Nordstrom Reports Fourth Quarter 2023 Earnings
- Nordstrom reports strong Q4 earnings of $134 million with adjusted EPS of $0.96.
- Total Company net sales increase by 2.2% in Q4, with Nordstrom Rack sales growing by 14.6%.
- Fiscal 2023 adjusted EBIT stands at $567 million, showing a positive financial performance.
- The Company provides a fiscal 2024 outlook with revenue expected to decline by 2.0% to grow by 1.0%, and EPS projected at $1.65 to $2.05.
- Nordstrom focuses on growth strategies including new Rack store openings and digital sales to drive profitability.
- None.
Insights
The reported net earnings and diluted EPS for Nordstrom, Inc. align with the company's fiscal 2023 outlook, which could be seen as a positive indicator of stability and a reflection of management's ability to forecast and meet financial targets. A sequential improvement in sales and a double-digit growth for Nordstrom Rack suggests a successful strategy in this segment, potentially due to the value proposition and consumer demand for off-price retail. However, the decline in digital sales may raise concerns about the company's online competitiveness and adaptability to e-commerce trends, especially given the current retail landscape's shift towards digital channels.
The 53rd week accounting, which can introduce variability in year-over-year comparisons, is an important consideration for investors as it impacts the revenue figures reported. The impact of the wind-down of Canadian operations is also notable, as it suggests a strategic consolidation and focus on core markets. The gross profit margin improvement, driven by lower markdowns and buying costs, indicates effective inventory management and operational efficiency, a key point for investor confidence in the company's cost control measures.
Looking forward, the fiscal 2024 outlook provided by the company, including an expected EBIT margin of 3.5 to 4.0 percent of sales and an EPS range of $1.65 to $2.05, sets a benchmark for future performance. The absence of share repurchase activity in the EPS guidance could imply a more conservative capital allocation strategy. The projected income tax rate of approximately 27 percent aligns with corporate tax norms and should be factored into valuation models.
The 14.6 percent growth in Nordstrom Rack sales reflects a consumer trend towards value-oriented shopping, which has been particularly strong in the off-price retail sector. This performance is a key driver of optimism for the company's growth strategy, which includes new Rack store openings. The focus on categories like active, beauty and women's apparel where Nordstrom saw the strongest growth could indicate a strategic alignment with consumer preferences and market trends.
Despite the positive growth in certain areas, the overall decrease in Nordstrom banner net sales and GMV raises questions about the brand's premium segment's resilience and its ability to compete with luxury retailers and direct-to-consumer brands. The company's emphasis on improving the customer experience and merchandise assortment could be a response to these challenges.
The store expansion strategy with 20 new or relocated stores and the announcement of additional store openings could indicate a bullish stance on brick-and-mortar retail, countering the industry's shift to online shopping. This could be a double-edged sword, as physical stores increase operational costs, but also offer a competitive advantage in customer experience.
The decline in Nordstrom's full-price banner sales, both in net and GMV terms, may suggest a need for reevaluation of their full-price strategy, especially in light of the success of the off-price Rack banner. The contrast between the performance of the two banners could reflect differing consumer behaviors and economic conditions, where consumers are seeking value without compromising on brand quality.
The store update section highlights an aggressive expansion plan for Nordstrom Rack, which aligns with the current retail trend of investing in off-price formats. However, the closure of one ASOS | Nordstrom store and one Nordstrom Rack store may indicate a recalibration of the company's physical footprint to optimize performance.
The supply chain asset impairment charge and its exclusion from adjusted EBIT and EPS figures suggest one-time costs that investors should be aware of, as they can distort the operational profitability picture. The liquidity position, with $1.4 billion available, provides the company with a buffer to navigate market uncertainties and invest in growth initiatives.
- Revenue and earnings in line with fiscal 2023 outlook
- Sales in both banners improve sequentially, Nordstrom Rack posts double-digit growth during quarter
- Company provides fiscal 2024 outlook
For the 53-week fiscal year ended February 3, 2024, net earnings were
For the fourth quarter, total Company net sales increased 2.2 percent versus the same period in fiscal 2022, inclusive of approximately
"We delivered on our 2023 guidance and are confident in our expectations for continued sales improvement and sustained profitability in 2024," said Erik Nordstrom, chief executive officer of Nordstrom, Inc. "We're laser-focused on efforts we know will drive growth and profitability across the business over the next few years, including new Rack store openings, Nordstrom digital growth and increasing comp store sales. We have a strong team dedicated to building on our heritage of service, and we look forward to helping our customers feel good and look their best in the year ahead."
In the fourth quarter, active, beauty and women's apparel had the strongest growth versus 2022. For fiscal 2023, active and beauty had the strongest growth versus 2022.
"In 2023, we continued to make progress against the priorities we identified at the outset of the year to improve the customer experience and drive better financial results. Across both banners, we improved our merchandise assortment by effectively managing our inventory levels and investing in the products and brands we know our customers respond to," said Pete Nordstrom, president of Nordstrom, Inc. "This year, we'll build on that progress in merchandising and other green shoots across our business as we focus our efforts on our refreshed 2024 priorities."
As previously announced on February 28, 2024, the board of directors declared a quarterly cash dividend of
FOURTH QUARTER 2023 SUMMARY
- Total Company net sales in the fourth quarter increased 2.2 percent, inclusive of 460 basis points related to the 53rd week, compared with the same period in fiscal 2022. The wind-down of Canadian operations had a negative impact on total Company fourth quarter net sales of 250 basis points. GMV increased 2.0 percent in the fourth quarter and decreased 6.1 percent in fiscal 2023 when compared with the same periods in 2022. Full-year revenue for fiscal 2023, including retail sales and credit card revenues, decreased 5.4 percent.
- Nordstrom banner net sales in the fourth quarter decreased 3.0 percent, inclusive of 410 basis points related to the 53rd week, compared with the same period in fiscal 2022, improving sequentially from the third quarter. The wind-down of Canadian operations had a negative impact on Nordstrom banner fourth quarter net sales of 355 basis points. GMV decreased 3.4 percent in the fourth quarter and decreased 8.5 percent in fiscal 2023 when compared with the same periods in 2022.
- Nordstrom Rack banner net sales in the fourth quarter increased 14.6 percent, inclusive of 580 basis points related to the 53rd week, compared with the same period in fiscal 2022, improving sequentially from the third quarter.
- Digital sales in the fourth quarter decreased 1.7 percent compared with the same period in fiscal 2022. Digital sales represented 38 percent of total sales during the quarter and 36 percent of sales for the fiscal year.
- Gross profit, as a percentage of net sales, of 34.4 percent increased 125 basis points compared with the same period in fiscal 2022 due to lower markdowns, lower buying and occupancy costs and leverage on higher sales.
- Ending inventory decreased 2.7 percent compared with the same period in fiscal 2022, versus a 2.2 percent increase in sales.
- Selling, general and administrative ("SG&A") expenses, as a percentage of net sales, of 32.4 percent increased 85 basis points compared with the same period in fiscal 2022, primarily due to higher labor costs and a supply chain asset impairment charge, partially offset by improvements in variable costs from supply chain efficiencies and leverage on higher sales. Excluding the
$32 million - EBIT was
$215 million $187 million $247 million $251 million $567 million - Interest expense, net, of
$26 million $27 million - Income tax expense during the fourth quarter was
$55 million $41 million Canada charges and the supply chain asset impairment charge, the full-year income tax rate would be 25.0 percent. - The Company ended the year with
$1.4 billion $628 million
STORES UPDATE
During fiscal 2023, the Company opened or relocated 20 stores:
City | Location | Square Footage (000s) | Timing of Opening | |||
Nordstrom Rack | ||||||
NOHO West | 26 | April 13, 2023 | ||||
Clovis Crossing | 31 | April 13, 2023 | ||||
Delray Place | 26 | May 11, 2023 | ||||
The Terrace at Hamilton Place | 24 | May 18, 2023 | ||||
Best in the West | 31 | May 18, 2023 | ||||
The Summit (relocation from River Ridge) | 27 | May 25, 2023 | ||||
Bradley Fair | 28 | May 25, 2023 | ||||
San Clemente Plaza | 32 | May 25, 2023 | ||||
Southlands | 29 | August 17, 2023 | ||||
Cooper Point Marketplace | 32 | September 7, 2023 | ||||
Northwoods | 35 | September 7, 2023 | ||||
Valley Mall | 28 | September 14, 2023 | ||||
Willamette Town Center | 25 | September 21, 2023 | ||||
Sequoia Mall | 29 | October 5, 2023 | ||||
Denton Crossing | 25 | October 5, 2023 | ||||
Overland Crossing | 27 | October 12, 2023 | ||||
The | 29 | October 19, 2023 | ||||
SLO Promenade | 24 | October 26, 2023 | ||||
The Promenade at Sacramento Gateway | 26 | October 26, 2023 | ||||
Anaheim Hills Festival | 24 | November 9, 2023 |
The Company has also announced plans to open the following stores:
City | Location | Square Footage (000s) | Timing of Opening | |||
Nordstrom Rack | ||||||
Pinole Vista Crossing | 23 | Spring 2024 | ||||
Barrett Place | 25 | Spring 2024 | ||||
The Ridge Elk Grove | 25 | Spring 2024 | ||||
Gilroy Crossing | 25 | Spring 2024 | ||||
Pacific Coast Plaza | 31 | Spring 2024 | ||||
Danada Square East | 29 | Spring 2024 | ||||
Presidential Markets | 35 | Spring 2024 | ||||
Macedonia Gateway | 28 | Spring 2024 | ||||
30 | Spring 2024 | |||||
Queen Creek Marketplace | 28 | Spring 2024 | ||||
Gardiner Manor Mall | 24 | Spring 2024 | ||||
Bridgepointe Shopping Center | 36 | Fall 2024 | ||||
Clairemont Town Square | 26 | Fall 2024 | ||||
Deerfield Towne Center | 30 | Fall 2024 | ||||
Bandera Pointe | 25 | Fall 2024 | ||||
Mooresville Crossing | 28 | Fall 2024 | ||||
Cool Springs Market | 24 | Fall 2024 | ||||
Hamilton Town Center | 25 | Fall 2024 | ||||
Village Pointe | 30 | Fall 2024 | ||||
Meyerland Plaza | 34 | Fall 2024 | ||||
Bell Tower | 31 | Fall 2024 | ||||
Triangle Town Place | 32 | Fall 2024 | ||||
The Davis Collection | 25 | Spring 2025 | ||||
Sycamore Commons | 25 | Spring 2025 | ||||
Randall Square | 25 | Spring 2025 | ||||
Manalapan Commons | 26 | Spring 2025 |
The Company had the following store counts as of quarter-end:
February 3, 2024 | January 28, 2023 | ||
Nordstrom | |||
Nordstrom – | 93 | 94 | |
Nordstrom – | — | 6 | |
Nordstrom Local service hubs | 6 | 7 | |
ASOS | Nordstrom | — | 1 | |
Nordstrom Rack | |||
Nordstrom Rack – | 258 | 241 | |
Nordstrom Rack – | — | 7 | |
Last Chance clearance stores | 2 | 2 | |
Total | 359 | 358 | |
Gross store square footage | 26,259,000 | 27,571,000 | |
During the fourth quarter, the Company closed one ASOS | Nordstrom store and one Nordstrom Rack store.
FISCAL YEAR 2024 OUTLOOK
The Company expects fiscal 2024 to be a year of continued momentum in its growth and profitability drivers, including opening new Rack stores, growing Nordstrom banner digital sales and driving comparable store sales across both banners. As such, the Company is providing the following financial outlook for fiscal 2024:
- Revenue range, including retail sales and credit card revenues, of 2.0 percent decline to 1.0 percent growth versus the 53-week fiscal 2023, which includes an approximately 135 basis point unfavorable impact from the 53rd week
- Comparable sales range of 1.0 percent decline to 2.0 percent growth versus 52 weeks in fiscal 20233
- EBIT margin of 3.5 to 4.0 percent of sales
- Income tax rate of approximately 27 percent
- EPS of
$1.65 $2.05
The 53rd week in fiscal 2023 creates a timing shift in the 4-5-4 calendar for fiscal 2024 that is expected to impact comparisons to the prior year.
CONFERENCE CALL INFORMATION
The Company's senior management will host a conference call to provide a business update and to discuss fourth quarter 2023 financial results and fiscal year 2024 outlook at 4:45 p.m. EST 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 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 13744568, until the close of business on March 12, 2024.
ABOUT NORDSTROM
At Nordstrom, Inc. (NYSE: JWN), we exist to help our customers feel good and look their best. Since starting as a shoe store in 1901, how to best serve customers has been at the center of every decision we make. This heritage of service is the foundation we're building on as we provide convenience and true connection for our customers. Our interconnected model enables us to serve customers when, where and how they want to shop – whether that's in-store at more than 350 Nordstrom, Nordstrom Local and Nordstrom Rack locations or digitally through our Nordstrom and Rack apps and websites. Through it all, we remain committed to leaving the world better than we found it.
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 January 28, 2023, its Form 10-Qs for the fiscal quarters ended April 29, 2023, July 29, 2023 and October 28, 2023, and our Form 10-K for the fiscal year ended February 3, 2024, to be filed with the SEC on or about March 15, 2024. In addition, forward-looking statements contained in this release may be impacted by the actual outcome of events or occurrences related to the wind-down of business operations in
1 | Adjusted EBIT and adjusted EPS are non-GAAP financial measures. Refer to the "Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Margin and Adjusted EPS" section of this release for additional information as well as reconciliations between the Company's GAAP and non-GAAP financial results. |
2 | Adjusted EBIT and adjusted EBIT margin are non-GAAP financial measures. Refer to the "Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Margin and Adjusted EPS" section of this release for additional information as well as reconciliations between the Company's GAAP and non-GAAP financial results. |
3 | Comparable sales are calculated as GMV, excluding the impact of estimated adjustments for future customer returns and breakage from gift cards and Nordy Club points and Notes, for our digital platform and stores that have been open for over 13 full months and not closed during the period. The 53rd week is not included in comparable sales calculations. |
NORDSTROM, INC. CONSOLIDATED STATEMENTS OF EARNINGS (unaudited; amounts in millions, except per share amounts) | |||||
Quarter Ended | Year Ended | ||||
February 3, 2024 | January 28, 2023 | February 3, 2024 | January 28, 2023 | ||
Net sales | |||||
Credit card revenues, net | 127 | 119 | 474 | 438 | |
Total revenues | 4,420 | 4,319 | 14,693 | 15,530 | |
Cost of sales and related buying and occupancy costs | (2,815) | (2,807) | (9,303) | (10,019) | |
Selling, general and administrative expenses | (1,390) | (1,325) | (4,855) | (5,046) | |
— | — | (284) | — | ||
Earnings before interest and income taxes | 215 | 187 | 251 | 465 | |
Interest expense, net | (26) | (27) | (104) | (128) | |
Earnings before income taxes | 189 | 160 | 147 | 337 | |
Income tax expense | (55) | (41) | (13) | (92) | |
Net earnings | |||||
Earnings per share: | |||||
Basic | |||||
Diluted | |||||
Weighted-average shares outstanding: | |||||
Basic | 162.5 | 160.1 | 161.8 | 160.1 | |
Diluted | 164.6 | 161.6 | 163.4 | 162.1 | |
Percent of net sales: | |||||
Gross profit | 34.4 % | 33.2 % | 34.6 % | 33.6 % | |
Selling, general and administrative expenses | 32.4 % | 31.5 % | 34.2 % | 33.4 % | |
Earnings before interest and income taxes | 5.0 % | 4.5 % | 1.8 % | 3.1 % | |
NORDSTROM, INC. CONSOLIDATED BALANCE SHEETS (unaudited; amounts in millions) | ||
February 3, 2024 | January 28, 2023 | |
Assets | ||
Current assets: | ||
Cash and cash equivalents | ||
Accounts receivable, net | 334 | 265 |
Merchandise inventories | 1,888 | 1,941 |
Prepaid expenses and other current assets | 286 | 316 |
Total current assets | 3,136 | 3,209 |
Land, property and equipment (net of accumulated depreciation of | 3,177 | 3,351 |
Operating lease right-of-use assets | 1,359 | 1,470 |
Goodwill | 249 | 249 |
Other assets | 523 | 466 |
Total assets | ||
Liabilities and Shareholders' Equity | ||
Current liabilities: | ||
Accounts payable | ||
Accrued salaries, wages and related benefits | 244 | 291 |
Current portion of operating lease liabilities | 240 | 258 |
Other current liabilities | 1,102 | 1,203 |
Current portion of long-term debt | 250 | — |
Total current liabilities | 3,072 | 2,990 |
Long-term debt, net | 2,612 | 2,856 |
Non-current operating lease liabilities | 1,377 | 1,526 |
Other liabilities | 535 | 634 |
Commitments and contingencies | ||
Shareholders' equity: | ||
Common stock, no par value: 1,000 shares authorized; 162.4 and 160.1 shares issued and outstanding | 3,418 | 3,353 |
Accumulated deficit | (2,578) | (2,588) |
Accumulated other comprehensive gain (loss) | 8 | (26) |
Total shareholders' equity | 848 | 739 |
Total liabilities and shareholders' equity | ||
NORDSTROM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; amounts in millions) | ||
Year Ended | ||
February 3, 2024 | January 28, 2023 | |
Operating Activities | ||
Net earnings | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||
Depreciation and amortization expenses | 586 | 604 |
207 | — | |
Asset impairment | 30 | 80 |
Right-of-use asset amortization | 184 | 185 |
Deferred income taxes, net | (60) | (83) |
Stock-based compensation expense | 52 | 59 |
Other, net | (71) | (46) |
Change in operating assets and liabilities: | ||
Merchandise inventories | (61) | 265 |
Other current and noncurrent assets | (39) | (1) |
Accounts payable | 40 | (190) |
Accrued salaries, wages and related benefits | (42) | (94) |
Lease liabilities | (272) | (269) |
Other current and noncurrent liabilities | (67) | 191 |
Net cash provided by operating activities | 621 | 946 |
Investing Activities | ||
Capital expenditures | (569) | (473) |
Decrease in cash and cash equivalents resulting from | (33) | — |
Proceeds from the sale of assets and other, net | 31 | 80 |
Net cash used in investing activities | (571) | (393) |
Financing Activities | ||
Proceeds from revolving line of credit | — | 100 |
Payments on revolving line of credit | — | (100) |
Change in cash book overdrafts | 2 | (14) |
Cash dividends paid | (123) | (119) |
Payments for repurchase of common stock | (1) | (62) |
Proceeds from issuances under stock compensation plans | 20 | 29 |
Other, net | (7) | (20) |
Net cash used in financing activities | (109) | (186) |
Effect of exchange rate changes on cash and cash equivalents | — | (2) |
Net (decrease) increase in cash and cash equivalents | (59) | 365 |
Cash and cash equivalents at beginning of year | 687 | 322 |
Cash and cash equivalents at end of year | ||
NORDSTROM, INC.
ADJUSTED EBIT, ADJUSTED EBITDA, ADJUSTED EBIT MARGIN
AND ADJUSTED EPS (NON-GAAP FINANCIAL MEASURES)
(unaudited; amounts in millions, except per share amounts)
The following are key financial metrics and, when used in conjunction with GAAP measures, we believe they provide useful information for evaluating our core business performance, enable comparison of financial results across periods and allow for greater transparency with respect to key metrics used by management for financial and operational decision-making. Adjusted EBIT, adjusted EBITDA, adjusted EBIT margin and adjusted EPS exclude certain items that we do not consider representative of our core operating performance. The financial measure calculated under GAAP which is most directly comparable to adjusted EBIT and adjusted EBITDA is net earnings. The financial measure calculated under GAAP which is most directly comparable to adjusted EBIT margin is net earnings as a percent of net sales. The financial measure calculated under GAAP which is most directly comparable to adjusted EPS is diluted EPS.
Adjusted EBIT, adjusted EBITDA, adjusted EBIT margin and adjusted EPS are not measures of financial performance under GAAP and should be considered in addition to, and not as a substitute for, net earnings, net earnings as a percent of net sales, operating cash flows, earnings per share, earnings per diluted share or other financial measures performed 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 following is a reconciliation of net earnings to adjusted EBIT and adjusted EBITDA and net earnings as a percent of net sales to adjusted EBIT margin:
Quarter Ended | Year Ended | ||||
February 3, 2024 | January 28, 2023 | February 3, 2024 | January 28, 2023 | ||
Net earnings | |||||
Income tax expense | 55 | 41 | 13 | 92 | |
Interest expense, net | 26 | 27 | 104 | 128 | |
Earnings before interest and income taxes | 215 | 187 | 251 | 465 | |
Supply chain asset impairment and related charges | 32 | — | 32 | 70 | |
— | — | 284 | — | ||
Trunk Club wind-down costs | — | — | — | 18 | |
Gain on sale of interest in a corporate office building | — | — | — | (51) | |
Adjusted EBIT | 247 | 187 | 567 | 502 | |
Depreciation and amortization expenses | 156 | 151 | 586 | 604 | |
Amortization of developer reimbursements | (17) | (17) | (69) | (72) | |
Adjusted EBITDA | |||||
Net sales | |||||
Net earnings as a % of net sales | 3.1 % | 2.8 % | 0.9 % | 1.6 % | |
EBIT margin % | 5.0 % | 4.5 % | 1.8 % | 3.1 % | |
Adjusted EBIT margin % | 5.7 % | 4.5 % | 4.0 % | 3.3 % | |
The following is a reconciliation of diluted EPS to adjusted EPS:
Quarter Ended | Year Ended | ||||
February 3, 2024 | January 28, 2023 | February 3, 2024 | January 28, 2023 | ||
Diluted EPS | |||||
Supply chain asset impairment and related charges | 0.19 | — | 0.19 | 0.44 | |
— | — | 1.74 | — | ||
Trunk Club wind-down costs | — | — | — | 0.11 | |
Gain on sale of interest in a corporate office building | — | — | — | (0.31) | |
Income tax impact on adjustments1 | (0.05) | — | (0.63) | (0.06) | |
Adjusted EPS | |||||
1 | The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate for the respective non-GAAP adjustment. |
NORDSTROM, INC.
SUMMARY OF NET SALES
(unaudited; amounts in millions)
Our Nordstrom brand includes Nordstrom.com, Nordstrom
Quarter Ended | Year Ended | ||||
February 3, 2024 | January 28, 2023 | February 3, 2024 | January 28, 2023 | ||
Net sales: | |||||
Nordstrom | |||||
Nordstrom Rack | 1,427 | 1,245 | 4,783 | 4,813 | |
Total net sales | |||||
Net sales (decrease) increase: | |||||
Nordstrom | (3.0 %) | (2.4 %) | (8.2 %) | 6.6 % | |
Nordstrom Rack | 14.6 % | (8.1 %) | (0.6 %) | 1.1 % | |
Total Company | 2.2 % | (4.1 %) | (5.8 %) | 4.8 % | |
Digital sales as % of total net sales1 | 38 % | 40 % | 36 % | 38 % | |
1 | Sales conducted through a digital platform such as our websites or mobile apps. Digital sales may be self-guided by the customer, as in a traditional online order, or facilitated by a salesperson using a virtual styling or selling tool. Digital sales may be delivered to the customer or picked up in our Nordstrom stores, Nordstrom Rack stores or Nordstrom Local service hubs. Digital sales also includes a reserve for estimated returns. |
NORDSTROM, INC.
ADJUSTED RETURN ON INVESTED CAPITAL ("ADJUSTED ROIC")
(NON-GAAP FINANCIAL MEASURE)
(unaudited; 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 over time. In addition, we have incorporated it in our executive incentive measures and we believe it is an important indicator of shareholders' return over the long term.
Beginning in the second quarter of 2023, the Adjusted ROIC calculation was updated to exclude certain items that we do not consider representative of our core operating performance. Refer to non-operating related adjustments included within adjusted net operating profit after tax and adjusted average invested capital. Prior periods have been modified to conform with current period presentation.
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 calculating a non-GAAP financial measure 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 shows the components to reconcile the return on assets calculation to Adjusted ROIC:
Four Quarters Ended | ||
February 3, 2024 | January 28, 2023 | |
Net earnings | ||
Income tax expense | 13 | 92 |
Interest expense | 137 | 138 |
Earnings before interest and income tax expense | 284 | 475 |
Operating lease interest1 | 86 | 85 |
Non-operating related adjustments2 | 316 | 38 |
Adjusted net operating profit | 686 | 598 |
Adjusted estimated income tax expense3 | (172) | (162) |
Adjusted net operating profit after tax | ||
Average total assets | ||
Average noncurrent deferred property incentives in excess of operating lease right-of-use (ROU) assets4 | (157) | (197) |
Average non-interest bearing current liabilities | (2,954) | (3,185) |
Non-operating related adjustments5 | 394 | — |
Adjusted average invested capital | ||
Return on assets | 1.5 % | 2.7 % |
Adjusted ROIC | 8.5 % | 7.7 % |
1 | Operating lease interest is a component of operating lease cost recorded in occupancy costs. We add back operating lease interest for purposes of calculating adjusted net operating profit for consistency with the treatment of interest expense on our debt. |
2 | Non-operating related adjustments primarily relate to the wind-down of our Canadian operations for the four quarters ended February 3, 2024 and supply chain impairment and related charges, partially offset by the gain on sale of our interest in a corporate office building for the four quarters ended January 28, 2023. See the Adjusted EBIT and Adjusted EBITDA section, as well as our 2022 Annual Report, for detailed information on certain non-operating related adjustments. |
3 | Adjusted estimated income tax expense is calculated by multiplying the adjusted net operating profit by the adjusted effective tax rate (which removes the impact of non-operating related adjustments) for the trailing twelve-month periods ended February 3, 2024 and January 28, 2023. The adjusted effective tax rate is calculated by dividing adjusted income tax by adjusted earnings before income taxes for the same trailing twelve-month periods. |
4 | For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities on the Consolidated Balance Sheets. The current and noncurrent amounts are used to reduce average total assets above, as this better reflects how we manage our business. |
5 | Non-operating related adjustments primarily relate to the wind-down of our Canadian operations for the trailing twelve-month period ended February 3, 2024. |
NORDSTROM, INC.
ADJUSTED DEBT TO EBITDAR (NON-GAAP FINANCIAL MEASURE)
(unaudited; dollars 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 creditworthiness which could impact our credit ratings and borrowing costs. This metric is calculated in accordance with the updates in our Revolver covenant and is a key component in assessing whether our revolving credit facility is secured or unsecured, as well as our ability to make dividend payments and share repurchases. Our goal is to manage debt levels to achieve and maintain investment-grade credit ratings while operating with an efficient capital structure.
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 calculating a non-GAAP financial measure 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 shows the components to reconcile the debt to net earnings calculation to Adjusted debt to EBITDAR:
February 3, 2024 | |
Debt | |
Operating lease liabilities | 1,617 |
Adjusted debt | |
Four Quarters Ended February 3, 2024 | |
Net earnings | |
Income tax expense | 13 |
Interest expense, net | 104 |
Earnings before interest and income taxes | |
Depreciation and amortization expenses | 586 |
Operating lease cost1 | 278 |
Amortization of developer reimbursements2 | 69 |
284 | |
Supply chain asset impairment and related charge | 32 |
Other Revolver covenant adjustments3 | 36 |
Adjusted EBITDAR | |
Debt to Net Earnings | 21.4 |
Adjusted debt to EBITDAR | 2.9 |
1 | Operating lease cost is fixed rent expense, including fixed common area maintenance expense, net of developer reimbursement amortization. |
2 | Amortization of developer reimbursements is a non-cash reduction of operating lease cost and is therefore added back to operating lease cost for purposes of our Revolver covenant calculation. |
3 | Other adjusting items to reconcile net earnings to Adjusted EBITDAR as defined by our Revolver covenant include interest income, certain non-cash charges and other gains and losses where relevant. For the four quarters ended February 3, 2024, other Revolver covenant adjustments primarily included interest income. |
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, we believe it 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 calculating a non-GAAP financial measure 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 3, 2024 | January 28, 2023 | |
Net cash provided by operating activities | ||
Capital expenditures | (569) | (473) |
Change in cash book overdrafts | 2 | (14) |
Free Cash Flow | ||
INVESTOR CONTACT: | James Duies | |
Nordstrom, Inc. | ||
InvRelations@Nordstrom.com | ||
MEDIA CONTACT: | Stephanie Corzett | |
Nordstrom, Inc. | ||
NordstromPR@Nordstrom.com |
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SOURCE Nordstrom, Inc.
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