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 April 30,October 29, 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.
(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 27,November 25, 2022: 160,579,123160,081,323 shares
TABLE OF CONTENTS
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| Item 1. | | |
| 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: Stock-based Compensation | |
| Note 6: Shareholders’ Equity | |
| Note 7: Commitments and ContingenciesEarnings Per Share | |
| Note 8: Earnings Per Share | |
| Note 9: Segment Reporting | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| 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 Private Securities Litigation Reform 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.1995. Forward-looking statements are statements regarding matters that are not historical facts, and are based on our management’s beliefs and assumptions and on information currently available to our management. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “pursue,” “going forward,”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 28, 2023, trends in our operations and the following:
Strategic and Operational
•COVID-19, which may make it necessary to close our physical stores and facilities in affected areas, may have a negative impact on our business and results and 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:
◦winning 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,
◦broadening the reach of Nordstrom Rack, including expandingbalancing our price range and selection and leveraging our digital and physical assets,
◦enhancing our platforms and processes to deliver core capabilities to drive customer, employee and partner experiences both digitally and in-store,
•our ability to effectively manage our merchandise strategy, including our ability to offer compelling assortments and optimize our inventory to ensure we have the right product mix in each of our channels and locations, allowing us to get it closer to the customer,our customers,
•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 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,
•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, all in the context of any labor shortage and competition for talent,
•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,
•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 if 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 systemssystem 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 or causes financial loss, 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 act responsibly and with transparency with respect to our corporate social responsibility practices and initiatives, and meet any communicated targets, goals or milestones,
•our ability to market our brand and distribute our products through a variety of third-party publisher or platform channels, as well as access mobile operating system 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, subject to the discretion of our Board of Directors, contractual commitments, market and economic conditions and applicable SEC rules,
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 measures to control inflation, and resulting changes to customer purchasing behavior, unemployment and bankruptcy rates, as well as any fiscal stimulus, or the cessation of any fiscal stimulus and the resulting impact on consumer spending and credit patterns,
•the impact of economic, environmental or political conditions,
•the impact of changing traffic patterns at shopping centers and malls,
•financial insecurity or potential insolvency experienced by our vendors, suppliers, developers, landlords, competitors or customers as a result of any economic downturn,
•weather conditions, natural disasters, climate change, national security concerns, global conflicts, 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: 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, undue reliance should not be placed on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing.filing, and these estimates and assumptions may prove to be incorrect. This 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,”“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 OF COMMONLY USED TERMS
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| Term | | Definition |
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| 2019 Plan | | 2019 Equity Incentive Plan |
| 2021 Annual Report | | Annual Report on Form 10-K filed on March 11, 2022 |
| Adjusted EPS | | Adjusted earnings (loss) per 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. 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 includes a reserve for estimated returns. |
| EBIT | | Earnings (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) per share |
| ESPP | | Employee Stock Purchase Plan |
| Exchange Act | | Securities Exchange Act of 1934, as amended |
| FASB | | Financial Accounting Standards Board |
FirstThird quarter of 2022 | | 13 fiscal weeks ending April 30,October 29, 2022 |
FirstThird quarter of 2021 | | 13 fiscal weeks ending May 1,October 30, 2021 |
| Fiscal year 2022 | | 52 fiscal weeks ending January 28, 2023 |
Fiscal year 2021 | | 52 fiscal weeks ending January 29, 2022 |
| GAAP | | U.S. generally accepted accounting principles |
| GMV | | Gross merchandise value |
| Gross profit | | Net sales less cost of sales and related buying and occupancy costs |
| Leverage Ratio | | The sum of our funded debt and operating lease liabilities divided by the preceding twelve months of Adjusted EBITDAR as defined by our Revolver 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, ASOS | Nordstrom and, prior to October 2022, TrunkClub.com. |
| 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, Nordstrom Rack-branded U.S. stores and Last Chance clearance stores |
| 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 |
| Rights Plan | | Our limited-duration Shareholder Rights Agreement adopted by the Board of Directors in September 2022 |
| 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 | | Nine Months Ended |
| | | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Net sales | Net sales | | $3,467 | | $2,921 | | Net sales | $3,433 | | $3,534 | | | $10,891 | | $10,020 | |
| Credit card revenues, net | Credit card revenues, net | | 102 | | 88 | | Credit card revenues, net | 113 | | 103 | | | 320 | | 283 | |
| Total revenues | Total revenues | | 3,569 | | 3,009 | | Total revenues | 3,546 | | 3,637 | | | 11,211 | | 10,303 | |
| Cost of sales and related buying and occupancy costs | Cost of sales and related buying and occupancy costs | | (2,331) | | (2,019) | | Cost of sales and related buying and occupancy costs | (2,294) | | (2,294) | | | (7,211) | | (6,646) | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | | (1,165) | | (1,075) | | Selling, general and administrative expenses | (1,249) | | (1,216) | | | (3,722) | | (3,464) | |
| Earnings (loss) before interest and income taxes | | 73 | | (85) | | |
| Earnings before interest and income taxes | | Earnings before interest and income taxes | 3 | | 127 | | | 278 | | 193 | |
| Interest expense, net | Interest expense, net | | (35) | | (137) | | Interest expense, net | (32) | | (36) | | | (101) | | (213) | |
| Earnings (loss) before income taxes | | 38 | | (222) | | |
| Income tax (expense) benefit | | (18) | | 56 | | |
| Net earnings (loss) | | $20 | | ($166) | | |
| (Loss) earnings before income taxes | | (Loss) earnings before income taxes | (29) | | 91 | | | 177 | | (20) | |
| Income tax benefit (expense) | | Income tax benefit (expense) | 9 | | (27) | | | (51) | | (2) | |
| Net (loss) earnings | | Net (loss) earnings | ($20) | | $64 | | | $126 | | ($22) | |
| | Earnings (loss) per share: | | | |
| (Loss) earnings per share: | | (Loss) earnings per share: | |
| Basic | Basic | | $0.13 | | ($1.05) | | Basic | ($0.13) | | $0.40 | | | $0.79 | | ($0.14) | |
| Diluted | Diluted | | $0.13 | | ($1.05) | | Diluted | ($0.13) | | $0.39 | | | $0.77 | | ($0.14) | |
| | Weighted-average shares outstanding: | Weighted-average shares outstanding: | | | Weighted-average shares outstanding: | |
| Basic | Basic | | 160.1 | | 158.5 | | Basic | 159.5 | | 159.2 | | | 160.1 | | 158.9 | |
| Diluted | Diluted | | 162.9 | | 158.5 | | Diluted | 159.5 | | 162.5 | | | 162.3 | | 158.9 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Amounts in millions)
(Unaudited)
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Net earnings (loss) | | $20 | | ($166) | | |
| Net (loss) earnings | | Net (loss) earnings | ($20) | | $64 | | | $126 | | ($22) | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | | (1) | | 10 | | Foreign currency translation adjustment | (10) | | 1 | | | (11) | | 7 | |
| Post retirement plan adjustments, net of tax | Post retirement plan adjustments, net of tax | | 1 | | 1 | | Post retirement plan adjustments, net of tax | 1 | | 2 | | | 2 | | 5 | |
| Comprehensive net earnings (loss) | | $20 | | ($155) | | |
| Comprehensive net (loss) earnings | | Comprehensive net (loss) earnings | ($29) | | $67 | | | $117 | | ($10) | |
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)
| | | April 30, 2022 | January 29, 2022 | May 1, 2021 | | October 29, 2022 | January 29, 2022 | October 30, 2021 |
| Assets | Assets | | Assets | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $484 | | $322 | | $377 | | Cash and cash equivalents | $293 | | $322 | | $267 | |
| Accounts receivable, net | Accounts receivable, net | 297 | | 255 | | 238 | | Accounts receivable, net | 288 | | 255 | | 273 | |
| Merchandise inventories | Merchandise inventories | 2,426 | | 2,289 | | 1,961 | | Merchandise inventories | 2,878 | | 2,289 | | 2,863 | |
| Prepaid expenses and other | Prepaid expenses and other | 332 | | 306 | | 923 | | Prepaid expenses and other | 348 | | 306 | | 374 | |
| Total current assets | Total current assets | 3,539 | | 3,172 | | 3,499 | | Total current assets | 3,807 | | 3,172 | | 3,777 | |
| | Land, property and equipment (net of accumulated depreciation of $7,834, $7,737 and $7,322) | 3,505 | | 3,562 | | 3,642 | | |
| Land, property and equipment (net of accumulated depreciation of $8,135, $7,737 and $7,617) | | Land, property and equipment (net of accumulated depreciation of $8,135, $7,737 and $7,617) | 3,373 | | 3,562 | | 3,558 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 1,497 | | 1,496 | | 1,560 | | Operating lease right-of-use assets | 1,490 | | 1,496 | | 1,527 | |
| Goodwill | Goodwill | 249 | | 249 | | 249 | | Goodwill | 249 | | 249 | | 249 | |
| Other assets | Other assets | 384 | | 390 | | 383 | | Other assets | 476 | | 390 | | 423 | |
| Total assets | Total assets | $9,174 | | $8,869 | | $9,333 | | Total assets | $9,395 | | $8,869 | | $9,534 | |
| | 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 | | Borrowings under revolving line of credit | $100 | | $— | | $200 | |
| Accounts payable | Accounts payable | 1,898 | | 1,529 | | 1,676 | | Accounts payable | 2,073 | | 1,529 | | 2,310 | |
| Accrued salaries, wages and related benefits | Accrued salaries, wages and related benefits | 241 | | 383 | | 330 | | Accrued salaries, wages and related benefits | 242 | | 383 | | 276 | |
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | 250 | | 242 | | 246 | | Current portion of operating lease liabilities | 256 | | 242 | | 240 | |
| Other current liabilities | Other current liabilities | 1,198 | | 1,160 | | 1,056 | | Other current liabilities | 1,168 | | 1,160 | | 1,063 | |
| Current portion of long-term debt | — | | — | | 500 | | |
| | Total current liabilities | Total current liabilities | 3,587 | | 3,314 | | 4,008 | | Total current liabilities | 3,839 | | 3,314 | | 4,089 | |
| | Long-term debt, net | Long-term debt, net | 2,854 | | 2,853 | | 2,847 | | Long-term debt, net | 2,855 | | 2,853 | | 2,851 | |
| | Non-current operating lease liabilities | Non-current operating lease liabilities | 1,566 | | 1,556 | | 1,662 | | Non-current operating lease liabilities | 1,544 | | 1,556 | | 1,602 | |
| Other liabilities | Other liabilities | 578 | | 565 | | 650 | | Other liabilities | 551 | | 565 | | 633 | |
| | Commitments and contingencies (Note 7) | 0 | |
| Commitments and contingencies | | Commitments and contingencies | |
| | Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
| 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 | | |
| Common stock, no par value: 1,000 shares authorized; 159.7, 159.4 and 159.3 shares issued and outstanding | | Common stock, no par value: 1,000 shares authorized; 159.7, 159.4 and 159.3 shares issued and outstanding | 3,334 | | 3,283 | | 3,269 | |
| Accumulated deficit | Accumulated deficit | (2,662) | | (2,652) | | (2,996) | | Accumulated deficit | (2,669) | | (2,652) | | (2,852) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (50) | | (50) | | (59) | | Accumulated other comprehensive loss | (59) | | (50) | | (58) | |
| Total shareholders’ equity | Total shareholders’ equity | 589 | | 581 | | 166 | | Total shareholders’ equity | 606 | | 581 | | 359 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $9,174 | | $8,869 | | $9,333 | | Total liabilities and shareholders’ equity | $9,395 | | $8,869 | | $9,534 | |
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 | | Nine Months Ended |
| | | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Common stock | Common stock | | | Common stock | |
| Balance, beginning of period | Balance, beginning of period | | $3,283 | | $3,205 | | Balance, beginning of period | $3,314 | | $3,245 | | | $3,283 | | $3,205 | |
| Issuance of common stock under stock compensation plans | Issuance of common stock under stock compensation plans | | 8 | | 7 | | Issuance of common stock under stock compensation plans | 9 | | 7 | | | 18 | | 14 | |
| Stock-based compensation | Stock-based compensation | | 10 | | 9 | | Stock-based compensation | 11 | | 17 | | | 33 | | 50 | |
| Balance, end of period | Balance, end of period | | $3,301 | | $3,221 | | Balance, end of period | $3,334 | | $3,269 | | | $3,334 | | $3,269 | |
| | Accumulated deficit | Accumulated deficit | | | Accumulated deficit | |
| Balance, beginning of period | Balance, beginning of period | | ($2,652) | | ($2,830) | | Balance, beginning of period | ($2,601) | | ($2,916) | | | ($2,652) | | ($2,830) | |
| | Net earnings (loss) | | 20 | | (166) | | |
| Net (loss) earnings | | Net (loss) earnings | (20) | | 64 | | | 126 | | (22) | |
| Dividends | Dividends | | (30) | | — | | Dividends | (30) | | — | | | (90) | | — | |
| | Repurchase of common stock | | Repurchase of common stock | (18) | | — | | | (53) | | — | |
| Balance, end of period | Balance, end of period | | ($2,662) | | ($2,996) | | Balance, end of period | ($2,669) | | ($2,852) | | | ($2,669) | | ($2,852) | |
| | Accumulated other comprehensive loss | Accumulated other comprehensive loss | | | Accumulated other comprehensive loss | |
| Balance, beginning of period | Balance, beginning of period | | ($50) | | ($70) | | Balance, beginning of period | ($50) | | ($61) | | | ($50) | | ($70) | |
| | Other comprehensive income | | — | | 11 | | |
| Other comprehensive (loss) income | | Other comprehensive (loss) income | (9) | | 3 | | | (9) | | 12 | |
| Balance, end of period | Balance, end of period | | ($50) | | ($59) | | Balance, end of period | ($59) | | ($58) | | | ($59) | | ($58) | |
| | Total shareholders’ equity | Total shareholders’ equity | | $589 | | $166 | | Total shareholders’ equity | $606 | | $359 | | | $606 | | $359 | |
| | Dividends per share | Dividends per share | | $0.19 | | $— | | Dividends per share | $0.19 | | — | | | $0.57 | | — | |
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 | | Nine Months Ended |
| | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 |
| Operating Activities | Operating Activities | | Operating Activities | |
| Net earnings (loss) | Net earnings (loss) | $20 | | ($166) | | Net earnings (loss) | $126 | | ($22) | |
| 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 operating activities: | | Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | |
| Depreciation and amortization expenses | Depreciation and amortization expenses | 152 | | 162 | | Depreciation and amortization expenses | 453 | | 477 | |
| Right-of-use asset amortization | Right-of-use asset amortization | 47 | | 43 | | Right-of-use asset amortization | 141 | | 130 | |
| Asset impairment | | Asset impairment | 80 | | — | |
| Deferred income taxes, net | Deferred income taxes, net | (13) | | 8 | | Deferred income taxes, net | (85) | | 25 | |
| Stock-based compensation expense | Stock-based compensation expense | 19 | | 22 | | Stock-based compensation expense | 50 | | 64 | |
| Other, net | Other, net | (45) | | 86 | | Other, net | (53) | | 81 | |
| Change in operating assets and liabilities: | Change in operating assets and liabilities: | | Change in operating assets and liabilities: | |
| Accounts receivable | (18) | | 7 | | |
| Accounts receivable, net | | Accounts receivable, net | (6) | | (27) | |
| Merchandise inventories | Merchandise inventories | (19) | | (16) | | Merchandise inventories | (550) | | (687) | |
| Prepaid expenses and other assets | Prepaid expenses and other assets | (24) | | (126) | | Prepaid expenses and other assets | (55) | | 408 | |
| Accounts payable | Accounts payable | 233 | | (296) | | Accounts payable | 469 | | 90 | |
| Accrued salaries, wages and related benefits | Accrued salaries, wages and related benefits | (143) | | (22) | | Accrued salaries, wages and related benefits | (142) | | (76) | |
| Other current liabilities | Other current liabilities | 40 | | 7 | | Other current liabilities | 10 | | 15 | |
| Lease liabilities | Lease liabilities | (65) | | (81) | | Lease liabilities | (201) | | (218) | |
| Other liabilities | Other liabilities | 3 | | 8 | | Other liabilities | 3 | | 17 | |
| Net cash provided by (used in) operating activities | 187 | | (364) | | |
| Net cash provided by operating activities | | Net cash provided by operating activities | 240 | | 277 | |
| | Investing Activities | Investing Activities | | Investing Activities | |
| Capital expenditures | Capital expenditures | (96) | | (126) | | Capital expenditures | (325) | | (361) | |
| | Proceeds from the sale of assets and other, net | Proceeds from the sale of assets and other, net | 85 | | 16 | | Proceeds from the sale of assets and other, net | 82 | | (17) | |
| Net cash used in investing activities | Net cash used in investing activities | (11) | | (110) | | Net cash used in investing activities | (243) | | (378) | |
| | Financing Activities | Financing Activities | | Financing Activities | |
| Proceeds from revolving line of credit | Proceeds from revolving line of credit | — | | 200 | | Proceeds from revolving line of credit | 100 | | 400 | |
| | Payments on revolving line of credit | | Payments on revolving line of credit | — | | (200) | |
| Proceeds from long-term borrowings | Proceeds from long-term borrowings | — | | 675 | | Proceeds from long-term borrowings | — | | 675 | |
| Principal payments on long-term borrowings | Principal payments on long-term borrowings | — | | (600) | | Principal payments on long-term borrowings | — | | (1,100) | |
| Increase (decrease) in cash book overdrafts | 16 | | (17) | | |
| Change in cash book overdrafts | | Change in cash book overdrafts | 21 | | (4) | |
| Cash dividends paid | Cash dividends paid | (30) | | — | | Cash dividends paid | (90) | | — | |
| | Payments for repurchase of common stock | | Payments for repurchase of common stock | (53) | | — | |
| Proceeds from issuances under stock compensation plans | Proceeds from issuances under stock compensation plans | 8 | | 7 | | Proceeds from issuances under stock compensation plans | 18 | | 14 | |
| Tax withholding on share-based awards | Tax withholding on share-based awards | (8) | | (13) | | Tax withholding on share-based awards | (15) | | (15) | |
| Make-whole premium payment and other, net | Make-whole premium payment and other, net | — | | (85) | | Make-whole premium payment and other, net | (4) | | (85) | |
| Net cash (used in) provided by financing activities | (14) | | 167 | | |
| Net cash used in financing activities | | Net cash used in financing activities | (23) | | (315) | |
| | Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | — | | 3 | | Effect of exchange rate changes on cash and cash equivalents | (3) | | 2 | |
| Net increase (decrease) in cash and cash equivalents | 162 | | (304) | | |
| Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | (29) | | (414) | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 322 | | 681 | | 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 | $484 | | $377 | | Cash and cash equivalents at end of period | $293 | | $267 | |
| | Supplemental Cash Flow Information | Supplemental Cash Flow Information | | Supplemental Cash Flow Information | |
| Cash (received) paid during the period for: | | |
| Cash paid (received) during the period for: | | Cash paid (received) during the period for: | |
| Income taxes, net | Income taxes, net | ($22) | | $3 | | Income taxes, net | $161 | | ($486) | |
| Interest, net of capitalized interest | Interest, net of capitalized interest | 40 | | 63 | | Interest, net of capitalized interest | 108 | | 136 | |
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 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 2021 Annual Report and reflect all adjustments of a normal recurring nature that are, in management’s opinion, necessary for the fair presentation of the results of operations, financial position and cash flows for the periods presented. The Condensed Consolidated Financial Statements as of and for the periods ended April 30,October 29, 2022 and May 1,October 30, 2021 are unaudited. The Condensed Consolidated Balance Sheet as of January 29, 2022 has been derived from the audited Consolidated Financial Statements included in our 2021 Annual Report.Report. The interim Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and related footnote disclosures contained in our 2021 Annual Report.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 in the fourth quarter due to the holidays. In 2021, approximatelyApproximately one week of theour Anniversary Sale shifted intofrom the third quarter.quarter in 2021 to the second quarter in 2022.
Results for any one quarter are not 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. For instance, our merchandise purchases and receipts increase prior to the Anniversary Sale and in the fall as we prepare for the holiday shopping season in November through 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 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 impact of COVID-19changes in economic conditions going forward and as a result our estimates may change in the near term.
Income Taxes
As of May 1, 2021 we recorded $576 in current taxes receivable, which is classified in prepaid expenses and other on the Condensed Consolidated Balance Sheet, and $60 in noncurrent taxes receivable, which is classified in other assets on the Condensed Consolidated Balance Sheet. The current and noncurrent income tax receivables were 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.
Leases
We incurred operating lease liabilities arising from lease agreements of $84$212 for the quarternine months ended April 30,October 29, 2022 and $33108 for the quarternine months ended May 1,October 30, 2021.
Long-Lived AssetsSupply Chain Impairment
InDuring the third quarter of 2022, as part of our supply chain optimization initiatives, we decommissioned certain supply chain technology and related assets and incurred a non-cash impairment charge of $70. This included $58 on long-lived tangible assets and $12 on ROU assets to adjust the carrying values to their estimated fair values. These charges are included in our Corporate/Other SG&A expense on the Condensed Consolidated Statement of Earnings and asset impairment on the Condensed Consolidated Statement of Cash Flows. We evaluated the assets for impairment by comparing the carrying values to the related projected future cash flows, among other quantitative and qualitative analyses. After impairment, the carrying values of the remaining long-lived tangible and ROU assets were not material.
Trunk Club Wind-down
During the first quarter of 2022, we decidedin conjunction with the decision to sunset the Trunk Club brand. In conjunction with this decision,brand, we incurred non-cash impairment charges of $10 related to a Trunk Club property to adjust the carrying values to their estimated fair value. These charges are included in our Retail segment SG&A expense on the Condensed Consolidated Statement of Earnings and other operating, netasset impairment on the Condensed Consolidated Statement of Cash Flows.
During the second quarter of 2022, we incurred additional costs of $8 associated with the wind-down of Trunk Club. These expenses are primarily included in our Retail segment cost of sales and related buying and occupancy costs on the Condensed Consolidated Statement of Earnings. These charges are classified as operating 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)
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. WeFrom time to time, 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)
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 January 30, 2021 | $478 | |
| Balance as of May 1, 2021 | 436 | |
| Balance as of July 31, 2021 | 433 | |
| Balance as of October 30, 2021 | 417 | |
| |
| Balance as of January 29, 2022 | 478 | |
| Balance as of April 30, 2022 | 442 | |
| Balance as of July 30, 2022 | 438 | |
| Balance as of October 29, 2022 | 430 | |
Revenues recognized from our beginning contract liability balance were $128$100 and $232 for the quarter and nine months ended April 30,October 29, 2022 and $114$106 and $212 for the quarter and nine months ended May 1,October 30, 2021.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Nordstrom | Nordstrom | | $2,289 | | $1,854 | | Nordstrom | $2,264 | | $2,343 | | | $7,324 | | $6,614 | |
| Nordstrom Rack | Nordstrom Rack | | 1,178 | | 1,067 | | Nordstrom Rack | 1,169 | | 1,191 | | | 3,567 | | 3,406 | |
| | Total net sales | Total net sales | | $3,467 | | $2,921 | | Total net sales | $3,433 | | $3,534 | | | $10,891 | | $10,020 | |
| | Digital sales as a % of total net sales | Digital sales as a % of total net sales | | 39 | % | 46 | % | Digital sales as a % of total net sales | 34 | % | 40 | % | | 37 | % | 42 | % |
|
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
The following table summarizes the percent of net sales by merchandise category:
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Women’s Apparel | Women’s Apparel | | 30 | % | 31 | % | Women’s Apparel | 29 | % | 29 | % | | 29 | % | 30 | % |
| Shoes | Shoes | | 26 | % | 26 | % | Shoes | 27 | % | 26 | % | | 26 | % | 25 | % |
| Men’s Apparel | Men’s Apparel | | 14 | % | 12 | % | Men’s Apparel | 15 | % | 14 | % | | 15 | % | 14 | % |
| Women’s Accessories | Women’s Accessories | | 13 | % | 14 | % | Women’s Accessories | 11 | % | 12 | % | | 12 | % | 13 | % |
| Beauty | Beauty | | 11 | % | 11 | % | Beauty | 11 | % | 12 | % | | 11 | % | 11 | % |
| Kids’ Apparel | Kids’ Apparel | | 3 | % | 4 | % | Kids’ Apparel | 4 | % | 4 | % | | 4 | % | 4 | % |
| Other | Other | | 3 | % | 2 | % | Other | 3 | % | 3 | % | | 3 | % | 3 | % |
| Total net sales | Total net sales | | 100 | % | 100 | % | Total net sales | 100 | % | 100 | % | | 100 | % | 100 | % |
|
NOTE 3: DEBT AND CREDIT FACILITIES
Debt
During the first quarter of 2021, we issued $250 aggregate principal amount of 2.30% senior notes due April 2024 and $425 aggregate principal amount of 4.25% senior notes due August 2031.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” premium payment was not included in cash paid during the period for interest, net of capitalized interest in the Supplemental Cash Flow Information.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
2021, we retired our 4.00% senior notes that were due October 2021 using cash on hand.Credit Facilities
AsDuring the second quarter 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 2027. Consistent with our prior revolving credit agreement, any outstanding borrowings under the Revolver are 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 either have an unsecured investment-grade debt rating from 2two of 3three specified ratings agencies, or we have 1one investment-grade rating and achieve 2two consecutive fiscal quarters with a Leverage Ratio of less than 2.5 times.Under the Revolver, we have 2two financial covenant tests that need to be met on a quarterly basis: a Leverage Ratio that is less than or equal to 4 times and a fixed charge coverage ratio that is greater than or equal to 1.25 times. For the first quarterAs of October 29, 2022, we are reporting our quarterly compliance status under the terms of the new Revolver and arewere in compliance with all covenants.
The Revolver provides us with additional flexibility, compared with our prior revolving credit facility, for dividends and share repurchases, provided we are not in default, and no default would arise as a result of such payments. If the pro-forma Leverage Ratio after such payments is less than 3 times, then such payments are unlimited. If the pro-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 and if the pro-forma Leverage Ratio is greater than or equal to 3.5 times then the limit is $60 per fiscal quarter.
The Revolver contains customary representations, warranties, covenants and terms, including paying a variable rate of interest and a facility fee based on our debt rating, and is available for working capital, capital expenditures and 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 2two options to extend the Revolver for additional one-year terms. AsDuring the third quarter of April 30, 2022, we had no borrowings outstandingborrowed $100 under our Revolver, which remained outstanding as of October 29, 2022 and is classified in total current liabilities on the Condensed Consolidated Balance Sheets. In November 2022, subsequent to quarter end, we repaid the outstanding balance on our Revolver.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Our $800 commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect 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 April 30,October 29, 2022, we had no issuances outstanding under our commercial paper program.
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:
| | | April 30, 2022 | January 29, 2022 | May 1, 2021 | | October 29, 2022 | January 29, 2022 | October 30, 2021 |
| Carrying value of long-term debt | Carrying value of long-term debt | $2,854 | | $2,853 | | $3,347 | | Carrying value of long-term debt | $2,855 | | $2,853 | | $2,851 | |
| Fair value of long-term debt | Fair value of long-term debt | 2,544 | | 2,758 | | 3,480 | | Fair value of long-term debt | 2,224 | | 2,758 | | 2,992 | |
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 quarternine months ended April 30,October 29, 2022, see Note 1: Basis of Presentation. There were no material impairment charges for these assets for the quarternine months ended May 1,October 30, 2021.
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 | | Quarter Ended | | Nine Months Ended |
| | | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| RSUs | RSUs | | $12 | | $14 | | RSUs | $10 | | $12 | | | $32 | | $41 | |
| Stock options | Stock options | | 5 | | 7 | | Stock options | 1 | | 5 | | | 12 | | 19 | |
Other1 | Other1 | | 2 | | 1 | | Other1 | 1 | | 1 | | | 6 | | 4 | |
| Total stock-based compensation expense, before income tax benefit | Total stock-based compensation expense, before income tax benefit | | 19 | | 22 | | Total stock-based compensation expense, before income tax benefit | 12 | | 18 | | | 50 | | 64 | |
| Income tax benefit | Income tax benefit | | (5) | | (6) | | Income tax benefit | (3) | | (5) | | | (12) | | (17) | |
| Total stock-based compensation expense, net of income tax benefit | Total stock-based compensation expense, net of income tax benefit | | $14 | | $16 | | Total stock-based compensation expense, net of income tax benefit | $9 | | $13 | | | $38 | | $47 | |
1 Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards and ESPP awards.
The following table summarizes our grant allocations:
| | | Quarter Ended | | Nine Months Ended |
| | April 30, 2022 | | May 1, 2021 | | October 29, 2022 | | October 30, 2021 |
| | Granted | Weighted-average grant-date fair value per unit | | Granted | Weighted-average grant-date fair value per unit | | Granted | Weighted-average grant-date fair value per unit | | Granted | Weighted-average grant-date fair value per unit |
| RSUs | RSUs | 1.4 | | $23 | | | 1.4 | | $33 | | RSUs | 2.9 | | $22 | | | 1.7 | | $32 | |
| Stock options | Stock options | 1.1 | | $10 | | | 1.2 | | $13 | | Stock options | 1.1 | | $10 | | | 1.2 | | $13 | |
| PSUs | PSUs | 0.5 | | $23 | | | — | | — | | PSUs | 0.5 | | $23 | | | — | | — | |
Under our deferred and stock-based compensation plan arrangements, we issued 1.20.7 and 2.6 shares of common stock during the first quarter ofand nine months ended October 29, 2022 and 1.10.4 and 1.6 shares during the first quarter ofand nine months ended October 30, 2021.
NOTE 6: SHAREHOLDERS’ EQUITY
Share Repurchases
In August 2018,May 2022, our Board of Directors authorized a program to repurchase up to $1,500$500 of our outstanding common stock, with no expiration date. This new program replaced the August 2018 program, which had no expiration date and $707 remaining in repurchase capacity at termination. Our share repurchases are summarized as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | | October 30, 2021 | | October 29, 2022 | | October 30, 2021 |
| Shares of common stock repurchased | 0.8 | | | — | | | 2.3 | | | — | |
| Average price paid per share | $22.52 | | | — | | | $22.95 | | | — | |
| Aggregate amount of common stock repurchased | $18 | | | — | | | $53 | | | — | |
We repurchased no shares of common stock during the first quarter of 2022 and we had $707$447 remaining in share repurchase capacity as of April 30,October 29, 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.
Dividends
In MayNovember 2022, subsequent to quarter end, we declared a quarterly dividend of $0.19 per share, which will be paid on June 15,December 14, 2022 to shareholders of record at the close of business on May 31,November 29, 2022.
We have certain limitations with respect to the payment of dividends and share repurchases under our Revolver agreement (see Note 3: Debt and Credit Facilities).
NOTE 7: COMMITMENTS AND CONTINGENCIESRights Plan
Our NYC flagship store opened in October 2019In September 2022, our Board of Directors approved a shareholder rights agreement and declared a dividend of one right for each outstanding share of Nordstrom common stock to shareholders of record on September 30, 2022. Each right entitles holders to purchase one newly issued share of Nordstrom common stock at an exercise price of $94 per right, subject to adjustment. Initially, the related buildingrights will not be exercisable and equipment assets were placed into service at the endwill trade with our shares of the third quarter of 2019. While our store has opened, construction continues in the residential condominium units above the store. As of April 30, 2022, we have a fee interest in the retail 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 development milestones.common stock.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
In general, the rights become exercisable following a public announcement that a person acquires 10% or more of the outstanding shares of Nordstrom common stock. If the rights are exercised, each holder (except the acquiring person) will have the right to receive common stock equal to two times the exercise price of the right. The Company may redeem the rights for $0.001 per right anytime prior to the rights becoming exercisable. The agreement also provides for exceptions and additional terms for other certain situations and circumstances.
The Rights Plan is intended to protect the interests of Nordstrom and its shareholders by reducing the likelihood that any entity, person or group gains control of the Company through open-market accumulation or other means without payment of an adequate control premium and expires September 19, 2023, unless redeemed, exchanged or terminated earlier by our Board of Directors. There is currently no impact to our Condensed Consolidated Financial Statements.
NOTE 8:7: EARNINGS PER SHARE
The computation of EPS is as follows:
| | | | | | | | | | | |
| | | Quarter Ended |
| | | | April 30, 2022 | May 1, 2021 |
| Net earnings (loss) | | | | $20 | | ($166) | |
| | | | | |
| Basic shares | | | | 160.1 | | 158.5 | |
| Dilutive effect of common stock equivalents | | | | 2.8 | | — | |
| Diluted shares | | | | 162.9 | | 158.5 | |
| | | | | |
| Earnings (loss) per basic share | | | | $0.13 | | ($1.05) | |
| Earnings (loss) per diluted share | | | | $0.13 | | ($1.05) | |
| | | | | |
| Anti-dilutive common stock equivalents | | | | 10.1 | | 12.7 | |
| | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Net (loss) earnings | ($20) | | $64 | | | $126 | | ($22) | |
| | | | | |
| Basic weighted average shares outstanding | 159.5 | | 159.2 | | | 160.1 | | 158.9 | |
| Dilutive effect of common stock equivalents | — | | 3.3 | | | 2.2 | | — | |
| Diluted weighted average shares outstanding | 159.5 | | 162.5 | | | 162.3 | | 158.9 | |
| | | | | |
| Basic EPS | ($0.13) | | $0.40 | | | $0.79 | | ($0.14) | |
| Diluted EPS | ($0.13) | | $0.39 | | | $0.77 | | ($0.14) | |
| | | | | |
| Anti-dilutive common stock equivalents | 10.1 | | 7.5 | | | 9.2 | | 11.6 | |
NOTE 9:8: SEGMENT REPORTING
The following table sets forth information for our reportable segment:
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Retail segment EBIT | Retail segment EBIT | | $87 | | ($55) | | Retail segment EBIT | $119 | | $197 | | | $471 | | $335 | |
| Corporate/Other EBIT | Corporate/Other EBIT | | (14) | | (30) | | Corporate/Other EBIT | (116) | | (70) | | | (193) | | (142) | |
| Interest expense, net | Interest expense, net | | (35) | | (137) | | Interest expense, net | (32) | | (36) | | | (101) | | (213) | |
| Earnings (loss) before income taxes | | $38 | | ($222) | | |
| (Loss) earnings before income taxes | | (Loss) earnings before income taxes | ($29) | | $91 | | | $177 | | ($20) | |
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 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 1:1. Financial Statements (Unaudited) and generally discusses the results of operations for the quarter and nine months ended April 30,October 29, 2022 compared with the quarter and nine months ended May 1,October 30, 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 | |
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| 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 firstWe delivered both topline and bottom-line results, in line with our expectations in the third quarter, results were marked by strong topline growthwhile enhancing our strategic capabilities. When customer demand decelerated in late June, we took action to manage through the short-term macroeconomic uncertainty and continued progress inposition our transformation. Net earningsbusiness for success. This included managing expenses to align with sales expectations and clearing through excess inventory to exit the year with healthy inventory levels and mix. These actions prepared us well for the firstthird quarter, was $20, or $0.13 per diluted share. After excluding a gain on sale of our interestas macroeconomic pressures impacted all customer segments, with the most significant impact in a corporate office buildingthe lowest income groups. However, customers continued to refresh their wardrobes and an impairment charge related to a Trunk Club property, adjusted loss per diluted share was $0.06. First quarter net sales increased 19% over the first quarter of 2021. This quarter, we saw customers shoppingshop for long-anticipated in-person occasions such as social events, travel, work and return to office. Beyond occasions, customers also re-evaluated and refreshed their wardrobes. We are encouraged by this opportunity because it favors theholidays, which drove demand for our core categories and services.
Net loss for the third quarter was $20, or $0.13 loss per diluted share. Excluding a supply chain technology and related asset impairment charge, Adjusted EPS was $0.201. Net sales decreased 3% versus last year, in line with our expectations. This included a negative impact of our business andapproximately 200 basis points from one week of the core capabilities of our service model.Anniversary Sale shifting into the second quarter.
Our team remainsWe remain focused on building additional capabilities to better serve customers and drive shareholder value, with particular emphasis on three key areas: improving Nordstrom Rack performance, increasing profitability and optimizing our supply chain and inventory flow. We are making progress in these initiatives, and we expect them to benefit our topline and bottom-line performance in the fourth quarter of this year, in 2023 and beyond.
While we take actions to address a shifting consumer backdrop, we are also building capabilities to better serve customers and deliver increased profitability, with a focus on improving Nordstrom Rack – Sales grew 10% versus last year, driven by increased store traffic, improved conversion and better in-stock levels. We also built momentum with sales increasing as we moved 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.
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 second half of this year.
In addition to the three focus areas above,performance, winning in our most important markets and advancingleveraging our digital capabilitiescapabilities.
Nordstrom Rack – We remain focused on delivering profitable growth while improving the customer experience. This quarter, we made the decision to reduce Rack store-based order fulfillment and raise the minimum order amount to receive free ship-to-store delivery on Rack.com. These actions reduced order cancellations, simplified Rack operations and improved profitability, but negatively impacted topline growth at the Rack by approximately 200 basis points.
We continue to focus on increasing our supply of premium brands at Nordstrom Rack, improving our assortment and growing brand awareness to fuel future growth. Premium brands are key strategic prioritiesa differentiator for us,the Rack, and we continueare dedicated to make progress in these areas.having great brands at great prices at each of our locations. For example, 90% of the top brands at Nordstrom are sold at Nordstrom Rack. This quarter, sales of our top 100 brands at the Rack increased 9%, which underscores the growth opportunity from increasing our supply of premium brands.
Market Strategy – – Our market strategy helpscapabilities help us engage with customers through better serviceby delivering convenience, connection and greater access to product, no matter how our customer choosesthey choose to shop. We deliver a level of convenience and connection that our customers enjoy by leveraging a strong store fleet and linking our omnichannel capabilities at the market level. Customers clearly value our interconnected model, with ordera strong store fleet, two unique banners and omnichannel capabilities linked at the market level. Order pickup comprising 10%represented 12% of Nordstrom.com demand this quarter, an increase of more than 200 basis points versus last year.
Digital Capabilities – We are also leveraging our digital capabilities to extend our unmatched one-to-one store experience to a digital world. Our goal is to personalize the prior year. Customers utilizing in-store pickup havedigital experience with discovery supported by a broad product assortment, convenience powered by our market strategy and connection via our people and experiences. We are evolving digital discovery and driving higher engagement with enhanced content, a refreshed shopping experience including redesigned product pages and spend 3.5 timessmarter product search capabilities. We are also improving the digital purchase journey with better imagery and product descriptions to help customers make more than customers who do not utilize the service. Buy Online Pick Up In Store also remains our most profitable customer journeyinformed purchase decisions and one of our highest satisfaction customer experiences.minimize returns.
Our styling program also continues to be a powerful engagement driver asAlthough there is continued macro uncertainty, the capabilities we deliver convenience and build deeper customer connections throughhave built with our Closer to You strategy. Asstrategy, digital assets and supply chain optimization prepare us to manage short-term pressures. With our strong balance sheet and cash position, we position our styling program for further growth, wealso have the flexibility to respond to shifting demand. We are sunsetting Trunk Club and redirecting our resourcesnavigating short-term headwinds, while also continuing to the servicesbuild capabilities to better serve our customers, tell us they value most. This move reflects our belief indrive profitable growth and commitment to styling. Customers spend seven times moreincrease shareholder value.
1Adjusted EPS is a non-GAAP financial measure. For a reconciliation between GAAP and report higher levels of satisfaction when engaging with a stylist either in-store or online,non-GAAP financial measures, see Adjusted EBIT, Adjusted EBITDA and we are committed to growing and investing in these services.
Digital Capabilities Adjusted EPS (Non-GAAP financial measures) below.– Digital sales were flat versus the first quarter of 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 in-store experience. We will continue to leverage our digital platforms to deliver personalization at scale, especially as we connect with customers through our upcoming Anniversary Sale in the second quarter.
As we look ahead to the second quarter, we believe our customers will benefit from the timing of the Anniversary Sale as they return to events and update their wardrobes. Our Anniversary Sale rewards and engages our loyal customers with brand new product from the best brands at reduced prices for a limited time. Our focus this year is 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 Companycompany basis, using customer, market share, operational and net sales metrics.
Our Anniversary Sale, historically the largest event of the year, typically falls in the second quarter. Approximately one week of our Anniversary Sale shifted from the third quarter in 2021 to the second quarter in 2022.
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 retail value of merchandise sold under our alternative partnership models with our vendors.vendors in our Nordstrom banner. We use GMV as an indicator of the scale and growth of our operations and the impact of our alternative partnership models.
•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 success in optimizing inventory volumes in accordance with customer demand.
Net Sales
The following table summarizes net sales:
| | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | April 30, 2022 | | May 1, 2021 | | | October 29, 2022 | October 30, 2021 | | | October 29, 2022 | October 30, 2021 | |
| Net sales: | Net sales: | | | Net sales: | | | | |
| Nordstrom | Nordstrom | $2,289 | | | $1,854 | | | Nordstrom | $2,264 | | $2,343 | | | | $7,324 | | $6,614 | | |
| Nordstrom Rack | Nordstrom Rack | 1,178 | | | 1,067 | | | Nordstrom Rack | 1,169 | | 1,191 | | | | 3,567 | | 3,406 | | |
| | Total net sales | Total net sales | $3,467 | | | $2,921 | | | Total net sales | $3,433 | | $3,534 | | | | $10,891 | | $10,020 | | |
| | Net sales increase: | | | |
| Net sales (decrease) increase: | | Net sales (decrease) increase: | | | | |
| Nordstrom | Nordstrom | 23.5 | % | | 36.7 | % | | Nordstrom | (3.4 | %) | 10.5 | % | | | 10.7 | % | 45.6 | % | |
| Nordstrom Rack | Nordstrom Rack | 10.3 | % | | 59.5 | % | | Nordstrom Rack | (1.9 | %) | 35.2 | % | | | 4.7 | % | 50.6 | % | |
| Total Company | Total Company | 18.7 | % | | 44.2 | % | | Total Company | (2.9 | %) | 17.7 | % | | | 8.7 | % | 47.2 | % | |
| | Digital sales as a % of net sales | 39 | % | | 46 | % | | |
| Digital sales increase | — | % | | 23 | % | | |
| Digital sales as a % of total net sales | | Digital sales as a % of total net sales | 34 | % | 40 | % | | | 37 | % | 42 | % | |
| Digital sales (decrease) increase | | Digital sales (decrease) increase | (16 | %) | (12 | %) | | | (4 | %) | 10 | % | |
| | Nordstrom GMV (decrease) increase | | Nordstrom GMV (decrease) increase | (2.9 | %) | 11.9 | % | | | 11.4 | % | 47.3 | % | |
| Total Company GMV (decrease) increase | | Total Company GMV (decrease) increase | (2.5 | %) | 18.6 | % | | | 9.2 | % | 48.4 | % | |
|
Total Company net sales increasedand GMV decreased 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 transaction growth. Both customer counts and spend per customer increased compared with the same period in 2021. Total Company GMV increased 20% compared with the same period in 2021. 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 represented 39% of total net sales. Nordstrom and Nordstrom Rack net sales 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.
(Dollar and share amounts in millions except per share amounts and where noted otherwise)
Gross Profit
The following table summarizes 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 | | | |
Gross profit increased $234 during the first quarter of 2022, compared with the same period in 2021, almost entirely due to higher sales volume. Gross profit increased 190 basis points as a rate of 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 2021, 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 Administrative 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 firstthird quarter of 2022, compared with the same period in 2021. The increase was almost entirely due to impactstiming shift of higher sales volume and the gain on sale of our interest in a corporate office building.
Interest Expense, Net
Interest expense, net was$35forAnniversary Sale, with one day falling into the firstthird quarter of 2022 versus roughly one week in 2021, had a negative impact on net sales of approximately 200 basis points 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 firstthird quarter of 2021.
Income Tax Expense
Income tax expense is summarized in Total Company net sales and GMV increased for 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 ofnine months ended October 29, 2022, compared with the same period in 2021. In the third quarter, core categories including men’s and women’s apparel, shoes and designer had the strongest growth versus 2021, primarily dueas customers continued to shop for occasions, travel, work and holidays. For the unfavorable taxnine months ended October 29, 2022, the same core categories of shoes, men’s and women’s apparel and designer had the strongest growth compared with the same period in 2021. During the nine months ended October 29, 2022, we opened two Nordstrom Rack stores and one ASOS | Nordstrom store.
Digital sales decreased for the third quarter and nine months ended October 29, 2022, compared with the same periods in 2021. The timing of the Anniversary Sale had a negative impact on digital sales in the third quarter of stock-based compensation.approximately 300 basis points compared with the same period in 2021. Reducing store-based order fulfillment for Nordstrom Rack digital orders during the third quarter and sunsetting Trunk Club earlier in fiscal 2022 had a negative impact on digital sales for the third quarter and nine months ended October 29, 2022.
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)
Earnings (Loss) Per Share
EPS is as follows: | | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | April 30, 2022 | | May 1, 2021 | | |
| Basic | | | | | $0.13 | | | ($1.05) | | | |
| Diluted | | | | | $0.13 | | | ($1.05) | | | |
Earnings (loss) per diluted share improved $1.18Nordstrom net sales and GMV decreased for the firstthird quarter of 2022 and increased for the nine months ended October 29, 2022, compared with the same periods in 2021. The timing shift of the Anniversary Sale had a negative impact on Nordstrom banner net sales of approximately 300 basis points compared with the third quarter of 2021. For the third quarter of 2022, Nordstrom net sales reflected a decrease in the number of items sold, partially offset by an increase in the average selling price per item sold, compared with the same period in 2021. For the nine months ended October 29, 2022, Nordstrom net sales reflected an increase in the average selling price per item sold, while the number of items sold remained flat, compared with the same period in 2021.
Nordstrom Rack net sales decreased for the third quarter of 2022 and increased for the nine months ended October 29, 2022, compared with the same periods in 2021. For the third quarter of 2022, Nordstrom Rack net sales reflected a decrease in the number of items sold, while the average selling price per item sold remained flat, compared with the same period in 2021. For the nine months ended October 29, 2022, Nordstrom Rack net sales reflected an increase in the average selling price per item sold, partially offset by a decrease in the number of items sold, compared with the same period in 2021.
See Note 2: Revenue in Item 1 for information about disaggregated revenues.
Credit Card Revenues, Net
Credit card revenues, net increased $10 and $37 for the third quarter and nine months ended October 29, 2022, compared with the same periods in 2021, primarily as a result of higher finance charges due to larger outstanding balances, partially offset by higher losses from bad debt for the third quarter of 2022.
Gross Profit
The following table summarizes gross profit:
| | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Gross profit | $1,139 | $1,240 | | $3,680 | $3,374 |
| Gross profit as a % of net sales | 33.2% | 35.1% | | 33.8% | 33.7% |
| | | | | |
| | | | October 29, 2022 | October 30, 2021 |
| Inventory turnover rate | | | | 3.85 | 4.20 |
Gross profit decreased $101 and 190 basis points as a rate of net sales for the third quarter of 2022, compared with the same period in 2021, primarily due to higher markdown rates and lower sales. We incurred approximately $100 in incremental markdowns in the third quarter. Gross profit increased $306 and 10 basis points as a rate of net sales for the nine months ended October 29, 2022, compared with the same period in 2021, primarily due to higher sales, partially offset by higher markdown rates.
Ending inventory as of October 29, 2022 increased 0.6%, compared with the same period in 2021, versus a 2.9% decrease in sales for the third quarter of 2022. Inventory turnover rate, which is calculated using trailing 4-quarter average inventory, decreased primarily due to higher inventory levels across most channels as a result of supply chain disruptions and softening customer demand trends.
Selling, General and Administrative Expenses
SG&A is summarized in the following table:
| | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | October 30, 2021 | | | October 29, 2022 | October 30, 2021 | |
| SG&A expenses | $1,249 | $1,216 | | | $3,722 | $3,464 | |
| SG&A expenses as a % of net sales | 36.4% | 34.4% | | | 34.2% | 34.6% | |
SG&A increased $33 and 200 basis points as a rate of net sales for the third quarter of 2022, compared with the same period in 2021, primarily due to a supply chain technology and related asset impairment charge of $70, partially offset by fulfillment expense efficiencies. SG&A increased $258 for the nine months ended October 29, 2022, compared with the same period in 2021, primarily due to increased variable costs on higher sales volume and a supply chain technology and related asset impairment charge, partially offset by fulfillment expense efficiencies. SG&A rate decreased 40 basis points as a rate of net sales for the nine months ended October 29, 2022, compared with the same period in 2021, primarily due to leverage on higher sales volume and fulfillment expense efficiencies, partially offset by a supply chain technology and related asset impairment charge.
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)
Earnings Before Interest and Income Taxes
EBIT is summarized in the following table:
| | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | October 30, 2021 | | | October 29, 2022 | October 30, 2021 | |
| EBIT | $3 | $127 | | | $278 | $193 | |
| EBIT as a % of net sales | 0.1% | 3.6% | | | 2.6% | 1.9% | |
EBIT decreased $124 and 350 basis points as a rate of net sales for the third quarter of 2022, compared with the same period in 2021, primarily due to higher markdowns and a supply chain technology and related asset impairment charge, partially offset by fulfillment expense efficiencies. EBIT increased $85 and 65 basis points as a rate of net sales for the nine months ended October 29, 2022, compared with the same period in 2021, primarily due to higher sales, partially offset by higher markdowns and a supply chain technology and related asset impairment charge.
Interest Expense, Net
Interest expense, net was $32 for the third quarter of 2022, and was relatively flat compared with $36 for the same period in 2021. Interest expense was $101 for the nine months ended October 29, 2022, compared with $213 for the same period in 2021. The improvement includesdecrease for the nine months ended October 29, 2022 was primarily due to debt refinancing charges of $88 related to the redemption of the Secured Notes in the first quarter of 2021 and the redemption of the 4% senior notes in the second quarter of 2021.
Income Tax
Income tax (benefit) expense is summarized in the following table: | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Income tax (benefit) expense | ($9) | | $27 | | | $51 | | $2 | |
| Effective tax rate | 30.6 | % | 29.9 | % | | 29.0 | % | (7.6 | %) |
The effective tax rate in the third quarter of 2022 was roughly flat, compared with the same period in 2021. The effective tax rate increased for the nine months ended October 29, 2022, compared with the same period in 2021, due to an overall increase in earnings before income taxes. Income tax expense for the nine months ended October 30, 2021, when compared with a loss before income taxes, resulted in a negative rate in 2021.
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)
Earnings Per Share
EPS is as follows: | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Basic | ($0.13) | | $0.40 | | | $0.79 | | ($0.14) | |
| Diluted | ($0.13) | | $0.39 | | | $0.77 | | ($0.14) | |
Diluted EPS decreased $0.52 for the third quarter of 2022 primarily due to higher markdowns and the impact of a supply chain technology and related asset impairment charge. For the nine months ended October 29, 2022, diluted EPS increased $0.91 primarily due to higher sales volumes and the net impact of $0.19 per diluted share due tofrom the gain on sale of our interest in a corporate office building, partially offset by ana supply chain technology and related asset impairment charge, related to a Trunk Club property.wind-down costs and higher markdowns. In the first quarter of 2021, we recorded an interest expense charge of $88 related to the redemption of the Secured Notes, which reduced diluted EPS by $0.41 per share.
Fiscal Year 2022 Outlook
WeThe following are updating our outlook to reflect first quarter performance, resulting in the following financial expectations for fiscal 2022:
•Revenue growth, including retail sales and credit card revenues, of 65 to 87 percent versus fiscal 2021
•EBIT margin, of 5.8 to 6.2as percent of sales, of 4.1 to 4.4 percent
•Adjusted EBIT margin of 5.64.3 to 6.04.7 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, of $2.13 to $2.43
•Adjusted EPS, of $3.20 to $3.50, excluding the impact of share repurchase activity, if any, of $2.30 to $2.60
•Leverage ratio of approximately 2.5below 2.9 times by year-end
Our adjusted EBIT as a percent of net sales (“adjusted EBIT margin”) and Adjusted EPS outlook for fiscal year 2022 excludes the impacts from certain items that we do not consider representative of our core operating performance. These items include a supply chain technology and related asset impairment charge recognized in the expected full fiscal yearthird quarter of 2022, impact associated with aTrunk Club wind-down costs recognized in the first half of 2022 and the gain on the sale of our interest in a corporate office building and an impairment charge related to a Trunk Club property recognized in the first quarter of 2022.
The following is For a reconciliation of net earnings as a percent of net salesthe fiscal year 2022 forward-looking GAAP to adjusted 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 | % |
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The following is a reconciliation of earnings per diluted share to Adjusted EPS included within our Fiscal Year 2022 Outlook:
| | | | | | | | |
| 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 | |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where noted otherwise)
Adjusted EBIT, Adjusted EBITDA and Adjusted EPS (Non-GAAP financial measures)
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 (loss) earnings. The financial measure calculated under GAAP which is most directly comparable to Adjusted EPS is earnings (loss) per diluted share.EPS.
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 a substitute for, net earnings overall change in(loss), operating cash flows, earnings (loss) per share, earnings (loss) per diluted share or other financial measures performed in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ financial measures and therefore may not be comparable to methods used by other companies.
The following is a reconciliation of net (loss) 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 | |
| | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Net (loss) earnings | ($20) | | $64 | | | $126 | | ($22) | |
| Income tax (benefit) expense | (9) | | 27 | | | 51 | | 2 | |
| Interest expense, net | 32 | | 36 | | | 101 | | 213 | |
| Earnings before interest and income taxes | 3 | | 127 | | | 278 | | 193 | |
| | | | | |
| Supply chain impairment | 70 | | — | | | 70 | | — | |
| Trunk Club wind-down costs | — | | — | | | 18 | | — | |
| Gain on sale of interest in a corporate office building | — | | — | | | (51) | | — | |
| Adjusted EBIT | 73 | | 127 | | | 315 | | 193 | |
| | | | | |
| Depreciation and amortization expenses | 152 | | 156 | | | 453 | | 477 | |
| Amortization of developer reimbursements | (18) | | (19) | | | (54) | | (59) | |
| | | | | |
| Adjusted EBITDA | $207 | | $264 | | | $714 | | $611 | |
The following is a reconciliation of earnings (loss) per diluted shareEPS to 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) | |
| | | |
| | | |
| | | |
| | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 29, 2022 | October 30, 2021 | | October 29, 2022 | October 30, 2021 |
| Diluted EPS | ($0.13) | | $0.39 | | | $0.77 | | ($0.14) | |
| Supply chain impairment | 0.44 | | — | | | 0.44 | | — | |
| Trunk Club wind-down costs | — | | — | | | 0.11 | | — | |
| Gain on sale of interest in a corporate office building | — | | — | | | (0.31) | | — | |
| Debt refinancing charges included within interest expense, net | — | | — | | | — | | 0.56 | |
Income tax impact on adjustments1 | (0.11) | | — | | | (0.06) | | (0.15) | |
Adjusted EPS2 | $0.20 | | $0.39 | | | $0.95 | | $0.27 | |
| | | | | |
| | | | | |
| | | | | |
1Due to the anti-dilutive effect resulting from the adjusted net loss, the impact of potentially dilutive shares on the adjusted per share amounts has been omitted from the calculation of weighted-average shares for earnings (loss) per share for the quarters ended April 30, 2022 and May 1, 2021.
2 The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate for the respective non-GAAP adjustment.
2 We used the same number of weighted average diluted shares in our denominator for adjusted per share amounts as was used in the calculation of diluted EPS under GAAP, regardless of the adjusted net loss or earnings position, as the impact to Adjusted EPS is not significant.
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)
Fiscal Year 2022 Forward-Looking Non-GAAP Measures
The following is a reconciliation of expected net earnings as a percent of net sales to expected adjusted 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 | 2.3 | % | 2.6 | % |
| Income tax expense | 0.9 | % | 0.9 | % |
| Interest expense, net | 0.9 | % | 0.9 | % |
| Expected EBIT margin, as a % of net sales | 4.1 | % | 4.4 | % |
| | |
| Supply chain impairment | 0.4 | % | 0.5 | % |
| Trunk Club wind-down costs | 0.1 | % | 0.1 | % |
| Gain on sale of interest in a corporate office building | (0.3 | %) | (0.3 | %) |
| Expected adjusted EBIT margin | 4.3 | % | 4.7 | % |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
The following is a reconciliation of expected diluted EPS to expected Adjusted EPS included within our Fiscal Year 2022 Outlook: | | | | | | | | |
| 52 Weeks Ending January 28, 2023 |
| Low | High |
| Expected diluted EPS | $2.13 | | $2.43 | |
| Supply chain impairment | 0.43 | | 0.43 | |
| Trunk Club wind-down costs | 0.11 | | 0.11 | |
| Gain on sale of interest in a corporate office building | (0.31) | | (0.31) | |
| Income tax impact on adjustments | (0.06) | | (0.06) | |
| Expected Adjusted EPS | $2.30 | | $2.60 | |
| | |
| | |
| | |
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)
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 ofshows the components to reconcile the return on assets calculation to Adjusted ROIC:
| | | | | | | | |
| 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 | %) |
| | | | | | | | |
| Four Quarters Ended |
| October 29, 2022 | October 30, 2021 |
| Net earnings | $326 | | $11 | |
| Income tax expense (benefit) | 117 | | (49) | |
| Interest expense | 138 | | 262 | |
| Earnings before interest and income tax expense | 581 | | 224 | |
| | |
Operating lease interest1 | 85 | | 89 | |
| Adjusted net operating profit | 666 | | 313 | |
| | |
Estimated income tax expense2 | (177) | | (406) | |
| Adjusted net operating profit (loss) after tax | $489 | | ($93) | |
| | |
| Average total assets | $9,227 | | $9,489 | |
Average deferred property incentives in excess of ROU assets3 | (205) | | (243) | |
| Average non-interest bearing current liabilities | (3,369) | | (3,423) | |
| Average invested capital | $5,653 | | $5,823 | |
| | |
| Return on assets | 3.5 | % | 0.1 | % |
| Adjusted ROIC | 8.7 | % | (1.6 | %) |
1 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) benefitexpense is calculated by multiplying the adjusted net operating profit (loss) by the effective tax rate for the trailing twelve month periods ended April 30,October 29, 2022 and May 1,October 30, 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.
3 For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities on the Condensed Consolidated Balance Sheets. The current and non-current amounts are used to reduce average total assets above, as this better reflects how we manage our business.
LIQUIDITY
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. In 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 facilitiesfacility for working capital, capital expenditures and general corporate purposes. 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 firstthird quarter of 2022 with $484$293 in cash and cash equivalents and $800$700 of additional liquidity available on our Revolver. The increase in cashCash and cash equivalents in the firstthird quarter of 2022 compared withincreased from $267 in 2021, is driven by timing ofhigher net earnings, partially offset by payments for merchandise and higher net earnings.inventory. 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 |
| 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 | |
| | | | | | | | |
| Nine Months Ended |
| October 29, 2022 | October 30, 2021 |
| Net cash provided by operating activities | $240 | | $277 | |
| Net cash used in investing activities | (243) | | (378) | |
| Net cash used in financing activities | (23) | | (315) | |
Operating Activities
Net cash fromprovided by operating activities increased $551decreased $37 for the quarternine months ended April 30,October 29, 2022, compared with the same period in 2021, primarily due to receipt of the income tax refund related to the loss carryback provision of the CARES Act in 2021, partially offset by the timing of inventory flows and related payments for merchandise and an increase in net earnings.
Investing Activities
Net cash used in investing activities decreased $99$135 for the quarternine months ended April 30,October 29, 2022, compared with the same period in 2021, primarily due to the sale of our interest in a corporate office building in 2022 and our investment in ASOS.com Ltd. in 2021 (see Note 1: Basis of Presentation in Item 1).
Capital Expenditures
Our capital expenditures, net are summarized as follows:
| | | Quarter Ended | | Nine Months Ended |
| | April 30, 2022 | May 1, 2021 | | October 29, 2022 | October 30, 2021 |
| Capital expenditures | Capital expenditures | $96 | | $126 | | Capital expenditures | $325 | | $361 | |
Less: deferred property incentives1 | (5) | | (6) | | |
Deferred property incentives1 | | Deferred property incentives1 | (10) | | (10) | |
| Capital expenditures, net | Capital expenditures, net | $91 | | $120 | | Capital expenditures, net | $315 | | $351 | |
| | Capital expenditures as a % of net sales | Capital expenditures as a % of net sales | 2.8 | % | 4.3 | % | Capital expenditures as a % of net sales | 3.0 | % | 3.6 | % |
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 fromused in financing activities decreased $181$292 for the quarternine months ended April 30,October 29, 2022, compared with the same period in 2021, primarily due to net activity in 2021 related to long-term debt and our Revolver, partially offset bydebt.
Share Repurchases
We repurchased $53 for the make-whole premium (see Note 3: Debt and Credit Facilitiesnine months ended October 29, 2022, compared with no share repurchases in Item 1).the same period of 2021.
Dividends
We paid $30,$90, or $0.19$0.57 per share, for the quarternine months ended April 30,October 29, 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 measure may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by (used in) operating activities. The following is a reconciliation of net cash provided by (used in) operating activities to Free Cash Flow:
| | | | | | | | |
| Quarter Ended |
| 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) | |
| | |
| | |
| | |
| | | | | | | | |
| Nine Months Ended |
| October 29, 2022 | October 30, 2021 |
| Net cash provided by operating activities | $240 | | $277 | |
| Capital expenditures | (325) | | (361) | |
| Change in cash book overdrafts | 21 | | (4) | |
| Free Cash Flow | ($64) | | ($88) | |
| | |
| | |
| | |
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)
CAPITAL RESOURCES
Borrowing Capacity and Activity
AsDuring the second quarter 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 2027. During the third quarter of 2022, we borrowed $100 under our Revolver, which remained outstanding as of October 29, 2022. As of April 30,October 29, 2022, we had no borrowings outstanding under our Revolver and no issuances outstanding under our commercial paper program. In November 2022, subsequent to quarter end, we completely repaid the outstanding balance on our Revolver. 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 whether and to what extent we 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 | Ba1 | Stable |
| 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.
For the first quarterAs of October 29, 2022, we reported our quarterly compliance status under the terms of the new Revolver and were in compliance with all covenants. We have certain limitations with respect to the payment of dividends and share repurchases under our Revolver agreement. For more information about our Revolver 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.
(Dollar and share amounts in millions except per share amounts and where noted otherwise)
Adjusted Debt to EBITDAR (Non-GAAP financial measure)
Adjusted Debtdebt 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 which could impact our credit ratingratings and borrowing costs. This metric is calculated in accordance with the updates in our new 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 investment-grade credit ratings 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 Debtdebt 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 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 financial measure calculated under GAAP which is most directly comparable to Adjusted Debtdebt to EBITDAR is debt to net earnings. The following is a reconciliation ofshows the components to reconcile the debt to net earnings calculation to Adjusted Debtdebt to EBITDAR:
| | | | | |
| April 30,October 29, 2022 |
| Debt | $2,8542,955 | |
| |
| |
Add: operatingOperating lease liabilities | 1,8161,800 | |
Adjusted Debtdebt | $4,6704,755 | |
| |
Four Quarters Ended April 30,October 29, 2022 |
| Net earnings | $364326 | |
Add: incomeIncome tax expense | 142117 | |
Add: interestInterest expense, net | 144134 | |
| |
Adjusted earningsEarnings before interest and income taxes | $650577 | |
| |
Add: depreciationDepreciation and amortization expenses | 604591 | |
Add: Operating Lease Cost | 269276 | |
Add: amortizationAmortization of developer reimbursements1
| 7674 | |
Less: otherOther Revolver covenant adjustments2
| (32)47 | |
| Adjusted EBITDAR | $1,5671,565 | |
| |
| Debt to Net Earnings | 7.89.1 | |
Adjusted Debtdebt to EBITDAR | 3.0 | |
1 Amortization of developer reimbursements is a non-cash reduction of Operating Lease Cost and is therefore added back to Operating Lease Cost for purposes of our Revolver covenant calculation.
2 Other adjusting items to reconcile net earnings 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,October 29, 2022, other Revolver covenant adjustments primarily included costs associated with a $51supply chain technology and related asset impairment and the wind-down of Trunk Club, partially offset by a 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 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 2021 Annual Report.
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)
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 2021 Annual Report. There have been no material changes to these risks since that time. Item 4. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
ForOn October 18, 2022, we filed an 8-K announcing the departure of Anne L. Bramman as an officer, employee and the Company’s principal financial officer for the purposes of the Exchange Act,Act. Her last day with us will be on or about December 2, 2022. We do not believe that the announcement of Ms. Bramman’s resignation has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Michael W. Maher, our Chief Accounting Officer, will serve as our interim principal financial officer upon Ms. Bramman’s departure. 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.for purposes of the Exchange Act.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 discussedRisk Factors described in our 2021 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)
InThe following is a summary of our third quarter share repurchases: | | | | | | | | | | | | | | | | | | | | | | | |
| Total Number
of Shares
Purchased | | Average
Price Paid
per Share | | Total Number of Shares Purchased
as Part of Publicly Announced
Plans or Programs | | Approximate Dollar Value
of Shares that may
yet be Purchased Under
the Plans or Programs |
August 2022
(July 31, 2022 to August 27, 2022) | 0.6 | | | $23.46 | | | 0.6 | | | $449 | |
September 2022
(August 28, 2022 to October 1, 2022) | 0.2 | | | $18.33 | | | 0.2 | | | $447 | |
October 2022
(October 2, 2022 to October 29, 2022) | — | | | — | | | — | | | $447 | |
| Total | 0.8 | | | $22.52 | | | 0.8 | | | |
See Note 6: Shareholders’ Equity in Item 1 for more information about our August 2018 our Board of Directors authorized a program to repurchase up to $1,500 of our outstanding common stock, with no expiration date. We repurchased no shares of common stock during the first quarter ofand May 2022 and we had $707 remaining in share repurchase capacity as of 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.programs.
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
| | | Incorporated by Reference | | Incorporated by Reference |
| Exhibit | Exhibit | | Form | Exhibit | Filing Date | Exhibit | | Form | Exhibit | Filing Date |
| | 4.1 | | 4.1 | | | | 8-K | 4.1 | September 20, 2022 |
| | | 10.1 | 10.1 | | | | 8-K | 10.2 | February 28, 2022 | 10.1 | † | | | |
| | 10.2 | | | | |
| | 31.1 | 31.1 | | | | 31.1 | † | | | |
| | 31.2 | 31.2 | | | | 31.2 | † | | | |
| | 32.1 | 32.1 | | | | 32.1 | ‡ | | | |
| | 101.INS | 101.INS | | Inline XBRL Instance Document, filed herewith electronically | | 101.INS | † | | Inline XBRL Instance Document | |
| | 101.SCH | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document, filed herewith electronically | | 101.SCH | † | | Inline XBRL Taxonomy Extension Schema Document | |
| | 101.CAL | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith electronically | | 101.CAL | † | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| | 101.LAB | 101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document, filed herewith electronically | | 101.LAB | † | | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| | 101.PRE | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith electronically | | 101.PRE | † | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| | 101.DEF | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document, filed herewith electronically | | 101.DEF | † | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| | 104 | 104 | | Cover Page Interactive Data File (Inline XBRL), filed herewith electronically | | 104 | † | | Cover Page Interactive Data File (Inline XBRL) | |
| | † Filed herewith electronically | | † Filed herewith electronically |
| ‡ Furnished herewith electronically | | ‡ Furnished 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 3,December 2, 2022 |
