Document


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 28, 2019
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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨






ITEM 2.02 Results of Operations and Financial Condition
On February 28, 2019, Nordstrom, Inc. issued an earnings release announcing its results of operations for the quarter and year ended February 2, 2019, its financial position as of February 2, 2019, and its cash flows for the year ended February 2, 2019. A copy of this earnings release is attached as Exhibit 99.1.
ITEM 7.01 Regulation FD Disclosure
On February 28, 2019, Nordstrom, Inc. issued an earnings release announcing its results of operations for the quarter and year ended February 2, 2019, its financial position as of February 2, 2019, and its cash flows for the year ended February 2, 2019. 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
 
Nordstrom earnings release dated February 28, 2019 relating to the Company's results of operations for the quarter and year ended February 2, 2019, its financial position as of February 2, 2019, and its cash flows for the year ended February 2, 2019.
EXHIBIT INDEX
 
 
 
EXHIBIT
 
 
NUMBER
 
DESCRIPTION
 
 
 
 
Nordstrom earnings release dated February 28, 2019 relating to the Company's results of operations for the quarter and year ended February 2, 2019, its financial position as of February 2, 2019, and its cash flows for the year ended February 2, 2019.








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
Senior Vice President,
General Counsel and Corporate Secretary
 


Date: February 28, 2019



Exhibit


Exhibit 99.1

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12744903&doc=3

FOR RELEASE:
 
INVESTOR CONTACT: 
 
Trina Schurman
February 28, 2019 at 1:05 PM PST
 
 
Nordstrom, Inc.
 
 
 
 
(206) 303-6503
 
 
 
 
 
 
 
MEDIA CONTACT: 
 
Gigi Ganatra Duff
 
 
 
 
Nordstrom, Inc.
 
 
 
 
(206) 303-3030
Nordstrom Reports Fourth Quarter and Fiscal 2018 Earnings
Unique business model to serve customers through digital and physical assets
Strong financial position and cash flow generation
Focused on increasing profitability

SEATTLE, Wash. (February 28, 2019) – Nordstrom, Inc. (NYSE: JWN) today reported earnings per diluted share for the fourth quarter ended February 2, 2019 of $1.48. Earnings were generally in-line with the Company’s updated expectations provided in its holiday sales release on January 15, 2019. Net sales decreased 4.7 percent, or increased 0.1 percent excluding the 53rd week in 2017 of approximately $220 million. Comparable sales, which were not impacted by the 53rd week, increased 0.1 percent.
For fiscal 2018, earnings per diluted share was $3.32, which included a $0.05 favorable income tax benefit related to prior periods and an estimated non-recurring credit-related charge of $0.28. Net sales for fiscal 2018 increased 2.3 percent, or 3.8 percent excluding the 53rd week. Comparable sales increased 1.7 percent.
Nordstrom aspires to be the best fashion retailer in a digital world, focused on better serving customers through three strategic pillars: providing a compelling product offering, delivering outstanding services and experiences, and leveraging the strength of the Nordstrom brand. In 2018, the Company achieved the following milestones in executing its customer strategy:
Approximately 10 million customers, or one-third of total customers, shopped across multiple channels, which leads to higher customer spend. This represents an increase of 6 percent.
Nordstrom’s combined physical and digital presence represents a competitive advantage in offering customers a differentiated experience. Digital sales increased 16 percent and made up 30 percent of sales.
Nordstrom launched its local market strategy, which drove outsized market share gains in Los Angeles and increased product selection, delivery speed and convenience for customers.
Generational investments continued to scale, contributing approximately $2 billion in sales and improvement in profitability. Nordstromrack.com/HauteLook exceeded $1 billion in sales. Trunk Club delivered sales growth of 35 percent. The Company opened its Men’s Store in New York City and furthered its expansion into Canada with the introduction of six Nordstrom Rack stores.
Nordstrom maintained a strong financial position, generating annual operating cash flow in excess of $1 billion for 10 consecutive years and returning $1 billion to shareholders in 2018.




FOURTH QUARTER SUMMARY
Fourth quarter net earnings were $248 million compared with $151 million during the same period in fiscal 2017. This increase was primarily due to lower income tax expense associated with corporate tax reform.
Earnings before interest and taxes (EBIT) was $333 million, or 7.6 percent of net sales, compared with $350 million, or 7.6 percent of net sales for the same period in fiscal 2017.
In Full-Price, comparable sales decreased 1.6 percent, primarily driven by softer traffic trends in full-line stores. Off-Price sales reflected continued momentum with a comparable sales increase of 4.0 percent, in-line with the Company’s expectations.
Gross profit, as a percentage of net sales, of 35.1 percent decreased 33 basis points compared with the same period in fiscal 2017, primarily due to higher markdowns taken in response to softer Full-Price sales trends and an elevated promotional environment. Ending inventory decreased 2.4 percent from last year.
Selling, general and administrative expenses, as a percentage of net sales, of 29.8 percent decreased 23 basis points compared with the same period in fiscal 2017, primarily due to a one-time employee investment of $16 million associated with last year’s tax reform. The Company demonstrated disciplined expense execution, reflecting an improvement in expense rate relative to its expectations.
FULL YEAR SUMMARY
Full year net earnings were $564 million compared with $437 million for fiscal 2017. This increase was primarily due to lower income tax expense associated with corporate tax reform.
EBIT was $837 million, or 5.4 percent of net sales, compared with $926 million, or 6.1 percent of net sales, for fiscal 2017. Excluding an estimated non-recurring credit-related charge of $72 million in 2018, EBIT as a percent of net sales, was 5.9 percent.
In Full-Price, comparable sales increased 0.9 percent. In Off-Price, comparable sales increased 3.5 percent.
Gross profit, as a percentage of net sales, of 34.4 percent decreased 26 basis points compared with fiscal 2017 largely due to higher Full-Price markdowns in the fourth quarter.
Selling, general and administrative expenses, as a percentage of net sales, of 31.5 percent increased 65 basis points compared with fiscal 2017. Excluding an estimated non-recurring credit-related charge of $72 million, expenses increased 19 basis points. Annual expense growth moderated to 4 percent driven by ongoing productivity improvements in digital capabilities.
During the year, the Company repurchased 14.3 million shares of its common stock for $702 million. A total capacity of $893 million remains available under its existing share repurchase authorization. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission (“SEC”) rules.
Click here for multimedia materials.




EXPANSION UPDATE
Nordstrom has announced plans to open the following stores in fiscal 2019, consisting of two new full-line stores and five new Nordstrom Rack stores:
Location
 
Store Name
 
Square
Footage
(000’s)
 
Timing
 
 
 
 
 
 
 
Full-Price
 
 
 
 
 
 
U.S. - Nordstrom full-line
 
 
 
 
 
 
New York, NY
 
Nordstrom NYC
 
320
 
Fall
Norwalk, CT
 
Norwalk
 
150
 
Fall
 
 
 
 
 
 
 
Off-Price
 
 
 
 
 
 
U.S. - Nordstrom Rack
 
 
 
 
 
 
Porter Ranch, CA
 
The Vineyards at Porter Ranch
 
25
 
Spring
Westminster, CO
 
The Orchard
 
25
 
Spring
Baltimore, MD
 
The Shops at Canton Crossing
 
33
 
Spring
El Segundo, CA
 
Plaza El Segundo
 
24
 
Fall
Staten Island, NY
 
Empire Outlets
 
34
 
2019
Number of stores
February 2, 2019
 
February 3, 2018
Full-Price
 
 
 
U.S. - Nordstrom full-line
115
 
116

Canada - Nordstrom full-line
6
 
6

Canada - Nordstrom Rack
6
 

Other Full-Price1
12
 
10

Off-Price
 
 
 
U.S. - Nordstrom Rack
238
 
232

Last Chance clearance stores
2
 
2

Total
379
 
366

1 Other Full-Price includes Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local neighborhood hubs.
 
 
 
 
Gross square footage
30,385,000
 
30,218,000





FISCAL YEAR 2019 OUTLOOK
Nordstrom remains committed to achieving its long-term financial targets, which support three strategic objectives in driving shareholder returns: continuing market share gains, improving profitability and returns, and maintaining disciplined capital allocation. The Company’s expectations for fiscal 2019 are as follows:
Net sales growth
1 percent to 2 percent
Credit card revenues
Mid to high single-digit growth
EBIT
$915 to $970 million
EBIT margin
5.9 percent to 6.1 percent
Earnings per diluted share (excluding the impact of any future share repurchase)
$3.65 to $3.90
The Company’s guidance also incorporates the following assumptions:
The Company measures its performance through market share, customers, and net sales metrics. As comparable sales growth is expected to approximate net sales growth in 2019, the Company will only be reporting net sales growth.
The effective tax rate is expected to be approximately 26 percent.
Estimated annual average outstanding shares are expected to be approximately 162 million, which excludes the impact of any future share repurchases.
Nordstrom plans to report quarterly results for fiscal 2019 on the following dates:
For the first quarter ending May 4, 2019
May 21, 2019
For the second quarter ending August 3, 2019
August 21, 2019
For the third quarter ending November 2, 2019
November 20, 2019
For the fourth quarter ending February 1, 2020
February 27, 2020
CONFERENCE CALL INFORMATION
The Company’s senior management will host a conference call to discuss fourth quarter and fiscal 2018 results and fiscal 2019 outlook at 4:45 p.m. Eastern Standard Time today. To listen to the live call online and view the speakers’ prepared remarks and the conference call slides, visit the Investor Relations section of the Company’s corporate website at http://investor.nordstrom.com. An archived webcast with the speakers’ prepared remarks and the conference call slides will be available on the website for one year. Interested parties may also dial 201-689-8354. A telephone replay will be available beginning approximately three hours after the conclusion of the call by dialing 877-660-6853 or 201-612-7415 and entering Conference ID 13687183, until the close of business on March 7, 2019.
ABOUT NORDSTROM
Nordstrom, Inc. is a leading fashion retailer based in the U.S. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 379 stores in 40 states, including 121 full-line stores in the United States, Canada and Puerto Rico; 244 Nordstrom Rack stores; three Jeffrey boutiques; two clearance stores; six Trunk Club clubhouses; and three Nordstrom Local service concepts. Additionally, customers are served online through Nordstrom.com, Nordstromrack.com, HauteLook and TrunkClub.com. Nordstrom, Inc.’s common stock is publicly traded on the NYSE under the symbol JWN.
Certain statements in this press release contain or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risks and uncertainties that could cause results to be materially different than expectations. The words “will,” “may,” “designed to,” “outlook,” “believes,” “should,” “targets,” “anticipates,” “assumptions,” “plans,” “expects” or “expectations,” “intends,” “estimates,” “forecasts,” “guidance” and similar expressions identify certain of these forward-looking statements. The Company also may provide forward-looking statements in oral statements or other written materials released to the public. All statements contained or incorporated in this press release or in any other public statements that address such future events or expectations are forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements are detailed in the most recent reports the Company files with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018 and its Form 10-Q for the fiscal quarters ended May 5, 2018, August 4, 2018 and November 3, 2018. These forward-looking statements are not guarantees of future performance and speak only as of the date hereof, and, except as required by law, 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 2, 2019
 
February 3, 2018
 
February 2, 2019
 
February 3, 2018
Net sales
$
4,383

 
$
4,600

 
$
15,480

 
$
15,137

Credit card revenues, net
101

 
102

 
380

 
341

Total revenues
4,484

 
4,702

 
15,860

 
15,478

Cost of sales and related buying and occupancy costs
(2,843
)
 
(2,969
)
 
(10,155
)
 
(9,890
)
Selling, general and administrative expenses
(1,308
)
 
(1,383
)
 
(4,868
)
 
(4,662
)
Earnings before interest and income taxes
333

 
350

 
837

 
926

Interest expense, net
(23
)
 
(31
)
 
(104
)
 
(136
)
Earnings before income taxes
310

 
319

 
733

 
790

Income tax expense
(62
)
 
(168
)
 
(169
)
 
(353
)
Net earnings
$
248

 
$
151

 
$
564

 
$
437

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.50

 
$
0.90

 
$
3.37

 
$
2.62

Diluted
$
1.48

 
$
0.89

 
$
3.32

 
$
2.59

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
164.8

 
166.9

 
167.3

 
166.8

Diluted
167.1

 
169.4

 
170.0

 
168.9

 
 
 
 
 
 
 
 
Percent of net sales:
 
 
 
 
 
 
 
Gross profit
35.1
%
 
35.5
%
 
34.4
%
 
34.7
%
Selling, general and administrative expenses
29.8
%
 
30.1
%
 
31.5
%
 
30.8
%
Earnings before interest and income taxes
7.6
%
 
7.6
%
 
5.4
%
 
6.1
%




NORDSTROM, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; amounts in millions)
 
February 2, 2019

February 3, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
957

 
$
1,181

Accounts receivable, net
148

 
145

Merchandise inventories
1,978

 
2,027

Prepaid expenses and other
291

 
150

Total current assets
3,374

 
3,503

 
 
 
 
Land, property and equipment, net
3,921

 
3,939

Goodwill
249

 
238

Other assets
342

 
435

Total assets
$
7,886

 
$
8,115

 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,469

 
$
1,409

Accrued salaries, wages and related benefits
580

 
578

Other current liabilities
1,324

 
1,246

Current portion of long-term debt
8

 
56

Total current liabilities
3,381

 
3,289

 
 
 
 
Long-term debt, net
2,677

 
2,681

Deferred property incentives, net
457

 
495

Other liabilities
498

 
673

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
Shareholders’ equity:
 
 
 
Common stock, no par value: 1,000 shares authorized; 157.6 and 167.0 shares issued and outstanding
3,048

 
2,816

Accumulated deficit
(2,138
)
 
(1,810
)
Accumulated other comprehensive loss
(37
)
 
(29
)
Total shareholders’ equity
873

 
977

Total liabilities and shareholders’ equity
$
7,886

 
$
8,115





NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; amounts in millions)
 
Year Ended
 
February 2, 2019

February 3, 2018
Operating Activities
 
 
 
Net earnings
$
564

 
$
437

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization expenses
669

 
666

Amortization of deferred property incentives and other, net
(75
)
 
(82
)
Deferred income taxes, net
(34
)
 
11

Stock-based compensation expense
90

 
77

Change in operating assets and liabilities:
 
 
 
Accounts receivable
(4
)
 
1

Proceeds from sale of credit card receivables originated at Nordstrom

 
39

Merchandise inventories
15

 
(62
)
Prepaid expenses and other assets
(8
)
 
(21
)
Accounts payable
12

 
77

Accrued salaries, wages and related benefits
1

 
121

Other current liabilities
15

 
48

Deferred property incentives
53

 
64

Other liabilities
(2
)
 
24

Net cash provided by operating activities
1,296


1,400

 
 
 
 
Investing Activities
 
 
 
Capital expenditures
(654
)
 
(731
)
Proceeds from sale of credit card receivables originated at third parties

 
16

Other, net
1

 
31

Net cash used in investing activities
(653
)

(684
)
 
 
 
 
Financing Activities
 
 
 
Proceeds from long-term borrowings, net of discounts

 
635

Principal payments on long-term borrowings
(56
)
 
(661
)
Decrease in cash book overdrafts

 
(55
)
Cash dividends paid
(250
)
 
(247
)
Payments for repurchase of common stock
(678
)
 
(211
)
Proceeds from issuances under stock compensation plans
163

 
39

Tax withholding on share-based awards
(20
)
 
(7
)
Other, net
(26
)
 
(35
)
Net cash used in financing activities
(867
)

(542
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(224
)
 
174

Cash and cash equivalents at beginning of year
1,181

 
1,007

Cash and cash equivalents at end of year
$
957

 
$
1,181





NORDSTROM, INC.
SUMMARY OF NET SALES
(unaudited; dollar amounts in millions)
During the first quarter of 2018, we adopted the new revenue recognition standard (Revenue Standard) using the modified retrospective adoption method. Results beginning in the first quarter of 2018 are presented under the new Revenue Standard, while prior period amounts are not adjusted. Also beginning in 2018, we aligned our sales presentation with how we view the results of our operations internally and how our customers view us, by our Full-Price and Off-Price businesses.
Our Full-Price business includes our Nordstrom U.S. full-line stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local. Our Off-Price business includes Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores. The following table summarizes net sales and comparable sales for the quarter and year ended February 2, 2019 compared with the same periods in fiscal 2017:
 
Quarter Ended
 
Year Ended
 
February 2, 2019
 
February 3, 2018
 
February 2, 2019
 
February 3, 2018
Net sales by business1:
 
 
 
 
 
 
 
Full-Price2
$
2,985

 
$
3,273

 
$
10,299

 
$
10,452

Off-Price3
1,398

 
1,437

 
5,181

 
4,956

Other

 
(110
)
 

 
(271
)
Total net sales4
$
4,383

 
$
4,600

 
$
15,480

 
$
15,137

 
 
 
 
 
 
 
 
Comparable sales increase (decrease) by business:
 
 
 
 
 
 
 
Full-Price
(1.6
%)
 
2.4
%
 
0.9
%
 
0.1
%
Off-Price
4.0
%
 
3.7
%
 
3.5
%
 
2.5
%
Total Company
0.1
%
 
2.6
%
 
1.7
%
 
0.8
%
 
 
 
 
 
 
 
 
Digital sales as % of total net sales5
33
%
 
30
%
 
30
%
 
27
%
1 We present our sales in the way that management views our results internally, including presenting 2018 under the new Revenue Standard while prior period amounts are not adjusted and allocating our sales return reserves and loyalty related adjustments to Full-Price and Off-Price. For 2017, Other primarily included unallocated sales return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales.
2 Full-Price net sales decreased 8.8% for the fourth quarter and 1.5% for the year ended February 2, 2019. This included a decrease of approximately 800 basis points for the fourth quarter and 300 basis points for the year ended February 2, 2019, due primarily to the 53rd week and loyalty related adjustments.
3 Off-Price net sales decreased 2.7% for the fourth quarter and increased 4.5% for the year ended February 2, 2019. This included a decrease of approximately 800 basis points for the fourth quarter and 250 basis points for the year ended February 2, 2019, due primarily to the 53rd week and loyalty related adjustments.
4 Total net sales decreased 4.7% for the fourth quarter and increased 2.3% for the year ended February 2, 2019. This included a decrease of approximately 500 basis points in the fourth quarter and 150 basis points for the year ended February 2, 2019, due to the 53rd week. The impact of adopting the new Revenue Standard was not material for the year ended February 2, 2019.
5 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pickup in Store (“BOPUS”), Reserve Online, Try on in Store (Store Reserve) and Style Board, a digital selling tool.




NORDSTROM, INC.
ADJUSTED RETURN ON INVESTED CAPITAL (“ADJUSTED ROIC”)
(NON-GAAP FINANCIAL MEASURES)
(unaudited; dollar amounts in millions)
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. Adjusted ROIC adjusts our operating leases as if they met the criteria for capital leases or we had purchased the properties. This provides additional supplemental information that reflects the investment in our off-balance sheet operating leases, controls for differences in capital structure between us and our competitors and provides investors and credit agencies with another way to comparably evaluate the efficiency and effectiveness of our capital investments over time. In addition, we incorporate Adjusted ROIC into our executive incentive measures and it is an important indicator of shareholders’ return over the long term.
We define Adjusted ROIC as our adjusted net operating profit after tax divided by our average invested capital using the trailing 12-month average. Adjusted ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) 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. Estimated depreciation on capitalized operating leases and average estimated asset base of capitalized operating leases are not calculated in accordance with, or an alternative for, GAAP and should not be considered in isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP which is most directly comparable to Adjusted ROIC is return on assets. The following is a reconciliation of the components and adjustments to Adjusted ROIC and return on assets:
 
12 Fiscal Months Ended
 
February 2, 2019
 
February 3, 2018
Net earnings
$
564

 
$
437

Add: income tax expense
169

 
353

Add: interest expense
119

 
141

Earnings before interest and income tax expense
852

 
931

 
 
 
 
Add: rent expense
251

 
250

Less: estimated depreciation on capitalized operating leases1
(134
)
 
(133
)
Adjusted net operating profit
969

 
1,048

 
 
 
 
Less: estimated income tax expense
(223
)
 
(468
)
Adjusted net operating profit after tax
$
746

 
$
580

 
 
 
 
Average total assets
$
8,282

 
$
8,055

Less: average non-interest-bearing current liabilities
(3,479
)
 
(3,261
)
Less: average deferred property incentives and deferred rent liability
(616
)
 
(644
)
Add: average estimated asset base of capitalized operating leases1
2,018

 
1,805

Average invested capital
$
6,205

 
$
5,955

 
 
 
 
Return on assets2
6.8
%
 
5.4
%
Adjusted ROIC2
12.0
%
 
9.7
%
1 Capitalized 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. The asset base is calculated based 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. We do not expect the adoption of the new Lease standard to have a material impact on our Adjusted ROIC.
2 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with corporate tax reform and a $72 unfavorable impact related to the estimated non-recurring credit-related charge. Results for the 12 fiscal months ended February 3, 2018 include a $42 unfavorable impact related to tax reform.




NORDSTROM, INC.
ADJUSTED DEBT TO EBITDAR (NON-GAAP FINANCIAL MEASURE)
(unaudited; dollar amounts in millions)
Adjusted Debt to earnings before interest, income taxes, depreciation, amortization and rent (“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 an investment-grade credit rating and operate with an efficient capital structure. In evaluating our debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of no more than four times.
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:
 
20181
 
20171
Debt
$
2,685

 
$
2,737

Add: estimated capitalized operating lease liability2
2,009

 
2,001

Adjusted Debt
$
4,694

 
$
4,738

 
 
 
 
Net earnings
$
564

 
$
437

Add: income tax expense
169

 
353

Add: interest expense, net
104

 
136

Earnings before interest and income taxes
837

 
926

 
 
 
 
Add: depreciation and amortization expenses
669

 
666

Add: rent expense, net
251

 
250

Add: non-cash acquisition-related charges

 
1

Adjusted EBITDAR
$
1,757

 
$
1,843

 
 
 
 
Debt to Net Earnings3
4.8

 
6.3

Adjusted Debt to EBITDAR3
2.7

 
2.6

1 The components of Adjusted Debt are as of February 2, 2019 and February 3, 2018, while the components of Adjusted EBITDAR are for the 12 months ended February 2, 2019 and February 3, 2018.
2 Based 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. We do not expect the adoption of the new Lease standard to have a material impact on our Adjusted Debt to EBITDAR.
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with corporate tax reform and a $72 unfavorable impact related to the estimated non-recurring credit-related charge. Results for the 12 fiscal months ended February 3, 2018 include a $42 unfavorable impact related to tax reform.




NORDSTROM, INC.
FREE CASH FLOW (NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in millions)
Free Cash Flow is one of our key liquidity measures, and when used in conjunction with GAAP measures, provides investors with a meaningful analysis of our ability to generate cash from our business.
Beginning in the first quarter of fiscal 2018, we no longer adjust free cash flow for cash dividends paid. We believe this presentation is more reflective of our operating performance and more consistent with the way we manage our business, how our peers calculate free cash flows and prevailing industry practice. Prior period Free Cash Flow financial measures have been recast to conform with current period presentation.
Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
 
Year Ended
 
February 2, 2019
 
February 3, 2018
Net cash provided by operating activities
$
1,296

 
$
1,400

Less: capital expenditures
(654
)
 
(731
)
Add: proceeds from sale of credit card receivables originated at third parties

 
16

Less: change in cash book overdrafts

 
(55
)
Free Cash Flow
$
642

 
$
630





NORDSTROM, INC.
ADJUSTED EBITDA (NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in millions)
Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) is our key financial metric to reflect our view of cash flow from net earnings. Adjusted EBITDA excludes significant items which are non-operating in nature in order to evaluate our core operating performance against prior periods. The financial measure calculated under GAAP which is most directly comparable to Adjusted EBITDA is net earnings.
Adjusted EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for net earnings, overall change in cash or liquidity of the business as a whole. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The following is a reconciliation of net earnings to Adjusted EBITDA:
 
Year Ended
 
February 2, 2019
 
February 3, 2018
Net earnings
$
564

 
$
437

Add: income tax expense
169

 
353

Add: interest expense, net
104

 
136

Earnings before interest and income taxes
837

 
926

 
 
 
 
Add: depreciation and amortization expenses
669

 
666

Less: amortization of deferred property incentives
(79
)
 
(79
)
Adjusted EBITDA
$
1,427

 
$
1,513