | |
| Other current liabilities | Other current liabilities | 7 | | | 167 | | Other current liabilities | 40 | | 7 | |
| Lease liabilities | Lease liabilities | (81) | | | (65) | | Lease liabilities | (65) | | (81) | |
| Other liabilities | Other liabilities | 8 | | | 2 | | Other liabilities | 3 | | 8 | |
| Net cash used in operating activities | (364) | | | (778) | | |
| Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 187 | | (364) | |
| | Investing Activities | Investing Activities | | Investing Activities | |
| Capital expenditures | Capital expenditures | (126) | | | (131) | | Capital expenditures | (96) | | (126) | |
| Other, net | 16 | | | 5 | | |
| | Proceeds from the sale of assets and other, net | | Proceeds from the sale of assets and other, net | 85 | | 16 | |
| Net cash used in investing activities | Net cash used in investing activities | (110) | | | (126) | | Net cash used in investing activities | (11) | | (110) | |
| | Financing Activities | Financing Activities | | Financing Activities | |
| Proceeds from revolving line of credit | Proceeds from revolving line of credit | 200 | | | 800 | | Proceeds from revolving line of credit | — | | 200 | |
| | Proceeds from long-term borrowings | Proceeds from long-term borrowings | 675 | | | 600 | | Proceeds from long-term borrowings | — | | 675 | |
| Principal payments on long-term borrowings | Principal payments on long-term borrowings | (600) | | | 0 | | Principal payments on long-term borrowings | — | | (600) | |
| (Decrease) increase in cash book overdrafts | (17) | | | 83 | | |
| Increase (decrease) in cash book overdrafts | | Increase (decrease) in cash book overdrafts | 16 | | (17) | |
| Cash dividends paid | Cash dividends paid | 0 | | | (58) | | Cash dividends paid | (30) | | — | |
| | Proceeds from issuances under stock compensation plans | Proceeds from issuances under stock compensation plans | 7 | | | 11 | | Proceeds from issuances under stock compensation plans | 8 | | 7 | |
| Tax withholding on share-based awards | Tax withholding on share-based awards | (13) | | | (8) | | Tax withholding on share-based awards | (8) | | (13) | |
| Make-whole payment and other, net | (85) | | | (11) | | |
| Net cash provided by financing activities | 167 | | | 1,417 | | |
| Make-whole premium payment and other, net | | Make-whole premium payment and other, net | — | | (85) | |
| Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (14) | | 167 | |
| | Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | 3 | | | (11) | | Effect of exchange rate changes on cash and cash equivalents | — | | 3 | |
| Net (decrease) increase in cash and cash equivalents | (304) | | | 502 | | |
| Net increase (decrease) in cash and cash equivalents | | Net increase (decrease) in cash and cash equivalents | 162 | | (304) | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 681 | | | 853 | | Cash and cash equivalents at beginning of period | 322 | | 681 | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $377 | | | $1,355 | | Cash and cash equivalents at end of period | $484 | | $377 | |
| | Supplemental Cash Flow Information | Supplemental Cash Flow Information | | Supplemental Cash Flow Information | |
| Cash paid during the period for: | | |
| Cash (received) paid during the period for: | | Cash (received) paid during the period for: | |
| Income taxes, net | Income taxes, net | $3 | | | $0 | | Income taxes, net | ($22) | | $3 | |
| Interest, net of capitalized interest | Interest, net of capitalized interest | 63 | | | 34 | | Interest, net of capitalized interest | 40 | | 63 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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. 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 20202021 Annual Report and reflect all adjustments of a normal recurring nature that are, in management’s opinion, necessary for the fair presentation of the results of operations, financial position and cash flows for the periods presented.
The Condensed Consolidated Financial Statements as of and for the periods ended April 30, 2022 and May 1, 2021 and May 2, 2020 are unaudited. The Condensed Consolidated Balance Sheet as of January 30, 202129, 2022 has been derived from the audited Consolidated Financial Statements included in our 20202021 Annual Report. The interim Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and related footnote disclosures contained in our 20202021 Annual Report.
Seasonality
Our business, like that of other retailers, is subject to seasonal fluctuations and cyclical trends in consumer spending. Our sales are typically higher in our second quarter, which usually includes most of our Anniversary Sale, and the holidays in the fourth quarter. As a resultquarter due to the holidays. In 2021, approximately one week of COVID-19, the Anniversary Sale was moved to August in 2020, which fell entirely in ourshifted into the third fiscal quarter.
Results for any one quarter mayare not be indicative of the results that may be achieved for a full fiscal year. We plan our merchandise purchases and receipts to coincide with expected sales trends and other supply chain factors.trends. For instance, our merchandise purchases and receipts increase prior to the Anniversary Sale and we purchase and receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from latein November through December).December. Consistent with our seasonal fluctuations, our working capital requirements have historically increased during the months leading up to the Anniversary Sale and the holidays as we purchase inventory in anticipation of increased sales.
Use of Estimates
The preparation of financial statements in conformity with GAAP in the U.S. requires that we make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results may differ from these estimates and assumptions. Our most significant accounting judgments and estimates include revenue recognition, inventory valuation, long-lived asset recoverability and income taxes, all of which involve assumptions about future events. We may be unable to accurately predict the ongoing impact of COVID-19 going forward and as a result our estimates may change in the near term.
Land, Property and EquipmentIncome Taxes
Our net non-cash investing activities primarily related to technology expenditures resulted in a decrease to accounts payable of $44 in 2021.
Long-Lived Assets
In the first quarter of 2020, as we optimized our mix of physical and digital assets to align with longer-term customer trends, we closed 16 Nordstrom stores. In conjunction with these closures, we incurred non-cash impairment charges on long-lived tangible and ROU assets to adjust the carrying values to their estimated fair value. The following table provides details related to asset impairment charges as a result of COVID-19:
| | | | | | | | |
| | | | |
Quarter Ended | | May 2, 2020 | | |
Long-lived asset impairment1
| | $94 | | | |
Operating lease ROU asset impairment1
| | 23 | | | |
Total asset impairment | | $117 | | | |
1 As of May 2, 2020, the carrying value of the applicable long-lived and operating lease ROU assets after impairment was $15 and $6.
These charges are primarily included in our Retail segment SG&A expense on the Condensed Consolidated Statement of Earnings.
Income Taxes
We1, 2021 we recorded $576 and $275 in current taxes receivable, as of May 1, 2021 and May 2, 2020, which is classified in prepaid expenses and other on the Condensed Consolidated Balance Sheet. In addition, we recordedSheet, and $60 and $2 in noncurrent taxes receivable, as of May 1, 2021 and May 2, 2020, which is classified in other assets on the Condensed Consolidated Balance Sheet. The current and noncurrent income tax receivables arewere primarily associated with the loss carryback provision of the CARES Act. Subsequent to the first quarter of 2021, we were refunded the majority of the current income taxes receivable.
SeveranceLeases
We incurred operating lease liabilities arising from lease agreements of $84 for the quarter ended April 30, 2022 and $33 for the quarter ended May 1, 2021.
Long-Lived Assets
In the first quarter of 2020,2022, we recorded $88decided to sunset the Trunk Club brand. In conjunction with this decision, we incurred non-cash impairment charges of restructuring costs$10 related to a Trunk Club property to adjust the carrying values to their estimated fair value. These charges are included in connection with our regional and corporate reorganization, including $25 recorded in cost of sales and related buying and occupancy costs and $63 inRetail segment SG&A expense on the Condensed Consolidated Statement of Earnings.Earnings and other operating, net on the Condensed Consolidated Statement of Cash Flows.
Investments
In July 2021, we acquired a minority interest in the Topshop, Topman, Miss Selfridge and HIIT brands through a strategic partnership with ASOS.com Ltd. We invest in financial interests of private companies that align with our business and omni-channel strategies, which are recorded in other assets in the Condensed Consolidated Balance Sheets and proceeds from the sale of assets and other, net on the Condensed Consolidated Statements of Cash Flows.
During the first quarter of 2022, in connection with the sale of a limited partnership interest in a corporate office building, we recognized a gain of $51 in our Corporate/Other SG&A expense in the Condensed Consolidated Statement of Earnings and proceeds of $73 in proceeds from the sale of assets and other, net on the Condensed Consolidated Statement of Cash Flows.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Leases
We incurred operating lease liabilities arising from the commencement of lease agreements of$33 for the quarter ended May 1, 2021 and $37 for the quarter ended May 2, 2020.
Reclassification
We reclassified our fiscal 2020 Condensed Consolidated Statement of Cash Flows to conform with current period presentation. To adjust our net loss to reconcile to operating activity cash flows, we present depreciation and amortization separate from other, net, which includes the “make-whole” premium in the first quarter of 2021 (see Note 3: Debt and Credit Facilities).
Recent Accounting Pronouncements
In November 2020, the SEC adopted the final rule under SEC Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, which eliminates the requirement for selected financial data, streamlines certain disclosures in MD&A and eliminates duplicative disclosures with the intention of simplifying reporting compliance. In the fourth quarter of 2020, we early adopted the amendments to provision 301, Selected financial data and provision 302, Supplementary financial information. In the first quarter of 2021, we adopted all remaining provisions of this final rule. The adoption of this final rule did not have a material effect on our Consolidated Financial Statements.
NOTE 2: REVENUE
Contract Liabilities
Contract liabilities represent our obligation to transfer goods or services to customers and include deferred revenue for The Nordy Club (including points and Nordstrom Notes) and gift cards. Our contract liabilities are classified as current on the Condensed Consolidated Balance Sheets and are as follows:
| | | | | |
| Contract Liabilities |
Balance as of February 1, 2020January 30, 2021 | $576478 | |
Balance as of May 2, 20201, 2021 | 489436 | |
| |
| |
| |
Balance as of January 30, 202129, 2022 | 478 | |
Balance as of May 1, 2021April 30, 2022 | 436442 | |
| |
| |
Revenues recognized from our beginning contract liability balance were $128 for the quarter ended April 30, 2022 and $114 for the quarter ended May 1, 2021 and $130 for the quarter ended May 2, 2020.2021.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
| | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | May 1, 2021 | | May 2, 2020 |
| Nordstrom | | | | | $1,854 | | | $1,357 | |
| Nordstrom Rack | | | | | 1,067 | | | 669 | |
| | | | | | | |
| Total net sales | | | | | $2,921 | | | $2,026 | |
| | | | | | | |
| Digital sales as a % of total net sales | | | | | 46 | % | | 54 | % |
| | | | | | | |
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
| | | | | | | | | | | |
| | | Quarter Ended |
| | | | April 30, 2022 | May 1, 2021 |
| Nordstrom | | | | $2,289 | | $1,854 | |
| Nordstrom Rack | | | | 1,178 | | 1,067 | |
| | | | | |
| Total net sales | | | | $3,467 | | $2,921 | |
| | | | | |
| Digital sales as a % of total net sales | | | | 39 | % | 46 | % |
| | | | | |
The following table summarizes the percent of net sales by merchandise category:
| | | | Quarter Ended | | | Quarter Ended |
| | | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | May 1, 2021 |
| Women’s Apparel | Women’s Apparel | | 31 | % | | 33 | % | Women’s Apparel | | 30 | % | 31 | % |
| Shoes | Shoes | | 26 | % | | 24 | % | Shoes | | 26 | % | 26 | % |
| Men’s Apparel | | Men’s Apparel | | 14 | % | 12 | % |
| Women’s Accessories | Women’s Accessories | | 14 | % | | 12 | % | Women’s Accessories | | 13 | % | 14 | % |
| Men’s Apparel | | 12 | % | | 12 | % | |
| Beauty | Beauty | | 11 | % | | 12 | % | Beauty | | 11 | % | 11 | % |
| Kids’ Apparel | Kids’ Apparel | | 4 | % | | 4 | % | Kids’ Apparel | | 3 | % | 4 | % |
| Other | Other | | 2 | % | | 3 | % | Other | | 3 | % | 2 | % |
| Total net sales | Total net sales | | 100 | % | | 100 | % | Total net sales | | 100 | % | 100 | % |
|
NOTE 3: DEBT AND CREDIT FACILITIES
Debt
During the first quarter of 2021, we issued $250 aggregate principal amount of 2.3%2.30% senior notes due April 2024 and $425 aggregate principal amount of 4.25% senior notes due August 2031. These notes are unsecured and may be redeemed at any time in whole or in part. The April 2024 notes can be redeemed at par starting in April 2022. With2031.With the net proceeds of these new notes, together with cash on hand, we retired our $600 Secured Notes. We recorded $88 related to the redemption in interest expense, net, which primarily consisted of a one-time payment of $78 for a “make-whole” premium, and the write-off of unamortized balances associated with the debt discount and issuance costs. The make-whole“make-whole” premium payment was not included in cash paid during the period for interest, net of capitalized interest.interest in the Supplemental Cash Flow Information.
As a result of this redemption, our outstanding long-term debt is unsecuredNORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and all real estate will be unencumbered.share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Credit Facilities
DuringAs of April 30, 2022, the firstprovisions of our prior revolving credit facility as described in our 2021 Annual Report were in effect. Subsequent to quarter of 2021,end, we borrowed $200terminated and amendedreplaced our existing Revolver. Underprior revolving credit facility set to expire in September 2023 with a new five-year $800 Revolver that expires in May 2027. Consistent with our prior revolving credit agreement, any outstanding borrowings under the Revolver we are in a “Collateral Period” if our Leverage Ratio is greater than 4 or our unsecured debt is rated below BBB- with a stable outlook at Standard & Poor’s or Baa3 with a stable outlook at Moody’s. In the Collateral Period, any borrowings under our Revolver will be secured by substantially all our personal and intellectual property assets and are guaranteed by certain of our subsidiaries. Under the Revolver, our obligation to secure any outstanding borrowings will be eliminated if no default exists and we willeither have an unsecured investment-grade debt rating from 2 of 3 specified ratings agencies, or we have 1 investment-grade rating and achieve 2 consecutive fiscal quarters with a Leverage Ratio of less than 2.5 times.Under the Revolver, we have 2 financial covenant tests that need to be subjectmet on a quarterly basis: a Leverage Ratio that is less than or equal to asset coverage4 times and minimum liquidity covenants, as well as a fixed charge coverage covenant. Ifratio that is greater than or equal to 1.25 times. For the first quarter of 2022, we are reporting our Leverage Ratio is below 4quarterly compliance status under the terms of the new Revolver and are in compliance with all covenants.
The Revolver provides us with additional flexibility, compared with our unsecured debt is rated at or above BBB- with a stable outlook at Standard & Poor’s or Baa3 with a stable outlook at Moody’s, any borrowings under our Revolver will be unsecured, we will not be subject to the above covenants and the restrictions on dividend payments and share repurchases will be removed. In May 2021, subsequent to quarter end, we completely repaid $200 on our Revolver.
Under our Revolver amendment, we created flexibilityprior revolving credit facility, for dividends and share repurchases, during the Collateral Period, provided we are not in default, and no default or event of default existswould arise as a result of such payments,payments. If the pro-forma Leverage Ratio as of the most recent fiscal quarterafter such payments is less than 3.75, pro-forma liquidity at the date of such payment is at least $600, and the amount of3 times, then such payments do not exceedare unlimited. If the amount of the correspondingpro-forma Leverage Ratio is greater than or equal to 3 times but less than 3.5 times then we are limited to $100 per fiscal quarter of 2019. Additionally,and if the “make-whole” premium and unamortized deferred bond issuance costs relatedpro-forma Leverage Ratio is greater than or equal to 3.5 times then the redemption of the $600 Secured Noteslimit is excluded from the definition of interest expense.$60 per fiscal quarter.
The Revolver expires in September 2023contains customary representations, warranties, covenants and terms, including paying a variable rate of interest and a facility fee based on our debt rating, and is classified in total current liabilities on the Condensed Consolidated Balance Sheet. As of May 1, 2021, we had $200 outstanding under this facility, our borrowings under the Revolver were classified as secured as our Leverage Ratio exceeded 4available for working capital, capital expenditures and we did not meet or exceed our credit rating threshold. We met all other financial covenant measures for the quarter.general corporate purposes. Provided that we obtain written consent from the lenders, we have the option to increase the Revolver by up to $200, to a total of $1,000, and 2 options to extend the Revolver by one year. The Revolver contains customary representations, warranties, covenants and terms, including paying a variable ratefor additional one-year terms. As of interest and a commitment fee based onApril 30, 2022, we had no borrowings outstanding under our debt rating. The Revolver is available for working capital, capital expenditures and general corporate purposes.Revolver.
As a result of our borrowings under the Revolver, the full capacity of ourOur $800 commercial paper program is not available to us at this time. When available, the 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 of reducing available liquidity under the Revolver by an amount equal to the principal amount of commercial paper outstanding. Conversely, borrowings under our Revolver have the effect of reducing the available capacity of our commercial paper program by an amount equal to the amount outstanding. As of May 1, 2021,April 30, 2022, we had 0no issuances outstanding under our commercial paper program.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
NOTE 4: FAIR VALUE MEASUREMENTS
We disclose our financial assets and liabilities that are measured at fair value in our Condensed Consolidated Balance Sheets by level within the fair value hierarchy as defined by applicable accounting standards:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Other observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that cannot be corroborated by market data that reflect the reporting entity’s own assumptions
Financial Instruments Measured at Carrying Value
Financial instruments measured at carrying value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable and our Revolver, which approximate fair value due to their short-term nature.
Long-term debt is recorded at carrying value. If long-term debt was measured at fair value, we would use quoted market prices of the same or similar issues, 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 1, 2021 | | January 30, 2021 | | May 2, 2020 | | April 30, 2022 | January 29, 2022 | May 1, 2021 |
| Carrying value of long-term debt | Carrying value of long-term debt | $3,347 | | | $3,269 | | | $3,264 | | Carrying value of long-term debt | $2,854 | | $2,853 | | $3,347 | |
| Fair value of long-term debt | Fair value of long-term debt | 3,480 | | | 3,430 | | | 2,804 | | Fair value of long-term debt | 2,544 | | 2,758 | | 3,480 | |
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, long-lived tangible and ROU 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. For more information regarding long-lived tangible asset impairment charges for the quarter ended April 30, 2022, see Note 1: Basis of Presentation. There were 0no material impairment charges for these assets for the quarter ended May 1, 2021. For more information regarding long-lived tangible and ROU asset impairment charges for the quarter ended May 2, 2020, see Note 1: Basis of Presentation.
NOTE 5: COMMITMENTS AND CONTINGENCIES
Our NYC flagship store opened in October 2019 and the related building and equipment assets were placed into service at the end of the third quarter of 2019. While our store has opened, construction continues in the residential condominium units above the store. As of May 1, 2021, we have a fee interest in the retail condominium unit. We are committed to make 1remaining installment payment based on the developer meeting final pre-established construction and development milestones. Precautions related to COVID-19 have caused delays in meeting these milestones and the timing of the remaining payment.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
NOTE 5: STOCK-BASED COMPENSATION
The following table summarizes our stock-based compensation expense:
| | | | | | | | | | | |
| | | Quarter Ended |
| | | | April 30, 2022 | May 1, 2021 |
| RSUs | | | | $12 | | $14 | |
| Stock options | | | | 5 | | 7 | |
Other1 | | | | 2 | | 1 | |
| Total stock-based compensation expense, before income tax benefit | | | | 19 | | 22 | |
| Income tax benefit | | | | (5) | | (6) | |
| Total stock-based compensation expense, net of income tax benefit | | | | $14 | | $16 | |
1 Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards.
The following table summarizes our grant allocations:
| | | | | | | | | | | | | | | | | |
| Quarter Ended |
| April 30, 2022 | | May 1, 2021 |
| Granted | Weighted-average grant-date fair value per unit | | Granted | Weighted-average grant-date fair value per unit |
| RSUs | 1.4 | | $23 | | | 1.4 | | $33 | |
| Stock options | 1.1 | | $10 | | | 1.2 | | $13 | |
| PSUs | 0.5 | | $23 | | | — | | — | |
Under our deferred and stock-based compensation plan arrangements, we issued 1.2 shares of common stock during the first quarter of 2022 and 1.1 shares during the first quarter of 2021.
NOTE 6: SHAREHOLDERS’ EQUITY
In August 2018, our Board of Directors authorized a program to repurchase up to $1,500 of our outstanding common stock, with no expiration date. On March 23, 2020, in response to uncertainty fromWe repurchased no shares of common stock during the COVID-19 pandemic, we announced the suspension of our quarterly dividend payments beginning in the secondfirst quarter of 20202022 and the immediate suspension of our share repurchase program. We remain committed to these programs over the long-term and intend to resume dividend payments and share repurchases when appropriate. Wewe had $707 remaining in share repurchase capacity as of May 1, 2021.April 30, 2022. Subsequent to quarter end, the Board of Directors authorized a new $500 share repurchase program, with no expiration date. This program replaced the August 2018 program. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to the discretion of the Board of Directors, contractual commitments, market and economic conditions and applicable SEC rules.
Our Revolver contains negative covenantsIn May 2022, subsequent to quarter end, we declared a quarterly dividend of $0.19 per share, which will be paid on June 15, 2022 to shareholders of record at the close of business on May 31, 2022.
We have certain limitations with respect to the payment of dividends and share repurchases. As of May 1, 2021,repurchases under our Leverage Ratio exceeded 4 and we did not meet our credit rating covenant, preventing us from paying dividends or repurchasing shares. For more information regarding our debt covenants, seeRevolver agreement (see Note 3: Debt and Credit Facilities.Facilities).
NOTE 7: STOCK-BASED COMPENSATION
The following table summarizes our stock-based compensation expense:
| | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | May 1, 2021 | | May 2, 2020 |
| RSUs | | | | | $14 | | | $13 | |
| Stock options | | | | | 7 | | | 2 | |
Other1 | | | | | 1 | | | (2) | |
| Total stock-based compensation expense, before income tax benefit | | | | | 22 | | | 13 | |
| Income tax benefit | | | | | (6) | | | (5) | |
| Total stock-based compensation expense, net of income tax benefit | | | | | $16 | | | $8 | |
1 Other stock-based compensation expense includes PSUs, ESPPOur NYC flagship store opened in October 2019 and nonemployee director stock awards.
The following table summarizesthe related building and equipment assets were placed into service at the end of the third quarter of 2019. While our grant allocations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 |
| Granted | | Weighted-average grant-date fair value per unit | | Granted | | Weighted-average grant-date fair value per unit |
| RSUs | 1.4 | | | $33 | | | 2.2 | | | $23 | |
| Stock options | 1.2 | | | $13 | | | 0.3 | | | $7 | |
| PSUs | 0 | | | 0 | | | 0.4 | | | $24 | |
Under our deferred and stock-based compensation plan arrangements,store has opened, construction continues in the residential condominium units above the store. As of April 30, 2022, we issued 1.1 shares of common stock duringhave a fee interest in the firstretail condominium unit. In the third quarter of 2021, we paid the majority of our final installment payment based on the developer meeting final pre-established construction and 1.5 shares during the first quarter of 2020.development milestones.
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: EARNINGS PER SHARE
The computation of EPS is as follows:
| | | | Quarter Ended | | | Quarter Ended |
| | | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | May 1, 2021 |
| Net loss | | ($166) | | | ($521) | | |
| Net earnings (loss) | | Net earnings (loss) | | $20 | | ($166) | |
| | Basic shares | Basic shares | | 158.5 | | | 156.4 | | Basic shares | | 160.1 | | 158.5 | |
| Dilutive effect of common stock equivalents | Dilutive effect of common stock equivalents | | 0 | | | 0 | | Dilutive effect of common stock equivalents | | 2.8 | | — | |
| Diluted shares | Diluted shares | | 158.5 | | | 156.4 | | Diluted shares | | 162.9 | | 158.5 | |
| | Loss per basic share | | ($1.05) | | | ($3.33) | | |
| Loss per diluted share | | ($1.05) | | | ($3.33) | | |
| Earnings (loss) per basic share | | Earnings (loss) per basic share | | $0.13 | | ($1.05) | |
| Earnings (loss) per diluted share | | Earnings (loss) per diluted share | | $0.13 | | ($1.05) | |
| | Anti-dilutive common stock equivalents | Anti-dilutive common stock equivalents | | 12.7 | | | 13.1 | | Anti-dilutive common stock equivalents | | 10.1 | | 12.7 | |
NOTE 9: SEGMENT REPORTING
The following table sets forth information for our reportable segment:
| | | Quarter Ended | | | Quarter Ended |
| | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | May 1, 2021 |
| Retail segment EBIT | Retail segment EBIT | | ($55) | | | ($711) | | Retail segment EBIT | | $87 | | ($55) | |
| Corporate/Other EBIT | Corporate/Other EBIT | | (30) | | | (102) | | Corporate/Other EBIT | | (14) | | (30) | |
| Interest expense, net | Interest expense, net | | (137) | | | (34) | | Interest expense, net | | (35) | | (137) | |
| Loss before income taxes | | ($222) | | | ($847) | | |
| Earnings (loss) before income taxes | | Earnings (loss) before income taxes | | $38 | | ($222) | |
For information about disaggregated revenues, see Note 2: Revenue.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts)amounts and where noted otherwise)
The following MD&A provides a narrative of our financial performance and is intended to promote understanding of our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, Item 1: Financial Statements (Unaudited) and generally discusses the results of operations for the quarter ended April 30, 2022 compared with the quarter ended May 1, 2021. The following discussion and analysis contains forward-looking statements and should also be read in conjunction with cautionary statements and risks described elsewhere in this Form 10-Q before deciding to purchase, hold or sell shares of our common stock.
| | | | | |
| Overview | |
| Results of Operations | |
| Liquidity | |
| Capital Resources | |
| Critical Accounting Estimates | |
| Recent Accounting Pronouncements | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where noted otherwise)
OVERVIEW
Our first quarter results reflected improving sales momentumwere marked by strong topline growth and continued progress in our transformation as we work to unlock the full potential of our digital-first platform.transformation. Net lossearnings for the first quarter was $166,$20, or $1.05$0.13 per diluted share. After excluding a gain on sale of our interest in a corporate office building and an impairment charge related to a Trunk Club property, adjusted loss per diluted share including an after-tax debt refinancing charge of $0.41.was $0.06. First quarter net sales increased 44% from19% over the same period in 2020 and decreased 13% from the same period in 2019, representing a sequential improvement of 720 basis points relative to the fourthfirst quarter of 2020.2021. This quarter, we saw customers shopping for long-anticipated in-person occasions such as social events, travel and return to office. Beyond occasions, customers also re-evaluated and refreshed their wardrobes. We are encouraged by this opportunity because it favors the core categories of our business and the core capabilities of our service model.
Our top-line trends increased sequentially for the third quarter in a row,team remains focused on building additional capabilities to better serve customers and drive shareholder value, with improvements in both Nordstrom andparticular emphasis on three key areas: improving Nordstrom Rack supportedperformance, increasing profitability and optimizing our supply chain and inventory flow.
Nordstrom Rack – Sales grew 10% versus last year, driven by recovery in stores as COVID-19 restrictions were lifted,increased store traffic, improved conversion and continued growth in digital. Sales trends reflected broad-based improvement across channels, regions and merchandise categories, both in-store and online. Stores in markets that opened up earlier outperformed other markets by 7 to 10 percentage points, giving usbetter in-stock levels. We also built momentum with sales increasing optimism about the pace of recovery as we lookmoved through the quarter. We are achieving a better balance of price points at Nordstrom Rack by increasing our supply of premium brands and fine tuning our assortment to better align with customer needs. As we move through the year, we expect to see continued benefits from our multi-layered plan to ensure we have the right selection for our customers, which includes expanding our offerings of the most coveted brands, sourcing from new vendors and increasing our use of pack and hold inventory.
Profitability – We continued our progress in improving our merchandise margins this quarter. Our team used advanced analytics to better understand customer needs, find opportunities to improve our assortment and presentation and optimize markdowns. We also increased average retail prices without seeing a negative impact on transaction volumes. We are focused on plans to deliver incremental improvements and elevated flowthrough throughout the remainder of the year. Our performance
Supply Chain and Inventory Flow Optimization – We have identified opportunities across our network to improve efficiencies and capabilities, increase sell-through, reduce markdowns, drive expense savings and ultimately improve our service to customers. We have four initiatives in flight:
•First, improving the consistency and predictability of unit flow through our network,
•Second, increasing productivity in our distribution and fulfillment centers,
•Third, accelerating delivery speed,
•And finally, expanding the market-level selection for in-store shopping as well as same-day and next-day pickup.
We still have work to do, but are encouraged by early results and expect to see more significant benefits in the quarter reflects solid execution towardsecond half of this year.
In addition to the growth priorities we laid out at our investor day in February: winthree focus areas above, winning in our most important markets broaden the reach of Nordstrom Rack and increaseadvancing our digital velocity.capabilities are key strategic priorities for us, and we continue to make progress in these areas.
Market Strategy – Our market strategy helps us engage with customers through better service and greater access to product, no matter how they chooseour customer chooses to shop. DuringWe deliver a level of convenience and connection that our customers enjoy by leveraging a strong store fleet and linking our omnichannel capabilities at the quarter, we successfully expanded this strategy tomarket level. Customers clearly value our top 20 markets, which comprise approximately 75% of sales. We continued to scale the enhanced capabilities we launched in 2020, such as the expansion of order pick-up and ship-to-store to all Nordstrom Rack stores. Almost one-third of next dayinterconnected model, with order pickup volume forcomprising 10% of Nordstrom.com indemand this quarter, an increase of more than 200 basis points versus the prior year. Customers utilizing in-store pickup have higher engagement and spend 3.5 times more than customers who do not utilize the service. Buy Online Pick Up In Store also remains our top 20 markets was picked up at Rack stores,most profitable customer journey and one of our highest satisfaction customer experiences.
Our styling program also continues to be a powerful engagement driver as we continuedeliver convenience and build deeper customer connections through our Closer to integrateYou strategy. As we position our capabilities acrossstyling program for further growth, we are sunsetting Trunk Club and redirecting our two powerful brands.
Nordstrom Rack –First quarter Nordstrom Rack sales declined 13% comparedresources to the services our customers tell us they value most. This move reflects our belief in and commitment to styling. Customers spend seven times more and report higher levels of satisfaction when engaging with 2019, a 10-percentage point sequential improvement from the fourth quarter of 2020. Merchandise repositioning across price, hybridstylist either in-store or online, and brand doors is progressing, in spite of challenges managing slower than anticipated inbound inventory flow. We remain in the early stages of these initiatives,we are committed to growing and our progress is encouraging. Increased customer choice of price-oriented offerings in Kids, Home and Active supported a 37% increase in sales compared with 2019investing in these categories.services.
Digital VelocityCapabilities – We maintained strong growth at Nordstrom.com and Nordstromrack.com in the first quarter, even as store traffic and sales rebounded. Digital sales increased 23% over last year and 28% overwere flat versus the first quarter of 2019. With continued growth in digital,2021, as more customers returned to stores. Digital remains an important part of the business, with 39% penetration, and is an important part of our total penetration has increased by 15 percentage points over the past two years,in-store experience. We will continue to 46%. One key opportunity we see is to offer our customers more choices, with plans to increase choice count to approximately 1.5 million over the next several years. This quarter, choice counts increased almost 20% compared with 2019, primarily driven by an expanded dropship assortment in both our core categories and in-demand categories like Home, Active and Kids. This allowed us to drive strong sales growth inleverage our digital business without a corresponding increaseplatforms to deliver personalization at scale, especially as we connect with customers through our upcoming Anniversary Sale in our inventory investment.the second quarter.
As we look ahead to the second quarter, we believe that our customers will benefit from the timing of the Anniversary Sale will be well-timed to benefit from customers’ increasing confidence andas they return to pre-pandemic activities.events and update their wardrobes. Our goal is to have an event thatAnniversary Sale rewards and engages our bestloyal customers with brand new product from the best brands at reduced prices for a superior shopping experience. We will also significantly increase selection for Anniversarylimited time. Our focus this year withis on new and highly coveted brands, bringing back in-store events, and launching a new digital catalog.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where noted otherwise)
We are excited about our plans for the year and the progress we are making on our transformation. Investments in our market strategy and digital assets put us in a strong position to capitalize on favorable market opportunities as events and overall demand continue to recover. Beyond topline growth, we made progress improving merchandise margin and driving SG&A efficiency, and we have specific workstreams in place to drive incremental improvement in the second half of the year. We have line of sight to achieving the financial targets outlined at our 2021 Investor Event and remain committed to shareholder value creation.
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing a seamless retail experience across our Company. We invested early in integrating our operations, merchandising and technology across our stores and online, and in both Nordstrom and Nordstrom Rack banners. By connecting our digital and physical assets across Nordstrom and Nordstrom Rack, we are able to better serve customers when, where and how they want to shop. We have one Retail reportable segment and analyze our results on a total Company basis, using customer, choices up double-digits compared with 2019, supported by an expansionmarket share, operational and net sales metrics.
We monitor a number of key operating metrics to evaluate our Company’s performance. In addition to net sales, net earnings (loss) and other results under GAAP, two other key operating metrics we use are GMV and inventory turnover rate.
•GMV: Our GMV represents the total dollar value of items sold through our digital platforms and stores. GMV includes net sales from inventory we own, as well as the value of merchandise sold under our alternative partnership models with our vendors. We use GMV as an indicator of the scale and growth of our operations and the impact of our alternative partnership models.
Our focus on accelerating•Inventory Turnover Rate: Inventory turnover rate is calculated as the trailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter average inventory. Inventory turnover rate is an indicator of our strategic priorities to serve customerssuccess in newoptimizing inventory volumes in accordance with customer demand.
Net Sales
The following table summarizes net sales:
| | | | | | | | | | | | | |
| Quarter Ended |
| April 30, 2022 | | May 1, 2021 | | |
| Net sales: | | | | | |
| Nordstrom | $2,289 | | | $1,854 | | | |
| Nordstrom Rack | 1,178 | | | 1,067 | | | |
| | | | | |
| Total net sales | $3,467 | | | $2,921 | | | |
| | | | | |
| Net sales increase: | | | | | |
| Nordstrom | 23.5 | % | | 36.7 | % | | |
| Nordstrom Rack | 10.3 | % | | 59.5 | % | | |
| Total Company | 18.7 | % | | 44.2 | % | | |
| | | | | |
| Digital sales as a % of net sales | 39 | % | | 46 | % | | |
| Digital sales increase | — | % | | 23 | % | | |
Total Company net sales increased for the first quarter of 2022, compared with the same period in 2021, exceeding pre-pandemic sales levels. This increase was driven by pricing actions, favorable mix shift and differentiated ways is gaining momentum. We aretransaction growth. Both customer counts and spend per customer increased compared with the same period in a stronger position than ever to capitalize on our market share opportunity as customer demand recovers. While there is still considerable uncertainty2021. Total Company GMV increased 20% compared with respect to COVID-19, we remain confidentthe same period in our ability to deliver on our targets for2021. Improvements were broad-based across regions, with urban stores having the strongest growth against the first quarter of 2021. Men’s and women’s apparel, shoes and designer were the top-performing merchandise categories.
Total Company digital sales were flat in the first quarter of 2022, compared with the same period in 2021 and generate profitablerepresented 39% of total net sales. Nordstrom and Nordstrom Rack net sales growth as demand recovers.increased for the first quarter of 2022 compared with the same period in 2021. Nordstrom GMV increased 25% compared with the same period in 2021.
There were no store openings or closures during the first quarter of 2022. Subsequent to quarter end, we opened the ASOS | Nordstrom store in Los Angeles, CA.
Credit Card Revenues, Net
Credit card revenues, net were $102 for the first quarter of 2022, compared with $88 for the same period in 2021. This increase was primarily the result of higher finance charges and late fee revenues throughout the first quarter of 2022 due to larger outstanding balances.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share amounts in millions except per share amounts)amounts and where noted otherwise)
Gross Profit
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing a seamless experience across our Company. We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores and online, and in both Nordstrom and Nordstrom Rack brands. While our customers may engage with us through multiple ways, we know they value the integrated brand experience, which is ultimately how we view our company. We have one Retail reportable segment and analyze our results on a total company basis, using customer, market share, operational and net sales metrics.
Due to the extraordinary impact of COVID-19 on our results in fiscal 2020, we analyzed fiscal year 2021 net sales through EBIT against both fiscal years 2020 and 2019 to provide useful supplemental comparability.
Net Sales
The following table summarizes
net sales:gross profit: | | | | | | | | | | | | | |
| Quarter Ended |
| April 30, 2022 | | May 1, 2021 | | |
| Gross profit | $1,136 | | | $902 | | | |
| Gross profit as a % of net sales | 32.8 | % | | 30.9 | % | | |
| Inventory turnover rate | 4.12 | | | 4.51 | | | |
| | | | | | | | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 | | May 4, 2019 |
| Net sales: | | | | | |
| Nordstrom | $1,854 | | | $1,357 | | | $2,127 | |
| Nordstrom Rack | 1,067 | | | 669 | | | 1,222 | |
| | | | | |
| Total net sales | $2,921 | | | $2,026 | | | $3,349 | |
| | | | | |
| Net sales increase (decrease): | | | | | |
| Nordstrom | 36.7 | % | | (36.2 | %) | | (5.1 | %) |
| Nordstrom Rack | 59.5 | % | | (45.2 | %) | | (0.6 | %) |
| Total Company | 44.2 | % | | (39.5 | %) | | (3.5 | %) |
| | | | | |
| Digital sales as a % of total net sales | 46 | % | | 54 | % | | 31 | % |
| Digital sales increase | 23 | % | | 5 | % | | 7 | % |
Net Sales (2021 vs. 2020)
Total Company net salesGross profit increased 44% for$234 during the first quarter of 2021,2022, compared with the same period in 2020, during which stores were temporarily closed for approximately half of the quarter2021, almost entirely due to COVID-19. Total Company digitalhigher sales volume. Gross profit increased 23% in the first quarter190 basis points as a rate of 2021,net sales, primarily due to increased leverage on buying and occupancy costs and improved merchandise margins from favorable pricing impacts and lower markdown rates.
Ending inventory increased 24% compared with the same period in 20202021, versus a 19% increase in sales. Approximately one-quarter of the change in inventory levels versus 2021 is due to pull-forward of Anniversary Sale receipts.
Selling, General and represented 46% of total net salesAdministrative Expenses
SG&A is summarized in the following table: | | | | | | | | | | | | | |
| Quarter Ended |
| April 30, 2022 | | May 1, 2021 | | |
| SG&A expenses | $1,165 | | | $1,075 | | | |
| SG&A expenses as a % of net sales | 33.6 | % | | 36.8 | % | | |
SG&A increased $90 during the first quarter of 2022, compared with the same period in 2021, almost entirely due to increased variable expenses associated with higher sales volume. This was partially offset by the $51 gain on sale of our interest in a corporate office building. SG&A decreased 320 basis points as a rate of net sales, primarily due to leverage on higher sales and the impacts from the gain on sale of our interest in a corporate office building.
Earnings (Loss) Before Interest and Income Taxes
EBIT is summarized in the following table: | | | | | | | | | | | | | |
| Quarter Ended |
| April 30, 2022 | | May 1, 2021 | | |
| EBIT | $73 | | | ($85) | | | |
| EBIT as a % of net sales | 2.1 | % | | (2.9 | %) | | |
EBIT improved $158 and 500 basis points during the first quarter of 2022, compared with the same period in 2021. DuringThe increase was almost entirely due to impacts of higher sales volume and the quarter ended May 1, 2021,gain on sale of our interest in a corporate office building.
Interest Expense, Net
Interest expense, net was we closed one Nordstrom Rack store.
Nordstrom net sales increased 37%$35 for the first quarter of 2021,2022, compared with $137 for the same period in 2021. The decrease was primarily due to the debt refinance charges of $88 related to the redemption of the Secured Notes in the first quarter of 2021.
Income Tax Expense
Income tax expense is summarized in the following table: | | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | April 30, 2022 | | May 1, 2021 | | |
| Income tax expense (benefit) | | | | | $18 | | | ($56) | | | |
| Effective tax rate | | | | | 46.8 | % | | 25.4 | % | | |
The effective tax rate increased in the first quarter of 2022, compared with the same period in 2020. Nordstrom Rack net sales increased 59% for the first quarter of 2021, compared with the same period in 2020. Home, active, designer and beauty were the top-performing merchandise categories.
Net Sales (2021 vs. 2019)
Total Company net sales decreased 13% for the first quarter of 2021, compared with the same period in 2019, and marked sequential improvement of 720 basis points relativeprimarily due to the fourth quarterunfavorable tax impact of 2020. Total Company digital sales increased 28% in the first quarter of 2021, compared with the same period in 2019.
Nordstrom net sales decreased 13% for the first quarter of 2021, compared with the same period in 2019. Nordstrom Rack net sales decreased 13% for the first quarter of 2021, compared with the same period in 2019. Home, active and kids were the top-performing merchandise categories.
Credit Card Revenues, Net
Credit card revenues, net include our portion of the ongoing credit card revenue, net of credit losses, pursuant to our program agreement with TD. TD is the exclusive issuer of our consumer credit cards and we perform the account servicing functions.
Credit Card Revenues, Net (2021 vs. 2020 and 2021 vs. 2019)
Credit card revenues, net were $88 for the quarter ended May 1, 2021, compared with $93 and $94 for the same periods in 2020 and 2019. These decreases were primarily a result of lower finance charges and late fee revenues throughout the first quarter of 2021 due to lower outstanding balances as consumers made higher payments, driven in part by government stimulus packages.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share amounts in millions except per share amounts)amounts and where noted otherwise)
Earnings (Loss) Per Share
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | April 30, 2022 | | May 1, 2021 | | |
| Basic | | | | | $0.13 | | | ($1.05) | | | |
| Diluted | | | | | $0.13 | | | ($1.05) | | | |
Gross Profit
The following table summarizes gross profit:
| | | | | | | | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 | | May 4, 2019 |
| Gross profit | $902 | | | $216 | | | $1,121 | |
| Gross profit as a % of net sales | 30.9 | % | | 10.7 | % | | 33.5 | % |
| Inventory turnover rate | 4.51 | | | 4.81 | | | 4.68 | |
Gross Profit (2021 vs. 2020)
Gross profit increased $686 and 20 percentage points as a rate of net sales duringEarnings (loss) per diluted share improved $1.18 for the first quarter of 2021,2022, compared with the same period in 2020, primarily2021. The improvement includes a net impact of $0.19 per diluted share due to lower markdowns and leverage from higher net sales volume.
Gross Profit (2021 vs. 2019)
Gross profit decreased $219 and 260 basis points duringthe gain on sale of our interest in a corporate office building partially offset by an impairment charge related to a Trunk Club property. In the first quarter of 2021, compared withwe recorded an interest expense charge of $88 related to the same period in 2019, as a resultredemption of deleverage on lower sales and lower merchandise margins, partially offsetthe Secured Notes, which reduced EPS by permanent reductions in buying and occupancy costs.$0.41 per share.
Ending inventory decreased 2% compared with the same period in 2019, versus a 13% decrease in sales. The change in inventory levels compared with 2019 includes an approximately 700 basis point impact
Fiscal Year 2022 Outlook
We are updating our outlook to reflect first quarter performance, resulting from the acceleration of vendor shipments to support sales trends and mitigate potential supply chain backlogs in the second quarter.
Selling, General and Administrative Expenses
SG&A is summarized in the following table:
| | | | | | | | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 | | May 4, 2019 |
| SG&A expenses | $1,075 | | | $1,122 | | | $1,138 | |
| SG&A expenses as a % of net sales | 36.8 | % | | 55.4 | % | | 34.0 | % |
SG&A (2021 vs. 2020)financial expectations for fiscal 2022:
SG&A decreased $47•Revenue growth, including retail sales and 19 percentage pointscredit card revenues, of 6 to 8 percent versus fiscal 2021
•EBIT margin of 5.8 to 6.2 percent of sales
•Adjusted EBIT margin of 5.6 to 6.0 percent of sales
•Income tax rate of approximately 27 percent
•EPS of $3.38 to $3.68, excluding the impact of share repurchase activity, if any
•Adjusted EPS of $3.20 to $3.50, excluding the impact of share repurchase activity, if any
•Leverage ratio of approximately 2.5 times by year-end
Our adjusted EBIT as a ratepercent of net sales during(“adjusted EBIT margin”) and Adjusted EPS outlook for fiscal year 2022 excludes the first quarterimpacts from certain items that we do not consider representative of 2021, compared withour core operating performance. These items include the same period in 2020, as a result of $250 in chargesexpected full fiscal year 2022 impact associated with a gain on the impactsale of COVID-19our interest in 2020, leverage on higher sales a corporate office building and the continued benefit of permanent reductions in overhead expenses of approximately 15%. This was partially offset by higher variable expenses such as supply chain costs associated with the sales volume increase.
SG&A (2021 vs. 2019)
SG&A decreased $63 during the first quarter of 2021, compared with the same period in 2019, primarily duean impairment charge related to planned cost savings initiatives and lower sales volume, partially offset by COVID-19 related labor and freight cost pressures. SG&A rate increased 280 basis points during the first quarter of 2021, compared with the same period in 2019, as a result of COVID-19 related labor and freight cost pressures, partially offset by our planned savings initiatives.
(Loss) Earnings Before Interest and Income Taxes
EBIT is summarized in the following table:
| | | | | | | | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 | | May 4, 2019 |
| EBIT | ($85) | | | ($813) | | | $77 | |
| EBIT as a % of net sales | (2.9 | %) | | (40.1 | %) | | 2.3 | % |
EBIT (2021 vs. 2020)
EBIT improved $728 during the first quarter of 2021, compared with the same period in 2020. The increase was due to higher sales volume, lower markdowns and $280 in chargesTrunk Club property recognized in the first quarter of 2020 related2022.
The following is a reconciliation of net earnings as a percent of net sales to the impactsadjusted EBIT margin included within our Fiscal Year 2022 Outlook:
| | | | | | | | |
| 52 Weeks Ending January 28, 2023 |
| Low | High |
| Expected net earnings as a % of net sales | 3.6 | % | 3.9 | % |
| Add: income tax expense | 1.3 | % | 1.4 | % |
| Add: interest expense, net | 0.9 | % | 0.9 | % |
| Expected earnings before interest and income taxes as a % of net sales | 5.8 | % | 6.2 | % |
| | |
| Less: gain on sale of interest in a corporate office building | (0.3 | %) | (0.3 | %) |
| Add: Trunk Club property impairment | 0.1 | % | 0.1 | % |
| Expected adjusted EBIT margin | 5.6 | % | 6.0 | % |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
The following is a reconciliation of COVID-19.earnings per diluted share to Adjusted EPS included within our Fiscal Year 2022 Outlook:
EBIT (2021 vs. 2019)
For the first quarter of 2021, EBIT decreased $162, compared with the same period in 2019 primarily due to lower sales volume as we continue to recover from the pandemic and higher freight cost pressures, partially offset by our planned savings initiatives. | | | | | | | | |
| 52 Weeks Ending January 28, 2023 |
| Low | High |
| Expected earnings per diluted share | $3.38 | | $3.68 | |
| Less: gain on sale of interest in a corporate office building | (0.31) | | (0.31) | |
| Add: Trunk Club property impairment | 0.06 | | 0.06 | |
| Add: income tax impact on adjustments | 0.07 | | 0.07 | |
| Expected Adjusted EPS | $3.20 | | $3.50 | |
| | |
| | |
| | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share amounts in millions except per share amounts)
Interest Expense, NetAdjusted EBIT, Adjusted EBITDA and Adjusted EPS (Non-GAAP financial measures)
Interest expense,Adjusted EBIT, Adjusted EBITDA and Adjusted EPS are key financial metrics and, when used in conjunction with GAAP measures, we believe they provide useful information for evaluating our core business performance, enable comparison of financial results across periods and allow for greater transparency with respect to key metrics used by management for financial and operational decision-making. Adjusted EBIT, Adjusted EBITDA and Adjusted EPS exclude certain items that we do not consider representative of our core operating performance. The financial measure calculated under GAAP which is most directly comparable to Adjusted EBIT and Adjusted EBITDA is net was $137 for the first quarter of 2021, compared with $34 for the same period in 2020. earnings. The increase was primarily duefinancial measure calculated under GAAP which is most directly comparable to the debt refinance charges of $88 related to the redemption of the Secured Notes.
Income Tax Expense
Income tax expense is summarized in the following table:
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | May 1, 2021 | | May 2, 2020 | | |
| Income tax (benefit) expense | | | | | ($56) | | | ($326) | | | |
| Effective tax rate | | | | | 25.4 | % | | 38.4 | % | | |
The effective tax rate decreased in the first quarter of 2021, compared with the same period in 2020, primarily due to additional tax benefits recorded in 2020 associated with losses eligible for carryback under the CARES Act. The decrease was partially offset by non-deductible stock compensation.
Earnings Per Share
Adjusted EPS is earnings (loss) per diluted share.
Adjusted EBIT, Adjusted EBITDA and Adjusted EPS are not measures of financial performance under GAAP and should be considered in addition to, and not as follows:
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | May 1, 2021 | | May 2, 2020 | | |
| Basic | | | | | ($1.05) | | | ($3.33) | | | |
| Diluted | | | | | ($1.05) | | | ($3.33) | | | |
Earningsa substitute for, net earnings, overall change in cash, earnings (loss) per share, earnings (loss) per diluted share increased $2.28 for the first quarteror other financial measures performed in accordance with GAAP. Our method of 2021, compared with the same period in 2020, during which stores were temporarily closed for approximately halfdetermining non-GAAP financial measures may differ from other companies’ financial measures and therefore may not be comparable to methods used by other companies. The following is a reconciliation of the quarternet earnings (loss) to Adjusted EBIT and Adjusted EBITDA:
| | | | | | | | |
| Quarter Ended |
| April 30, 2022 | May 1, 2021 |
| Net earnings (loss) | $20 | | ($166) | |
| Add (Less): income tax expense (benefit) | 18 | | (56) | |
| Add: interest expense, net | 35 | | 137 | |
| Earnings (loss) before interest and income taxes | 73 | | (85) | |
| | |
| Less: gain on sale of interest in a corporate office building | (51) | | — | |
| Add: Trunk Club property impairment | 10 | | — | |
| Adjusted EBIT | 32 | | (85) | |
| | |
| Add: depreciation and amortization expenses | 152 | | 162 | |
| Less: amortization of developer reimbursements | (18) | | (20) | |
| | |
| | |
| Adjusted EBITDA | $166 | | $57 | |
, partially offset by an interest expense chargeThe following is a reconciliation of $88, or $0.41earnings (loss) per diluted share relatedto Adjusted EPS: | | | | | | | | | |
| Quarter Ended |
| April 30, 2022 | | May 1, 2021 |
Earnings (loss) per diluted share1 | $0.13 | | | ($1.05) | |
| Add: debt refinancing charges included within interest expense, net | — | | | 0.56 | |
| Less: gain on sale of interest in a corporate office building | (0.32) | | | — | |
| Add: Trunk Club property impairment | 0.06 | | | — | |
Add (Less): income tax impact on adjustments2 | 0.07 | | | (0.15) | |
| Adjusted EPS | ($0.06) | | | ($0.64) | |
| | | |
| | | |
| | | |
1 Due to the redemptionanti-dilutive effect resulting from the adjusted net loss, the impact of potentially dilutive shares on the Secured Notes inadjusted per share amounts has been omitted from the first quartercalculation of 2021. Inweighted-average shares for earnings (loss) per share for the first quarter of 2020, COVID-19 related charges reduced earnings per diluted share by $1.10.
Fiscal Year 2021 Outlook
The Company has reaffirmed the following financial expectations for fiscal 2021:
•Revenue, including retail salesquarters ended April 30, 2022 and credit card revenues, is expected to grow more than 25%,May 1, 2021.
•2 EBIT marginThe income tax impact of non-GAAP adjustments is expected to be approximately 3% of sales,
•Incomecalculated using the estimated tax rate is expected to be approximately 27%,
•Leverage ratio is expected to be approximately 3x by year-end,
•Forfor the first half of the year, EBIT is expected to be approximately breakeven, reflecting approximately 45% of total year sales.respective non-GAAP adjustment.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share amounts in millions except per share amounts)
Adjusted ROIC (Non-GAAP financial measure)
We believe that Adjusted ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of the capital we have invested in our business to generate returns over time. In addition, we have incorporated it in our executive incentive measures and we believe it is an important indicator of shareholders’ return over the long term.
Adjusted ROIC is not a measure of financial performance under 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. Our method of calculating 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 ROIC is return on assets.
The following is a reconciliation of return on assets to Adjusted ROIC:
| | | | | | | | | | | |
| Four Quarters Ended |
| May 1, 2021 | | May 2, 2020 |
| Net loss | ($334) | | | ($62) | |
| Less: income tax benefit | (269) | | | (156) | |
| Add: interest expense | 285 | | | 121 | |
| Loss before interest and income tax expense | (318) | | | (97) | |
| | | |
Add: operating lease interest1 | 93 | | | 102 | |
| | | |
| | | |
| Adjusted net operating (loss) profit | (225) | | | 5 | |
| | | |
| Add (Less): estimated income tax benefit (expense) | 100 | | | (4) | |
| Adjusted net operating (loss) profit after tax | ($125) | | | $1 | |
| | | |
| Average total assets | $9,637 | | | $9,811 | |
| | | |
| | | |
Less: average deferred property incentives in excess of ROU assets2 | (265) | | | (303) | |
| Less: average non-interest-bearing current liabilities | (3,095) | | | (3,324) | |
| Average invested capital | $6,277 | | | $6,184 | |
| | | |
Return on assets3 | (3.5 | %) | | (0.6 | %) |
Adjusted ROIC3 | (2.0 | %) | | — | % |
| | | | | | | | |
| Four Quarters Ended |
| April 30, 2022 | May 1, 2021 |
| Net earnings (loss) | $364 | | ($334) | |
| Add (Less): income tax expense (benefit) | 142 | | (269) | |
| Add: interest expense | 145 | | 285 | |
| Earnings (loss) before interest and income tax expense | 651 | | (318) | |
| | |
Add: operating lease interest1 | 86 | | 93 | |
| | |
| | |
| Adjusted net operating profit (loss) | 737 | | (225) | |
| | |
(Less) Add: estimated income tax (expense) benefit2 | (206) | | 100 | |
| Adjusted net operating profit (loss) after tax | $531 | | ($125) | |
| | |
| Average total assets | $9,228 | | $9,637 | |
| | |
| | |
Less: average deferred property incentives in excess of ROU assets3 | (223) | | (265) | |
| Less: average non-interest bearing current liabilities | (3,347) | | (3,095) | |
| Average invested capital | $5,658 | | $6,277 | |
| | |
| Return on assets | 3.9 | % | (3.5 | %) |
| Adjusted ROIC | 9.4 | % | (2.0 | %) |
1 We add back the operating lease interest to reflect how we manage our business. Operating lease interest is a component of operating lease cost recorded in occupancy costs. We add back operating lease interest for purposes of calculating adjusted net operating profit (loss) for consistency with the treatment of interest expense on our debt.
2 Estimated income tax (expense) benefit is calculated by multiplying the adjusted net operating profit (loss) by the effective tax rate for the trailing twelve month periods ended April 30, 2022 and May 1, 2021. The effective tax rate is calculated by dividing income tax expense (benefit) by earnings (loss) before income taxes for the same trailing twelve month periods.
3For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities and reduce average total assets, as this better reflects how we manage our business.
3 COVID-19 related charges during fiscal 2020 negatively impacted return on assets by approximately 180 basis points and Adjusted ROIC by approximately 130 basis points for the four quarters ended May 2, 2020.
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. OurIn the short term, our ongoing working capital and capital expenditure requirements and any dividend payments or share repurchases are generally funded primarily through cash flows generated from operations. In addition, we have access to the commercial paper market and can draw on our revolving credit facilities for working capital, capital expenditures and general corporate purposes. We ended the first quarter of 2021 with $377 in cash and cash equivalents and $600 of additional liquidity available on our Revolver. In May 2021, subsequent to quarter end, we completely repaid $200 on our Revolver. We believe that our operating cash flows 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 ended the first quarter of 2022 with $484 in cash and cash equivalents and $800 of additional liquidity available on our Revolver. The increase in cash and cash equivalents in the first quarter of 2022, compared with 2021, is driven by timing of payments for merchandise and higher net earnings. We believe that our operating cash flows are sufficient to meet our cash requirements for the next 12 months and beyond. Our cash requirements are subject to change as business conditions warrant and opportunities arise and we may elect to raise additional funds in the future through the issuance of either debt or equity.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where noted otherwise)
The following is a summary of our cash flows by activity:
| | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 |
| Net cash used in operating activities | ($364) | | | ($778) | |
| Net cash used in investing activities | (110) | | | (126) | |
| Net cash provided by financing activities | 167 | | | 1,417 | |
| | | | | | | | |
| Quarter Ended |
| April 30, 2022 | May 1, 2021 |
| Net cash provided by (used in) operating activities | $187 | | ($364) | |
| Net cash used in investing activities | (11) | | (110) | |
| Net cash (used in) provided by financing activities | (14) | | 167 | |
Operating Activities
Net cash used infrom operating activities improved $414increased $551 for the quarter ended May 1, 2021,April 30, 2022, compared with the same period in 2020,2021, primarily due to timing of payments for merchandise and an improvementincrease in net earnings and a decrease in performance-related payments.earnings.
Investing Activities
Net cash used in investing activities decreased $16$99 for the quarter ended May 1, 2021,April 30, 2022, compared with the same period in 2020,2021, primarily due to increased proceeds from the sale of assets.our interest in a corporate office building (see Note 1: Basis of Presentation in Item 1).
Capital Expenditures
Our capital expenditures, net are summarized as follows:
| | | Quarter Ended | | Quarter Ended |
| | May 1, 2021 | | May 2, 2020 | | April 30, 2022 | May 1, 2021 |
| Capital expenditures | Capital expenditures | $126 | | | $131 | | Capital expenditures | $96 | | $126 | |
Less: deferred property incentives1 | Less: deferred property incentives1 | (6) | | | (8) | | Less: deferred property incentives1 | (5) | | (6) | |
| Capital expenditures, net | Capital expenditures, net | $120 | | | $123 | | Capital expenditures, net | $91 | | $120 | |
| | Capital expenditures % of net sales | 4.3 | % | | 6.4 | % | |
| Capital expenditures as a % of net sales | | Capital expenditures as a % of net sales | 2.8 | % | 4.3 | % |
1 Deferred property incentives are included in our cash provided by operations in our Condensed Consolidated Statements of Cash Flows in Item 1. We operationally view the property incentives we receive from our developers and vendors as an offset to our capital expenditures.
Financing Activities
Net cash provided byfrom financing activities decreased $1,250$181 for the quarter ended May 1, 2021,April 30, 2022, compared with the same period in 2020,2021, primarily due to decreased proceeds onnet activity in 2021 related to long-term debt and our Revolver, partially offset by the Revolver and the retirement of the Secured Notesmake-whole premium (see Note 3: Debt and Credit Facilities in Item 1).
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions exceptWe paid $30, or $0.19 per share, amounts)for the quarter ended April 30, 2022 compared with no dividends in the same period of 2021.
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.
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 calculating a non-GAAP financial measuresmeasure 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 used inprovided by (used in) operating activities. The following is a reconciliation of net cash used inprovided by (used in) operating activities to Free Cash Flow:
| | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 |
| Net cash used in operating activities | ($364) | | | ($778) | |
| Less: capital expenditures | (126) | | | (131) | |
| (Less) Add: change in cash book overdrafts | (17) | | | 83 | |
| Free Cash Flow | ($507) | | | ($826) | |
| | | |
| | | |
| | | |
Adjusted EBITDA (Non-GAAP financial measure)
Adjusted EBITDA is one of our key financial metrics 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. The financial measure calculated under GAAP which is most directly comparable to Adjusted EBITDA is net earnings.
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 calculating a non-GAAP financial measure 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 loss to Adjusted EBITDA:
| | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 |
| Net loss | ($166) | | | ($521) | |
| Less: income tax benefit | (56) | | | (326) | |
| Add: interest expense, net | 137 | | | 34 | |
| Loss before interest and income taxes | (85) | | | (813) | |
| | | |
| Add: depreciation and amortization expenses | 162 | | | 176 | |
| Less: amortization of developer reimbursements | (20) | | | (19) | |
| Add: asset impairments | — | | | 117 | |
| | | |
| Adjusted EBITDA | $57 | | | ($539) | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | |
| Quarter Ended |
| April 30, 2022 | May 1, 2021 |
| Net cash provided by (used in) operating activities | $187 | | ($364) | |
| Less: capital expenditures | (96) | | (126) | |
| Add (Less): change in cash book overdrafts | 16 | | (17) | |
| Free Cash Flow | $107 | | ($507) | |
| | |
| | |
| | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share amounts in millions except per share amounts)
CreditCAPITAL RESOURCES
Borrowing Capacity and CommitmentsActivity
During the first quarter of 2021, we borrowed $200 and amended our existing Revolver. As of April 30, 2022, the provisions of our prior revolving credit facility as described in our 2021 Annual Report were in effect. Subsequent to quarter end, we terminated and replaced our prior revolving credit facility set to expire in September 2023 with a new five-year $800 Revolver that expires in May 1, 2021,2027. As of April 30, 2022, we had $200no borrowings outstanding under the facility. Theour Revolver contains customary representations, warranties, covenants and terms, including paying a variable rate of interest and a commitment fee based onno issuances outstanding under our debt rating. The Revolver is available for working capital, capital expenditures and general corporate purposes. Provided that we obtain written consent from our lenders, we have the option to increase the Revolver by up to $200, to a total of $1,000, and two options to extend the Revolver by one year.commercial paper program. For more information about our credit facilities, see Note 3: Debt and Credit Facilities in Item 1.Impact of Credit Ratings and Revolver Covenants
Changes in our credit ratings may impact our costs to borrow, whether our personal property secures our Revolver and the debt covenantswhether and to what extent we follow.are permitted to pay dividends or conduct share repurchases.
For our Revolver, the interest rate applicable to any borrowings we may enter into depends upon the type of borrowing incurred plus an applicable margin, which is determined based on our credit ratings. At the time of this report, our credit ratings and outlook were as follows:
| | | | | | | | | | | |
| Credit Ratings | | Outlook |
| Moody’s | Baa3Ba1 | | NegativeStable |
| Standard & Poor’s | BB+ | | Stable |
| Fitch | BBB- | | Negative |
Should the ratings assigned to our long-term debt improve, the applicable margin associated with any borrowings under the Revolver may decrease, resulting in a lower borrowing cost under this facility. Conversely, should the ratings assigned to our long-term debt worsen, the applicable margin associated with any borrowings under the Revolver may increase, resulting in a higher borrowing cost under this facility.
Debt Covenants
AsFor the first quarter ofMay 1, 2021, 2022, we metreported our quarterly compliance status under the terms of the new Revolver and were in compliance with all our covenants while our Leverage Ratio exceeded four. Under our current debt covenants, if our Leverage Ratio is greater than four or our unsecured debt is rated below BBB-covenants. We have certain limitations with a stable outlook at Standard & Poor’s or Baa3 with a stable outlook at Moody’s, any outstanding borrowingsrespect to the payment of dividends and share repurchases under our Revolver will be secured by substantially all our personal property and we will be prevented from paying dividends and repurchasing shares.agreement. For more information about our debtRevolver covenants, see Note 3: Debt and Credit Facilities in Item 1.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share 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, as it provides a reflection of our creditworthiness thatwhich could impact our credit rating and borrowing costs. This metric is calculated in accordance with the updates in our debtnew Revolver covenant and is a key component in assessing whether our revolving credit facility is secured or unsecured, as well as our ability to make dividend payments and share repurchases. Our goal is to manage debt levels to achieve and maintain an investment-grade credit ratingratings while operating with an efficient capital structure.
Subsequent to April 30, 2022, we replaced our Revolver which was set to expire in September 2023 with a new Revolver dated May 6, 2022. Under the new Revolver, the covenant calculation was updated to reflect the current lease standard (ASC 842). This change in our Revolver covenant did not have a material impact on our Adjusted Debt to EBITDAR. For more information regarding our Revolver, see Note 3: Debt and Credit Facilities in Item 1.
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. Our method of determiningcalculating a non-GAAP financial measuresmeasure 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 debt to net lossearnings to Adjusted Debt to EBITDAR:
| | | | | | | |
| May 1, 2021April 30, 2022 | | |
| Debt | $3,5472,854 | |
| |
| | | |
| | | |
Add: estimated capitalized operating lease liabilityliabilities1 | 1,3351,816 | | | |
| Adjusted Debt | $4,8824,670 | | | |
| | | |
Four Quarters Ended May 1, 2021April 30, 2022 |
| Net earnings | $364 | |
Net lossAdd: income tax expense | ($334)142 | | | |
Less: income tax benefit | (269) | | | |
| Add: interest expense, net | 284144 | | | |
Add: asset impairments | 20 | | | |
Adjusted lossearnings before interest and income taxes | ($299)$650 | | | |
| | | |
| Add: depreciation and amortization expenses | 658604 | | | |
| Add: Operating Lease Cost | | 269 | |
Add: rent expense, netamortization of developer reimbursements21 | 22376 | | | |
| | | |
Add:Less: other Revolver covenant adjustments32
| 2(32) | | | |
| Adjusted EBITDAR | $5841,567 | | | |
| | | |
Debt to Net LossEarnings | (10.6)7.8 | | | |
| Adjusted Debt to EBITDAR | 8.43.0 | | | |
1 Based upon the estimated lease liability as of the end of the period, calculated as the trailing four quarters of rent expense multiplied by six, a 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 and is calculated under the previous lease standard, consistent with our debt covenant calculation requirements. The estimated lease liability is not calculated in accordance with, nor an alternative for, GAAP and should not be considered in isolation or as a substitution for our results reported under GAAP.
2 Rent expense, net of amortizationAmortization of developer reimbursements is a non-cash reduction of Operating Lease Cost and is therefore added back to Operating Lease Cost for consistency withpurposes of our debtRevolver covenant calculation requirements, and is calculated under the previous lease standard.calculation.
32 Other adjusting items to reconcile net lossearnings to Adjusted EBITDAR as defined by our Revolver covenant include interest income and certain non-cash charges and other gains and losses where relevant. For the four quarters ended April 30, 2022, other Revolver covenant adjustments included a $51 gain on sale of the Company’s interest in a corporate office building.
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 2020 2021 Annual Report 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. There have been no material changes to our significant accounting policies or critical accounting estimates as described in our 20202021 Annual Report.
RECENT ACCOUNTING PRONOUNCEMENTS
There are no recent accounting pronouncements that are anticipated to have a material impact on our results of operations, liquidity or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We discussed our interest rate risk and foreign currency exchange risk in our 2020 2021 Annual Report.Report. There have been no material changes to these risks since that time. Item 4. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
For the purposes of the Exchange Act, our Chief Executive Officer, Erik B. Nordstrom, serves as our principal executive officer and our Chief Financial Officer, Anne L. Bramman, is our principal financial officer.
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we have performed an evaluation of the design and effectiveness of our disclosure controls and procedures as of the last day of the period covered by this report.
Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified within the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 may 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 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.
There have been no material changes to the risk factors we discussed in our 20202021 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) SHARE REPURCHASES
(Dollar and share amounts in millions, except per share amounts)
In August 2018, our Board of Directors authorized a program to repurchase up to $1,500 of our outstanding common stock, with no expiration date. As a result of uncertainties from COVID-19 impacts, weWe repurchased no shares of common stock during the first quarter of 20212022 and we had $707 remaining in share repurchase capacity as of May 1, 2021.April 30, 2022. Subsequent to quarter end, the Board of Directors authorized a new $500 share repurchase program, with no expiration date. This program replaced the August 2018 program. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to the discretion of the Board of Directors, contractual commitments, market and economic conditions and applicable SEC rules.
Item 6. Exhibits.
(a) The information required under this item is incorporated herein by reference or filed or furnished as part of this report at: All other exhibits are omitted because they are not applicable, not required or because the information required has been given as part of this report.
NORDSTROM, INC.
Exhibit Index
| | | | | | | | | | | | | | |
Exhibit | | Method of Filing |
| | | | Filed herewith electronically |
| | | | |
| | | | Filed herewith electronically |
| | | | |
| | | | Filed herewith electronically |
| | | | |
| | | | Filed herewith electronically |
| | | | |
| | | | Filed herewith electronically |
| | | | |
| | | | Filed herewith electronically |
| | | | |
| | | | Furnished herewith electronically |
| | | | |
101.INS | | Inline XBRL Instance Document | | Filed herewith electronically |
| | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | Filed herewith electronically |
| | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith electronically |
| | | | |
101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document | | Filed herewith electronically |
| | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith electronically |
| | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith electronically |
| | | | |
104 | | Cover Page Interactive Data File (Inline XBRL) | | Filed herewith electronically |
| | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit | | Form | Exhibit | Filing Date |
| | | | | | |
| 10.1 | | | | 8-K | 10.2 | February 28, 2022 |
| | | | | | |
| 10.2 | | | | | | |
| | | | | | |
| 31.1 | | | | | | |
| | | | | | |
| 31.2 | | | | | | |
| | | | | | |
| 32.1 | | | | | | |
| | | | | | |
| 101.INS | | Inline XBRL Instance Document, filed herewith electronically | | | | |
| | | | | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document, filed herewith electronically | | | | |
| | | | | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith electronically | | | | |
| | | | | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document, filed herewith electronically | | | | |
| | | | | | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith electronically | | | | |
| | | | | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document, filed herewith electronically | | | | |
| | | | | | |
| 104 | | Cover Page Interactive Data File (Inline XBRL), filed herewith electronically | | | | |
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 4, 20213, 2022 |