JWN
$25.32
Nordstrom
($.03)
(.12%)
Earnings Details
1st Quarter April 2019
Tuesday, May 21, 2019 4:05:00 PM
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Summary

Nordstrom Misses

Nordstrom (JWN) reported 1st Quarter April 2019 earnings of $0.23 per share on revenue of $3.4 billion. The consensus earnings estimate was $0.43 per share on revenue of $3.6 billion. The Earnings Whisper number was $0.46 per share. Revenue fell 3.3% compared to the same quarter a year ago.

The company said it expects fiscal year earnings of $3.25 to $3.65 per share on revenue of $15.54 billion to $15.86 billion. The company's previous guidance was earnings of $3.65 to $3.90 per share on revenue of $16.02 billion to $16.18 billion and the current consensus earnings estimate is $3.72 per share on revenue of $15.96 billion for the year ending January 31, 2020.

Nordstrom Inc operates as a fashion specialty retailer, with 290 U.S. stores located in 38 states as well as a robust e-commerce business through Nordstrom.com and HauteLook. It has two reportable segments: Retail and Credit.

Results
Reported Earnings
$0.23
Earnings Whisper
$0.46
Consensus Estimate
$0.43
Reported Revenue
$3.44 Bil
Revenue Estimate
$3.55 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Nordstrom Reports First Quarter 2019 Earnings

SEATTLE--(BUSINESS WIRE)-- Nordstrom, Inc. (NYSE: JWN) today reported earnings per diluted share for the first quarter ended May 4, 2019 of $0.23. Total Company net sales decreased 3.5 percent for the first quarter. The Company’s top-line results were impacted by three areas — loyalty, digital marketing and merchandise — which contributed to declines across its Full-Price and Off-Price businesses, in both stores and online.

“While we expected softer trends from the fourth quarter to continue into the first quarter, we experienced a further deceleration. We had executional misses with our customers, and we’re committed to better serving them. This is well within our control to turn around,” said Erik Nordstrom, co-president, Nordstrom, Inc. “The strength of our inventory and expense execution helped mitigate a meaningful portion of our sales miss. We ended the quarter with inventories in solid shape, and our financial position remains strong. We’re actively taking steps to drive our top-line, and we’re focused on delivering on our financial goals.”

Nordstrom is confident in its ability to drive top-line growth and improve profitability, as well as execute its key strategies to better serve customers on their terms:

  • The Company began taking steps to drive improvement, which include: resolving executional issues associated with the launch of its enhanced loyalty program; further investing in its digital marketing; and re-balancing its merchandise assortment to better align with customer expectations.
  • The Company has demonstrated its ability to bend the expense curve and continues to make its business more efficient and productive. The Company is tracking ahead of its plans in executing efficiency initiatives to achieve savings of $150 to $200 million this year.
  • The Company is scaling its local market strategy in its top markets by providing customers with greater access to merchandise selection, with faster delivery and at a lower cost to the Company. In the first quarter, Nordstrom delivered outsized growth in digital sales and store traffic in the Los Angeles market.
  • Nordstrom will expand its presence in New York City, its largest market for online sales. The Company is on track to open its flagship on October 24 and two Nordstrom Local neighborhood hubs this fall. These physical assets will drive engagement with customers across multiple touch points, which is expected to contribute a meaningful sales lift for this market.
  • As the Company approaches the end of its heavy generational investment cycle this year, these businesses — Nordstromrack.com/HauteLook, Trunk Club, Canada and New York City — continue to scale and are expected to contribute top-line growth and improved profitability for 2019.

FIRST QUARTER 2019 SUMMARY

  • First quarter net earnings were $37 million compared with $87 million during the same period in fiscal 2018.
  • Earnings before interest and taxes (“EBIT”) were $77 million, or 2.3 percent of net sales, compared with $153 million, or 4.4 percent of net sales, during the same period in fiscal 2018. The decrease was driven primarily by lower sales volume.
  • In Full-Price, net sales decreased 5.1 percent compared with the same period in fiscal 2018. Off-Price net sales decreased 0.6 percent.
  • Total company digital sales grew 7 percent and represented 31 percent of the business.
  • Gross profit, as a percentage of net sales, of 33.5 percent decreased 60 basis points compared with the same period in fiscal 2018. This was primarily due to planned markdowns to realign inventory to sales trends and deleverage on occupancy expenses. Ending inventory decreased 5.3 percent from last year, reflecting a positive spread between inventory and sales.
  • Selling, general and administrative expenses, as a percentage of net sales, of 34.0 percent increased 168 basis points compared with the same period in fiscal 2018. This was primarily due to fixed expense deleverage on lower sales volume.
  • During the quarter ended May 4, 2019, the Company repurchased 4.1 million shares of its common stock for $186 million. A total capacity of $707 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.
  • At the beginning of fiscal 2019, Nordstrom adopted ASU No. 2016-02, Leases, and all related amendments (“Lease Standard”). The Lease Standard increased total assets and liabilities by approximately $1.9 billion. The impact was immaterial, ranging from no impact to 0.3, for the following metrics: Return on Assets, Debt to Net Earnings, Adjusted Return on Invested Capital (non-GAAP measure) and Adjusted Debt to EBITDAR (non-GAAP measure).

EXPANSION UPDATE

To date in fiscal 2019, the Company opened three stores, closed two stores and relocated one store. The Company opened the following stores in the first quarter of 2019:

Location   Store Name   Square
Footage
(000’s)
  Timing
Off-Price      
U.S. - Nordstrom Rack
Baltimore, MD Canton Crossing 33 March 14
Westminster, CO Westminster Orchards 26 April 4
Northridge, CA Porter Ranch Rack 25 April 30
 
Number of Stores   May 4, 2019   May 5, 2018
Full-Price
U.S. - Nordstrom full-line 113 116
Canada - Nordstrom full-line 6 6
Canada - Nordstrom Rack 6 3
Other Full-Price1 12 10
Off-Price
U.S. - Nordstrom Rack 241 236
Last Chance clearance stores 2   2
Total 380 373
1 Other Full-Price includes Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local neighborhood hubs.
 
Gross Square Footage 30,180,000 30,420,000
 

FISCAL YEAR 2019 OUTLOOK

Nordstrom remains focused on three strategic objectives in driving shareholder returns: gaining market share, improving profitability and returns, and maintaining disciplined capital allocation. The Company revised its annual outlook to reflect current trends:

  Prior Outlook   Current Outlook
Net sales 1 to 2 percent increase   2 percent decrease to flat
Credit card revenues, net Mid to high single-digit growth Low to mid single-digit growth
EBIT $915 to $970 million $805 to $890 million
EBIT margin 5.9 to 6.1 percent 5.3 to 5.8 percent
Earnings per diluted share (excluding the impact of any potential future share repurchases) $3.65 to $3.90 $3.25 to $3.65

CONFERENCE CALL INFORMATION

The Company's senior management will host a conference call to discuss first quarter 2019 results and fiscal 2019 outlook at 4:45 p.m. Eastern Daylight 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 in the Quarterly Results section 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 13690302, until the close of business on May 28, 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 380 stores in 40 states, including 119 full-line stores in the United States, Canada and Puerto Rico; 247 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 from 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 Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019. 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
May 4, 2019   May 5, 2018
Net sales $ 3,349 $ 3,469
Credit card revenues, net 94   92  
Total revenues 3,443 3,561
Cost of sales and related buying and occupancy costs (2,228 ) (2,288 )
Selling, general and administrative expenses (1,138 ) (1,120 )
Earnings before interest and income taxes 77 153
Interest expense, net (24 ) (28 )
Earnings before income taxes 53 125
Income tax expense (16 ) (38 )
Net earnings $ 37   $ 87  
 
Earnings per share:
Basic $ 0.24 $ 0.52
Diluted $ 0.23 $ 0.51
 
Weighted-average shares outstanding:
Basic 155.0 167.8
Diluted 156.2 170.2
 
Percent of net sales:
Gross profit 33.5 % 34.1 %
Selling, general and administrative expenses 34.0 % 32.3 %
Earnings before interest and income taxes 2.3 % 4.4 %
 
     
NORDSTROM, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; amounts in millions)
 
May 4, 2019 February 2, 2019 May 5, 2018
Assets
Current assets:
Cash and cash equivalents $ 448 $ 957 $ 966
Accounts receivable, net 233 148 186
Merchandise inventories 2,006 1,978 2,120
Prepaid expenses and other 271   291   291  
Total current assets 2,958 3,374 3,563
 
Land, property and equipment (net of accumulated depreciation of $6,678, $6,647 and $6,227) 3,963 3,921 3,887
Operating lease right-of-use assets 1,833
Goodwill 249 249 249
Other assets 335   342   317  
Total assets $ 9,338   $ 7,886   $ 8,016  
 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 1,619 $ 1,469 $ 1,575
Accrued salaries, wages and related benefits 315 580 317
Current portion of operating lease liabilities 237
Other current liabilities 1,222 1,324 1,307
Current portion of long-term debt 499   8   56  
Total current liabilities 3,892 3,381 3,255
 
Long-term debt, net 2,177 2,677 2,680
Deferred property incentives, net 6 457 495
Non-current operating lease liabilities 1,951
Other liabilities 661 498 516
 
Commitments and contingencies
 
Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 154.6, 157.6 and 167.8 shares issued and outstanding 3,067 3,048 2,852
Accumulated deficit (2,370 ) (2,138 ) (1,738 )
Accumulated other comprehensive loss (46 ) (37 ) (44 )
Total shareholders’ equity 651   873   1,070  
Total liabilities and shareholders’ equity $ 9,338   $ 7,886   $ 8,016  
 
 
NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; amounts in millions)
 
Quarter Ended
May 4, 2019   May 5, 2018
Operating Activities
Net earnings $ 37 $ 87
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization expenses and other, net 165 172
Amortization of deferred property incentives (21 )
Non-cash lease expense (net of deferred property incentives amortization of $19) 41
Deferred income taxes, net 18 6
Stock-based compensation expense 20 23
Change in operating assets and liabilities:
Accounts receivable (20 ) (42 )
Merchandise inventories (89 ) (201 )
Prepaid expenses and other assets (11 ) (2 )
Accounts payable 181 212
Accrued salaries, wages and related benefits (266 ) (259 )
Other current liabilities (66 ) (24 )
Deferred property incentives 3 24
Lease liabilities (net of operating lease interest of $23) (57 )
Other liabilities 13   (3 )
Net cash used in operating activities (31 ) (28 )
 
Investing Activities
Capital expenditures (249 ) (129 )
Other, net 1   (20 )
Net cash used in investing activities (248 ) (149 )
 
Financing Activities
Principal payments on long-term borrowings (3 )
Increase in cash book overdrafts 40 27
Cash dividends paid (58 ) (62 )
Payments for repurchase of common stock (210 ) (13 )
Proceeds from issuances under stock compensation plans 10 24
Tax withholding on share-based awards (12 ) (11 )
Net cash used in financing activities (230 ) (38 )
 
Net decrease in cash and cash equivalents (509 ) (215 )
Cash and cash equivalents at beginning of period 957   1,181  
Cash and cash equivalents at end of period $ 448   $ 966  
 

NORDSTROM, INC.
SUMMARY OF NET SALES
(unaudited; amounts in millions)

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 for the first quarter of 2019 compared with the same period in fiscal 2018:

  Quarter Ended
May 4, 2019   May 5, 2018
Net sales by business:
Full-Price $ 2,127 $ 2,240
Off-Price 1,222   1,229  
Total net sales $ 3,349   $ 3,469  
 
Net sales increase (decrease) by business:
Full-Price (5.1 %) 3.9 %
Off-Price (0.6 %) 6.7 %
Total Company (3.5 %) 5.8 %
 
Digital sales as % of total net sales1 31 % 28 %
1 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store and Style Board, a digital selling tool.
 

NORDSTROM, INC.
ADJUSTED RETURN ON INVESTED CAPITAL (“ADJUSTED ROIC”)
(NON-GAAP FINANCIAL MEASURE)
(unaudited; dollar amounts in millions)

We believe that Adjusted ROIC is a useful financial measure for investors and credit agencies in evaluating the efficiency and effectiveness of the capital we have invested in our business to generate returns over time, have incorporated it in our executive incentive measures and is an important indicator of shareholders’ return over the long term.

For 2019, income statement activity for adjusted net operating profit, and balance sheet amounts for average invested capital, are comprised of one quarter of activity under the Lease Standard for 2019, and the last three quarters of 2018 under the previous lease standard. Under the previous lease standard, we estimated the value of our operating leases as if they met the criteria for capital leases or we had purchased the properties. This provided additional supplemental information that estimates the investment in our operating leases. Estimated depreciation on capitalized operating leases and average estimated asset base of capitalized operating leases are not calculated in accordance with, nor an alternative for, generally accepted accounting principles (“GAAP”) and should not be considered in isolation or as a substitution of our results as reported under GAAP.

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 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 ROIC is return on assets. The following is a reconciliation of the components of Adjusted ROIC and return on assets:

  Quarters Ended
May 4, 2019   May 5, 2018
Net earnings $   513 $ 461
Add: income tax expense 147 351
Add: interest expense 115   123  
Earnings before interest and income tax expense 775 935
 
Add: operating lease interest1 23
Add: rent expense, net 189 254
Less: estimated depreciation on capitalized operating leases2 (101 ) (135 )
Adjusted net operating profit 886 1,054
 
Less: estimated income tax expense (198 ) (456 )
Adjusted net operating profit after tax $   688   $ 598  
 
Average total assets $ 8,591 $ 8,067
Less: average non-interest-bearing current liabilities (3,438 ) (3,306 )
Less: average deferred property incentives in excess of ROU assets3 (77 )
Add: average estimated asset base of capitalized operating leases2 1,508 1,893
Less: average deferred property incentives and deferred rent liability (459 )   (642 )
Average invested capital $   6,125   $ 6,012  
 
Return on assets4 6.0 % 5.7 %
Adjusted ROIC4 11.3 % 9.9 %
1 As a result of the Lease Standard, we add-back the operating lease interest to reflect how we manage our business. Operating lease interest is a component of operating lease cost recorded in occupancy costs and is calculated in accordance with the Lease Standard.
2 Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating under the previous lease standard if they had met the criteria for a finance lease or we had purchased the property. The asset base for each quarter is calculated as the trailing four quarters of rent expense multiplied by eight, a commonly used method to estimate the asset base we would record for our capitalized operating leases.
3 For leases with property incentives that exceed the ROU assets, we reclass the amount from assets to other current liabilities and other liabilities. As a result of the Lease Standard, we reduce average total assets as this better reflects how we manage our business.
4 Results for the four quarters ended May 4, 2019 included the $72 impact related to the estimated non-recurring credit-related charge, which negatively impacted return on assets by approximately 60 basis points and Adjusted ROIC by approximately 70 basis points. In addition, the impact of the Lease Standard, which negatively impacted return on assets by approximately 30 basis points and Adjusted ROIC by approximately 20 basis points.
 

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 as it provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. Our goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of no more than four times.

For 2019, income statement activity for adjusted EBITDAR is comprised of one quarter of activity under the Lease Standard for 2019, and the last three quarters of 2018 under the previous lease standard. Balance sheet amounts are as of the end of the quarter, and under the new Lease Standard for 2019 and the previous lease standard for 2018. Under the previous lease standard, we estimated the value of our operating leases as if they met the criteria for capital leases or we had purchased the properties. This provided additional supplemental information that estimates the investment in our operating leases. Estimated capitalized operating lease liability is not calculated in accordance with, nor an alternative for, GAAP and should not be considered in isolation or as a substitution of our results as reported under GAAP.

Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other GAAP financial measures. Our method of 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 the components of Adjusted Debt to EBITDAR and debt to net earnings:

  2019(1 )   2018(1 )
Debt $ 2,676 $ 2,736
Add: operating lease liabilities 2,188
Add: estimated capitalized operating lease liability2   2,029  
Adjusted Debt $ 4,864   $ 4,765  
 
Net earnings $ 513 $ 461
Add: income tax expense 147 351
Add: interest expense, net 100   116  
Earnings before interest and income taxes 760 928
 
Add: depreciation and amortization expenses 663 674
Add: operating lease cost3 69
Add: rent expense, net 189 254
Add: non-cash acquisition-related charges   1  
Adjusted EBITDAR $ 1,681   $ 1,857  
 
Debt to Net Earnings4 5.2 5.9
Adjusted Debt to EBITDAR4 2.9 2.6
1 The components of Adjusted Debt are as of May 4, 2019 and May 5, 2018, while the components of Adjusted EBITDAR are for the four quarters ended May 4, 2019 and May 5, 2018.
2 Based upon the estimated lease liability as of the end of the period, calculated as the trailing 4-quarters of rent expense multiplied by eight, 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.
3 As a result of the Lease Standard, we add back the operating lease cost to calculate Adjusted EBITDAR.
4 Results for the four quarters ended May 4, 2019 included the $72 impact related to the estimated non-recurring credit-related charge, which negatively impacted Debt to Net Earnings by approximately 50 basis points and Adjusted Debt to EBITDAR by approximately 10 basis points. In addition, the impact of the Lease Standard had no impact on Debt to Net Earnings and negatively impacted Adjusted Debt to EBITDAR by approximately 10 basis points.
 

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.

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 used in operating activities. The following is a reconciliation of net cash used in operating activities to Free Cash Flow:

  Quarter Ended
May 4, 2019   May 5, 2018
Net cash used in operating activities $ (31 ) $ (28 )
Less: capital expenditures (249 ) (129 )
Add: change in cash book overdrafts 40   27  
Free Cash Flow $ (240 ) $ (130 )
 

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:

  Quarter Ended
May 4, 2019   May 5, 2018
Net earnings $ 37 $ 87
Add: income tax expense 16 38
Add: interest expense, net 24   28  
Earnings before interest and income taxes 77 153
 
Add: depreciation and amortization expenses 163 169
Less: amortization of deferred property incentives (19 ) (21 )
Adjusted EBITDA $ 221   $ 301  

Nordstrom, Inc.
INVESTOR CONTACT: Trina Schurman, (206) 303-6503
MEDIA CONTACT: Gigi Ganatra Duff, (206) 303-3030

Source: Nordstrom, Inc.