Continued Improvements in the Company's
Operating Model
Nordstrom, Inc. (NYSE: 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
Footage
(000's)
Timing 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 Center1
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 HBA2 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 Other1
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, excluding
impairment charge
Current Outlook 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 repurchases) $2.60 to $2.75 $2.85 to $2.95 $1.70 to $1.80
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 $5,462, $5,108 and $5,020)
3,865 3,735 3,742 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 and
185.4 shares issued and outstanding
2,651 2,539 2,519
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 parties
— 890 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 sales1
Amount % of net sales1 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
sales1
Amount % of net sales1 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 retail1
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) earnings1 $ (10 ) $ (0.06 ) $ 153 $ 0.87 Trunk
Club goodwill impairment 197 1.12 197 1.12 Tax effect of
non-deductible charges in interim period2 (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
Adjustments1
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 leases2
(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 leases3
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:
20161
20151
Debt $ 2,778 $ 2,809 Add: estimated
capitalized operating lease liability2
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 charges3
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 third parties
— 890 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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Nordstrom, Inc.INVESTOR CONTACT: Trina Schurman,
206-303-6503MEDIA CONTACT: Tara Darrow, 206-303-3016
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