UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 20, 2014
NORDSTROM, INC.
(Exact name of registrant as specified in its charter)
Washington | 001-15059 | 91-0515058 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
1617 Sixth Avenue, Seattle, Washington | 98101 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant's telephone number, including area code (206) 628-2111
Inapplicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
___ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
___ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
___ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
___ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02 Results of Operations and Financial Condition
On February 20, 2014, Nordstrom, Inc. issued an earnings release announcing its results of operations for the quarter and year ended February 1, 2014, its financial position as of February 1, 2014, and its cash flows for the year ended February 1, 2014. A copy of this earnings release is attached as Exhibit 99.1.
ITEM 7.01 Regulation FD Disclosure
On February 20, 2014, Nordstrom, Inc. issued an earnings release announcing its results of operations for the quarter and year ended February 1, 2014, its financial position as of February 1, 2014, and its cash flows for the year ended February 1, 2014. A copy of this earnings release is attached as Exhibit 99.1.
The information furnished in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, regardless of any general incorporation language in such filing, except as shall be expressly set forth by a specific reference in such filing.
ITEM 9.01 Financial Statements and Exhibits
99.1 | Nordstrom earnings release dated February 20, 2014 relating to the Company's results of operations for the quarter and year ended February 1, 2014, its financial position as of February 1, 2014, and its cash flows for the year ended February 1, 2014. | |
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 hereunto duly authorized.
NORDSTROM, INC. | |
(Registrant) | |
/s/ Robert B. Sari | |
Robert B. Sari | |
Executive Vice President, | |
General Counsel and Corporate Secretary | |
Date: February 20, 2014
EXHIBIT INDEX | ||
EXHIBIT | ||
NUMBER | DESCRIPTION | |
99.1 | Nordstrom earnings release dated February 20, 2014 relating to the Company's results of operations for the quarter and year ended February 1, 2014, its financial position as of February 1, 2014, and its cash flows for the year ended February 1, 2014. | |
Exhibit 99.1
FOR RELEASE: | INVESTOR CONTACT: | Rob Campbell | ||
February 20, 2014 at 1:05 PM PST | Nordstrom, Inc. | |||
(206) 233-6550 | ||||
MEDIA CONTACT: | Brooke White | |||
Nordstrom, Inc. | ||||
(206) 303-3030 | ||||
Nordstrom Reports Fourth Quarter and Fiscal Year 2013 Earnings
Achieves Record Sales and EPS for the Year
SEATTLE, Wash. (February 20, 2014) – Nordstrom, Inc. (NYSE: JWN) today reported fiscal 2013 earnings per diluted share of $3.71, which exceeded the Company’s full-year outlook of $3.65 to $3.70. The Company continued to make progress in executing its customer strategy through its investments to drive growth across channels, while maintaining disciplined execution around inventory and expenses.
Similar to many other retailers, the Company follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of fiscal 2012 (the "53rd week"). The 53rd week represented net sales of approximately $162 million and earnings per diluted share of approximately $0.04 for both the fourth quarter and fiscal year 2012. The 53rd week is not included in same-store sales calculations.
Earnings per diluted share for the fourth quarter ended February 1, 2014, were $1.37 compared with $1.40 for the same quarter last year. Fourth quarter net earnings were $268 million compared with $284 million for the same quarter last year. The Company’s fourth quarter sales performance reflected trends consistent with its experience throughout the year. Total Company same-store sales increased 2.6 percent, compared with last year’s increase of 6.3 percent. Total Company net sales of $3.6 billion were flat with the same period in fiscal 2012. Excluding the 53rd week, total company net sales increased 5.2 percent for the fourth quarter compared with the same period last year.
During the fourth quarter, the Company issued $665 million of 5.00% senior unsecured notes, due January 2044. The Company used $400 million of the proceeds to retire all senior unsecured notes due June 2014. The remaining debt was exchanged for $201 million of outstanding 7.00% senior notes, due January 2038, and to pay for the related premium. The net impact of these transactions is expected to reduce future borrowing costs. Earnings before taxes in the fourth quarter were reduced by non-recurring expenses of approximately $14 million, or earnings per diluted share of $0.04.
FOURTH QUARTER SUMMARY
• | Nordstrom same-store sales, which consist of the full-line and Direct businesses, increased 2.2 percent compared with last year’s same-store sales increase of 6.1 percent. Top-performing merchandise categories included Cosmetics, Accessories, and Men’s Shoes. Momentum continued in Women’s Apparel, outperforming the Nordstrom average for the quarter. |
• | Full-line same-store sales decreased 3.3 percent compared with last year’s same-store sales increase of 2.2 percent. The Southwest and Southeast regions were the top-performing geographic areas. |
• | Direct same-store sales increased 30 percent, building on last year’s increase of 31 percent, driven by expanded merchandise selection and ongoing technology investments to enhance the customer experience. |
• | Nordstrom Rack net sales increased $71 million, or 10.2 percent, compared with the same period in fiscal 2012, reflecting 22 new stores during fiscal 2013. Nordstrom Rack same-store sales increased 3.6 percent on top of last year’s same-store sales increase of 7.1 percent. |
• | HauteLook same-store sales increased by 30 percent. |
• | Gross profit, as a percentage of net sales, decreased 55 basis points compared with the same period in fiscal 2012 primarily due to increased markdowns in response to heightened promotional activity during the holidays and higher occupancy costs related to Nordstrom Rack's accelerated store expansion. |
• | Sales per square foot decreased 2.4 percent compared with the same period in fiscal 2012, but increased 2.2 percent when excluding last year’s 53rd week. Ending inventory per square foot increased 9.4 percent compared with the same period in fiscal 2012, outpacing the adjusted increase in sales per square foot. This was primarily attributable to the planned investment in pack and hold inventory at Nordstrom Rack, which represented 11 percent of total inventory at the end of fiscal 2013, compared with 9 percent in fiscal 2012. The increase also reflected planned inventory increases in full-line stores to fuel growth in well-performing merchandise categories. The Company believes its inventory level as of the end of the year is appropriate. |
• | Selling, general and administrative expenses, as a percentage of net sales, decreased 30 basis points compared with the same period in fiscal 2012. This primarily was due to lower selling expenses, partially offset by $7 million of growth-related investments for the planned entry into Canada and for Nordstrom Rack's accelerated store expansion. For fiscal 2013, these expenses were $23 million, in-line with the Company’s annual guidance of $20 to $25 million. |
• | In the Credit business, overall credit card performance continued to improve with delinquency and write-off rates at approximately a five-year low. Given this performance and the underlying economic trends, the reserve for bad debt was reduced by $5 million. |
• | During the quarter, the Company repurchased 2.5 million shares of its common stock for $154 million. A total of $670 million remains under existing share repurchase board authorization. The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission rules. |
FULL YEAR SUMMARY
• | Total Company net sales of $12.2 billion increased 3.4 percent compared with fiscal 2012. Excluding the 53rd week, total company net sales increased 4.9 percent compared with fiscal 2012. Total Company same-store sales increased 2.5 percent, on top of last year’s increase of 7.3 percent. |
• | Nordstrom same-store sales increased 2.3 percent compared with last year’s same-store sales increase of 7.5 percent. Top-performing merchandise categories included Cosmetics, Men’s Shoes, and Women’s Apparel. |
• | Full-line same-store sales decreased 2.1 percent compared with last year’s same-store sales increase of 3.9 percent. The Southwest and Southeast regions were the top-performing geographic areas. |
• | Direct same-store sales increased 30 percent, on top of last year’s increase of 37 percent, driven by expanded merchandise selection and ongoing technology investments to enhance the customer experience. This represents Direct’s third consecutive year of achieving same-store sales growth of at least 30 percent. |
• | Nordstrom Rack net sales increased $294 million, or 12.0 percent, compared with the same period in fiscal 2012, reflecting 22 new stores during fiscal 2013. Nordstrom Rack same-store sales increased 2.7 percent on top of last year’s same-store sales increase of 7.4 percent. |
• | HauteLook same-store sales increased by 27 percent. |
• | The Nordstrom Rewards loyalty program continued to play an important role in reaching new customers and strengthening existing customer relationships. For the second consecutive year, the Company opened over one million new accounts. With 3.8 million active members, sales from members for fiscal 2013 represented 38 percent of sales, increasing from 36 percent in fiscal 2012. |
• | Return on invested capital ("ROIC") for the 12 months ended February 1, 2014 was 13.6 percent compared with 13.9 percent in the prior 12-month period. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below. |
CAPITAL INVESTMENT AND EXPANSION UPDATE
In fiscal 2014, the Company’s capital expenditures, net of property incentives, are expected to total between $840 and $880 million, compared with $714 million in fiscal 2013. The majority of the increase represents investments to fuel online and Nordstrom Rack growth in addition to the planned entry into Canada.
Nordstrom has announced plans to open the following stores in fiscal 2014:
Location | Store Name | Square Footage (000's) | Timing | |||
Nordstrom Full-line Stores | ||||||
The Woodlands, Texas | The Woodlands Mall | 138 | September 5 | |||
Calgary, Alberta, Canada | Chinook Centre | 140 | September 19 | |||
Jacksonville, Florida | St. Johns Town Center | 124 | October 3 | |||
Nordstrom Rack | ||||||
Palm Desert, California | One Eleven Towne Center | 34 | March 6 | |||
San Francisco, California | 901 Market Street | 45 | March 6 | |||
Chicago, Illinois | Collection Anex | 40 | April 3 | |||
Riverside, California | Riverside Plaza | 45 | April 3 | |||
Skokie, Illinois | Shops at Orchard Place | 36 | April 3 | |||
Tulsa, Oklahoma | Woodland Plaza | 33 | April 3 | |||
Wauwatosa, Wisconsin | Mayfair Collection | 36 | April 3 | |||
Brooklyn, New York | 505 Fulton Street | 41 | May 1 | |||
Columbus, Ohio | Sun Center | 38 | May 1 | |||
Houston, Texas | Village Plaza at Bunker Hill | 30 | May 1 | |||
Manhasset, New York | Manhasset Center | 32 | May 1 | |||
Chicago, Illinois | The Maxwell | 37 | September 10 | |||
Dayton, Ohio | The Greene | 35 | September 10 | |||
Houston, Texas | Willowbrook Mall | 38 | September 10 | |||
Queens, New York | The Shops at Skyview | 39 | September 10 | |||
Brentwood, Tennessee | Brentwood Place Shopping Center | 36 | October 9 | |||
Brooklyn, New York | Gateway Center | 33 | October 9 | |||
Greenville, South Carolina | Magnolia Park | 32 | October 9 | |||
Livingston, New Jersey | Livingston Center | 32 | October 9 | |||
Madison, Wisconsin | West Towne Crossing | 31 | October 9 | |||
Tempe, Arizona | Tempe Marketplace | 35 | October 9 | |||
West Palm Beach, Florida | Palm Beach Outlets | 35 | October 9 | |||
Brandon, Florida | Lake Brandon Plaza | 33 | October 30 | |||
Columbia, South Carolina | Harbison Court | 34 | October 30 | |||
Des Moines, Iowa | Plaza at Jordan Creek | 35 | October 30 | |||
Philadelphia, Pennsylvania | 1700 Chestnut Street | 39 | October 30 | |||
Summerlin, Nevada | The Shops at Summerlin | 36 | October 30 | |||
Number of stores | February 1, 2014 | February 2, 2013 | |
Nordstrom | 117 | 117 | |
Nordstrom Rack and other | 143 | 123 | |
Total | 260 | 240 | |
Gross square footage | 26,017,000 | 25,290,000 | |
FISCAL YEAR 2014 OUTLOOK
In 2014, Nordstrom plans to continue to invest and build upon its foundation for achieving sustainable growth in sales, earnings and ROIC. The Company expects its planned entry into Canada to continue to be dilutive to earnings, primarily due to ongoing infrastructure investments and pre-opening costs. The estimated loss before interest and taxes for Canada is expected to be approximately $35 million in fiscal 2014, compared with a loss before interest and taxes of $14 million in fiscal 2013. This outlook also incorporates Nordstrom Rack's accelerated store expansion and increased technology investments to improve service and experience across all channels. These investments are expected to increase depreciation and rent expense in fiscal 2014. Depreciation and amortization expense of approximately $514 million is expected in fiscal 2014, an increase of 13 percent from $454 million in fiscal 2013. Rent expense of approximately $147 million is expected in fiscal 2014, an increase of 17 percent from $125 million in fiscal 2013.
The Company's expectations for fiscal 2014 are as follows:
Total sales | 5.5 to 7.5 percent increase | |
Same-store sales | 2 to 4 percent increase | |
Credit card revenues | $0 to $5 million increase | |
Gross profit (%) | 10 to 30 basis point decrease | |
Selling, general and administrative expenses (%) | 10 to 30 basis point increase | |
Interest expense, net | Approximately $25 million decrease | |
Effective tax rate | 39.0 percent | |
Earnings per diluted share, excluding the impact of any future share repurchases | $3.75 to $3.90 | |
Diluted shares outstanding | Approximately 196 million | |
For the first quarter of fiscal 2014, the Company expects earnings per diluted share of $0.60 to $0.70, compared with $0.73 in the same period last year. This includes a total sales increase in the first quarter of 3.5 to 5.5 percent, which is below the Company’s full year outlook of a 5.5 to 7.5 percent increase. The full year outlook contemplates the following timing considerations:
• | Annualization of higher infrastructure investments in the first half of the year related to the Canada expansion in addition to pre-opening costs related to the initial store opening planned in the third quarter |
• | Two new full-line stores planned in the third quarter |
CONFERENCE CALL INFORMATION
The Company’s senior management will host a conference call to discuss fourth quarter 2013 results and 2014 outlook at 4:45 p.m. Eastern Standard Time today. To listen to the live call online and view the speakers’ slides and Performance Summary document, visit the Investor Relations section of the Company’s corporate website at http://investor.nordstrom.com. An archived webcast with the speakers’ slides and Performance Summary document will be available in the Earnings section for one year. Interested parties may also dial 415-228-4850 (passcode: NORD). A telephone replay will be available beginning approximately one hour after the conclusion of the call by dialing 203-369-3032 until the close of business on February 27, 2014.
ABOUT NORDSTROM
Nordstrom, Inc. is one of the leading fashion specialty retailers based in the U.S. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 260 stores in 35 states, including 117 full-line stores, 140 Nordstrom Racks, two Jeffrey boutiques and one clearance store. Nordstrom also serves customers through Nordstrom.com and in the online private sale marketplace, HauteLook. Nordstrom, Inc.’s common stock is publicly traded on the NYSE under the symbol JWN.
Certain statements in this news release contain or may suggest "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial outlook for the fiscal year ending January 31, 2015, anticipated annual same-store sales rate, anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of the company's management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: successful execution of our growth strategy, including expansion into new markets, acquisitions, investments in our stores and online, our ability to realize the anticipated benefits from such growth initiatives, and the timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties; our ability to manage the transformation of our business/financial model as we increase our investments in growth opportunities, including our online business and our ability to manage related organizational changes; our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders; effective inventory management, disruptions in our supply chain and our ability to control costs; the impact of any systems failures, cybersecurity and/or security breaches, including any security breach of our systems or those of a third party provider that results in the theft, transfer or unauthorized disclosure of customer, employee or company information or compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; our ability to effectively utilize data in strategic planning and decision-making; efficient and proper allocation of our capital resources; our ability to safeguard our reputation and maintain our vendor relationships; the impact of economic and market conditions and the resultant impact on consumer spending patterns; our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online; the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry; weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the impact on consumer spending patterns; our compliance with applicable banking-related laws and regulations impacting our ability to extend credit to our customers, employment laws and regulations, certain international laws and regulations, other laws and regulations applicable to us, including the outcome of claims and litigation and resolution of tax matters, and ethical standards; impact of the current regulatory environment and financial system and health care reforms; compliance with debt covenants, availability and cost of credit, changes in interest rates, and trends in debt repayment patterns, personal bankruptcies, and bad debt write-offs; and the timing and amounts of share repurchases by the company, if any, or any share issuances by the company, including issuances associated with option exercises or other matters. Our SEC reports, including our Form 10-K for the fiscal year ended February 2, 2013, our Form 10-Q for the fiscal quarters ended May 4, 2013, August 3, 2013 and November 2, 2013, and our Form 10-K for the fiscal year ended February 1, 2014, to be filed with the SEC on or about March 17, 2014, contain other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited; amounts in millions, except per share amounts)
Quarter Ended | Year Ended | ||||||||||||||
February 1, 2014 | February 2, 2013 | February 1, 2014 | February 2, 2013 | ||||||||||||
Net sales | $ | 3,614 | $ | 3,596 | $ | 12,166 | $ | 11,762 | |||||||
Credit card revenues | 97 | 102 | 374 | 372 | |||||||||||
Total revenues | 3,711 | 3,698 | 12,540 | 12,134 | |||||||||||
Cost of sales and related buying and occupancy costs | (2,269 | ) | (2,239 | ) | (7,737 | ) | (7,432 | ) | |||||||
Selling, general and administrative expenses | (955 | ) | (961 | ) | (3,453 | ) | (3,357 | ) | |||||||
Earnings before interest and income taxes | 487 | 498 | 1,350 | 1,345 | |||||||||||
Interest expense, net | (50 | ) | (42 | ) | (161 | ) | (160 | ) | |||||||
Earnings before income taxes | 437 | 456 | 1,189 | 1,185 | |||||||||||
Income tax expense | (169 | ) | (172 | ) | (455 | ) | (450 | ) | |||||||
Net earnings | $ | 268 | $ | 284 | $ | 734 | $ | 735 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 1.39 | $ | 1.43 | $ | 3.77 | $ | 3.62 | |||||||
Diluted | $ | 1.37 | $ | 1.40 | $ | 3.71 | $ | 3.56 | |||||||
Weighted-average shares outstanding: | |||||||||||||||
Basic | 192.7 | 198.9 | 194.5 | 203.0 | |||||||||||
Diluted | 195.8 | 202.4 | 197.7 | 206.7 | |||||||||||
NORDSTROM, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; amounts in millions)
February 1, 2014 | February 2, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,194 | $ | 1,285 | |||
Accounts receivable, net | 2,177 | 2,129 | |||||
Merchandise inventories | 1,531 | 1,360 | |||||
Current deferred tax assets, net | 239 | 227 | |||||
Prepaid expenses and other | 87 | 80 | |||||
Total current assets | 5,228 | 5,081 | |||||
Land, buildings and equipment (net of accumulated depreciation of $4,395 and $4,064) | 2,949 | 2,579 | |||||
Goodwill | 175 | 175 | |||||
Other assets | 222 | 254 | |||||
Total assets | $ | 8,574 | $ | 8,089 | |||
Liabilities and Shareholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 1,263 | $ | 1,011 | |||
Accrued salaries, wages and related benefits | 395 | 404 | |||||
Other current liabilities | 876 | 804 | |||||
Current portion of long-term debt | 7 | 7 | |||||
Total current liabilities | 2,541 | 2,226 | |||||
Long-term debt, net | 3,106 | 3,124 | |||||
Deferred property incentives, net | 498 | 485 | |||||
Other liabilities | 349 | 341 | |||||
Commitments and contingencies | |||||||
Shareholders' equity: | |||||||
Common stock, no par value: 1,000 shares authorized; 191.2 and 197.0 shares issued and outstanding | 1,827 | 1,645 | |||||
Retained earnings | 292 | 315 | |||||
Accumulated other comprehensive loss | (39 | ) | (47 | ) | |||
Total shareholders' equity | 2,080 | 1,913 | |||||
Total liabilities and shareholders' equity | $ | 8,574 | $ | 8,089 | |||
NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; amounts in millions)
Year Ended | |||||||
February 1, 2014 | February 2, 2013 | ||||||
Operating Activities | |||||||
Net earnings | $ | 734 | $ | 735 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization expenses | 454 | 429 | |||||
Amortization of deferred property incentives and other, net | (58 | ) | (63 | ) | |||
Deferred income taxes, net | 12 | 22 | |||||
Stock-based compensation expense | 58 | 53 | |||||
Tax benefit from stock-based compensation | 21 | 23 | |||||
Excess tax benefit from stock-based compensation | (23 | ) | (24 | ) | |||
Provision for bad debt expense | 52 | 42 | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable | (93 | ) | (99 | ) | |||
Merchandise inventories | (157 | ) | (170 | ) | |||
Prepaid expenses and other assets | (6 | ) | 5 | ||||
Accounts payable | 167 | 48 | |||||
Accrued salaries, wages and related benefits | (12 | ) | 13 | ||||
Other current liabilities | 60 | 36 | |||||
Deferred property incentives | 89 | 58 | |||||
Other liabilities | 22 | 2 | |||||
Net cash provided by operating activities | 1,320 | 1,110 | |||||
Investing Activities | |||||||
Capital expenditures | (803 | ) | (513 | ) | |||
Change in restricted cash | — | 200 | |||||
Change in credit card receivables originated at third parties | (6 | ) | (42 | ) | |||
Other, net | (13 | ) | (14 | ) | |||
Net cash used in investing activities | (822 | ) | (369 | ) | |||
Financing Activities | |||||||
Proceeds from long-term borrowings, net of discounts | 399 | — | |||||
Principal payments on long-term borrowings | (407 | ) | (506 | ) | |||
Increase in cash book overdrafts | 47 | 5 | |||||
Cash dividends paid | (234 | ) | (220 | ) | |||
Payments for repurchase of common stock | (515 | ) | (725 | ) | |||
Proceeds from issuances under stock compensation plans | 103 | 91 | |||||
Excess tax benefit from stock-based compensation | 23 | 24 | |||||
Other, net | (5 | ) | (2 | ) | |||
Net cash used in financing activities | (589 | ) | (1,333 | ) | |||
Net decrease in cash and cash equivalents | (91 | ) | (592 | ) | |||
Cash and cash equivalents at beginning of year | 1,285 | 1,877 | |||||
Cash and cash equivalents at end of year | $ | 1,194 | $ | 1,285 | |||
NORDSTROM, INC.
STATEMENTS OF EARNINGS BY BUSINESS
(unaudited; dollar and share amounts in millions)
Retail Business
Our Retail business includes our Nordstrom branded full-line stores and website, our Nordstrom Rack stores, and our other retail channels including HauteLook, and our Jeffrey stores. It also includes unallocated corporate center expenses. The following table summarizes the results of our Retail business for the quarter and year ended February 1, 2014 compared with the quarter and year ended February 2, 2013:
Quarter Ended | |||||||||||||
February 1, 2014 | February 2, 2013 | ||||||||||||
Amount | % of net sales1 | Amount | % of net sales1 | ||||||||||
Net sales | $ | 3,614 | 100.0 | % | $ | 3,596 | 100.0 | % | |||||
Cost of sales and related buying and occupancy costs | (2,268 | ) | (62.8 | %) | (2,237 | ) | (62.2 | %) | |||||
Gross profit | 1,346 | 37.2 | % | 1,359 | 37.8 | % | |||||||
Selling, general and administrative expenses | (918 | ) | (25.4 | %) | (917 | ) | (25.5 | %) | |||||
Earnings before interest and income taxes | 428 | 11.8 | % | 442 | 12.3 | % | |||||||
Interest expense, net | (44 | ) | (1.2 | %) | (35 | ) | (1.0 | %) | |||||
Earnings before income taxes | $ | 384 | 10.6 | % | $ | 407 | 11.3 | % | |||||
Year Ended | |||||||||||||
February 1, 2014 | February 2, 2013 | ||||||||||||
Amount | % of net sales1 | Amount | % of net sales1 | ||||||||||
Net sales | $ | 12,166 | 100.0 | % | $ | 11,762 | 100.0 | % | |||||
Cost of sales and related buying and occupancy costs | (7,732 | ) | (63.6 | %) | (7,427 | ) | (63.1 | %) | |||||
Gross profit | 4,434 | 36.4 | % | 4,335 | 36.9 | % | |||||||
Selling, general and administrative expenses | (3,272 | ) | (26.9 | %) | (3,172 | ) | (27.0 | %) | |||||
Earnings before interest and income taxes | 1,162 | 9.6 | % | 1,163 | 9.9 | % | |||||||
Interest expense, net | (137 | ) | (1.1 | %) | (134 | ) | (1.1 | %) | |||||
Earnings before income taxes | $ | 1,025 | 8.4 | % | $ | 1,029 | 8.7 | % | |||||
1Subtotals and totals may not foot due to rounding.
NORDSTROM, INC.
STATEMENTS OF EARNINGS BY BUSINESS
(unaudited; dollar and share amounts in millions)
Credit
Our Credit business earns finance charges, interchange fees, late fees and other revenue through operation of the Nordstrom private label and Nordstrom VISA credit cards. The following tables summarize the results of our Credit business for the quarter and year ended February 1, 2014 compared with the quarter and year ended February 2, 2013:
Quarter Ended | Year Ended | ||||||||||||||
February 1, 2014 | February 2, 2013 | February 1, 2014 | February 2, 2013 | ||||||||||||
Credit card revenues | $ | 97 | $ | 102 | $ | 374 | $ | 372 | |||||||
Credit expenses | (38 | ) | (46 | ) | (186 | ) | (190 | ) | |||||||
Earnings before interest and income taxes | 59 | 56 | 188 | 182 | |||||||||||
Interest expense | (6 | ) | (7 | ) | (24 | ) | (26 | ) | |||||||
Earnings before income taxes | $ | 53 | $ | 49 | $ | 164 | $ | 156 | |||||||
Quarter Ended | Year Ended | ||||||||||||||
February 1, 2014 | February 2, 2013 | February 1, 2014 | February 2, 2013 | ||||||||||||
Allowance at beginning of period | $ | 85 | $ | 95 | $ | 85 | $ | 115 | |||||||
Bad debt provision | 8 | 4 | 52 | 42 | |||||||||||
Write-offs | (19 | ) | (21 | ) | (80 | ) | (97 | ) | |||||||
Recoveries | 6 | 7 | 23 | 25 | |||||||||||
Allowance at end of period | $ | 80 | $ | 85 | $ | 80 | $ | 85 | |||||||
Annualized net write-offs as a percentage of average credit card receivables | 2.4 | % | 2.7 | % | 2.7 | % | 3.5 | % | |||||||
Annualized net write-offs (including finance charges and fees) as a percentage of average credit card receivables | 2.9 | % | 3.3 | % | 3.2 | % | 4.1 | % | |||||||
February 1, 2014 | February 2, 2013 | ||||||||||||||
30 days or more delinquent as a percentage of ending credit card receivables | 1.8 | % | 1.9 | % | |||||||||||
Allowance as a percentage of ending credit card receivables | 3.7 | % | 4.0 | % | |||||||||||
NORDSTROM, INC.
RETURN ON INVESTED CAPITAL (NON-GAAP FINANCIAL MEASURE)
(unaudited; dollar and share amounts in millions)
We believe ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important component of shareholders' return over the long term. In addition, we incorporate ROIC in our executive incentive measures. For the 12 fiscal months ended February 1, 2014, ROIC decreased to 13.6% compared with 13.9% for the 12 fiscal months ended February 2, 2013.
ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to ROIC is return on assets. The following is a reconciliation of the components of ROIC and return on assets:
12 Fiscal Months Ended | |||||||
February 1, 2014 | February 2, 2013 | ||||||
Net earnings | $ | 734 | $ | 735 | |||
Add: income tax expense | 455 | 450 | |||||
Add: interest expense | 162 | 162 | |||||
Earnings before interest and income tax expense | 1,351 | 1,347 | |||||
Add: rent expense | 125 | 105 | |||||
Less: estimated depreciation on capitalized operating leases1 | (67 | ) | (56 | ) | |||
Net operating profit | 1,409 | 1,396 | |||||
Estimated income tax expense2 | (539 | ) | (530 | ) | |||
Net operating profit after tax | $ | 870 | $ | 866 | |||
Average total assets3 | $ | 8,398 | $ | 8,274 | |||
Less: average non-interest-bearing current liabilities4 | (2,430 | ) | (2,262 | ) | |||
Less: average deferred property incentives3 | (489 | ) | (494 | ) | |||
Add: average estimated asset base of capitalized operating leases5 | 929 | 724 | |||||
Average invested capital | $ | 6,408 | $ | 6,242 | |||
Return on assets | 8.7 | % | 8.9 | % | |||
ROIC | 13.6 | % | 13.9 | % | |||
1Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease, or we had purchased the property. Asset base is calculated as described in footnote 5 below.
2Based upon our effective tax rate multiplied by the net operating profit for the 12 fiscal months ended February 1, 2014 and February 2, 2013.
3Based upon the trailing 12-month average.
4Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other current liabilities.
5Based upon the trailing 12-month average of the monthly asset base. The asset base for each month is calculated as the trailing 12-months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1.
NORDSTROM, INC.
ADJUSTED DEBT TO EBITDAR (NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in millions)
Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our goal is to manage debt levels to maintain our current investment-grade credit rating and operate with an efficient capital structure. In evaluating our debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and cost of capital. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of less than four times. As of February 1, 2014 and February 2, 2013, our Adjusted Debt to EBITDAR was 2.1.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted Debt to EBITDAR is debt to net earnings. The following is a reconciliation of the components of Adjusted Debt to EBITDAR and debt to net earnings:
20131 | 20121 | ||||||
Debt | $ | 3,113 | $ | 3,131 | |||
Add: estimated capitalized operating lease liability2 | 999 | 843 | |||||
Less: fair value hedge adjustment included in long-term debt | (48 | ) | (60 | ) | |||
Adjusted Debt | $ | 4,064 | $ | 3,914 | |||
Net earnings | $ | 734 | $ | 735 | |||
Add: income tax expense | 455 | 450 | |||||
Add: interest expense, net | 161 | 160 | |||||
Earnings before interest and income taxes | 1,350 | 1,345 | |||||
Add: depreciation and amortization expenses | 454 | 429 | |||||
Add: rent expense | 125 | 105 | |||||
Add: non-cash acquisition-related charges | 8 | 10 | |||||
EBITDAR | $ | 1,937 | $ | 1,889 | |||
Debt to Net Earnings | 4.2 | 4.3 | |||||
Adjusted Debt to EBITDAR | 2.1 | 2.1 | |||||
1The components of Adjusted Debt are as of February 1, 2014 and February 2, 2013, while the components of EBITDAR are for the 12 months ended February 1, 2014 and February 2, 2013.
2Based upon the estimated lease liability as of the end of the period, calculated as the trailing 12-months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease, or we had purchased the property.
NORDSTROM, INC.
FREE CASH FLOW (NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in millions)
Free Cash Flow is one of our key liquidity measures, and in conjunction with GAAP measures, provides investors with a meaningful analysis of our ability to generate cash from our business. For the year ended February 1, 2014, Free Cash Flow decreased to $324 compared with $340 for the year ended February 2, 2013, primarily due to an increase in capital expenditures.
Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
Year Ended | |||||||
February 1, 2014 | February 2, 2013 | ||||||
Net cash provided by operating activities | $ | 1,320 | $ | 1,110 | |||
Less: capital expenditures | (803 | ) | (513 | ) | |||
Less: cash dividends paid | (234 | ) | (220 | ) | |||
Less: change in credit card receivables originated at third parties | (6 | ) | (42 | ) | |||
Add: change in cash book overdrafts | 47 | 5 | |||||
Free Cash Flow | $ | 324 | $ | 340 | |||
Net cash used in investing activities | $ | (822 | ) | $ | (369 | ) | |
Net cash used in financing activities | $ | (589 | ) | $ | (1,333 | ) | |