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, 202229, 2023
or
| | | | | |
| ☐ | 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 |
| Common stock purchase rights | | 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, 2022: 160,579,12331, 2023: 161,493,792 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 MeasurementsCanada Wind-down | |
| Note 5: Stock-based Compensation3: Revenue | |
| Note 4: Debt and Credit Facilities | |
| Note 5: Fair Value Measurements | |
| Note 6: Shareholders’ EquityStock-based Compensation | |
| Note 7: Commitments and ContingenciesShareholders’ Equity | |
| 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,February 3, 2024, 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 expanding our price range and selectiondelivering great brands at great prices 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,in stores,
•our ability to effectively manage our merchandise strategy, including our ability to offer compelling assortments and optimize ourinventory to ensure we have the right product mix and quantity 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, including Nordstrom Media Network, 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 and outcome 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,
•COVID-19, which may have a negative impact on our business and results and may exacerbate any risks noted,
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 and adapt to evolving reporting requirements,
•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,
Table•the impact of Contentsa concentration of stock ownership on our shareholders’ ability to influence corporate matters,
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.including inflation and Canada, includingmeasures 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.judgments,
•the outcome of events or occurrences related to the wind-down of business operations in Canada.
These and other factors, including those factors we discusseddiscuss 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,” or the “Company” mean Nordstrom, Inc. and its subsidiaries. On March 2, 2023, Nordstrom Canada commenced a wind-down of its business operations (see Note 2: Canada Wind-down) and as of this date, Nordstrom Canada was deconsolidated from Nordstrom, Inc.’s financial statements. Nordstrom Canada results prior to March 2, 2023 are included in the Company’s Condensed Consolidated Financial Statements.
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. In addition, forward-looking statements may be impacted by the actual outcome of events or occurrences related to the wind-down of business operations in Canada.
DEFINITIONS OF COMMONLY USED TERMS
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| Term | | Definition |
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| | |
| 2019 Plan | | 2019 Equity Incentive Plan |
20212022 Annual Report | | Annual Report on Form 10-K filed on March 11, 202210, 2023 |
| 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 ActCCAA | | Coronavirus Aid, Relief and Economic SecurityCompanies’ Creditors Arrangement 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 |
| EBIT Margin | | Earnings (loss) before interest and income taxes as a percent of net sales |
| 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 |
| First quarter of 2023 | | 13 fiscal weeks ending April 29, 2023 |
| First quarter of 2022 | | 13 fiscal weeks ending April 30, 2022 |
First quarter of 2021Fiscal year 2023 | | 1353 fiscal weeks ending May 1, 2021February 3, 2024 |
| 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 |
| NAV | | Net asset value |
| NMN | | Nordstrom Media Network, where we use our first party data and marketing infrastructure to drive cooperative marketing with vendors across both offsite and onsite marketing platforms |
| Nordstrom | | Nordstrom.com, TrunkClub.com, Nordstrom-brandedNordstrom U.S. stores, Nordstrom Local and ASOS | Nordstrom. Nordstrom also included Canada which includesoperations prior to March 2, 2023, inclusive of Nordstrom.ca, Nordstrom Canadian stores and Nordstrom Rack Canadian stores, and TrunkClub.com prior to October 2022. |
Nordstrom LocalCanada | | Nordstrom Canada Retail, Inc., Nordstrom Canada Holdings, LLC and Nordstrom Canada Holdings II, LLC |
| 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-brandedRack 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 |
| | | April 30, 2022 | May 1, 2021 | | | April 29, 2023 | April 30, 2022 |
| Net sales | Net sales | | $3,467 | | $2,921 | | Net sales | | $3,064 | | $3,467 | |
| Credit card revenues, net | Credit card revenues, net | | 102 | | 88 | | Credit card revenues, net | | 117 | | 102 | |
| Total revenues | Total revenues | | 3,569 | | 3,009 | | Total revenues | | 3,181 | | 3,569 | |
| 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 | | (2,028) | | (2,331) | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | | (1,165) | | (1,075) | | Selling, general and administrative expenses | | (1,103) | | (1,165) | |
| Earnings (loss) before interest and income taxes | | 73 | | (85) | | |
| Canada wind-down costs | | Canada wind-down costs | | (309) | | — | |
| (Loss) earnings before interest and income taxes | | (Loss) earnings before interest and income taxes | | (259) | | 73 | |
| Interest expense, net | Interest expense, net | | (35) | | (137) | | Interest expense, net | | (28) | | (35) | |
| 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 | | (287) | | 38 | |
| Income tax benefit (expense) | | Income tax benefit (expense) | | 82 | | (18) | |
| Net (loss) earnings | | Net (loss) earnings | | ($205) | | $20 | |
| | Earnings (loss) per share: | | | |
| (Loss) earnings per share: | | (Loss) earnings per share: | | |
| Basic | Basic | | $0.13 | | ($1.05) | | Basic | | ($1.27) | | $0.13 | |
| Diluted | Diluted | | $0.13 | | ($1.05) | | Diluted | | ($1.27) | | $0.13 | |
| | Weighted-average shares outstanding: | Weighted-average shares outstanding: | | | Weighted-average shares outstanding: | | |
| Basic | Basic | | 160.1 | | 158.5 | | Basic | | 160.8 | | 160.1 | |
| Diluted | Diluted | | 162.9 | | 158.5 | | Diluted | | 160.8 | | 162.9 | |
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 |
| | | | April 30, 2022 | May 1, 2021 |
| Net earnings (loss) | | | | $20 | | ($166) | |
| Foreign currency translation adjustment | | | | (1) | | 10 | |
| Post retirement plan adjustments, net of tax | | | | 1 | | 1 | |
| Comprehensive net earnings (loss) | | | | $20 | | ($155) | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
(Unaudited)
| | | | | | | | | | | |
| April 30, 2022 | January 29, 2022 | May 1, 2021 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $484 | | $322 | | $377 | |
| Accounts receivable, net | 297 | | 255 | | 238 | |
| Merchandise inventories | 2,426 | | 2,289 | | 1,961 | |
| Prepaid expenses and other | 332 | | 306 | | 923 | |
| Total current assets | 3,539 | | 3,172 | | 3,499 | |
| | | |
| Land, property and equipment (net of accumulated depreciation of $7,834, $7,737 and $7,322) | 3,505 | | 3,562 | | 3,642 | |
| Operating lease right-of-use assets | 1,497 | | 1,496 | | 1,560 | |
| Goodwill | 249 | | 249 | | 249 | |
| Other assets | 384 | | 390 | | 383 | |
| Total assets | $9,174 | | $8,869 | | $9,333 | |
| | | |
| Liabilities and Shareholders’ Equity | | | |
| Current liabilities: | | | |
| Borrowings under revolving line of credit | $— | | $— | | $200 | |
| Accounts payable | 1,898 | | 1,529 | | 1,676 | |
| Accrued salaries, wages and related benefits | 241 | | 383 | | 330 | |
| Current portion of operating lease liabilities | 250 | | 242 | | 246 | |
| Other current liabilities | 1,198 | | 1,160 | | 1,056 | |
| Current portion of long-term debt | — | | — | | 500 | |
| Total current liabilities | 3,587 | | 3,314 | | 4,008 | |
| | | |
| Long-term debt, net | 2,854 | | 2,853 | | 2,847 | |
| | | |
| Non-current operating lease liabilities | 1,566 | | 1,556 | | 1,662 | |
| Other liabilities | 578 | | 565 | | 650 | |
| | | |
| Commitments and contingencies (Note 7) | 0 | 0 | 0 |
| | | |
| 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 | |
| Accumulated deficit | (2,662) | | (2,652) | | (2,996) | |
| Accumulated other comprehensive loss | (50) | | (50) | | (59) | |
| Total shareholders’ equity | 589 | | 581 | | 166 | |
| Total liabilities and shareholders’ equity | $9,174 | | $8,869 | | $9,333 | |
| | | | | | | | | | | |
| | | Quarter Ended |
| | | | April 29, 2023 | April 30, 2022 |
| Net (loss) earnings | | | | ($205) | | $20 | |
| Foreign currency translation adjustment | | | | (4) | | (1) | |
| Post retirement plan adjustments, net of tax | | | | — | | 1 | |
| Comprehensive net (loss) earnings | | | | ($209) | | $20 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYBALANCE SHEETS
(Amounts in millions except per share amounts)millions)
(Unaudited)
| | | | | | | | | | | |
| | | Quarter Ended |
| | | | April 30, 2022 | May 1, 2021 |
| Common stock | | | | | |
| Balance, beginning of period | | | | $3,283 | | $3,205 | |
| Issuance of common stock under stock compensation plans | | | | 8 | | 7 | |
| Stock-based compensation | | | | 10 | | 9 | |
| Balance, end of period | | | | $3,301 | | $3,221 | |
| | | | | |
| Accumulated deficit | | | | | |
| Balance, beginning of period | | | | ($2,652) | | ($2,830) | |
| | | | | |
| Net earnings (loss) | | | | 20 | | (166) | |
| Dividends | | | | (30) | | — | |
| | | | | |
| Balance, end of period | | | | ($2,662) | | ($2,996) | |
| | | | | |
| Accumulated other comprehensive loss | | | | | |
| Balance, beginning of period | | | | ($50) | | ($70) | |
| | | | | |
| Other comprehensive income | | | | — | | 11 | |
| Balance, end of period | | | | ($50) | | ($59) | |
| | | | | |
| Total shareholders’ equity | | | | $589 | | $166 | |
| | | | | |
| Dividends per share | | | | $0.19 | | $— | |
| | | | | | | | | | | |
| April 29, 2023 | January 28, 2023 | April 30, 2022 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $581 | | $687 | | $484 | |
| Accounts receivable, net | 279 | | 265 | | 297 | |
| Merchandise inventories | 2,237 | | 1,941 | | 2,426 | |
| Prepaid expenses and other current assets | 414 | | 316 | | 332 | |
| Total current assets | 3,511 | | 3,209 | | 3,539 | |
| | | |
| Land, property and equipment (net of accumulated depreciation of $8,133, $8,289 and $7,834) | 3,197 | | 3,351 | | 3,505 | |
| Operating lease right-of-use assets | 1,393 | | 1,470 | | 1,497 | |
| Goodwill | 249 | | 249 | | 249 | |
| Other assets | 478 | | 466 | | 384 | |
| Total assets | $8,828 | | $8,745 | | $9,174 | |
| | | |
| Liabilities and Shareholders’ Equity | | | |
| Current liabilities: | | | |
| | | |
| Accounts payable | $1,674 | | $1,238 | | $1,898 | |
| Accrued salaries, wages and related benefits | 246 | | 291 | | 241 | |
| Current portion of operating lease liabilities | 249 | | 258 | | 250 | |
| Other current liabilities | 1,236 | | 1,203 | | 1,198 | |
| Current portion of long-term debt | 249 | | — | | — | |
| Total current liabilities | 3,654 | | 2,990 | | 3,587 | |
| | | |
| Long-term debt, net | 2,608 | | 2,856 | | 2,854 | |
| | | |
| Non-current operating lease liabilities | 1,406 | | 1,526 | | 1,566 | |
| Other liabilities | 609 | | 634 | | 578 | |
| | | |
| Commitments and contingencies (Note 2) | | | |
| | | |
| Shareholders’ equity: | | | |
| Common stock, no par value: 1,000 shares authorized; 161.4, 160.1 and 160.5 shares issued and outstanding | 3,372 | | 3,353 | | 3,301 | |
| Accumulated deficit | (2,824) | | (2,588) | | (2,662) | |
| Accumulated other comprehensive gain (loss) | 3 | | (26) | | (50) | |
| Total shareholders’ equity | 551 | | 739 | | 589 | |
| Total liabilities and shareholders’ equity | $8,828 | | $8,745 | | $9,174 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’ EQUITY
(Amounts in millions)millions except per share amounts)
(Unaudited)
| | | | | | | | |
| Quarter Ended |
| April 30, 2022 | May 1, 2021 |
| Operating Activities | | |
| Net earnings (loss) | $20 | | ($166) | |
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | | |
| Depreciation and amortization expenses | 152 | | 162 | |
| Right-of-use asset amortization | 47 | | 43 | |
| Deferred income taxes, net | (13) | | 8 | |
| Stock-based compensation expense | 19 | | 22 | |
| Other, net | (45) | | 86 | |
| Change in operating assets and liabilities: | | |
| Accounts receivable | (18) | | 7 | |
| Merchandise inventories | (19) | | (16) | |
| Prepaid expenses and other assets | (24) | | (126) | |
| Accounts payable | 233 | | (296) | |
| Accrued salaries, wages and related benefits | (143) | | (22) | |
| Other current liabilities | 40 | | 7 | |
| Lease liabilities | (65) | | (81) | |
| Other liabilities | 3 | | 8 | |
| Net cash provided by (used in) operating activities | 187 | | (364) | |
| | |
| Investing Activities | | |
| Capital expenditures | (96) | | (126) | |
| | |
| Proceeds from the sale of assets and other, net | 85 | | 16 | |
| Net cash used in investing activities | (11) | | (110) | |
| | |
| Financing Activities | | |
| Proceeds from revolving line of credit | — | | 200 | |
| | |
| Proceeds from long-term borrowings | — | | 675 | |
| Principal payments on long-term borrowings | — | | (600) | |
| Increase (decrease) in cash book overdrafts | 16 | | (17) | |
| Cash dividends paid | (30) | | — | |
| | |
| Proceeds from issuances under stock compensation plans | 8 | | 7 | |
| Tax withholding on share-based awards | (8) | | (13) | |
| Make-whole premium payment and other, net | — | | (85) | |
| Net cash (used in) provided by financing activities | (14) | | 167 | |
| | |
| Effect of exchange rate changes on cash and cash equivalents | — | | 3 | |
| Net increase (decrease) in cash and cash equivalents | 162 | | (304) | |
| Cash and cash equivalents at beginning of period | 322 | | 681 | |
| Cash and cash equivalents at end of period | $484 | | $377 | |
| | |
| Supplemental Cash Flow Information | | |
| Cash (received) paid during the period for: | | |
| Income taxes, net | ($22) | | $3 | |
| Interest, net of capitalized interest | 40 | | 63 | |
| | | | | | | | | | | |
| | | Quarter Ended |
| | | | April 29, 2023 | April 30, 2022 |
| Common stock | | | | | |
| Balance, beginning of period | | | | $3,353 | | $3,283 | |
| Issuance of common stock under stock compensation plans | | | | 11 | | 8 | |
| Stock-based compensation | | | | 8 | | 10 | |
| Balance, end of period | | | | $3,372 | | $3,301 | |
| | | | | |
| Accumulated deficit | | | | | |
| Balance, beginning of period | | | | ($2,588) | | ($2,652) | |
| | | | | |
| Net (loss) earnings | | | | (205) | | 20 | |
| Dividends | | | | (30) | | (30) | |
| Repurchase of common stock | | | | (1) | | — | |
| Balance, end of period | | | | ($2,824) | | ($2,662) | |
| | | | | |
| Accumulated other comprehensive gain (loss) | | | | | |
| Balance, beginning of period | | | | ($26) | | ($50) | |
| Accumulated translation loss reclassified to earnings | | | | 33 | | — | |
| Other comprehensive loss | | | | (4) | | — | |
| Balance, end of period | | | | $3 | | ($50) | |
| | | | | |
| Total shareholders’ equity | | | | $551 | | $589 | |
| | | | | |
| Dividends per share | | | | $0.19 | | $0.19 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
| | | | | | | | |
| Quarter Ended |
| April 29, 2023 | April 30, 2022 |
| Operating Activities | | |
| Net (loss) earnings | ($205) | | $20 | |
| Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | | |
| Depreciation and amortization expenses | 144 | | 152 | |
| Canada wind-down costs | 220 | | — | |
| | |
| Right-of-use asset amortization | 43 | | 47 | |
| Deferred income taxes, net | (16) | | (13) | |
| Stock-based compensation expense | 14 | | 19 | |
| Other, net | (25) | | (45) | |
| Change in operating assets and liabilities: | | |
| Merchandise inventories | (296) | | (19) | |
| Other current and noncurrent assets | (112) | | (42) | |
| Accounts payable | 301 | | 233 | |
| Accrued salaries, wages and related benefits | (39) | | (143) | |
| Lease liabilities | (67) | | (65) | |
| Other current and noncurrent liabilities | 54 | | 43 | |
| Net cash provided by operating activities | 16 | | 187 | |
| | |
| Investing Activities | | |
| Capital expenditures | (106) | | (96) | |
| Decrease in cash and cash equivalents resulting from Canada deconsolidation | (33) | | — | |
| Proceeds from the sale of assets and other, net | 16 | | 85 | |
| Net cash used in investing activities | (123) | | (11) | |
| | |
| Financing Activities | | |
| | |
| | |
| | |
| | |
| Change in cash book overdrafts | 29 | | 16 | |
| Cash dividends paid | (30) | | (30) | |
| | |
| Proceeds from issuances under stock compensation plans | 11 | | 8 | |
| Other, net | (9) | | (8) | |
| Net cash provided by (used in) financing activities | 1 | | (14) | |
| | |
| | |
| Net (decrease) increase in cash and cash equivalents | (106) | | 162 | |
| Cash and cash equivalents at beginning of period | 687 | | 322 | |
| Cash and cash equivalents at end of period | $581 | | $484 | |
| | |
| Supplemental Cash Flow Information | | |
| Cash paid (received) during the period for: | | |
| Income taxes, net of refunds | $2 | | ($22) | |
| Interest, net of capitalized interest | 40 | | 40 | |
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 2022 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 29, 2023 and April 30, 2022 and May 1, 2021 are unaudited. The Condensed Consolidated Balance Sheet as of January 29, 202228, 2023 has been derived from the audited Consolidated Financial Statements included in our 2021 2022 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 2022 Annual Report.Report. Principles of Consolidation
The Condensed Consolidated Financial Statements include the balances of Nordstrom, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation.
On March 2, 2023, Nordstrom Canada commenced a wind-down of its business operations (see Note 2: Canada Wind-down) and as of this date, Nordstrom Canada was deconsolidated from Nordstrom, Inc.’s financial statements. Nordstrom Canada results prior to March 2, 2023 are included in the Company’s Condensed Consolidated Financial Statements.
Fiscal Year
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2023 relate to the 53-week fiscal year ending February 3, 2024. References to any other years included within this document are based on a 52-week fiscal year.
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 intowill shift from the second quarter to the third quarter.quarter in 2023.
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(typically from November through December.December). Consistent with our seasonal fluctuations, our working capital requirements have historically increased during the months leading up to the Anniversary Sale and the holidays as we purchase inventory in anticipation of increased sales.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 and contingent liabilities, including assumptions related to our Canada wind-down, all of which involve assumptions about future events. We may be unable to accurately predict the impact of COVID-19 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 $72 for the quarter ended April 29, 2023 and $84 for the quarter ended April 30, 2022 and $33 for the quarter ended May 1, 2021.2022.
Long-Lived AssetsTrunk Club Wind-down
InDuring 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 valuesvalue to theirthe estimated fair value. These charges are included in our Retail segment SG&A expense on the Condensed Consolidated Statement of Earnings and other operating, net on the Condensed Consolidated Statement of Cash Flows.
Investments
In July 2021,From time to time, we acquired a minority interest in the Topshop, Topman, Miss Selfridge and HIIT brands through a strategic partnership with ASOS.com Ltd. We invest in financial interests of private companies and venture capital funds 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.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
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.
Reclassification
We reclassified amounts in our fiscal 2022 Condensed Consolidated Statement of Cash Flows to conform with current period presentation. As a result, we aggregated:
•Accounts receivable, net with prepaid expenses and other assets into other current and noncurrent assets
•Other current liabilities with other liabilities into other current and noncurrent liabilities
•Tax withholding on share-based awards with other financing, net
These reclassifications had no impact on cash flows from operations, cash flows from investing or cash flows from financing.
NOTE 2: CANADA WIND-DOWN
Background
On March 2, 2023, as part of our initiatives to drive long-term profitable growth and enhance shareholder value, and after careful consideration of all reasonably available options, we announced the decision to discontinue support for Nordstrom Canada’s operations. Accordingly, Nordstrom Canada has commenced a wind-down of its business operations, obtaining an Initial Order from the Ontario Superior Court of Justice under the CCAA on March 2, 2023 to facilitate the wind-down in an orderly fashion. Nordstrom Canada’s ecommerce platform ceased operations on March 2, 2023 and we anticipate the wind-down of our six Nordstrom and seven Nordstrom Rack stores, with the help of a third-party liquidator, to be completed by late June 2023.
The Ontario Superior Court of Justice has appointed a monitor to oversee the wind-down process. Subsequent to the CCAA filing, Nordstrom has been providing limited support to Nordstrom Canada for the purpose of supporting an orderly wind-down, including providing shared services and temporary use of intellectual property.
Wind-down Costs and Deconsolidation of Nordstrom Canada
The following table provides detail of pre-tax charges associated with the wind-down of operations in Canada: | | | | | |
| Quarter Ended April 29, 2023 |
Loss on Canada write-off1 | $187 | |
Accumulated translation loss reclassified to earnings1 | 33 | |
Contingent liabilities2 | 77 | |
Other exit costs3 | 12 | |
| Total pre-tax costs | $309 | |
| |
1 Non-cash amounts are included in Canada wind-down costs on the Condensed Consolidated Statement of Cash Flows.
2 Amounts are included in other current liabilities on the Condensed Consolidated Balance Sheets.
3 Other exit costs include funding an employee trust and professional fees.
These charges are primarily included in corporate/other in Note 9: Segment Reporting. The decrease in cash due to the deconsolidation of Nordstrom Canada is included in investing activities on the Condensed Consolidated Statement of Cash Flows and all other impacts are included in operating cash flows.
Loss on Canada Write-off and Accumulated Translation Loss
While Nordstrom continues to own 100% of the shares of Nordstrom Canada, as of March 2, 2023, the date of the CCAA filing, we no longer have a controlling interest and have deconsolidated Nordstrom Canada. We hold a variable interest in the Nordstrom Canada entities, which are considered variable interest entities, but are not consolidated, as we are no longer the primary beneficiary.
The pre-tax loss on Canada write-off of $187 in the first quarter of 2023 included the derecognition of Nordstrom Canada’s assets and liabilities and the write-down of both our Nordstrom Canada investment and related-party receivables to estimated fair value. In addition, we recognized a charge of $33 related to the derecognition of the accumulated comprehensive loss on foreign currency translation.
To assess the estimated fair value of our Nordstrom Canada investment and our related-party receivables, we estimated the assets available for distribution in relation to expected claims at the time of filing. The estimated amount of Nordstrom Canada’s liabilities exceeded the estimated fair value of assets available for distribution to creditors, and in relation to the receivables, we may not recover any proceeds. As a result, our fair value is recorded as zero in our Condensed Consolidated Balance Sheets as of April 29, 2023.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Prior to deconsolidation, Nordstrom made loans to and incurred receivables from the Canadian subsidiaries. These loans were considered intercompany transactions and were eliminated in consolidation of Nordstrom. Subsequent to deconsolidation, these receivables were no longer eliminated through consolidation, are considered related-party transactions and are recorded in our Condensed Consolidated Balance Sheets at estimated fair value. Nordstrom has an outstanding liability to Nordstrom Canada of $62 related to certain intercompany charges incurred prior to deconsolidation, which will be addressed as part of the wind-down process.
Contingent Liabilities and Guarantees
In the first quarter of 2023, we recorded a contingent liability of $77 as our current best estimate of expected payments for claims that may be asserted against us, primarily consisting of lease guarantees. Nordstrom has guaranteed certain lease obligations of Nordstrom Canada, with payment required by Nordstrom, Inc. upon failure of Nordstrom Canada to fulfill its obligations under the leases. Our estimate is based on expectations that claims will be asserted against us and negotiated settlements will be reached, and not on any determination that it is probable that we would be found liable were these claims to be litigated and for how much. The maximum potential undiscounted future minimum lease and real estate tax payments under these guarantees were approximately $178 as of April 29, 2023.
Employee Trust
In connection with the filing, Nordstrom established an employee trust to fund termination and severance payments to employees of Nordstrom Canada. We provided an initial contribution of $10 based on our best estimate to fully fund the employee trust, and we have committed to provide up to an additional $8 depending on eligible employee claims. The cash balance of the employee trust is not recorded in Nordstrom, Inc.’s Condensed Consolidated Balance Sheets.
Debtor-in-Possession Financing
If needed, Nordstrom has agreed to provide Nordstrom Canada debtor-in-possession financing up to $11. However, we believe Nordstrom Canada has sufficient liquidity to sustain operations through the wind-down period. As of April 29, 2023, there were no outstanding borrowings.
Estimates
All our estimates are dependent on the outcome of the Nordstrom Canada wind-down process, including the amount of third-party and Nordstrom claims asserted and recognized in the claims process, the amount of assets available for distribution, the negotiation of a CCAA plan of arrangement approved by the creditors and the Ontario Superior Court of Justice and the outcome of negotiations regarding the leases. We are in the early stages of the wind-down process and our estimates of losses are based on currently available information and our assessment of the validity of certain expected claims. These estimates may change as new information becomes available and it is reasonably possible that they may materially change from the estimated amounts. Increases in estimated costs to settle claims and decreases in estimated assets available for distribution may result in additional material charges. At the same time, any future decreases in estimated costs to settle claims or increases in estimated assets available for distribution may result in a gain, which will reduce our estimated charges.
Amendment of Revolver Agreement
On March 1, 2023, we amended our Revolver originally dated May 6, 2022. Prior to this amendment, Nordstrom Canada Retail, Inc. was a loan party under the Revolver and the obligations under the Revolver were secured, in part, by the assets of this subsidiary. As a result of this amendment, Nordstrom Canada Retail, Inc. has been removed as a loan party and obligations under the Revolver will no longer be secured by these assets. In addition, this amendment excludes as subsidiaries or affiliates all Nordstrom Canada entities and carves out certain CCAA-related expenses and obligations from financial covenants under the Revolver.
Income Taxes
In the first quarter of 2023, we recognized net tax benefits of $93 primarily related to the write-off of excess tax basis in our investment in Canada, net of tax expense related to an increase in valuation allowance for Canada deferred tax assets.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
NOTE 2:3: REVENUE
Contract Liabilities
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), gift cards and gift cards.our amended 2022 TD program agreement. 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 January 29, 2022 | 478 | |
Balance as of April 30, 2022 | 442 | |
| |
| |
| | | | | | | | |
| Other current liabilities | Other liabilities |
| Balance as of January 29, 2022 | $478 | | $— | |
| Balance as of April 30, 2022 | 442 | | — | |
| | |
| | |
| | |
| Balance as of January 28, 2023 | 536 | | 136 | |
| Balance as of April 29, 2023 | 489 | | 123 | |
| | |
| | |
Revenues recognized from our beginning contract liability balance were $137 for the quarter ended April 29, 2023 and $128 for the quarter ended April 30, 2022 and $114 for the quarter ended May 1, 2021.2022.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
| | | | Quarter Ended | | | Quarter Ended |
| | | April 30, 2022 | May 1, 2021 | | | April 29, 2023 | April 30, 2022 |
| Nordstrom | Nordstrom | | $2,289 | | $1,854 | | Nordstrom | | $2,027 | | $2,289 | |
| Nordstrom Rack | Nordstrom Rack | | 1,178 | | 1,067 | | Nordstrom Rack | | 1,037 | | 1,178 | |
| | Total net sales | Total net sales | | $3,467 | | $2,921 | | Total net sales | | $3,064 | | $3,467 | |
| | 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 | | 36 | % | 39 | % |
|
The following table summarizes the percent of net sales by merchandise category:
| | | | Quarter Ended | | | Quarter Ended |
| | | April 30, 2022 | May 1, 2021 | | | April 29, 2023 | April 30, 2022 |
| Women’s Apparel | Women’s Apparel | | 30 | % | 31 | % | Women’s Apparel | | 29 | % | 30 | % |
| Shoes | Shoes | | 26 | % | 26 | % | Shoes | | 26 | % | 26 | % |
| Men’s Apparel | Men’s Apparel | | 14 | % | 12 | % | Men’s Apparel | | 15 | % | 14 | % |
| Women’s Accessories | | 13 | % | 14 | % | |
| Accessories | | Accessories | | 12 | % | 13 | % |
| Beauty | Beauty | | 11 | % | 11 | % | Beauty | | 12 | % | 11 | % |
| Kids’ Apparel | Kids’ Apparel | | 3 | % | 4 | % | Kids’ Apparel | | 3 | % | 3 | % |
| Other | Other | | 3 | % | 2 | % | Other | | 3 | % | 3 | % |
| Total net sales | Total net sales | | 100 | % | 100 | % | Total net sales | | 100 | % | 100 | % |
|
NOTE 3:4: DEBT AND CREDIT FACILITIES
DebtCredit Facilities
DuringAs of April 29, 2023, we had total short-term borrowing capacity of $800 and no outstanding borrowings under the first quarterRevolver that expires in May 2027. 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 2021, we issued $250 aggregate principal amount of 2.30% senior notes due April 2024$1,000, and $425 aggregate principal amount of 4.25% senior notes due August 2031.Withtwo options to extend 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 $78Revolver 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.additional one-year terms.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Credit Facilities
As of April 30, 2022, the provisions of our prior revolving credit facility as described in our 2021 Annual Report were in effect. Subsequent to quarter end, we terminated and replaced our prior revolving credit facility set to expire in September 2023 with a new five-year $800 Revolver that expires in May 2027. Consistent with our prior revolving credit agreement, anyAny 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. On March 1, 2023, we amended our Revolver agreement (see Note 2: Canada Wind-down).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 2022,April 29, 2023, we are reporting our quarterly compliance status under the terms of the new Revolver and arewere in compliance with all covenants.
The Revolver providescontains 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. The Revolver allows us with additional flexibility, compared with our prior revolving credit facility, forto issue dividends and share repurchases,repurchase shares 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 2 options to extend the Revolver for additional one-year terms. As of April 30, 2022, we had no borrowings outstanding under our Revolver.
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, 2022,29, 2023, we had no issuances outstanding under our commercial paper program.
NOTE 4:5: 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 | | April 29, 2023 | January 28, 2023 | April 30, 2022 |
| Carrying value of long-term debt | Carrying value of long-term debt | $2,854 | | $2,853 | | $3,347 | | Carrying value of long-term debt | $2,857 | | $2,856 | | $2,854 | |
| 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 | | 2,278 | | 2,544 | |
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. In the first quarter of 2023, we also measured our investment in Nordstrom Canada, our related-party receivables and related lease guarantees at fair value (see Note 2: Canada Wind-down for additional information). We estimate the fair value of these assets and liabilities using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements. For more information regarding long-lived tangible asset impairment charges for the quarter ended April 30, 2022, see Note 1: Basis of Presentation. There were no material impairment charges for these assets for the quarter ended May 1, 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)
Investments Measured at NAV
We have certain investments that are measured at fair value using the NAV per share, or its equivalent, as a practical expedient. This class of investments consists of partnership interests that mainly invest in venture capital strategies with a focus on privately held consumer and technology companies. The NAV is based on the fair value of the underlying net assets owned by the fund and the relative interest of each participating investor in the fair value of the underlying assets. Our interest in these partnerships is generally not redeemable and is subject to significant restrictions regarding transfers. Distributions from each fund will be received as the underlying assets of the funds are liquidated. Liquidation is triggered by clauses within the partnership agreements or at the funds’ stated end date. The contractual terms of the partnership interests range from six to ten years.
NOTE 5:6: STOCK-BASED COMPENSATION
The following table summarizes our stock-based compensation expense:
| | | | Quarter Ended | | | Quarter Ended |
| | | April 30, 2022 | May 1, 2021 | | | April 29, 2023 | April 30, 2022 |
| RSUs | RSUs | | $12 | | $14 | | RSUs | | $10 | | $12 | |
| Stock options | Stock options | | 5 | | 7 | | Stock options | | 2 | | 5 | |
Other1 | Other1 | | 2 | | 1 | | Other1 | | 2 | | 2 | |
| 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 | | 14 | | 19 | |
| Income tax benefit | Income tax benefit | | (5) | | (6) | | Income tax benefit | | (4) | | (5) | |
| 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 | | $10 | | $14 | |
1 Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards.
The following table summarizes our grant allocations:
| | | Quarter Ended | | Quarter Ended |
| | April 30, 2022 | | May 1, 2021 | | April 29, 2023 | | April 30, 2022 |
| | 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 | 2.1 | | $17 | | | 1.4 | | $23 | |
| Stock options | Stock options | 1.1 | | $10 | | | 1.2 | | $13 | | Stock options | 1.2 | | $8 | | | 1.1 | | $10 | |
| PSUs | PSUs | 0.5 | | $23 | | | — | | — | | PSUs | 0.4 | | $16 | | | 0.5 | | $23 | |
Under our deferred and stock-based compensation plan arrangements, we issued 1.21.4 shares of common stock during the first quarter of 20222023 and 1.11.2 shares during the first quarter of 2021.2022.
NOTE 6:7: SHAREHOLDERS’ EQUITY
Share Repurchases
In August 2018,May 2022, our Board of Directors authorized a new program to repurchase up to $1,500$500 of our outstanding common stock, with no expiration date. We repurchased no0.03 shares of common stock for $1 at an average purchase price per share of $19.41 during the first quarter of 2023, compared with no shares repurchased in the first quarter of 2022, and we had $707$438 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.29, 2023.
Dividends
In May 2022,2023, subsequent to quarter end, we declared a quarterly dividend of $0.19 per share, which will be paid on June 15, 202214, 2023 to shareholders of record at the close of business on May 31, 2022.30, 2023.
We have certain limitations with respect to the payment of dividends and share repurchases under our Revolver agreement (see Note 3:4: 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. The Rights Plan expires September 19, 2023, unless redeemed, exchanged or terminated earlier by our Board of Directors. 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 are not exercisable and equipment assets were placed into service at the endtrade 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. There is currently no impact to our Condensed Consolidated Financial Statements.
In June 2023, subsequent to quarter end, shareholders voted at our Annual Meeting to approve the advisory vote on the extension of our Rights Plan until September 19, 2025.
NOTE 8: 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 |
| | | | April 29, 2023 | April 30, 2022 |
| Net (loss) earnings | | | | ($205) | | $20 | |
| | | | | |
| Basic weighted-average shares outstanding | | | | 160.8 | | 160.1 | |
| Dilutive effect of common stock equivalents | | | | — | | 2.8 | |
| Diluted weighted-average shares outstanding | | | | 160.8 | | 162.9 | |
| | | | | |
| Basic EPS | | | | ($1.27) | | $0.13 | |
| Diluted EPS | | | | ($1.27) | | $0.13 | |
| | | | | |
| Anti-dilutive common stock equivalents | | | | 11.4 | | 10.1 | |
NOTE 9: SEGMENT REPORTING
The following table sets forth information for our reportable segment:
| | | | Quarter Ended | | | Quarter Ended |
| | | April 30, 2022 | May 1, 2021 | | | April 29, 2023 | April 30, 2022 |
| Retail segment EBIT | Retail segment EBIT | | $87 | | ($55) | | Retail segment EBIT | | $140 | | $87 | |
| Corporate/Other EBIT | Corporate/Other EBIT | | (14) | | (30) | | Corporate/Other EBIT | | (399) | | (14) | |
| Interest expense, net | Interest expense, net | | (35) | | (137) | | Interest expense, net | | (28) | | (35) | |
| Earnings (loss) before income taxes | | $38 | | ($222) | | |
| (Loss) earnings before income taxes | | (Loss) earnings before income taxes | | ($287) | | $38 | |
For information about disaggregated revenues, see Note 2:3: 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 ended April 30, 202229, 2023 compared with the quarter ended May 1, 2021.April 30, 2022. The following discussion and analysis contains forward-looking statements and should also be read in conjunction with cautionary statements and risks described elsewhere in this Form 10-Q before deciding to purchase, hold or sell shares of our common stock.
| | | | | |
| Overview | |
| |
| Results of Operations | |
| Liquidity | |
| Capital Resources | |
| Critical Accounting Estimates | |
| Recent Accounting Pronouncements | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where noted otherwise)
OVERVIEW
Our firstFirst quarter results were marked by strong topline growth and continuedreflected progress inon our transformation. Net earnings for the first quarter was $20, or $0.13 per diluted share. After excluding a gain on sale2023 key priorities of our interest in a corporate office building 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 shopping for long-anticipated in-person occasions such as social events, travel and return to office. Beyond occasions, customers also re-evaluated and refreshed their wardrobes. We are encouraged by this opportunity because it favors the core categories of our business and the core capabilities of our service model.
Our team remains 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 profitabilityour inventory productivity and optimizing our supply chainchain. We reported a net loss of $205 and inventory flow.a $1.27 loss per diluted share, and after excluding charges from the wind-down of Canadian operations, Adjusted EPS1 was $0.07. Loss before interest and tax was $259 in the first quarter of 2023, compared with EBIT of $73 during the same period in 2022. Adjusted EBIT1 was $50 in the first quarter of 2023 compared with $32 in the first quarter of 2022.
Total Company net sales decreased 11.6% compared with the first quarter of 2022 and included a negative 175 basis point impact from the wind-down of Canadian operations. Most categories were down compared with the first quarter of 2022, which benefited from strong pent-up demand for a return to occasions as the pandemic receded.
We are encouraged by the improvements in efficiency and profitability as a result of our focus on our key priorities. We are committed to delivering profitable growth while improving the customer experience through three key initiatives.
Nordstrom Rack –– Sales grew 10% versus Consistent with our customer promise to deliver great brands at great prices, we increased the penetration of our top performing strategic brands. We also continued to expand our reach and convenience for customers by opening two new stores during the quarter. Collectively, these new stores and the two stores opened last year driven by increased store traffic, improved conversion and better in-stock levels. We also built momentumhave performed well so far, with sales increasing as we moved throughproductivity exceeding the quarter.fleet average. We believe that Rack stores are a great investment, with returns that exceed our cost of capital and have a short payback period. We are achieving a better balance of price points at Nordstromexcited to roll out to more markets and increase our Rack by increasing our supply of premium brandsfootprint, with six more stores opened in May 2023 and fine tuning our assortmentplans 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.open 13 additional stores later this year.
ProfitabilityInventory Productivity – – 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 plansbetter inventory discipline to deliver incremental improvementsprovide customers with relevant and elevated flowthrough throughout the remainder of the year.
Supply Chainnew assortments 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, improvingearnings and returns on invested capital. In the consistencyfirst quarter of 2023, we managed with leaner 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 benefitscurrent inventories after clearing out excess inventory in the second half of this year.
In addition to the three focus areas above, winningfiscal year 2022. We improved sell-through and had faster turns across most of our categories, resulting in a 110 basis point increase in our most important marketsgross profit rate compared with the first quarter of 2022. Overall inventory levels were 8% lower than last year with non-Designer inventory down 11%. Moving into the second quarter, we are focusing on clearing excess Designer product, which will include incremental markdowns over the balance of the year. Designer sales in the first quarter of 2023 remained above pre-pandemic levels, and advancing our digital capabilities are key strategic priorities for us, and we continue to make progress in these areas.
Market Strategy – Our market strategy helps us engage with customers through better service and greater access to product, no matter how our customer chooses 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 order pickup comprising 10% of Nordstrom.com demand this quarter, an increase of more than 200 basis points versus the prior year. Customers utilizing in-store pickup have higher engagement and spend 3.5 times more than customers who do not utilize the service. Buy Online Pick Up In Store also remains our most profitable customer journey and one of our highest satisfaction customer experiences.
Our styling program alsocategory overall continues to be a powerful engagement driverstrong contributor to our core offering and a key differentiator to our unique breadth of selection.
Supply Chain Optimization – We continue to make significant progress on our supply chain initiatives, which drive improvement in customer experience and profitability. During the quarter, we increased productivity throughout our network and reduced transportation costs, while also delivering better service to our customers through shortened delivery times. For the third consecutive quarter, variable supply chain costs fell by over 100 basis points compared with the prior year, helping to mitigate overall SG&A deleverage on lower sales. Supply chain is the largest component of our SG&A expenses, and we believe there is more opportunity to improve our efficiency and help drive overall expense leverage as we deliver convenience and build deeper customer connections through our Closer to You strategy. As we position our styling program for further growth,sales improve.
Despite continued macroeconomic uncertainty, we are sunsetting Trunk Clubmaking progress on our priorities to improve profitability. We believe continued focus and redirecting our resourcesexecution will drive incremental improvement over the remainder of the year and will position us well 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 EBIT and report higher levels of satisfaction when engaging withAdjusted EPS are non-GAAP financial measures. For a stylist either in-store or online,reconciliation between GAAP and we are committed to growingnon-GAAP financial measures, see Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT margin 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 our Nordstrom and Nordstrom Rack banners. By connecting our digital and physical assets across Nordstrom and Nordstrom Rack, we are able to better serve customers when, where and how they want to shop. We have one Retail reportable segment and analyze our results on a total Company basis, using customer, market share, operational and net sales metrics.
We monitor a number of key operating metrics to evaluate our Company’s performance. In addition to net sales, net earnings (loss) and other results under GAAP, two other key operating metrics we use are GMV and inventory turnover rate. Beginning in the first quarter of 2023, we made changes to how we calculate these metrics to more closely align with how our business is operated. Changes in the methodologies are discussed below and prior periods have been adjusted to reflect a comparable presentation.
•GMV: Our GMV representscalculated as the total dollar value of itemsmerchandise sold through our digital platforms and stores. GMV includes net merchandise sales from inventory we own, as well as the retail value of merchandise sold under our alternative partnershipunowned inventory models with our vendors. We use GMV as an indicator of the scale and growth of our operations and the impact of our alternative partnershipunowned inventory models. Prior to the first quarter of 2023, we also included non-merchandise sales in our GMV calculation.
•Inventory Turnover Rate: calculated as the trailing 4-quarter merchandise cost of sales divided by the trailing 13-month average inventory. Inventory turnover rate is an indicator of our success in optimizing inventory volumes in accordance with customer demand. Prior to the first quarter of 2023, we calculated inventory turnover rate 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 |
| | April 30, 2022 | | May 1, 2021 | | | April 29, 2023 | | April 30, 2022 | |
| Net sales: | Net sales: | | | Net sales: | | |
| Nordstrom | Nordstrom | $2,289 | | | $1,854 | | | Nordstrom | $2,027 | | | $2,289 | | |
| Nordstrom Rack | Nordstrom Rack | 1,178 | | | 1,067 | | | Nordstrom Rack | 1,037 | | | 1,178 | | |
| | Total net sales | Total net sales | $3,467 | | | $2,921 | | | Total net sales | $3,064 | | | $3,467 | | |
| | Net sales increase: | | | |
| Net sales (decrease) increase: | | Net sales (decrease) increase: | | |
| Nordstrom | Nordstrom | 23.5 | % | | 36.7 | % | | Nordstrom | (11.4 | %) | | 23.5 | % | |
| Nordstrom Rack | Nordstrom Rack | 10.3 | % | | 59.5 | % | | Nordstrom Rack | (11.9 | %) | | 10.3 | % | |
| Total Company | Total Company | 18.7 | % | | 44.2 | % | | Total Company | (11.6 | %) | | 18.7 | % | |
| | 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 | 36 | % | | 39 | % | |
| Digital sales decrease | | Digital sales decrease | (17 | %) | | — | % | |
| | Nordstrom GMV (decrease) increase | | Nordstrom GMV (decrease) increase | (11.8 | %) | | 24.1 | % | |
| Total Company GMV (decrease) increase | | Total Company GMV (decrease) increase | (11.9 | %) | | 19.1 | % | |
Total Company net sales increasedand GMV decreased for the first quarter of 2022,2023, compared with the same period in 2021, exceeding pre-pandemic sales levels. This increase2022. Approximately 175 basis points of the decrease was driven by pricing actions, favorable mix shift and transaction growth. Both customer counts and spend per customer increaseddue to the deconsolidation of our Canadian operations as of March 2, 2023 (see Note 2: Canada Wind-down). Most categories were down in the first quarter of 2023, compared with the same period in 2021. 2022, which benefited from strong pent-up demand for a return to occasions after the pandemic. Active was the strongest category, while beauty and men’s apparel performed above average.
Total Company GMV increased 20%digital sales decreased in the first quarter of 2023, compared with the same period in 2021. Improvements were broad-based across regions, with urban stores having2022, and represented 36% of total net sales. Eliminating store fulfillment for Nordstrom Rack digital orders during the strongest growth againstthird quarter of 2022 and sunsetting Trunk Club earlier in 2022 negatively impacted first quarter digital sales by approximately 800 basis points.
Nordstrom net sales and GMV decreased for 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 in2023, compared with the first quarter of 2022, compared withwhich reflected a decrease in the same periodnumber of items sold, partially offset by an increase in 2021 and represented 39%the average selling price per item sold. The wind-down of total net sales.Canadian operations had a negative impact on 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.approximately 270 basis points.
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)
Nordstrom Rack net sales decreased for the first quarter of 2023 compared with the same period in 2022, which reflected a decrease in the number of items sold, partially offset by an increase in the average selling price per item sold. Eliminating store fulfillment for Nordstrom Rack digital orders during the third quarter of 2022 negatively impacted Nordstrom Rack sales by approximately 600 basis points.
There were two Nordstrom Rack store openings during the first quarter of 2023. Subsequent to quarter end, we opened five Nordstrom Rack stores and relocated one Nordstrom Rack store. We deconsolidated six Nordstrom and seven Nordstrom Rack stores in Canada as of March 2, 2023 (see Note 2: Canada Wind-down in Item 1).
Credit Card Revenues, Net
Credit card revenues, net were $117 for the first quarter of 2023, compared with $102 for the same period in 2022. The increase was due to higher finance charges from both higher rates and outstanding balances, and higher revenue recognized in connection with our 2022 TD program agreement amendment. The increase was partially offset by increased credit losses.
Fiscal Year 2023 Total Revenue Outlook
In fiscal 2023, which includes a 53rd week, we expect total revenue, including retail sales and credit card revenues, to decline 4 to 6 percent compared with fiscal 2022. Our outlook includes approximately 250 basis points of negative impact from the wind-down of business operations in Canada (see Note 2: Canada Wind-down for more information) and approximately 130 basis points of positive impact from the 53rd week.
Gross Profit
The following table summarizes gross profit: | | | Quarter Ended | | Quarter Ended |
| | April 30, 2022 | | May 1, 2021 | | | April 29, 2023 | | April 30, 2022 | |
| Gross profit | Gross profit | $1,136 | | | $902 | | | Gross profit | $1,036 | | | $1,136 | | |
| Gross profit as a % of net sales | Gross profit as a % of net sales | 32.8 | % | | 30.9 | % | | Gross profit as a % of net sales | 33.8 | % | | 32.8 | % | |
| Inventory turnover rate | Inventory turnover rate | 4.12 | | | 4.51 | | | Inventory turnover rate | 3.4 | | | 3.4 | | |
Gross profit increased $234decreased $100 during the first quarter of 2022,2023, compared with the same period in 2021, almost entirely2022, due to higherlower sales, volume.partially offset by increased inventory productivity. Gross profit increased 190110 basis points as a rate of net sales, primarily due to increased leverageour focus on buying and occupancy costs and improved merchandise margins from favorable pricing impacts and lower markdown rates.
increasing inventory productivity. Ending inventory increased 24%decreased 8% compared with the same period in 2021,2022, versus a 19% increase12% decrease 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 | | Quarter Ended |
| | April 30, 2022 | | May 1, 2021 | | | April 29, 2023 | | April 30, 2022 | |
| SG&A expenses | SG&A expenses | $1,165 | | | $1,075 | | | SG&A expenses | $1,103 | | | $1,165 | | |
| SG&A expenses as a % of net sales | SG&A expenses as a % of net sales | 33.6 | % | | 36.8 | % | | SG&A expenses as a % of net sales | 36.0 | % | | 33.6 | % | |
SG&A increased $90decreased $62 during the first quarter of 2022,2023, compared with the same period in 2021, almost entirely2022, due to increaseda decrease in variable expenses associated with higheron lower sales volume. This was partially offset by theand supply chain efficiencies. The first quarter of 2022 included a $51 gain on sale of our interest in a corporate office building. SG&A decreased 320rate increased 240 basis points as a rate of net sales, primarily due to leverage on higher sales anda 120 basis point net impact in the impactsfirst quarter of 2022 from thea gain on sale of our interest in a corporate office building.
Earnings (Loss) Before Interestbuilding and Income Taxes
EBIT is summarized in the following table: | | | | | | | | | | | | | |
| Quarter Ended |
| April 30, 2022 | | May 1, 2021 | | |
| EBIT | $73 | | | ($85) | | | |
| EBIT as a % of net sales | 2.1 | % | | (2.9 | %) | | |
EBIT improved $158 and 500 basis points during the first quarter of 2022, comparedan impairment charge related to costs associated with the same period in 2021. The increase was almost entirelywind-down of Trunk Club. SG&A rate also increased due to impacts of higherdeleverage on lower sales volume, andpartially offset by improvements in variable costs from supply chain efficiency initiatives.
Canada Wind-down Costs
We recognized charges associated with the gain on salewind-down of our interest in a corporate office building.
Interest Expense, Net
Interest expense, net was$35for the first quarterNordstrom Canada of 2022, compared with $137 for the same period in 2021. The decrease was primarily due to the debt refinance charges of $88 related to the redemption of the Secured Notes$309 in the first quarter of 2021.
Income Tax Expense
Income tax expense is summarized2023 (see Note 2: Canada Wind-down in the following table: | | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | April 30, 2022 | | May 1, 2021 | | |
| Income tax expense (benefit) | | | | | $18 | | | ($56) | | | |
| Effective tax rate | | | | | 46.8 | % | | 25.4 | % | | |
The effective tax rate increased in the first quarter of 2022, compared with the same period in 2021, primarily due to the unfavorable tax impact of stock-based compensation.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)
Earnings (Loss) Before Interest and Income Taxes
EBIT is summarized in the following table: | | | | | | | | | | | | | |
| Quarter Ended |
| April 29, 2023 | | April 30, 2022 | | |
| EBIT | ($259) | | | $73 | | | |
| EBIT as a % of net sales | (8.5 | %) | | 2.1 | % | | |
EBIT decreased $332 and 1,060 basis points during the first quarter of 2023, compared with the same period in 2022. The decrease was due to $309 of expenses associated with the wind-down of Canadian operations in the first quarter of 2023 and lower sales volume, partially offset by supply chain efficiencies and improved inventory productivity. The first quarter of 2022 also included a $51 gain on sale of our interest in a corporate office building and a $10 impairment charge related to costs associated with the wind-down of Trunk Club.
Interest Expense, Net
Interest expense, net was$28for the first quarter of 2023, compared with $35 for the same period in 2022. The decrease was primarily due to an increase in interest income.
Income Tax Expense
Income tax expense is summarized in the following table: | | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | April 29, 2023 | | April 30, 2022 | | |
| Income tax (benefit) expense | | | | | ($82) | | | $18 | | | |
| Effective tax rate | | | | | 28.6 | % | | 46.8 | % | | |
The effective tax rate decreased in the first quarter of 2023, compared with the same period in 2022, primarily due to net tax benefits of $93 related to the wind-down of Canadian operations recorded in the first quarter of 2023. Excluding the approximate 22 percentage point impact of the wind-down, income tax expense in the first quarter of 2023 was 50.7% of pretax earnings. Both periods were impacted by additional tax expense related to stock-based compensation, however the loss before income taxes in the first quarter of 2023 resulted in a favorable impact on the overall effective tax rate compared with an unfavorable impact to the first quarter of 2022, which had earnings before income taxes.
Earnings Per Share
EPS is as follows: | | | | Quarter Ended | | | Quarter Ended |
| | | April 30, 2022 | | May 1, 2021 | | | | April 29, 2023 | | April 30, 2022 | |
| Basic | Basic | | $0.13 | | | ($1.05) | | | Basic | | ($1.27) | | | $0.13 | | |
| Diluted | Diluted | | $0.13 | | | ($1.05) | | | Diluted | | ($1.27) | | | $0.13 | | |
Earnings (loss) per diluted share improved $1.18Diluted EPS decreased $1.40 for the first quarter of 2022,2023, compared with the same period in 2021.2022, primarily due to charges related to the wind-down of Canadian operations that reduced diluted EPS by $1.34 per share. The improvementquarter ended April 30, 2022 includes a net favorable impact of $0.19 per diluted share due to the gain on sale of our interest in a corporate office building, partially offset by an impairment charge related to a Trunk Club property. In the first quarter of 2021, we recorded an interest expense charge of $88 related to the redemption of the Secured Notes, which reduced EPS by $0.41 per share.
Fiscal Year 2022 Outlook
We 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 6 to 8 percent versus fiscal 2021
•EBIT margin of 5.8 to 6.2 percent of sales
•Adjusted EBIT margin of 5.6 to 6.0 percent of sales
•Income tax rate of approximately 27 percent
•EPS of $3.38 to $3.68, excluding the impact of share repurchase activity, if any
•Adjusted EPS of $3.20 to $3.50, excluding the impact of share repurchase activity, if any
•Leverage ratio of approximately 2.5 times by year-end
Our adjusted EBIT as a 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 the expected full fiscal year 2022 impactcosts associated with a gain on the salewind-down 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 a reconciliation of net earnings as a percent of net sales 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, Adjusted EBIT margin and Adjusted EPS (Non-GAAP financial measures)
Adjusted EBIT, Adjusted EBITDA and Adjusted EPSThe following 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, Adjusted EBIT margin 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 EBIT margin is net earnings as a percent of net sales. 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, Adjusted EBIT margin 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 innet earnings as a percent of net sales, 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:EBITDA and net earnings as a percent of net sales to Adjusted EBIT margin:
| | | | | | | | |
| 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 |
| | | | April 29, 2023 | April 30, 2022 |
| Net (loss) earnings | | | | ($205) | | $20 | |
| Income tax (benefit) expense | | | | (82) | | 18 | |
| Interest expense, net | | | | 28 | | 35 | |
| (Loss) earnings before interest and income taxes | | | | (259) | | 73 | |
| | | | | |
| | | | | |
| Canada wind-down costs | | | | 309 | | — | |
| Trunk Club wind-down costs | | | | — | | 10 | |
| Gain on sale of interest in a corporate office building | | | | — | | (51) | |
| Adjusted EBIT | | | | 50 | | 32 | |
| | | | | |
| Depreciation and amortization expenses | | | | 144 | | 152 | |
| Amortization of developer reimbursements | | | | (17) | | (18) | |
| | | | | |
| Adjusted EBITDA | | | | $177 | | $166 | |
| | | | | |
| Net sales | | | | $3,064 | | $3,467 | |
| Net earnings as a % of net sales | | | | (6.7 | %) | 0.6 | % |
| EBIT margin % | | | | (8.5 | %) | 2.1 | % |
| Adjusted EBIT margin % | | | | 1.6 | % | 0.9 | % |
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) | |
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| | | | | | | | | | | |
| | | Quarter Ended |
| | | | April 29, 2023 | April 30, 2022 |
| Diluted EPS | | | | ($1.27) | | $0.13 | |
| | | | | |
| Canada wind-down costs | | | | 1.92 | | — | |
| Trunk Club wind-down costs | | | | — | | 0.06 | |
| Gain on sale of interest in a corporate office building | | | | — | | (0.32) | |
Income tax impact on adjustments1 | | | | (0.58) | | 0.07 | |
| Adjusted EPS | | | | $0.07 | | ($0.06) | |
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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.
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 a non-GAAP financial measuresmeasure may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted 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 | |
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| | |
| 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 |
| April 29, 2023 | April 30, 2022 |
| Net earnings | $20 | | $364 | |
| Income tax (benefit) expense | (8) | | 142 | |
| Interest expense | 138 | | 145 | |
| Earnings before interest and income tax expense | 150 | | 651 | |
| | |
Operating lease interest1 | 85 | | 86 | |
| Adjusted net operating profit | 235 | | 737 | |
| | |
Estimated income tax benefit (expense)2 | 166 | | (206) | |
| Adjusted net operating profit after tax | $401 | | $531 | |
| | |
| Average total assets | $9,061 | | $9,228 | |
Average deferred property incentives in excess of ROU assets3 | (188) | | (223) | |
| Average non-interest bearing current liabilities | (3,203) | | (3,347) | |
| Average invested capital | $5,670 | | $5,658 | |
| | |
| Return on assets | 0.2 | % | 3.9 | % |
Adjusted ROIC4 | 7.1 | % | 9.4 | % |
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 benefit (expense) benefit is calculated by multiplying the adjusted net operating profit (loss) by the effective tax rate for the trailing twelve monthtwelve-month periods ended April 29, 2023 and April 30, 2022 and May 1, 2021.2022. The effective tax rate is calculated by dividing income tax expense (benefit) by earnings (loss) before income taxes for the same trailing twelve monthtwelve-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.
4 Results for the four quarters ended April 29, 2023 included the $309 impact of the Canada wind-down in the first quarter of 2023, which negatively impacted return on assets by approximately 240 basis points and had an immaterial impact on Adjusted ROIC.
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 facilitiesRevolver 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 first quarter of 20222023 with $484$581 in cash and cash equivalents and $800 of additional liquidity available on our Revolver. The increase in cashCash and cash equivalents in the first quarter of 2023 increased from $484 in the first quarter of 2022, compared with 2021, is driven by timing of payments for merchandisecash flow from earnings, partially offset by capital expenditures and higher net earnings.dividends. 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 | |
| | | | | | | | |
| Quarter Ended |
| April 29, 2023 | April 30, 2022 |
| Net cash provided by operating activities | $16 | | $187 | |
| Net cash used in investing activities | (123) | | (11) | |
| Net cash provided by (used in) financing activities | 1 | | (14) | |
Operating Activities
Net cash fromprovided by operating activities increased $551decreased $171 for the quarter ended April 30, 2022,29, 2023 due to a seasonal increase in working capital in the first quarter of 2023, compared with a reduction of excess inventory levels in the same period in 2021, primarily due to timingfirst quarter of payments for merchandise and an increase in net earnings.2022, partially offset by performance-related payments.
Investing Activities
Net cash used in investing activities decreased $99increased $112 for the quarter ended April 30, 2022,29, 2023, compared with the same period in 2021,2022, primarily due to the sale of our interest in a corporate office building in 2022 and the decrease in cash and cash equivalents resulting from the deconsolidation of Canada in 2023 (see Note 1: Basis of Presentation and Note 2: Canada Wind-down in Item 1).
Capital Expenditures
Our capital expenditures, net are summarized as follows:
| | | Quarter Ended | | Quarter Ended |
| | April 30, 2022 | May 1, 2021 | | April 29, 2023 | April 30, 2022 |
| Capital expenditures | Capital expenditures | $96 | | $126 | | Capital expenditures | $106 | | $96 | |
Less: deferred property incentives1 | (5) | | (6) | | |
Deferred property incentives1 | | Deferred property incentives1 | (4) | | (5) | |
| Capital expenditures, net | Capital expenditures, net | $91 | | $120 | | Capital expenditures, net | $102 | | $91 | |
| | 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 | 3.4 | % | 2.8 | % |
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 from financing activities decreased $181increased $15 for the quarter ended April 30, 2022,29, 2023, compared with the same period in 2021,2022, primarily due to net activitypayment timing of cash book overdrafts.
Share Repurchases
We repurchased $1 for the quarter ended April 29, 2023, compared with no share repurchases in 2021 related to long-term debt and our Revolver, partially offset by the make-whole premium (see Note 3: Debt and Credit Facilities in Item 1).quarter ended April 30, 2022.
Dividends
We paid $30, or $0.19 per share, for both the quarter ended April 29, 2023 and the quarter ended April 30, 2022 compared with no dividends2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in the same period of 2021.millions except per share amounts and where noted otherwise)
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) | |
| | |
| | |
| | |
| | | | | | | | |
| Quarter Ended |
| April 29, 2023 | April 30, 2022 |
| Net cash provided by operating activities | $16 | | $187 | |
| Capital expenditures | (106) | | (96) | |
| Change in cash book overdrafts | 29 | | 16 | |
| Free Cash Flow | ($61) | | $107 | |
| | |
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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)
CAPITAL RESOURCES
Borrowing Capacity and Activity
As of April 30, 2022,29, 2023, we had total short-term borrowing capacity of $800 under 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. As of April 30, 2022,29, 2023, we had no borrowings outstanding under our Revolver and no issuances outstanding under our commercial paper program. For more information about our credit facilities, see Note 3:4: 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 | StableNegative |
Standard & Poor’sS&P Global Ratings | BB+ | StableNegative |
| Fitch | BBB-BB+ | NegativeStable |
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 2022,April 29, 2023, 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 3:4: Debt and Credit Facilities in Item 1.
On March 1, 2023, we amended our Revolver agreement. See Note 2: Canada Wind-down 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 3:4: 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, 202229, 2023 |
| Debt | $2,8542,857 | |
| |
| |
Add: operatingOperating lease liabilities | 1,8161,655 | |
Adjusted Debtdebt | $4,6704,512 | |
| |
Four Quarters Ended April 30, 202229, 2023 |
| Net earnings | $36420 | |
Add: incomeIncome tax expensebenefit | 142(8) | |
Add: interestInterest expense, net | 144121 | |
| |
Adjusted earningsEarnings before interest and income taxes | $650133 | |
| |
Add: depreciationDepreciation and amortization expenses | 604597 | |
Add: Operating Lease Cost | 269275 | |
Add: amortizationAmortization of developer reimbursements1
| 7671 | |
Less: otherOther Revolver covenant adjustments2
| (32)418 | |
| Adjusted EBITDAR | $1,5671,494 | |
| |
| Debt to Net Earnings | 7.8141.4 | |
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, 2022,29, 2023, other Revolver covenant adjustments primarily included costs associated with the wind-down of our Canadian operations, a $51 gain on salesupply chain technology and related asset impairment and the wind-down of the Company’s interest in a corporate office building.Trunk Club.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with GAAP requires that we make estimates, judgments and judgmentsassumptions 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 20212022 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 20212022 Annual Report.Report, except as noted below, and the following should be read in conjunction with Note 2: Canada Wind-down in Item 1. Canada Wind-down
To assess the estimated fair value of our Nordstrom Canada investment and our related-party receivables, we estimated the assets available for distribution in relation to expected claims at the time of filing. The estimated amount of Nordstrom Canada’s liabilities exceeded the estimated fair value of assets available for distribution to creditors, and in relation to the receivables, we may not recover any proceeds. As a result, our fair value is recorded as zero in our Condensed Consolidated Balance Sheets as of April 29, 2023.
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)
In the first quarter of 2023, we recognized a liability for certain Nordstrom, Inc. guarantees related to a portion of Nordstrom Canada leases. The estimated liability is our current best estimate and is based on expectations that claims will be asserted against us and negotiated settlements will be reached, and not on any determination that it is probable that we would be found liable were these claims to be litigated and for how much.
Our estimates are dependent on the outcome of the Nordstrom Canada wind-down process, including the amount of third-party and Nordstrom claims asserted and recognized in the claims process, the amount of assets available for distribution, the negotiation of a CCAA plan of arrangement approved by the creditors and the Ontario Superior Court of Justice and the outcome of negotiations regarding the leases. We are in the early stages of the wind-down process and our estimates of losses are based on currently available information and our assessment of the validity of certain expected claims. These estimates may change as new information becomes available and it is reasonably possible that they may materially change from the estimated amounts. Increases in estimated costs to settle claims and decreases in estimated assets available for distribution may result in additional material charges. At the same time, any future decreases in estimated costs to settle claims or increases in estimated assets available for distribution may result in a gain, which will reduce our estimated charges. See Note 2: Canada Wind-down for additional information.
RECENT ACCOUNTING PRONOUNCEMENTS
There are no recent accounting pronouncementsIn May 2023, the SEC adopted the final rule under SEC Release No. 34-97424, Share Repurchase Disclosure Modernization, requiring disclosures related to issuers’ share repurchases that arewill provide investors with enhanced information to assess the purposes and effects of the repurchases.Disclosure requirements under this rule will be effective for us in the fourth quarter of 2023. The adoption of this final rule is not anticipated to have a material impact on our results of operations, liquidity or capital resources.
In December 2022, the SEC adopted the final rule under SEC Release No. 33-11138, Insider Trading Arrangements and Related Disclosures, which requires new disclosures regarding insider trading policies and procedures, the use of certain insider trading plans and director and executive compensation regarding equity compensation awards made close in time to our disclosure of material nonpublic information. Quarterly disclosure requirements under this final rule will be effective for us in the second quarter of 2023 and annual disclosure requirements will be effective for us in the fourth quarter of 2023. The adoption of this final rule is not 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 20212022 Annual Report. There have been no material changes to these risks since that time.
Item 4. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
ForOn May 10, 2023, we filed an 8-K announcing the appointment of Cathy R. Smith to Chief Financial Officer and Treasurer, and the Company’s principal financial officer, effective May 29, 2023. The 8-K also announced the departure of Michael W. Maher, who has been serving as our interim principal financial officer since the third quarter of 2022, as an officer, employee and the Company’s principal financial officer for the purposes of the Exchange Act,Act. We do not believe that the announcement of Mr. Maher’s resignation has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 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 the 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.
On March 2, 2023, Nordstrom Canada commenced a wind-down of its business operations. Nordstrom Canada entities obtained an Initial Order from the Ontario Superior Court of Justice under the CCAA to facilitate the wind-down in an orderly fashion. See Note 2: Canada Wind-down in Part I for more information.
As of the date of this report, we do not believe any other 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 20212022 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) SHARE REPURCHASES
(Dollar and share amounts in millions, except per share amounts)
In August 2018, our Board of Directors authorizedThe following is a program to repurchase up to $1,500summary of our outstanding common stock, with no expiration date. We repurchased no shares of common stock during the first quarter ofshare repurchases:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number
of Shares
Purchased | | Average
Price Paid
per Share | | Total Number of Shares Purchased
as Part of Publicly Announced
Plans or Programs | | Approximate Dollar Value
of Shares that may
yet be Purchased Under
the Plans or Programs |
February 2023
(January 29, 2023 to February 25, 2023) | 0.03 | | | $19.41 | | | 0.03 | | | $438 | |
March 2023
(February 26, 2023 to April 1, 2023) | — | | | — | | | — | | | $438 | |
April 2023
(April 2, 2023 to April 29, 2023) | — | | | — | | | — | | | $438 | |
| Total | 0.03 | | | $19.41 | | | 0.03 | | | |
See Note 7: Shareholders’ Equity in Item 1 for more information about our 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.
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 |
| | 10.1 | 10.1 | | | | 8-K | 10.2 | February 28, 2022 | 10.1 | * | | | DEF 14A | Appendix B | 4/28/2023 |
| | 10.2 | 10.2 | | | | 10.2 | * | | | 8-K | 10.1 | 5/10/2023 |
| | 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) | |
| | * Management contract, compensatory plan or arrangement | | * Management contract, compensatory plan or arrangement |
| † 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. BrammanMichael W. Maher |
Anne L. BrammanMichael W. Maher |
Chief FinancialAccounting Officer |
(Principal FinancialAccounting Officer) |
| |
| Date: | June 3, 20227, 2023 |
