JWN
$41.44
Nordstrom
$.58
1.42%
Earnings Details
3rd Quarter October 2017
Thursday, November 09, 2017 4:05:00 PM
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Summary

Nordstrom Beats but Guides Lower

Nordstrom (JWN) reported 3rd Quarter October 2017 earnings of $0.67 per share on revenue of $3.6 billion. The consensus earnings estimate was $0.63 per share on revenue of $3.6 billion. The Earnings Whisper number was $0.65 per share. Revenue grew 2.5% on a year-over-year basis.

The company said it now expects fiscal year earnings of $2.85 to $2.95 per share and continues to expect revenue of approximately $15.00 billion. The company's previous guidance was earnings of $2.85 to $3.00 per share and the current consensus earnings estimate is $2.98 per share on revenue of $15.32 billion for the year ending January 31, 2018.

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
$0.67
Earnings Whisper
$0.65
Consensus Estimate
$0.63
Reported Revenue
$3.63 Bil
Revenue Estimate
$3.60 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Nordstrom Reports Third Quarter 2017 Earnings

Nordstrom, Inc. (JWN) today reported earnings per diluted share for the third quarter ended October 28, 2017 of $0.67. The estimated reduction in earnings from several hurricanes affecting stores in Puerto Rico, Florida, and Texas was approximately $0.04. Total Company net sales increased 2.0 percent and comparable sales decreased 0.9 percent, compared with the same quarter last year. The estimated lost sales impact from the hurricanes was approximately $20 million, or 60 basis points.

Nordstrom continued its progress in executing its strategy to improve the customer experience:

With a test and learn approach in finding innovative ways to improve speed, convenience and personalization for customers, the Company launched Nordstrom Local, its latest retail concept where customers can shop and access Nordstrom services in a convenient, central location.

In executing its digital strategy, the Company delivered online sales growth on a year-to-date basis of 14 percent at Nordstrom.com and 26 percent at Nordstromrack.com/HauteLook.

The Company strengthened its presence in top markets through two full-line store relocations in Southern California, a new full-line store in Toronto, Canada, and 11 new Nordstrom Rack stores plus one relocation. These stores feature the Company’s latest design concepts and digital experiences.

As a result of the Company’s ongoing efforts to provide newness and limited-distribution product to customers, Nordstrom proprietary labels continued to outperform the company average.

The Nordstrom Rewards loyalty program continues to play an important role in reaching new customers and strengthening existing customer relationships. The Company has 9.9 million active Rewards customers in the U.S. and Canada, up 39 percent, from 7.1 million a year ago. Sales from Nordstrom Rewards customers represented 51 percent of third quarter sales, compared with 45 percent a year ago.

THIRD QUARTER SUMMARY

Third quarter net earnings were $114 million and earnings before interest and taxes ("EBIT") were $208 million, or 5.9 percent of net sales, compared with net loss of $10 million and EBIT of $55 million, or 1.6 percent of net sales, during the same period in fiscal 2016. -- Retail EBIT increased $137 million compared with the same quarter last year, primarily reflecting a goodwill impairment charge of $197 million in 2016.

Credit EBIT increased $16 million through the strategic partnership with TD Bank, primarily due to credit card revenues growth of 25 percent.

Total Company net sales of $3.5 billion for the third quarter increased 2.0 percent compared with the same period in fiscal 2016. Total Company comparable sales for the third quarter decreased 0.9 percent compared with the same quarter last year. -- In the Nordstrom brand, including U.S. and Canada full-line stores and Nordstrom.com, net sales when combined with Trunk Club, decreased 1.2 percent and comparable sales decreased 1.9 percent. The top-ranking merchandise categories were Men’s Apparel and Kids’ Apparel. The West was the top-ranking U.S. geographic region.

In the Nordstrom Rack brand, which consists of Nordstrom Rack stores and Nordstromrack.com/HauteLook, net sales increased 5.5 percent and comparable sales increased 0.8 percent. The West was the top-ranking geographic region.

Retail gross profit, as a percentage of net sales, of 34.7 percent decreased 12 basis points compared with the same period in fiscal 2016. This primarily reflected higher occupancy expenses related to new store growth for Nordstrom Rack and Canada. Net sales growth of 2 percent exceeded inventory growth of 1 percent.

Selling, general and administrative expenses, as a percentage of net sales, of 31.2 percent increased 161 basis points compared with the same period in fiscal 2016. This primarily reflected higher technology and supply chain expenses associated with the Company’s growth initiatives.

Return on invested capital ("ROIC") for the 12 fiscal months ended October 28, 2017 was 10.7 percent compared with 7.2 percent in the prior 12-month period. Results for the prior period were negatively impacted by approximately 340 basis points due to the Trunk Club non-cash goodwill impairment charge in the third quarter of 2016. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.

EXPANSION UPDATE

To date in fiscal 2017, the Company opened 19 stores, relocated three stores and closed two stores. The Company opened the following stores in the third quarter of 2017:

Location
Store Name
Square
Timing
Footage
(000’s)
Nordstrom full-line - U.S.
Los Angeles, California(1)
Century City
154
October 3
Melrose, California
Nordstrom Local
4
October 3
San Diego, California(2)
University Towne Center
155
October 12
Nordstrom full-line - Canada
Toronto, Ontario
Sherway Gardens
151
September 15
Nordstrom Rack
Daly City, California(3)
Serramonte Center
40
September 7
Glenarden, Maryland
Woodmore Towne Center
30
September 7
Minneapolis, Minnesota
IDS Center’s Crystal Court
39
September 7
Bellevue, Washington
Lincoln Square Expansion
43
September 7
Portland, Oregon
Cascade Station
28
October 5
Memphis, Tennessee
Poplar Commons
33
October 5
Frisco, Texas
The Centre at Preston Ridge
33
October 5
Los Angeles, California
FIGat7th
27
October 26
Vacaville, California
Nut Tree
27
October 26
Norridge, Illinois
Harlem Irving Plaza (The HIP)
33
October 26
New York, New York
31st & 6th
47
October 26
Kirkland, Washington
The Village at Totem Lake
35
October 26

(1)Nordstrom relocated its full-line store at Westside Pavilion in Los Angeles to nearby Century City. (2)Nordstrom relocated its full-line store at University Towne Center in San Diego to another location within the same center. (3)Nordstrom relocated its Nordstrom Rack store in Colma to nearby Serramonte Center in Daly City, California.

Number of stores
October 28, 2017
October 29, 2016
Nordstrom full-line - U.S.(1)
117
118
Nordstrom full-line - Canada
6
5
Nordstrom Rack
232
215
Other(2)
11
10
Total
366
348
(1) Nordstrom full-line - U.S. total includes the Nordstrom
Local store in California.
(2)Other includes Trunk Club clubhouses, Jeffrey boutiques
and Last Chance clearance stores.
Gross square footage
30,223,000
29,783,000

FISCAL YEAR 2017 OUTLOOK

The Company updated its annual outlook expectations for earnings per diluted share to incorporate third quarter results. Nordstrom’s current expectations for fiscal 2017 are as follows:

Prior Outlook
Current Outlook
Net sales (percent)
Approximately 4
Approximately 4
Comparable sales (percent)
Approximately flat
Approximately flat
Retail EBIT (million)
$790 to $840
$755 to $785
Credit EBIT (million)
Approximately $145
Approximately $165
Earnings per diluted share
$2.85 to $3.00
$2.85 to $2.95

The Company’s outlook includes the following considerations:

The full-year impact from several hurricanes that occurred in the third quarter is estimated to impact sales by $26 million, EBIT by $17 million and EPS by $0.06.

The 53rd week is expected to add approximately $200 million to total net sales and approximately $0.02 to $0.03 to earnings per diluted share. The 53rd week is not included in comparable sales calculations.

The Anniversary Sale, historically the Company’s largest event of the year, spanned across the second and third quarters, consistent with the timing in fiscal 2016.

The outlook assumptions for Retail EBIT when compared with fiscal 2016 include increased occupancy expenses related to new stores (Nordstrom Rack, Canada and Manhattan flagship men’s store) in addition to higher supply chain and technology costs.

Retail EBIT in fiscal 2016 included the following non-operational items: higher credit chargeback expenses associated with an industry change in liability rules and severance charges totaling $30 million, or $0.10 in the first quarter; an impairment charge related to Trunk Club of $197 million in the third quarter; and a non-operational legal settlement gain of $22 million, or $0.10, in the fourth quarter.

The outlook assumptions for Credit EBIT when compared with fiscal 2016 incorporate higher credit card revenues including a reduction in amortization expenses of $18 million related to the sale of the credit card portfolio.

The income tax rate is estimated to be approximately in line with the year-to-date rate for fiscal 2017.

Diluted shares outstanding, excluding any future share repurchases, are estimated at 169 million for fiscal 2017.

CONFERENCE CALL INFORMATION

The Company’s senior management will host a conference call to discuss third quarter 2017 results and fiscal 2017 outlook at 4:45 p.m. Eastern Standard Time today. To listen to the live call online and view the conference call slides and the speakers’ prepared remarks, 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 at least 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 13672805, until the close of business on November 16, 2017.

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 366 stores in 40 states, including 122 full-line stores in the United States, Canada and Puerto Rico; 232 Nordstrom Rack stores; two Jeffrey boutiques; two clearance stores; seven Trunk Club clubhouses; and its Nordstrom Local service concept. 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 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, our anticipated financial outlook for the fiscal year ending February 3, 2018, our anticipated annual total and comparable sales rates, our anticipated new store openings in existing, new and international markets, our anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Our 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; our ability to respond to the business and retail environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online, and evolve our business model; timely and effective execution of our ecommerce initiatives and ability to manage the costs and organizational changes associated with this evolving business model; successful execution of our information technology strategy; our ability to effectively utilize data in strategic planning and decision making; 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; efficient and proper allocation of our capital resources; the impact of any systems or network failures, cybersecurity and/or security breaches, including any security breach of our systems or those of a third party provider that results in the theft, transfer or unauthorized disclosure of customer, employee or Company information or compliance with information security and privacy laws and regulations in the event of such an incident; effective inventory management processes and systems, fulfillment processes and systems, disruptions in our supply chain and our ability to control costs; the effect of the announcement by the members of the Nordstrom family relating to the exploration of a possible "going private transaction" on our relationships with our customers, employees, suppliers and partners, operating results and business generally; our ability to safeguard our reputation and maintain our vendor relationships; our ability to maintain relationships with and motivate our employees and to effectively attract, develop and retain our future leaders, which could be impacted by the uncertainty about the possibility of a "going private transaction;" our ability to realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program agreement with TD Bank USA, N.A. ("TD"); the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive and promotional retail industry; the timing, price, manner and amounts of future 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; the impact of economic or political conditions in the U.S. and countries where our third party vendors operate; 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 or information technology systems and communications; 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 28, 2017, and our Form 10-Q for the fiscal quarters ended April 29, 2017 and July 29, 2017, 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, except as required by law.

NORDSTROM, INC.
CONSOLIDATED
STATEMENTS OF EARNINGS
(unaudited; amounts in
millions, except per share amounts)
Quarter Ended
Nine Months Ended
October 28, 2017
October 29, 2016
October 28, 2017
October 29, 2016
Net sales
$
3,541
$ 3,472
$
10,537
$ 10,255
Credit card revenues, net
88
70
239
186
Total revenues
3,629
3,542
10,776
10,441
Cost of sales and related buying and occupancy costs
(2,315 )
(2,261 )
(6,921 )
(6,720 )
Selling, general and administrative expenses
(1,106 )
(1,029 )
(3,280 )
(3,143 )
Goodwill impairment
--
(197 )
--
(197 )
Earnings before interest and income taxes
208
55
575
381
Interest expense, net
(28 )
(30 )
(104 )
(90 )
Earnings before income taxes
180
25
471
291
Income tax expense
(66 )
(35 )
(185 )
(138 )
Net earnings (loss)
$
114
$
(10 )
$
286
$
153
Earnings (Loss) per share:
Basic
$
0.68
$ (0.06 )
$
1.72
$
0.88
Diluted
$
0.67
$ (0.06 )
$
1.70
$
0.87
Weighted-average shares outstanding:
Basic
166.6
173.4
166.7
173.3
Diluted
168.8
173.4
168.8
175.6
NORDSTROM, INC.
CONSOLIDATED
BALANCE SHEETS
(unaudited; amounts in millions)
October 28, 2017
January 28, 2017
October 29, 2016
Assets
Current assets:
Cash and cash equivalents
$
672
$ 1,007
$
531
Accounts receivable, net
211
199
216
Merchandise inventories
2,434
1,896
2,411
Prepaid expenses and other
162
140
227
Total current assets
3,479
3,242
3,385
Land, property and equipment (net of accumulated depreciation of
3,940
3,897
3,865
$5,952, $5,596 and $5,462)
Goodwill
238
238
238
Other assets
529
481
478
Total assets
$ 8,186
$ 7,858
$
7,966
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
$ 1,815
$ 1,340
$
1,653
Accrued salaries, wages and related benefits
433
455
391
Other current liabilities
1,166
1,223
1,186
Current portion of long-term debt
57
11
11
Total current liabilities
3,471
3,029
3,241
Long-term debt, net
2,681
2,763
2,767
Deferred property incentives, net
510
521
532
Other liabilities
670
675
566
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 166.6, 170.0
2,785
2,707
2,651
and 173.2 shares issued and outstanding
Accumulated deficit
(1,899 )
(1,794 )
(1,742 )
Accumulated other comprehensive loss
(32 )
(43 )
(49 )
Total shareholders’ equity
854
870
860
Total liabilities and shareholders’ equity
$ 8,186
$ 7,858
$
7,966
NORDSTROM, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited; amounts in
millions)
Nine Months Ended
October 28, 2017
October 29, 2016
Operating Activities
Net earnings
$
286
$
153
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization expenses
479
480
Goodwill impairment
--
197
Amortization of deferred property incentives and other, net
(62 )
(59 )
Deferred income taxes, net
(82 )
(14 )
Stock-based compensation expense
59
68
Change in operating assets and liabilities:
Accounts receivable
(11 )
(20 )
Merchandise inventories
(465 )
(393 )
Prepaid expenses and other assets
(35 )
25
Accounts payable
419
360
Accrued salaries, wages and related benefits
(22 )
(26 )
Other current liabilities
(53 )
33
Deferred property incentives
55
54
Other liabilities
29
20
Net cash provided by operating activities
597
878
Investing Activities
Capital expenditures
(536 )
(625 )
Other, net
29
47
Net cash used in investing activities
(507 )
(578 )
Financing Activities
Proceeds from long-term borrowings, net of discounts
635
--
Principal payments on long-term borrowings
(658 )
(7 )
Decrease in cash book overdrafts
(3 )
(127 )
Cash dividends paid
(185 )
(192 )
Payments for repurchase of common stock
(211 )
(91 )
Proceeds from issuances under stock compensation plans
25
51
Tax withholding on share-based awards
(7 )
(4 )
Other, net
(21 )
6
Net cash used in financing activities
(425 )
(364 )
Net decrease in cash and cash equivalents
(335 )
(64 )
Cash and cash equivalents at beginning of period
1,007
595
Cash and cash equivalents at end of period
$
672
$
531

NORDSTROM, INC. STATEMENTS OF EARNINGS -- RETAIL BUSINESS AND CREDIT (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 boutiques and 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 28, 2017 compared with the same periods in fiscal 2016:

Quarter Ended
October 28, 2017
October 29, 2016
Amount
% of net sales(1)
Amount
% of net sales(1)
Net sales
$
3,541
100.0 %
$
3,472
100.0 %
Cost of sales and related buying and occupancy costs
(2,311 )
(65.3 %)
(2,262 )
(65.2 %)
Gross profit
1,230
34.7 %
1,210
34.8 %
Selling, general and administrative expenses
(1,070 )
(30.2 %)
(990 )
(28.5 %)
Goodwill impairment
--
-- %
(197 )
(5.7 %)
Earnings before interest and income taxes
$
160
4.5 %
$
23
0.6 %
Nine Months Ended
October 28, 2017
October 29, 2016
Amount
% of net sales(1)
Amount
% of net sales(1)
Net sales
$
10,537
100.0 %
$ 10,255
100.0 %
Cost of sales and related buying and occupancy costs
(6,914 )
(65.6 %)
(6,718 )
(65.5 %)
Gross profit
3,623
34.4 %
3,537
34.5 %
Selling, general and administrative expenses
(3,172 )
(30.1 %)
(3,024 )
(29.5 %)
Goodwill impairment
--
-- %
(197 )
(1.9 %)
Earnings before interest and income taxes
$
451
4.3 %
$
316
3.1 %

(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 28, 2017
October 29, 2016
October 28, 2017
October 29, 2016
Sales
Comp %
Sales
Comp %
Sales
Comp %
Sales
Comp %
Nordstrom full-line stores - U.S.
$ 1,488
(4.9 %)
$ 1,568
(4.5 %)
$
4,858
(5.2 %)
$
5,128
(6.3 %)
Nordstrom.com
534
7.5 %
497
20.1 %
1,901
13.5 %
1,675
10.3 %
Full-price
2,022
(1.9 %)
2,065
0.5 %
6,759
(0.5 %)
6,803
(2.6 %)
Nordstrom Rack
966
(5.0 %)
958
0.9 %
2,910
(2.3 %)
2,777
0.4 %
Nordstromrack.com/HauteLook
212
33.6 %
159
23.2 %
609
26.3 %
482
32.9 %
Off-price
1,178
0.8 %
1,117
3.9 %
3,519
2.0 %
3,259
4.6 %
Other retail(1)
151
135
420
384
Retail segment
3,351
3,317
10,698
10,446
Corporate/Other
190
155
(161 )
(191 )
Total net sales
$ 3,541
(0.9 %)
$ 3,472
2.4 %
$ 10,537
0.1 %
$ 10,255
(0.2 %)

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

Credit

The following table summarizes the results of our Credit segment for the quarter and nine months ended October 28, 2017 compared with the same periods in 2016:

Quarter Ended
Nine Months Ended
October 28, 2017
October 29, 2016
October 28, 2017
October 29, 2016
Credit card revenues, net
$
88
$
70
$
239
$
186
Credit expenses
(40 )
(38 )
(115 )
(121 )
Earnings before interest and income taxes
$
48
$
32
$
124
$
65

NORDSTROM, INC. RETURN ON INVESTED CAPITAL (NON-GAAP FINANCIAL MEASURE) (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. For the 12 fiscal months ended October 28, 2017, our ROIC increased to 10.7% compared with 7.2% for the 12 fiscal months ended October 29, 2016. Results for the prior period were negatively impacted by approximately 340 basis points due to the Trunk Club non-cash goodwill impairment charge in the third quarter of 2016.

We define ROIC as our net operating profit after tax divided by our average invested capital using the trailing 12-month average. ROIC is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to ROIC is return on assets. The following is a reconciliation of the components of ROIC and return on assets:

12 Fiscal Months Ended
October 28, 2017
October 29, 2016
Net earnings
$
488
$
333
Add: income tax expense
376
252
Add: interest expense
139
121
Earnings before interest and income tax expense
1,003
706
Add: rent expense
237
195
Less: estimated depreciation on capitalized operating leases(1)
(126 )
(103 )
Net operating profit
1,114
798
Less: estimated income tax expense
(486 )
(383 )
Net operating profit after tax
$
628
$
415
Average total assets
$ 8,009
$
7,987
Less: average non-interest-bearing current liabilities(2)
(3,211 )
(3,105 )
Less: average deferred property incentives and deferred rent
(646 )
(541 )
liability(2)
Add: average estimated asset base of capitalized operating leases(3)
1,718
1,452
Average invested capital
$ 5,870
$
5,793
Return on assets(4)
6.1 %
4.2 %
ROIC(4)
10.7 %
7.2 %

(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. Asset base is calculated as described in footnote 3 below. (2) Balances associated with our deferred rent liability have been classified as long-term liabilities in the current period. (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 1. (4) Results for the 12 fiscal months ended October 29, 2016 include the $197 impact of the Trunk Club non-cash goodwill impairment charge in the third quarter of 2016, which negatively impacted the prior period return on assets by approximately 250 basis points and ROIC by 340 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. 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. As of October 28, 2017 and October 29, 2016, our Adjusted Debt to EBITDAR was 2.5.

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:

2017(1)
2016(1)
Debt
$
2,738
$
2,778
Add: estimated capitalized operating lease liability(2)
1,896
1,561
Less: fair value hedge adjustment included in long-term debt
--
(14 )
Adjusted Debt
$
4,634
$
4,325
Net earnings
$
488
$
333
Add: income tax expense
376
252
Add: interest expense, net
135
121
Earnings before interest and income taxes
999
706
Add: depreciation and amortization expenses
644
631
Add: rent expense
237
195
Add: non-cash acquisition-related charges(3)
10
197
EBITDAR
$
1,890
$
1,729
Debt to Net Earnings(4)
5.6
8.3
Adjusted Debt to EBITDAR
2.5
2.5

(1)The components of Adjusted Debt are as of October 28, 2017 and October 29, 2016, while the components of EBITDAR are for the 12 months ended October 28, 2017 and October 29, 2016. (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) Non-cash acquisition-related charges for the 12 months ended October 29, 2016 include the goodwill impairment charge of $197 related to Trunk Club. (4) Results for the period ended October 29, 2016 include the $197 impact of the Trunk Club goodwill impairment charge, which approximates 310 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. For the nine months ended October 28, 2017, we had Free Cash Flow of ($127) compared with ($66) for the nine months ended October 29, 2016.

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 28, 2017
October 29, 2016
Net cash provided by operating activities
$
597
$
878
Less: capital expenditures
(536 )
(625 )
Less: cash dividends paid
(185 )
(192 )
Less: change in cash book overdrafts
(3 )
(127 )
Free Cash Flow
$
(127 )
$
(66 )

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SOURCE: Nordstrom, Inc.

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