JWN
$60.75
Nordstrom
($.74)
(1.20%)
Earnings Details
3rd Quarter October 2016
Thursday, November 10, 2016 4:05:03 PM
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Summary

Nordstrom Beats

Nordstrom (JWN) reported 3rd Quarter October 2016 earnings of $0.84 per share on revenue of $3.5 billion. The consensus earnings estimate was $0.52 per share on revenue of $3.5 billion. The Earnings Whisper number was $0.55 per share. Revenue grew 6.4% on a year-over-year basis.

The company said it expects fiscal year earnings of $2.85 to $2.95 per share on revenue of approximately $14.95 billion. The company's previous guidance was earnings of $2.60 to $2.75 per share on revenue of $14.80 billion to $15.09 billion and the current consensus earnings estimate is $2.71 per share on revenue of $14.77 billion for the year ending January 31, 2017.

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
$0.84
Earnings Whisper
$0.55
Consensus Estimate
$0.52
Reported Revenue
$3.54 Bil
Revenue Estimate
$3.49 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Nordstrom Third Quarter 2016 Operational Results Exceeded Expectations

Nordstrom, Inc. (JWN) today reported third quarter results on an operational basis that exceeded expectations, reflecting continued strength in inventory and expense execution. Total Company net sales for the third quarter increased 7.2 percent and comparable sales increased 2.4 percent, compared with the same period last year. This includes a favorable comparison resulting from one week of the Anniversary Sale, historically the Company’s largest event of the year, shifting into the third quarter. Combined second and third quarter comparable sales, which removes the impact of the event shift, increased 0.4 percent compared with the same period last year.

"We’ve made considerable changes in the way we operate to improve the customer experience while increasing our productivity," said Blake Nordstrom, co-president, Nordstrom, Inc. "We are particularly proud of our team’s efforts to align inventories and improve our operating efficiencies. These outcomes have positively impacted our operating results."

Third quarter results included a non-cash goodwill impairment of $197 million related to Trunk Club, which the Company acquired in 2014. While this business continues to deliver outsized top-line growth, current expectations for future growth and profitability are lower than initial estimates. To further improve the customer experience and better position Trunk Club’s business for profitable growth, the Company is making a number of operational changes.

The Company reported loss per diluted share for the third quarter ended October 29, 2016 of $0.06 and revised its fiscal year 2016 outlook to $1.70 to $1.80. Excluding the impairment charge, the Company reported third quarter adjusted earnings per diluted share of $0.84 and raised its fiscal year 2016 outlook for adjusted earnings per diluted share to $2.85 to $2.95 to incorporate third quarter results.

THIRD QUARTER SUMMARY

Third quarter net loss was $10 million and earnings before interest and taxes (EBIT) was $55 million, or 1.6 percent of net sales, compared with net earnings of $81 million and EBIT of $155 million, or 4.8 percent of net sales, during the same period in fiscal 2015. -- Retail EBIT decreased $126 million compared with the same quarter last year due to the impairment charge of $197 million, partially offset by continued sales growth.

Credit EBIT increased $26 million, which primarily reflected transaction costs incurred in 2015 associated with the sale of the credit card portfolio.

Total Company net sales of $3.5 billion for the third quarter increased 7.2 percent compared with net sales of $3.2 billion during the same period in fiscal 2015. Total Company comparable sales for the third quarter increased 2.4 percent. -- In the Nordstrom brand, including U.S. and Canada full-line stores and Nordstrom.com, net sales when combined with Trunk Club, increased 2.4 percent and comparable sales increased 0.9 percent.

Across U.S. full-line stores and Nordstrom.com, the top-performing merchandise categories were Women’s Apparel and Men’s Apparel. The younger customer-focused departments in Women’s Apparel continued to outperform, reflecting strength in denim and collaborations with new and emerging limited distribution brands. The West was the top-performing geographic region.

In the Nordstrom Rack brand, which consists of Nordstrom Rack stores and Nordstromrack.com/HauteLook, net sales increased 10.1 percent and comparable sales increased 3.9 percent. The East was the top-performing geographic region.

Retail gross profit, as a percentage of net sales, of 34.8 percent increased 93 basis points compared with the same period in fiscal 2015. This reflected strong inventory execution, which resulted in net sales growth outpacing inventory growth, in addition to leverage of buying and occupancy costs.

Selling, general and administrative expenses, as a percentage of net sales, of 29.6 percent decreased 218 basis points compared with the same period in fiscal 2015. This was primarily due to transaction costs incurred in 2015 associated with the sale of the credit card portfolio in addition to the shift in sales volume from the Anniversary Sale resulting in expense leverage. Expense performance exceeded the Company’s expectations by approximately 70 basis points, reflecting ongoing progress to improve operational efficiencies.

During the quarter ended October 29, 2016, the Company recognized approximately $10 million in tax benefits related to the resolution of certain federal income tax issues. The impact to the quarter is estimated to be $0.06 per share.

To build on the success of the Nordstrom Rewards loyalty program, the Company expanded its program in the second quarter to enable all customers to earn benefits regardless of how they choose to pay. Through this expanded program, the Company has more than 7 million active Rewards customers in the U.S. and Canada, up over 40 percent, from approximately 5 million a year ago. Sales from Nordstrom Rewards customers represented 45 percent of third quarter sales, compared with 39 percent a year ago.

During the nine months ended October 29, 2016, the Company repurchased 1.9 million shares of its common stock for $93 million. A total capacity of $718 million remains available under its existing share repurchase board authorization. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission ("SEC") rules.

Return on invested capital ("ROIC") for the 12 fiscal months ended October 29, 2016 was 7.2 percent compared with 11.4 percent in the prior 12-month period. This decrease was primarily due to a 340 basis point impact from the non-cash goodwill impairment of Trunk Club. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below. Additionally, the impact of the impairment on ROIC is quantified.

EXPANSION UPDATE

To date in fiscal 2016, the Company opened 26 stores, relocated three stores and closed one store. The Company opened the following stores in the third quarter of 2016:

Location
Store Name
Square
Timing
Footage
(000’s)
Nordstrom full-line - U.S.
Austin, Texas
The Domain
131
September 30
Nordstrom full-line - Canada
Toronto, Ontario
Toronto Eaton Centre
233
September 16
Toronto, Ontario
Yorkdale Shopping Centre
208
October 21
Nordstrom Rack
Tustin, California
The Market Place
35
August 26
Novi, Michigan
West Oaks
33
August 26
Allentown, Pennsylvania
Hamilton Crossing
36
August 26
Pittsburgh, Pennsylvania
The Block Northway
40
August 26
Honolulu, Hawaii
Waikiki Trade Center
34
September 1
Santa Rosa, California
Coddingtown Mall
31
September 30
Rosemont, Illinois
Fashion Outlets
28
September 30
Braintree, Massachusetts
The Marketplace at Braintree
37
September 30
New Orleans, Louisiana
Outlet Collection at Riverwalk
35
October 6
Albuquerque, New Mexico
Winrock Town Center
34
October 6
King of Prussia, Pennsylvania
KOP Town Center(1)
36
October 6
La Jolla, California
The Shops at La Jolla Village
32
October 21
Fort Lauderdale, Florida
1600 Commons
35
October 21
Langhorne, Pennsylvania
Lincoln Plaza
27
October 21
Sacramento, California
HBA(2)
35
October 27
Algonquin, Illinois
Algonquin Commons
31
October 27
Washington, D.C.
District Center
37
October 27
Trunk Club
Charleston, South Carolina
Charleston, South Carolina
3
September 13
Last Chance
Lombard, Illinois
Yorktown Center
47
October 20

(1)Nordstrom relocated its Rack store at the Overlook at King of Prussia in King of Prussia, Pennsylvania to the nearby KOP Town Center. (2)Nordstrom relocated its Rack store at Howe ’Bout Arden Center in Sacramento, California to another location within the same center.

Number of stores
October 29, 2016
October 31, 2015
Nordstrom full-line - U.S.
118
118
Nordstrom full-line - Canada
5
3
Nordstrom Rack
215
194
Other(1)
10
8
Total
348
323
(1)Other includes Trunk Club clubhouses, Jeffrey boutiques
and our Last Chance stores.
Gross square footage
29,783,000
28,610,000

FISCAL YEAR 2016 OUTLOOK

Excluding the impairment charge, the Company raised its annual earnings per diluted share expectations to incorporate its third quarter results, which exceeded expectations primarily due to the Company’s efforts to align inventory and improve operational efficiencies. Nordstrom’s expectations for fiscal 2016 are as follows:

Prior Outlook
Current Outlook,
Current Outlook
excluding impairment
charge
Net sales (percent)
2.5 to 4.5 increase
Approximately 3.5 increase
Approximately 3.5 increase
Comparable sales (percent)
1 decrease to 1 increase
Approximately flat
Approximately flat
Retail EBIT (percent)
10 to 15 decrease
5 to 10 decrease
30 to 35 decrease
Credit EBIT (million)
Approximately $80
Approximately $90
Approximately $90
Earnings per diluted share (excluding the impact of any future share
$2.60 to $2.75
$2.85 to $2.95
$1.70 to $1.80
repurchases)

CONFERENCE CALL INFORMATION

The Company’s senior management will host a conference call to discuss third quarter 2016 results and fiscal 2016 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 in the Quarterly Earnings 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 13648454, until the close of business on November 17, 2016.

ABOUT NORDSTROM

Nordstrom, Inc. is a leading fashion specialty retailer based in the U.S. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 348 stores in 40 states, including 123 full-line stores in the United States, Canada and Puerto Rico; 215 Nordstrom Rack stores; two Jeffrey boutiques; and two clearance stores. Additionally, customers are served online through Nordstrom.com, Nordstromrack.com and HauteLook. The Company also owns Trunk Club, a personalized clothing service serving customers online at TrunkClub.com and its six clubhouses. 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 28, 2017, anticipated annual total and comparable sales rates, anticipated new store openings in existing, new and international markets, 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 customer strategy, including expansion into new domestic and international markets, acquisitions, investments in our stores and online as well as investments in technology, our ability to realize the anticipated benefits from growth initiatives and our ability to provide a seamless experience across all channels; timely and effective execution of our ecommerce initiatives and ability to manage the costs and organizational changes associated with this evolving business model; 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 maintain relationships with our employees and to effectively attract, develop and retain our future leaders; effective inventory management processes and systems, fulfillment processes and systems, 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 realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program agreement with TD; our ability to safeguard our reputation and maintain our vendor relationships; our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online, and evolve our business model; the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry; the timing, price, manner 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; the impact of economic and market conditions and the resultant impact on consumer spending patterns; weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the resulting impact on consumer spending patterns; our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to banking, employment and tax and the outcome of claims and litigation and resolution of such matters; the impact of the current regulatory environment and financial system and health care reforms; and compliance with debt covenants, availability and cost of credit, changes in our credit rating, changes in interest rates, debt repayment patterns and personal bankruptcies. Our SEC reports, including our Form 10-K for the fiscal year ended January 30, 2016, and our Form 10-Q for the fiscal quarters ended April 30, 2016 and July 30, 2016, 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
Nine Months Ended
October 29, 2016
October 31, 2015
October 29, 2016
October 31, 2015
Net sales
$ 3,472
$
3,239
$ 10,255
$
9,953
Credit card revenues, net
70
89
186
291
Total revenues
3,542
3,328
10,441
10,244
Cost of sales and related buying and occupancy costs
(2,261 )
(2,142 )
(6,720 )
(6,468 )
Selling, general and administrative expenses
(1,029 )
(1,031 )
(3,143 )
(2,999 )
Goodwill impairment
(197 )
--
(197 )
--
Earnings before interest and income taxes
55
155
381
777
Interest expense, net
(30 )
(30 )
(90 )
(94 )
Earnings before income taxes
25
125
291
683
Income tax expense
(35 )
(44 )
(138 )
(263 )
Net (loss) earnings
$
(10 )
$
81
$
153
$
420
(Loss) Earnings per share:
Basic
$ (0.06 )
$
0.43
$
0.88
$
2.22
Diluted
$ (0.06 )
$
0.42
$
0.87
$
2.17
Weighted-average shares outstanding:
Basic
173.4
187.2
173.3
189.1
Diluted
173.4
191.3
175.6
193.2
NORDSTROM, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; amounts in millions)
October 29, 2016
January 30, 2016
October 31, 2015
Assets
Current assets:
Cash and cash equivalents
$
531
$
595
$
821
Accounts receivable, net
216
196
215
Merchandise inventories
2,411
1,945
2,402
Current deferred tax assets, net
--
--
247
Prepaid expenses and other
227
278
202
Total current assets
3,385
3,014
3,887
Land, property and equipment (net of accumulated depreciation of
3,865
3,735
3,742
$5,462, $5,108 and $5,020)
Goodwill
238
435
447
Other assets
478
514
510
Total assets
$
7,966
$
7,698
$
8,586
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
$
1,653
$
1,324
$
1,688
Accrued salaries, wages and related benefits
391
416
417
Other current liabilities
1,186
1,161
1,075
Current portion of long-term debt
11
10
9
Total current liabilities
3,241
2,911
3,189
Long-term debt, net
2,767
2,795
2,800
Deferred property incentives, net
532
540
568
Other liabilities
566
581
621
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 173.2, 173.5
2,651
2,539
2,519
and 185.4 shares issued and outstanding
Accumulated deficit
(1,742 )
(1,610 )
(1,047 )
Accumulated other comprehensive loss
(49 )
(58 )
(64 )
Total shareholders’ equity
860
871
1,408
Total liabilities and shareholders’ equity
$
7,966
$
7,698
$
8,586
NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; amounts in millions)
Nine Months Ended
October 29, 2016
October 31, 2015
Operating Activities
Net earnings
$
153
$
420
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization expenses
480
424
Goodwill impairment
197
--
Amortization of deferred property incentives and other, net
(57 )
(107 )
Deferred income taxes, net
(14 )
(78 )
Stock-based compensation expense
68
57
Tax (deficiency) benefit from stock-based compensation
(2 )
14
Excess tax benefit from stock-based compensation
(2 )
(14 )
Bad debt expense
--
26
Change in operating assets and liabilities:
Accounts receivable
(20 )
(73 )
Proceeds from sale of credit card receivables originated at Nordstrom
--
1,297
Merchandise inventories
(393 )
(607 )
Prepaid expenses and other assets
25
(36 )
Accounts payable
360
326
Accrued salaries, wages and related benefits
(30 )
(2 )
Other current liabilities
33
(34 )
Deferred property incentives
54
128
Other liabilities
20
4
Net cash provided by operating activities
872
1,745
Investing Activities
Capital expenditures
(625 )
(857 )
Change in credit card receivables originated at third parties
--
33
Proceeds from sale of credit card receivables originated at third
--
890
parties
Other, net
47
3
Net cash (used in) provided by investing activities
(578 )
69
Financing Activities
Proceeds from long-term borrowings, net of discounts
--
13
Principal payments on long-term borrowings
(7 )
(6 )
Defeasance of long-term debt
--
(339 )
(Decrease) increase in cash book overdrafts
(127 )
7
Cash dividends paid
(192 )
(1,116 )
Payments for repurchase of common stock
(91 )
(517 )
Proceeds from issuances under stock compensation plans
51
90
Excess tax benefit from stock-based compensation
2
14
Other, net
6
34
Net cash used in financing activities
(358 )
(1,820 )
Net decrease in cash and cash equivalents
(64 )
(6 )
Cash and cash equivalents at beginning of period
595
827
Cash and cash equivalents at end of period
$
531
$
821

NORDSTROM, INC. STATEMENTS OF EARNINGS -- RETAIL BUSINESS (unaudited; dollar amounts in millions)

Retail Business

Our Retail Business includes our Nordstrom U.S. and Canada full-line stores, Nordstrom.com, Nordstrom Rack stores, Nordstromrack.com/HauteLook, Trunk Club, Jeffrey and our Last Chance clearance stores. It also includes unallocated corporate center expenses. The following tables summarize the results of our Retail Business for the quarter and nine months ended October 29, 2016 compared with the same periods in 2015:

Quarter Ended
October 29, 2016
October 31, 2015
Amount
% of net sales(1)
Amount
% of net sales(1)
Net sales
$
3,472
100.0 %
$
3,239
100.0 %
Cost of sales and related buying and occupancy costs
(2,262 )
(65.2 %)
(2,140 )
(66.1 %)
Gross profit
1,210
34.8 %
1,099
33.9 %
Selling, general and administrative expenses
(990 )
(28.5 %)
(951 )
(29.3 %)
Goodwill impairment
(197 )
(5.7 %)
--
--
Earnings before interest and income taxes
$
23
0.6 %
$
148
4.6 %
Nine Months Ended
October 29, 2016
October 31, 2015
Amount
% of net sales(1)
Amount
% of net sales(1)
Net sales
$ 10,255
100.0 %
$
9,953
100.0 %
Cost of sales and related buying and occupancy costs
(6,718 )
(65.5 %)
(6,463 )
(64.9 %)
Gross profit
3,537
34.5 %
3,490
35.1 %
Selling, general and administrative expenses
(3,024 )
(29.5 %)
(2,881 )
(28.9 %)
Goodwill impairment
(197 )
(1.9 %)
--
--
Earnings before interest and income taxes
$
316
3.1 %
$
609
6.1 %

(1)Subtotals and totals may not foot due to rounding.

The following table summarizes net sales and comparable sales within our Retail Business:

Quarter Ended
Nine Months Ended
October 29, 2016
October 31, 2015
October 29, 2016
October 31, 2015
Sales
Comp %
Sales
Comp %
Sales
Comp %
Sales
Comp %
Nordstrom full-line stores - U.S.
$ 1,568
(4.5 %)
$ 1,634
(2.2 %)
$
5,128
(6.3 %)
$ 5,431
(0.2 %)
Nordstrom.com
497
20.1 %
414
11.4 %
1,675
10.3 %
1,518
17.6 %
Full-price
2,065
0.5 %
2,048
0.3 %
6,803
(2.6 %)
6,949
3.2 %
Nordstrom Rack
958
0.9 %
885
(2.2 %)
2,777
0.4 %
2,573
(0.2 %)
Nordstromrack.com/HauteLook
159
23.2 %
129
38.8 %
482
32.9 %
363
46.1 %
Off-price
1,117
3.9 %
1,014
2.4 %
3,259
4.6 %
2,936
4.6 %
Other retail(1)
135
107
384
250
Total Retail segment
3,317
3,169
10,446
10,135
Corporate/Other
155
70
(191 )
(182 )
Total Company
$ 3,472
2.4 %
$ 3,239
0.9 %
$ 10,255
(0.2 %)
$ 9,953
3.5 %

(1)Other retail includes Nordstrom Canada full-line stores, Trunk Club and Jeffrey boutiques.

NORDSTROM, INC. STATEMENTS OF EARNINGS -- CREDIT (unaudited; amounts in millions)

Credit

On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. Prior to the close of the credit card receivable transaction, credit card revenues included finance charges, interchange fees, late fees and other revenue, recorded net of estimated uncollectible finance charges and fees. We continue to recognize revenue in this manner for the credit card receivables retained subsequent to the close of the transaction.

Following the close of the transaction and pursuant to the program agreement with TD, we receive our portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables, which is recorded in credit card revenues, net. Asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the transaction are also recorded in credit card revenues, net.

The following table summarizes the results of our Credit segment for the quarter and nine months ended October 29, 2016 compared with the same periods in 2015:

Quarter Ended
Nine Months Ended
October 29, 2016
October 31, 2015
October 29, 2016
October 31, 2015
Credit card revenues, net
$
70
$
89
$
186
$
291
Credit expenses
(38 )
(50 )
(121 )
(152 )
Credit transaction, net
--
(32 )
--
29
Earnings before interest and income taxes
32
7
65
168
Interest expense
--
(3 )
--
(12 )
Earnings before income taxes
$
32
$
4
$
65
$
156

NORDSTROM, INC. ADJUSTED EARNINGS AND ADJUSTED EARNINGS PER SHARE (NON-GAAP FINANCIAL MEASURES) (unaudited; dollar amounts in millions)

We believe that Adjusted Earnings and Adjusted Earnings Per Share provides useful information to investors in evaluating our business performance for the quarter and nine months ended October 29, 2016. The effect of excluding certain items from the net (loss) earnings provides management and shareholders an alternative measure to use in evaluating our business performance period over period.

Adjusted Earnings and Adjusted Earnings Per Share are not measures of financial performance under generally accepted accounting principles ("GAAP") and should be considered in addition to, and not as a substitute for net (loss) earnings, (loss) earnings per share and diluted earnings per share or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies financial measures and therefore may not be comparable to methods used by other companies. The financial measures calculated under GAAP which are most directly comparable to Adjusted Earnings and Adjusted Earnings Per Share are net (loss) earnings and diluted earnings per share, which are reconciled below:

Quarter Ended October 29, 2016
Nine Months Ended October 29, 2016
Amount
Amount Per Share
Amount
Amount Per Share
Net (loss) earnings(1)
$
(10 )
$ (0.06 )
$
153
$
0.87
Trunk Club goodwill impairment
197
1.12
197
1.12
Tax effect of non-deductible charges in interim period(2)
(39 )
(0.22 )
(39 )
(0.22 )
Adjusted Earnings
$
148
$
0.84
$
311
$
1.77

(1)Due to the anti-dilutive effect resulting from the reported net loss, the impact of potentially dilutive securities on the per share amounts has been omitted from the quarterly calculation of weighted-average shares for diluted EPS for the quarter ended October 29, 2016. The impact of these potentially dilutive securities has been included in the calculation of weighted-average shares for diluted EPS for the nine months ended October 29, 2016. (2) The effect of taxes on the adjustments used to arrive at Adjusted Earnings is calculated based on applying the estimated annual effective tax rate to Adjusted Earnings plus other tax items for each interim period. The impact of this tax effect will reverse in the fourth quarter of 2016.

NORDSTROM, INC. RETURN ON INVESTED CAPITAL AND ADJUSTED RETURN ON INVESTED CAPITAL (NON-GAAP FINANCIAL MEASURES) (unaudited; dollar 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 compensation measures. The effect of excluding certain items from ROIC to arrive at an Adjusted ROIC provides management and shareholders an alternative measure to use in evaluating our results period over period. For the 12 fiscal months ended October 29, 2016, our ROIC and Adjusted ROIC decreased compared with the 12 fiscal months ended October 31, 2015, primarily due to reduced earnings.

We define ROIC as our net operating profit after tax divided by our average invested capital using the trailing 12-month average. ROIC and Adjusted ROIC are not measures 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 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 and Adjusted ROIC is return on assets. The following is a reconciliation of the components and adjustments to ROIC and return on assets:

12 Fiscal Months Ended
October 29, 2016
October 31, 2015
Unadjusted
Adjustments(1)
Adjusted
Net earnings
$
333
$
197
$
530
$
675
Add: income tax expense
252
--
252
438
Add: interest expense
121
--
121
129
Earnings before interest and income tax expense
706
197
903
1,242
Add: rent expense
195
--
195
165
Less: estimated depreciation on capitalized operating leases(2)
(103 )
--
(103 )
(88 )
Net operating profit
798
197
995
1,319
Less: estimated income tax expense
(383 )
--
(383 )
(519 )
Net operating profit after tax
$
415
$
197
$
612
$
800
Average total assets
$ 7,987
$ --
$ 7,987
$
9,362
Less: average non-interest-bearing current liabilities
(3,105 )
--
(3,105 )
(2,965 )
Less: average deferred property incentives
(541 )
--
(541 )
(536 )
Add: average estimated asset base of capitalized operating leases(3)
1,452
--
1,452
1,171
Average invested capital
$ 5,793
$ --
$ 5,793
$
7,032
Return on assets
4.2 %
7.2 %
ROIC/Adjusted ROIC
7.2 %
10.6 %
11.4 %

(1)The adjustment for the 12 months ended October 29, 2016 includes the goodwill impairment charge of $197 related to Trunk Club. (2)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. Asset base is calculated as described in footnote 3 below. (3)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 described in footnote 2.

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 less than four times. As of October 29, 2016, our Adjusted Debt to EBITDAR was 2.5, compared with 2.1 as of October 31, 2015. This increase was primarily driven by reduced earnings.

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:

2016(1)
2015(1)
Debt
$ 2,778
$ 2,809
Add: estimated capitalized operating lease liability(2)
1,561
1,320
Less: fair value hedge adjustment included in long-term debt
(14 )
(26 )
Adjusted Debt
$ 4,325
$ 4,103
Net earnings
$
333
$
675
Add: income tax expense
252
438
Add: interest expense, net
121
129
Earnings before interest and income taxes
706
1,242
Add: depreciation and amortization expenses
631
557
Add: rent expense
195
165
Add: non-cash acquisition-related charges(3)
197
13
EBITDAR
$ 1,729
$ 1,977
Debt to Net Earnings
8.3
4.2
Adjusted Debt to EBITDAR
2.5
2.1

(1)The components of Adjusted Debt are as of October 29, 2016 and October 31, 2015, while the components of EBITDAR are for the 12 months ended October 29, 2016 and October 31, 2015. (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. (3) Our revolver agreement stipulates that non-cash charges (including goodwill or other impairment charges) related to acquisitions be deducted in determining net earnings for purposes of our debt covenant calculation. As such, the Trunk Club goodwill impairment of $197 has been added back to arrive at EBITDAR for the 12 months ended October 29, 2016.

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. For the nine months ended October 29, 2016, we had Free Cash Flow of ($72) compared with $702 for the nine months ended October 31, 2015.

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:

Nine Months Ended
October 29, 2016
October 31, 2015
Net cash provided by operating activities
$
872
$
1,745
Less: capital expenditures
(625 )
(857 )
Less: cash dividends paid
(192 )
(1,116 )
Add: proceeds from sale of credit card receivables originated at
--
890
third parties
Add: change in credit card receivables originated at third parties
--
33
(Less) Add: change in cash book overdrafts
(127 )
7
Free Cash Flow
$
(72 )
$
702
Net cash (used in) provided by investing activities
$
(578 )
$
69
Net cash used in financing activities
(358 )
(1,820 )

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SOURCE: Nordstrom, Inc.

Nordstrom, Inc.
INVESTOR CONTACT: Trina Schurman, 206-303-6503
MEDIA CONTACT: Tara Darrow, 206-303-3016