UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4,November 2, 2019
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to___________
Commission File Number: 001-15059
NORDSTROM, INC.
(Exact name of registrant as specified in its charter)
Washington 91-0515058
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1617 Sixth Avenue, Seattle, Washington98101
(Address of principal executive offices)
206-628-2111
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
1617 Sixth Avenue, Seattle, WashingtonTitle of each classTrading Symbol98101Name of each exchange on which registered
(Address of principal executive offices)Common stock, without par valueJWN(Zip Code)New York Stock Exchange
206-628-2111
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO ¨Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES þ NO ¨Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated Filer
Accelerated filer¨
Non-accelerated filer¨
Smaller reporting company¨
  
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO þ
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, without par valueJWNNew York Stock Exchange
Yes No
Common stock outstanding as of May 30,November 29, 2019: 154,651,759155,253,167 shares


1 of 28







Table of Contents






TABLE OF CONTENTS
  Page
   
 
   
 
   
Item 1. 
   
 
   
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
  
 
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 6.
  
  


2 of 28







Table of Contents






FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “pursue,” “going forward,” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, our anticipated financial outlook for the fiscal year ending February 1, 2020, our anticipated annual total sales rates, our anticipated new store openings in existing, new and international markets, our anticipated Adjusted Return on Invested Capital, trends in our operations and the following:
Strategic and Operational
timely and effective implementation of our evolving our business model and successful execution of our customer strategy to provide a differentiated and seamless experience across all Nordstrom channels,
our ability to execute and manage the costs of our evolving business model, including the execution of new supply chain capabilities and enhancement of existing ones, development of applications for electronic devices, improvement of customer-facing technologies, timely delivery of products purchased digitally, enhancement of inventory management systems, more fluid inventory availability between our digital channels and retail stores through our local market strategy, and greater consistencyeffectiveness in marketing strategies,
our ability to respond to the rapidly evolving business and retail environment, as well as fashion trends and consumer preferences, including our customers’ changing expectations of service and experience in stores and online,
our ability to properly balance our investments in existing and new store locations, technology and supply chain facilities, especiallyincluding the expansion of our investments in our Nordstrom NYC and our Los Angeles market integration,strategy,
successful execution of our information technology strategy, including engagement with third-party service providers,
our ability to effectively utilize internal and third-party data in strategic planning and decision making,
our ability to maintain or expand our presence, including timely completion of construction associated with new, relocated and remodeled stores, and Supply Chain Network facilities, all of which may be impacted by third parties, consumer demand and other natural or man-made disruptions,
efficient and proper allocation of our capital resources,
effective inventory management processes and systems, fulfillment and supply chain processes and systems, disruptions in our supply chain and our ability to control costs,
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,
our ability to safeguard our reputation and maintain relationships with our vendors and third-party service providers,
our ability to maintain relationships with and motivate our employees and to effectively attract, develop and retain our future leaders,
our ability to realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program agreement with TD Bank, N.A. (“TD”),
the effectiveness of our loyalty program, including the implementation of any changes in our program, planned advertising, marketing and promotional campaigns in the highly competitive and promotional retail industry,
market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real estate,
potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames,
compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,
the timing, price, manner and amounts of future share repurchases by us, if any, or any share issuances by us,
Economic and External
the impact of the seasonal nature of our business and cyclical customer spending,
the impact of economic and market conditions and the resultant impact on consumer spending and credit patterns,
the impact of economic, environmental 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 and supply chain disruptions, including the effects of tariffs, or the prospects of these events and the resulting impact on consumer spending patterns or information technology systems and communications,


3 of 28







Table of Contents






Legal and Regulatory
our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to employment and tax, information security and privacy, consumer credit and the outcome of any claims and litigation and resolution of such matters,
the impact of the current regulatory environment and financial system, health care and tax reforms,
the impact of changes in accounting rules and regulations, changes in our interpretation of the rules or regulations, or changes in underlying assumptions, estimates or judgments,
the impact of claims, litigation and regulatory investigations, including those related to information security, privacy and consumer credit.
These and other factors, including those factors described in Item 1A. Risk Factors to our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, could affect our financial results and cause our actual results to differ materially from any forward-looking information we may provide. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
All references to “Nordstrom,” “we,” “us,” “our,” or the “Company” mean Nordstrom, Inc. and its subsidiaries.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.


4 of 28







Table of Contents






DEFINITIONS
The following table includes definitions of Nordstrom commonly used terms:
TermDefinition
2002 Plan2002 Nonemployee Director Stock Incentive Plan
2010 Plan2010 Equity Incentive Plan
2019 Plan2019 Equity Incentive Plan
2018 Annual ReportAnnual Report on Form 10-K filed on March 18, 2019
Adjusted EBITDAAdjusted earnings before interest, income taxes, depreciation and amortization (a non-GAAP financial measure)
Adjusted EBITDARAdjusted earnings before interest, income taxes, depreciation, amortization and rent (a non-GAAP financial measure)
Adjusted ROICAdjusted return on invested capital (a non-GAAP financial measure)
ASCAccounting Standards Codification
ASUAccounting Standards Update
BOPUSBuy Online, Pickup in Store
CODMChief operating decision maker
Estimated Non-recurring ChargeEstimated non-recurring credit-related charge recognized during the third quarter of 2018
Digital salesOnline sales and digitally assisteddigitally-assisted store sales, which include BOPUS,Online Order Pickup, Ship to Store and Style Board, a digital selling tool
EBITEarnings before interest and income taxes
EPSEarnings per share
ESPPEmployee Stock Purchase Plan
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FirstThird quarter of 201913 fiscal weeks ending May 4,November 2, 2019
FirstThird quarter of 201813 fiscal weeks ending May 5,November 3, 2018
Fiscal year 201952 fiscal weeks ending February 1, 2020
Fiscal year 201852 fiscal weeks ending February 2, 2019
FLSFull-line stores
Full-PriceNordstrom U.S. FLS, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local
GAAPGenerally accepted accounting principles
Generational InvestmentsNRHL, Canada, Trunk Club and Nordstrom NYC
Gross profitNet sales less cost of sales and related buying and occupancy costs
Inventory turnover rateTrailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter average inventory
IRSInternal Revenue Service
Lease StandardASU No. 2016-02, Leases, and all related amendments (ASC 842)
LIBORLondon Inter-bank Offered Rate
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Nordstrom LocalNordstrom Local neighborhood hubs
Nordstrom NYCOur Manhattan, New York City flagship FLS store, including the existing Men’s store and the Women’s store (upon opening in October 2019)location
The Nordy ClubOur evolved customer loyalty program launched in October 2018
NRHLNordstromrack.com/HauteLook
NYSENew York Stock Exchange
Off-PriceNordstrom U.S. Rack stores, NRHL and Last Chance clearance stores
Operating Lease CostFixed rent expense, including fixed common area maintenance expense, net of developer reimbursement amortization
PCAOBPublic Company Accounting Oversight Board (United States)
Property incentivesDeveloper and vendor reimbursements
PSUPerformance share unitsunit
RevolverSenior unsecured revolving credit facility
ROU assetOperating lease right-of-use asset
RSURestricted stock unitsunit
SECSecurities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
SERPUnfunded defined benefit Supplemental Executive Retirement Plan
SG&ASelling, general and administrative
Supply Chain NetworkConsists of fulfillmentFulfillment centers that process and ship orders to our customers, distribution centers that process and ship merchandise to our stores and other facilities and Omni-channel centers that both fulfill customer orders and ship merchandise to our stores
TDTDToronto-Dominion Bank, N.A.
XBRLeXtensible Business Reporting Language
2010 Plan2010 Equity Incentive Plan


5 of 28







Table of Contents






PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in millions except per share amounts)
(Unaudited)
Quarter EndedQuarter Ended Nine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Net sales
$3,349
 
$3,469

$3,566
 
$3,648
 
$10,694
 
$11,097
Credit card revenues, net94
 92
106
 100
 293
 280
Total revenues3,443
 3,561
3,672
 3,748
 10,987
 11,377
Cost of sales and related buying and occupancy costs(2,228) (2,288)(2,344) (2,435) (7,049) (7,311)
Selling, general and administrative expenses(1,138) (1,120)(1,135) (1,208) (3,453) (3,562)
Earnings before interest and income taxes77

153
193

105
 485

504
Interest expense, net(24)
(28)(20)
(25) (66) (81)
Earnings before income taxes53
 125
173
 80
 419
 423
Income tax expense(16) (38)(47) (13) (115) (107)
Net earnings
$37
 
$87

$126
 
$67
 
$304
 
$316
          
Earnings per share:          
Basic
$0.24
 
$0.52

$0.81
 
$0.40
 
$1.96
 
$1.88
Diluted
$0.23
 
$0.51

$0.81
 
$0.39
 
$1.95
 
$1.85
          
Weighted-average shares outstanding:          
Basic155.0
 167.8
155.2
 168.8
 155.1
 168.1
Diluted156.2
 170.2
155.8
 172.4
 155.9
 171.0
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Amounts in millions)
(Unaudited)
Quarter EndedQuarter Ended Nine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Net earnings
$37
 
$87

$126
 
$67
 
$304
 
$316
Foreign currency translation adjustment(9) (11)2
 (3) (1) (18)
Post retirement plan adjustments, net of tax
 1

 1
 
 3
Comprehensive net earnings
$28
 
$77

$128
 
$65
 
$303
 
$301
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


6 of 28







Table of Contents






NORDSTROM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
(Unaudited)
May 4, 2019
 February 2, 2019
 May 5, 2018
November 2, 2019
 February 2, 2019
 November 3, 2018
Assets          
Current assets:          
Cash and cash equivalents
$448
 
$957
 
$966

$487
 
$957
 
$1,127
Accounts receivable, net233
 148
 186
234
 148
 190
Merchandise inventories2,006
 1,978
 2,120
2,542
 1,978
 2,614
Prepaid expenses and other271
 291
 291
310
 291
 366
Total current assets2,958
 3,374
 3,563
3,573
 3,374
 4,297
          
Land, property and equipment (net of accumulated depreciation of $6,678, $6,647 and $6,227)3,963
 3,921
 3,887
Land, property and equipment (net of accumulated depreciation of $6,884, $6,647 and $6,517)4,146
 3,921
 3,858
Operating lease right-of-use assets1,833
 
 
1,784
 
 
Goodwill249
 249
 249
249
 249
 249
Other assets335
 342
 317
323
 342
 305
Total assets
$9,338
 
$7,886
 
$8,016

$10,075
 
$7,886
 
$8,709
          
Liabilities and Shareholders’ Equity          
Current liabilities:          
Accounts payable
$1,619
 
$1,469
 
$1,575

$2,148
 
$1,469
 
$2,106
Accrued salaries, wages and related benefits315
 580
 317
470
 580
 526
Current portion of operating lease liabilities237
 
 
238
 
 
Other current liabilities1,222
 1,324
 1,307
1,125
 1,324
 1,202
Current portion of long-term debt499
 8
 56

 8
 8
Total current liabilities3,892
 3,381
 3,255
3,981
 3,381
 3,842
          
Long-term debt, net2,177
 2,677
 2,680
2,679
 2,677
 2,678
Deferred property incentives, net6
 457
 495
4
 457
 465
Non-current operating lease liabilities1,951
 
 
1,895
 
 
Other liabilities661
 498
 516
665
 498
 521
          
Commitments and contingencies (Note 7)
 
 

 

 

          
Shareholders’ equity:          
Common stock, no par value: 1,000 shares authorized; 154.6, 157.6 and 167.8 shares issued and outstanding3,067
 3,048
 2,852
Common stock, no par value: 1,000 shares authorized; 155.2, 157.6 and 168.9 shares issued and outstanding3,106
 3,048
 3,029
Accumulated deficit(2,370) (2,138) (1,738)(2,217) (2,138) (1,777)
Accumulated other comprehensive loss(46) (37) (44)(38) (37) (49)
Total shareholders’ equity651
 873
 1,070
851
 873
 1,203
Total liabilities and shareholders’ equity
$9,338
 
$7,886
 
$8,016

$10,075
 
$7,886
 
$8,709
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


7 of 28







Table of Contents






NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in millions except per share amounts)
(Unaudited)
      Accumulated
  Quarter Ended Nine Months Ended
      Other
  November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Common Stock Accumulated
 Comprehensive
  
Shares
 Amount
 Deficit
 Loss
 Total
Balance at February 2, 2019157.6
 
$3,048
 
($2,138) 
($37) 
$873
Cumulative effect of adopted accounting standard
 
 (25) 
 (25)
Net earnings
 
 37
 
 37
Other comprehensive loss
 
 
 (9) (9)
Dividends ($0.37 per share)
 
 (58) 
 (58)
Common stock       
Balance, beginning of period
$3,084
 
$2,899
 
$3,048
 
$2,816
Issuance of common stock under stock compensation plans0.3
 10
 
 
 10
8
 111
 19
 160
Stock-based compensation0.8
 9
 
 
 9
14
 19
 39
 53
Repurchase of common stock(4.1) 
 (186) 
 (186)
Balance at May 4, 2019154.6
 
$3,067
 
($2,370) 
($46) 
$651
Balance, end of period
$3,106
 
$3,029
 
$3,106
 
$3,029
                
         
      Accumulated
  
      Other
  
Common Stock Accumulated
 Comprehensive
  
Shares
 Amount
 Deficit
 Loss
 Total
Balance at February 3, 2018167.0
 
$2,816
 
($1,810) 
($29) 
$977
Accumulated deficit       
Balance, beginning of period
($2,286) 
($1,712) 
($2,138) 
($1,810)
Cumulative effect of adopted accounting standards
 
 60
 (5) 55

 
 (25) 60
Net earnings
 
 87
 
 87
126
 67
 304
 316
Other comprehensive loss
 
 
 (10) (10)
Dividends ($0.37 per share)
 
 (62) 
 (62)
Issuance of common stock under stock compensation plans0.6
 24
 
 
 24
Stock-based compensation0.5
 12
 
 
 12
Dividends(57) (62) (172) (186)
Repurchase of common stock(0.3) 
 (13) 
 (13)
 (70) (186) (157)
Balance at May 5, 2018167.8
 
$2,852
 
($1,738) 
($44) 
$1,070
Balance, end of period
($2,217) 
($1,777) 
($2,217) 
($1,777)
       
Accumulated other comprehensive loss       
Balance, beginning of period
($39) 
($47) 
($37) 
($29)
Cumulative effect of adopted accounting standards
 
 
 (5)
Other comprehensive income (loss)1
 (2) (1) (15)
Balance, end of period
($38) 
($49) 
($38) 
($49)
       
Total
$851
 
$1,203
 
$851
 
$1,203
       
Dividends per share
$0.37
 
$0.37
 
$1.11
 
$1.11
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


8 of 28







Table of Contents






NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
Quarter EndedNine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
Operating Activities      
Net earnings
$37
 
$87

$304
 
$316
Adjustments to reconcile net earnings to net cash used in operating activities:   
Adjustments to reconcile net earnings to net cash provided by operating activities:   
Depreciation and amortization expenses and other, net165
 169
482
 498
Amortization of deferred property incentives
 (18)
 (49)
Non-cash lease expense (including developer reimbursement amortization of $19)43
 
Right-of-use asset amortization132
 
Deferred income taxes, net18
 6
25
 11
Stock-based compensation expense20
 23
55
 72
Change in operating assets and liabilities:
  
  
Accounts receivable(2) (42)31
 (45)
Merchandise inventories(89) (201)(515) (526)
Prepaid expenses and other assets(12) (2)(68) (78)
Accounts payable181
 212
579
 554
Accrued salaries, wages and related benefits(266) (259)(109) (50)
Other current liabilities(74) (24)(175) (102)
Deferred property incentives3
 24
4
 37
Lease liabilities (including operating lease interest of $23)(59) 
Lease liabilities(191) 
Other liabilities4
 (3)15
 4
Net cash used in operating activities(31)
(28)
Net cash provided by operating activities569

642
      
Investing Activities      
Capital expenditures(249) (129)(741) (429)
Other, net1
 (20)24
 (19)
Net cash used in investing activities(248) (149)(717) (448)
      
Financing Activities      
Principal payments on long-term borrowings
 (3)
 (54)
Increase in cash book overdrafts40
 27
58
 34
Cash dividends paid(58) (62)(172) (186)
Payments for repurchase of common stock(210) (13)(210) (155)
Proceeds from issuances under stock compensation plans10
 24
19
 160
Tax withholding on share-based awards(12) (11)(17) (19)
Other, net
 (28)
Net cash used in financing activities(230) (38)(322) (248)
      
Net decrease in cash and cash equivalents(509) (215)(470) (54)
Cash and cash equivalents at beginning of period957
 1,181
957
 1,181
Cash and cash equivalents at end of period
$448
 
$966

$487
 
$1,127
      
Supplemental Cash Flow Information      
Cash paid during the period for:      
Income taxes, net
$8
 
$8

$162
 
$278
Interest, net of capitalized interest31
 35
76
 95
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


9 of 28







Table of Contents
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)




NOTE 1: BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements include the balances of Nordstrom, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation. The interim Condensed Consolidated Financial Statements have been prepared on a basis consistent in all material respects with the accounting policies described and applied in our 2018 Annual Report, except as described in Note 2: Leases, and reflect all adjustments of a normal recurring nature that are, in management’s opinion, necessary for the fair presentation of the results of operations, financial position and cash flows for the periods presented.
The Condensed Consolidated Financial Statements as of and for the periods ended May 4,November 2, 2019 and May 5,November 3, 2018 are unaudited. The Condensed Consolidated Balance Sheet as of February 2, 2019 has been derived from the audited Consolidated Financial Statements included in our 2018 Annual Report. The interim Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and related footnote disclosures contained in our 2018 Annual Report.
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.
Our business, like that of other retailers, is subject to seasonal fluctuations. Our sales are typically higher during our Anniversary Sale in July and the holidays in the fourth quarter. Results for any one quarter aremay not be indicative of the results that may be achieved for a full fiscal year.
Recent Accounting Pronouncements
In March 2019, the SEC adopted the final rule under SEC Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K. The amendment aims to modernize and simplify certain reporting requirements and improve readability and navigability between disclosures. This final rule was effective for the first quarter of 2019. Our adoption of this final rule did not have a material effect on our Consolidated Financial Statements.
NOTE 2: LEASES
During the first quarter of fiscal 2019, we adopted the Lease Standard using the transition method provided in ASU 2018-11. As a result, reporting periods beginning in the first quarter of 2019 are presented under the Lease Standard while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840 — Leases.
Adoption of the Lease Standard did not have a material impact on our Condensed Consolidated Statement of Earnings, Condensed Consolidated Statement of Comprehensive Earnings, Condensed Consolidated Statement of Cash Flows or Condensed Consolidated Statement of Shareholders’ Equity. The impact of adopting the Lease Standard resulted in the following on February 3, 2019:
Increase in total assets and total liabilities of $1,849 primarily due to recognizing ROU assets and operating lease liabilities for most leases previously classified as operating leases.
Reclassification of deferred property incentives, net of $568 to ROU assets on the Condensed Consolidated Balance Sheet.
Reclassification of deferred property incentives, net of $339 from ROU assets to other current liabilities and other liabilities on the Condensed Consolidated Balance Sheet for property incentives that exceed the associated ROU asset. Property incentives that exceed the associated ROU asset are primarily due to leases with low fixed lease costs that may also have variable lease costs that are excluded from the ROU asset.
Increase in beginning accumulated deficit of $25 primarily due to the net impact of removing a building and associated financial obligation from land, property and equipment and long-term debt, net on the Condensed Consolidated Balance Sheet related to a failed sale-leaseback transaction. 
Upon adoption of the Lease Standard, we record leases, which consist primarily of operating leases, on the Condensed Consolidated Balance Sheet as operating lease ROU assets, current portion of operating lease liabilities and non-current operating lease liabilities. Operating lease liabilities are initially recognized based on the net present value of the fixed portion of our lease and common area maintenance payments from lease commencement through the lease term. To calculate the net present value, we apply an incremental borrowing rate. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that we would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use quoted interest rates obtained from financial institutions as an input to derive our incremental borrowing rate as the discount rate for the lease. We recognize ROU assets based on operating lease liabilities reduced by property incentives. ROU assets are tested for impairment in the same manner as long-lived assets.


10 of 28







Table of Contents
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)




We elected the following practical expedients permitted under the Lease Standard:
Upon adoption, we did not reassess our prior conclusions about lease identification, lease classification or initial direct costs, and we did not use hindsight for leases existing at adoption date.
We do not record leases with an initial term of 12 months or less on the balance sheet but continue to expense them on a straight-line basis over the lease term.
We combine lease and non-lease components.
We lease the land, buildings, or land and buildings for many of our stores, office facilities and Supply Chain Network facilities. We also lease equipment and have service contracts including transportation agreements and warehouse agreements where we control identified assets such as vehicles, warehouse space and equipment and therefore represent embedded leases under the Lease Standard.
The majority of our fixed, non-cancellable lease terms are 15 to 30 years for Nordstrom FLS, approximately 10 to 15 years for Nordstrom Rack stores and 5 to 20 years for office facilities and Supply Chain Network facilities. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period up to 15 years for Nordstrom FLS and 10 years for Nordstrom Rack stores.period. At the commencement of a lease, we generally include only the initial lease term as we have determined that options to extend are not reasonably certain to occur. The exercise of lease renewal options is generally at our sole discretion. At the renewal of an expiring lease, we reassess our options in the agreement and include all reasonably certain extensions in the measurement of our lease term.
Most of our leases also provide for payment of operatingrequire we pay certain expenses, such as common area maintenance charges, real estate taxes and other executory costs, the fixed portion of which is included in Operating Lease Cost. We recognize Operating Lease Cost, which is primarily included in occupancy costs, on a straight-line basis over the lease term. Variable lease cost includes payments for variable common area maintenance charges and additional payments based on a percentage of sales, which are recognized when probable. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table summarizes the components of lease cost for 2019:cost:
 November 2, 2019
 Quarter Ended
 Nine Months Ended
Operating Lease Cost
$70
 
$209
Variable lease cost1
10
 34
Sublease income(4) (8)
Total lease cost
$76
 
$235

Quarter Ended
May 4, 2019
Operating Lease Cost
Store locations (net of developer reimbursement amortization of $19)
$55
Other1
15
Variable lease cost2
12
Sublease income(2)
Total lease cost
$80
1 Other includes Supply Chain Network facilities, office facilities and equipment.
2 Variable lease cost includes short-term lease cost, which was immaterial for the quarter and nine months ended May 4,November 2, 2019.


The following table summarizes future lease payments as of May 4,November 2, 2019:
Fiscal yearOperating Leases
Operating Leases
2019 (excluding the three months ended May 4, 2019)
$249
2019 (excluding the nine months ended November 2, 2019)
$64
2020353
358
2021335
348
2022310
323
2023283
295
2024238
248
Thereafter1,040
1,086
Total lease payments2,808
2,722
  
Less: amount representing interest(620)(589)
Present value of net lease payments1

$2,188

$2,133
1 Total lease payments exclude $5$12 of lease payments for an operating leaseleases that waswere signed but hashave not yet commenced.


11 of 28







Table of Contents
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)




The following table includes supplemental information:
 QuarterNine Months Ended
May 4, November 2, 2019

Cash paid related to operating lease liabilities

$86267

Operating lease interest76
Operating lease liabilities arising from obtaining ROU assets2,2482,326

Cash received from developer reimbursements2661

Amortization of developer reimbursements56
  
November 2, 2019
Weighted-average remaining lease term10 years

Weighted-average discount rate4.7%

Previous Lease Standard Disclosures
Before fiscal year 2019, we recognized minimum rent expense, net of developer reimbursements, on a straight-line basis over the minimum lease term from the time we controlled the leased property. For scheduled rent escalation clauses during the lease terms, we recorded minimum rent expense on a straight-line basis over the terms of the leases, with the adjustments accrued as current and non-current deferred rent and included in other current liabilities and other liabilities on our Condensed Consolidated Balance Sheet. Contingent rental payments, typically based on a percentage of sales, were recognized in rent expense primarily in occupancy costs when payment of the contingent rent was probable.
The following table summarizes rent expense for the first quarter ofand nine months ended November 3, 2018, before adoption of the Lease Standard:
Quarter Ended
May 5, 2018
Minimum rent:
Store locations
$70
Other1
11
Percentage rent2
Property incentives(21)
Total rent expense
$62
 November 3, 2018
 Quarter Ended
 Nine Months Ended
Minimum rent
$78
 
$237
Percentage rent2
 7
Property incentives(20) (60)
Total rent expense
$60
 
$184
1 Other includes Supply Chain Network facilities, office facilities and equipment.
The rent expense above does not include common area maintenance charges, real estate taxes and other executory costs, which were $37$38 for the first quarter ofand $112 for the nine months ended November 3, 2018.
The following table summarizes future minimum lease payments as of February 2, 2019, before adoption of the Lease Standard:
Fiscal yearOperating Leases
2019
$322
2020313
2021294
2022271
2023249
Thereafter1,160
Total minimum lease payments
$2,609



12 of 28







Table of Contents
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)




NOTE 3: REVENUE
Contract Liabilities
Contract liabilities represent our obligation to transfer goods or services to customers and include deferred revenue for The Nordy Club (including loyalty points and Nordstrom Notes) and gift cards. Our contract liabilities are classified as current on the Condensed Consolidated Balance Sheet and are as follows:
 Contract Liabilities

Opening balance as of February 4, 2018

$498

Balance as of May 5, 2018460

Balance as of August 4, 2018445
Balance as of November 3, 2018450
  
Balance as of February 2, 2019548

Balance as of May 4, 2019504

Balance as of August 3, 2019488
Balance as of November 2, 2019483

The amount of revenueRevenues recognized from our beginning contract liability balance was $148 inwere $110 and $269 for the first quarter ofand nine months ended November 2, 2019 and $150 in$116 and $272 for the first quarter ofand nine months ended November 3, 2018.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
 Quarter Ended Nine Months Ended
 November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Full-Price
$2,270
 
$2,367
 
$6,928
 
$7,314
Off-Price1,296
 1,281
 3,766
 3,783
Total net sales
$3,566
 
$3,648
 
$10,694
 
$11,097
        
Digital sales as a % of total net sales1
34% 31% 32% 29%

 Quarter Ended
 May 4, 2019
 May 5, 2018
Full-Price
$2,127
 
$2,240
Off-Price1,222
 1,229
Total net sales
$3,349
 
$3,469
    
Digital sales as a % of total net sales31% 28%
Digital sales increase7% 21%
1 In 2019, we updated our digital sales calculation to include accounting adjustments consistent with our net sales calculation. Prior year amounts have been reclassified to conform with current period presentation. We do not expect this change to be material for the full year, though some timing differences occurred between the second and third quarters.
The following table summarizes the percent of net sales by merchandise category:
 Quarter Ended Nine Months Ended
 November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Women’s Apparel32% 32% 33% 33%
Shoes25% 24% 24% 24%
Men’s Apparel16% 16% 16% 16%
Women’s Accessories10% 10% 11% 10%
Beauty10% 11% 10% 11%
Kids’ Apparel4% 4% 4% 4%
Other3% 3% 2% 2%
Total net sales100% 100% 100% 100%

 Quarter Ended
 May 4, 2019
 May 5, 2018
Women’s Apparel33% 33%
Shoes24% 24%
Men’s Apparel15% 15%
Women’s Accessories11% 11%
Beauty10% 11%
Kids’ Apparel4% 3%
Other3% 3%
Total net sales100% 100%


13 of 28







Table of Contents
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)




NOTE 4: SEGMENT REPORTING
The following table sets forth information for our reportable segment:
 Quarter Ended Nine Months Ended
 November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Retail segment EBIT1

$257
 
$162
 
$671
 
$674
Corporate/Other loss before interest and income taxes1
(64) (57) (186) (170)
Interest expense, net(20) (25) (66) (81)
Earnings before income taxes
$173
 
$80
 
$419
 
$423
 Quarter Ended
 May 4, 2019
 May 5, 2018
Retail segment EBIT1

$142
 
$207
Corporate/Other loss before interest and income taxes1
(65) (54)
Interest expense, net(24) (28)
Earnings before income taxes
$53
 
$125
1 Certain reclassifications were made to fiscal 2018 amounts to conform with current period presentation, which is in the way that management views our results internally.
For information about disaggregated revenues, see Note 3: Revenue.
NOTE 5: DEBT AND CREDIT FACILITIES
Debt
A summary of our long-term debt is as follows:
 November 2, 2019

February 2, 2019

November 3, 2018
Long-term debt, net of unamortized discount:     
Senior notes, 4.75%, due May 2020
$500
 
$500
 
$500
Senior notes, 4.00%, due October 2021500
 500
 500
Senior notes, 4.00%, due March 2027349
 349
 349
Senior debentures, 6.95%, due March 2028300
 300
 300
Senior notes, 7.00%, due January 2038147
 146
 146
Senior notes, 5.00%, due January 2044897
 895
 894
Other1
(14) (5) (3)
Total long-term debt2,679
 2,685
 2,686
      
Less: current portion
 (8) (8)
Total due beyond one year
$2,679
 
$2,677
 
$2,678
 May 4, 2019

February 2, 2019

May 5, 2018
Long-term debt, net of unamortized discount:     
Senior notes, 4.75%, due May 2020
$500
 
$500
 
$500
Senior notes, 4.00%, due October 2021500
 500
 500
Senior notes, 4.00%, due March 2027349
 349
 349
Senior debentures, 6.95%, due March 2028300
 300
 300
Senior notes, 7.00%, due January 2038146
 146
 146
Senior notes, 5.00%, due January 2044895
 895
 892
Other1
(14) (5) 49
Total long-term debt2,676
 2,685
 2,736
      
Less: current portion(499) (8) (56)
Total due beyond one year
$2,177
 
$2,677
 
$2,680
1 Other long-term debtprimarily includes our deferred bond issue costscosts.
Subsequent to the end of the third quarter, we issued $500 aggregate principal amount of 4.375% senior unsecured notes due April 2030. We intend to use all of the net proceeds of the notes to prepay all $500 aggregate principal amount of outstanding 4.75% Senior Notes due May 2020. On November 6, 2019 we provided a Notice of Redemption to the holders of the May 2020 Notes to pay the outstanding principal and interest on December 6, 2019. As a result, the May 2020 Notes are classified as long-term on our Condensed Consolidated Balance Sheet as of May 4,November 2, 2019. As of February 2, 2019 and May 5, 2018, Other included our secured mortgage payable and Puerto Rico unsecured borrowing facility, partially offset by deferred bond issue costs.
Credit Facilities
As of May 4,November 2, 2019, we had total short-term borrowing capacity of $800 under the revolverRevolver that expires in September 2023. The revolverRevolver contains customary representations, warranties, covenants and terms, including paying a variable rate of interest and a commitment fee based on our debt rating. The revolverRevolver is available for working capital, capital expenditures and general corporate purposes. Provided that we obtain written consent from the lenders, we have the option to increase the revolverRevolver by up to $200, to a total of $1,000, and two2 options to extend the revolverRevolver by one year.
The revolverRevolver requires that we maintain an adjusted debt to EBITDAR leverage ratio of no more than four4 times. The Revolver’s ratio calculation methodology has not been impacted by the adoption of the new Lease Standard. As of May 4,November 2, 2019, we were in compliance with this covenant.
Our $800 commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding, of reducing available liquidity under the revolverRevolver by an amount equal to the principal amount of commercial paper.
As of May 4, 2019, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our revolver.


14 of 28







Table of Contents
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)




As of November 2, 2019, we had 0 issuances outstanding under our commercial paper program and 0 borrowings outstanding under our Revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market. Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused commitment. In September 2018, we fully repaid $47 outstanding on this facility and did not renew the facility upon expiration in the fourth quarter of 2018.
NOTE 6: FAIR VALUE MEASUREMENTS
We disclose our financial assets and liabilities that are measured at fair value in our Condensed Consolidated Balance Sheets by level within the fair value hierarchy as defined by applicable accounting standards:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Other observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that cannot be corroborated by market data that reflect the reporting entity’s own assumptions
Financial Instruments Not Measured at FairCarrying Value
Financial instruments not measured at faircarrying value on a recurring basis include cash and cash equivalents, accounts receivable and accounts payable, which approximate fair value due to their short-term nature, and long-term debt.nature.
Long term-debt is recorded at carrying value. If our long-term debt was measured at fair value, on the Condensed Consolidated Balance Sheets, we would use quoted market prices of the same or similar issues, which is considered a Level 2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current maturities:
 November 2, 2019
 February 2, 2019
 November 3, 2018
Carrying value of long-term debt
$2,679
 
$2,685
 
$2,686
Fair value of long-term debt2,831
 2,692
 2,700
 May 4, 2019
 February 2, 2019
 May 5, 2018
Carrying value of long-term debt
$2,676
 
$2,685
 
$2,736
Fair value of long-term debt2,741
 2,692
 2,772

Non-financial Assets Measured at Fair Value on a Nonrecurring Basis
We also measure certain non-financial assets at fair value on a nonrecurring basis, primarily goodwill, and long-lived tangible, right-of-use and intangible assets, in connection with periodic evaluations for potential impairment. We estimate the fair value of these assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements. There were no0 material impairment charges for these assets for the quarternine months ended May 4,November 2, 2019 and May 5,November 3, 2018.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Plans for our Nordstrom NYCOur New York City flagship store which we expect to openopened in October 2019 ultimately include owning aand the related building and equipment assets were placed into service as of the end of the third quarter. While our store has opened, construction continues in the residential condominium interest in a mixed-use tower and leasing certain nearby properties.units above the store. As of May 4,November 2, 2019, we had approximately $302$386 of fee interest in land, which is expected to convert to the condominium interest once the storemixed-use tower is constructed.fully completed. We haveare committed to make future1 remaining installment paymentspayment based on the developer meeting final pre-established construction and development milestones. In the event that this project is not completed, the opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our investment.
NOTE 8: SHAREHOLDERS’ EQUITY
In August 2018, our Board of Directors authorized a program to repurchase up to $1,500 of our outstanding common stock, with no expiration date. Under the August 2018 program, we repurchased 4.1 sharesThe following is a summary of our common stock for an aggregate purchase price of $186 during the quarter ended May 4, 2019. share repurchase activity:
 Quarter Ended Nine Months Ended
 November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
2018 Program       
Shares of common stock repurchased
 1.1
 4.1
 2.9
Aggregate amount of common stock repurchased
 
$70
 
$186
 
$157

We had $707 remaining in share repurchase capacity as of May 4,November 2, 2019. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules.
In MayNovember 2019, subsequent to quarter end, we declared a quarterly dividend of $0.37 per share, which will be paid on June 18,December 16, 2019 to holdersshareholders of record asat the close of June 3,business on November 29, 2019.


15 of 28







Table of Contents
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)




NOTE 9: STOCK-BASED COMPENSATION
In May 2019, our shareholders approved the adoption of the 2019 Plan, which replaced the 2002 Plan and the 2010 Plan. The 2019 Plan authorizes the grant of stock options, PSUs, RSUs, stock appreciation rights and both restricted and unrestricted shares of common stock to employees and nonemployee directors. The aggregate number of shares to be issued under the 2019 Plan may not exceed 9.5 plus any shares currently outstanding under the 2010 Plan that are forfeited or expire during the term of the 2019 Plan. No future grants will be made under the 2002 Plan and the 2010 Plan.
The following table summarizes our stock-based compensation expense:
 Quarter Ended Nine Months Ended
 November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
RSUs
$11
 
$17
 
$39
 
$57
Stock options2
 3
 9
 9
Other1
2
 1
 7
 6
Total stock-based compensation expense, before income tax benefit15
 21
 55
 72
Income tax benefit(4) (5) (14) (18)
Total stock-based compensation expense, net of income tax benefit
$11
 
$16
 
$41
 
$54

 Quarter Ended
 May 4, 2019
 May 5, 2018
RSUs
$14
 
$18
Stock options4
 3
Other1
2
 2
Total stock-based compensation expense, before income tax benefit20
 23
Income tax benefit(5) (6)
Total stock-based compensation expense, net of income tax benefit
$15
 
$17
1 Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards.
The following table summarizes our grant allocations:
 Nine Months Ended
 November 2, 2019 November 3, 2018
 Granted
 Weighted-average grant-date fair value per unit
 Granted
 Weighted-average grant-date fair value per unit
RSUs1.2
 
$40
 2.2
 
$49
Stock options1.0


$15
 
 
PSUs0.3
 
$42
 
 

 Quarter Ended
 May 4, 2019 May 5, 2018
 Granted
 Weighted-average grant-date fair value per unit
 Granted
 Weighted-average grant-date fair value per unit
RSUs1.1
 
$41
 2.1
 
$49
Stock options1.0


$15
 
 
$—
PSUs0.3
 
$42
 
 
$—
Under our deferred and stock-based compensation plan arrangements, the Company issued 0.3 and 1.7 shares of common stock during the quarter and nine months ended November 2, 2019 and 2.5 and 4.8 shares during the quarter and nine months ended November 3, 2018.
NOTE 10: EARNINGS PER SHARE
The computation of EPS is as follows:
 Quarter Ended Nine Months Ended
 November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Net earnings
$126
 
$67
 
$304
 
$316
        
Basic shares155.2
 168.8
 155.1
 168.1
Dilutive effect of common stock equivalents0.6
 3.6
 0.8
 2.9
Diluted shares155.8
 172.4
 155.9
 171.0
        
Earnings per basic share
$0.81
 
$0.40
 
$1.96
 
$1.88
Earnings per diluted share
$0.81
 
$0.39
 
$1.95
 
$1.85
        
Anti-dilutive common stock equivalents10.6
 1.8
 10.5
 5.5

 Quarter Ended
 May 4, 2019
 May 5, 2018
Net earnings
$37
 
$87
    
Basic shares155.0
 167.8
Dilutive effect of common stock equivalents1.2
 2.4
Diluted shares156.2
 170.2
    
Earnings per basic share
$0.24
 
$0.52
Earnings per diluted share
$0.23
 
$0.51
    
Anti-dilutive common stock equivalents9.3
 9.6


16 of 28







Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts)


OVERVIEW
While we believe our customer strategy and business model position us for long-term success, our first quarter top-line results were below our expectations. ForIn the firstthird quarter of 2019, totalnet earnings of $126, or $0.81 per diluted share, exceeded our expectations, demonstrating substantial progress in the implementation of our strategy and strength of our operating discipline. Our net sales decreased 3.5% and net earnings were $37, or $0.23 per diluted share.
Although we planned for a continuationdecrease of soft2.2% was in-line with our expectations, reflecting improved sales trends across our Full-Price and Off-Price businesses from the fourth quarterfirst half of 2018, we saw further deceleration in the first quarter of 2019. We ended the quarter with inventories in solid shape, and our financial position remains strong.year. The consistent strength of our inventory and expense execution helped mitigate ourcontributed to increased profitability for the quarter. We maintained a positive spread between sales miss. We continue to bendand inventory for the expense curve, tracking ahead of ourthird consecutive quarter. Additionally, we realized $170 in expense savings year-to-date, expecting to exceed our plan of $150 to $200 throughfor the year.
The following achievements demonstrate our various efficiency initiatives this year.
During the quarter, we had executional misses withcontinued focus on the customer experience that had an impact on salesand execution:
Key Events — To drive our top and bottom-line results, we made notable changes to two key events: Anniversary Sale and Holiday. We improved the economics of our Anniversary Sale event, which positively contributed to merchandise margins in the third quarter. For the Holidays, we are meaningfully expanding our gifting offer across Full-Price and Off-Price, both in storesmaking it easier for customers to find gifts by recipient and online. We identified three factors that contributed to our sales shortfall, all within our control to turn around:price point.
LoyaltyOff-Price — We haveimproved inventory flow, refined product allocation and emphasized seasonally relevant merchandise. As a well-established programresult, we delivered positive sales growth on less inventory and increased inventory turn for the eighth consecutive quarter. Combined with nearly 12 million activeour strong expense execution, we exceeded our bottom-line expectations.
Market Strategy — Our market strategy leverages inventory to serve customers contributing more than 60% of sales in the first quarter. However, we had executional issues associated with the launch of The Nordy Club last fall. We are resolving these issues, with initial results showing improving trends for engagement, traffic and spend from our loyalty customers.
Digital marketing — With the rollout of The Nordy Club, we deliberately reduced our digital marketing as we shifted resources to loyalty. This resulted in incremental traffic declines in our business. We have since increased ouron their terms through investments in digital marketingcapabilities and in people, product and place. Our goal is to help drive incremental trafficgain market share while driving customer engagement and sales.
Merchandise — The breadthinventory efficiencies. There are two elements to this strategy: first, we are providing customers a greater selection of our offering, across brands, price points and styles, is a key differentiator in the wayproduct available for next-day pickup or delivery, without increasing inventory levels. Second, we serve customers. We have opportunities to rebalance our assortment mix to better resonateare increasing engagement with customers in Full-Priceby offering express services such as order pickup, returns and Off-Price. We have started this process and expect improvement in the second half of the year.alterations at additional locations.
We took action during the quarter and are taking further steps to drive top-line growth, as well as execute our key strategies:
We areSince scaling our local market strategy in Los Angeles, third quarter sales growth outpaced other markets by providing customers with greater accessapproximately 100 basis points. We recently accelerated our market strategy to merchandise selection, with faster deliveryNew York, San Francisco, Chicago and at a lower cost to us. In the first quarter, we delivered outsized growth in digital salesDallas and store traffic in this market.
We will expand to our remaining top ten markets by the end of 2020.
New York — We achieved an important milestone with the opening of our New York City flagship store, significantly increasing our presence in the world’s top retail market. We saw a strong customer response with 85,000 visits during the opening weekend alone. In the broader New York City our largest market, for online sales. We are on trackcustomers have faster access to openinventory across eight FLS stores, including our flagship store on October 24th and two Nordstrom Locals this fall. These physical assetsfulfillment center. Additionally, we are expected to drive engagementengaging with customers across multiple touch pointsby offering express services at Nordstrom Local and contribute to aNordstrom Rack locations.
We made meaningful sales lift for this market.
Finally, we are focused onprogress in improving the customer experience duringand continuing our two key events, our Anniversary Sale and the holidays. Our Anniversary Sale is a unique event, offering new arrivals at reduced prices for a limited time.operational discipline. We are curating our assortment to reflect our customers’ favorite brands and extendingencouraged by the pre-shop period for our top loyalty customers. For the holidays, we are amplifying our gifting assortment across categories, with more accessible price points.
As always, our customers are at the center of everything we do, and through that lens, we are focused on better serving them on their terms. We are confidentmomentum in our abilityFull-Price and Off-Price businesses as we execute our holiday strategy to drive top-line growth and achieve long-term profitable growth.establish Nordstrom as a gifting destination for customers.


17 of 28







Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)




RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our channels. We invested early in our Omni-channel capabilities, integrating our operations, merchandising and technology across our stores and online, in both our Full-Price and Off-Price businesses. While our customers may engage with us through multiple channels, we know they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. We have one Retail reportable segment and analyze our results on a total company basis.
We measure our performance through market share, customersoperational and net sales metrics. As this is how we measure our performance, and as comparable sales growth is expected to approximate net sales growth in 2019, we only report changes in net sales.
Net Sales
The following table summarizes net sales by business:
Quarter EndedQuarter Ended Nine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Net sales by business:          
Full-Price
$2,127
 
$2,240

$2,270
 
$2,367
 
$6,928
 
$7,314
Off-Price1,222
 1,229
1,296
 1,281
 3,766
 3,783
Total net sales
$3,349
 
$3,469

$3,566
 
$3,648
 
$10,694
 
$11,097
          
Net sales increase (decrease) by business:          
Full-Price(5.1%) 3.9%(4.1%) 0.4% (5.3%) 1.9%
Off-Price(0.6%) 6.7%1.2% 5.8% (0.4%) 3.4%
Total Company(3.5%) 5.8%(2.2%) 2.3% (3.6%) 2.4%
          
Digital sales as a % of total net sales31% 28%
Digital sales increase7% 21%
Digital sales as % of total net sales1
34% 31% 32% 29%
1 In 2019, we updated our digital sales calculation to include accounting adjustments consistent with our net sales calculation. Prior year amounts have been reclassified to conform with current period presentation. We do not expect this change to be material for the full year, though some timing differences occurred between the second and third quarters.
Total companyCompany net sales decreased 3.5%2.2% and 3.6% for the firstthird quarter ofand nine months ended November 2, 2019, compared with the same periodperiods in 2018. Sales trends improved by more than 200 basis points from the first half of the year, driven by aggressive action taken related to loyalty, digital marketing and merchandise assortment. Digital sales increased 7% infor the firstthird quarter of 2019 and 6% for the nine months ended November 2, 2019, compared with the same periodperiods in 2018. To dateWe saw sequential improvement in fiscaldigital trends throughout the quarter. In October 2019, we expanded Nordstrom NYC with the opening of our flagship store. Additionally, during the nine months ended November 2, 2019, we opened threeone FLS store, five Nordstrom Rack stores and two Nordstrom Locals and closed twosix FLS locations. While we expected softer trends from the fourth quarter to continue into the first quarter, we experienced further sales deceleration. Our results were impacted by three areas: loyalty, digital marketing and merchandise, across Full-Price and Off-Price, in both stores and online. We took action during the quarter and are taking further steps to address executional issues associated with the launch of our enhanced loyalty program, further investing in our digital marketing and re-balancing our merchandise offering to improve sales trends over the remainder of the year.stores.
Full-Price net sales decreased 5.1%4.1% and 5.3% for the firstthird quarter ofand nine months ended November 2, 2019, compared with the same periodperiods in 2018. Full-Price sales reflected a decrease in the number of items sold, partially offset by an increase in average selling price per item sold. Shoes wassold for the third quarter and nine months ended November 2, 2019. The top-performing merchandise category.categories were Accessories and Shoes for the third quarter and Shoes and Accessories for the nine months ended November 2, 2019.
Off-Price net sales decreased 0.6%increased 1.2% for the firstthird quarter of 2019 and decreased 0.4% for the nine months ended November 2, 2019, compared with the same periodperiods in 2018. Off-Price sales reflected a decreasean increase in the average selling price per item sold, partially offset by an increasea decrease in the number of items sold.sold for the third quarter of 2019. Men’s and Women’s Active and Coats were the top-performing merchandise categories.categories for the third quarter and for the nine months ended November 2, 2019.
Credit Card Revenues, Net
TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. Credit card revenues, net include our portion of the ongoing credit card revenue, net of credit losses, pursuant to our program agreement with TD. Credit card revenue,revenues, net was $94$106 for the third quarter, ended May 4, 2019, which was relatively flat when compared with $92$100 for the same period in 2018 and $293 for the nine months ended November 2, 2019, compared with $280 for the same period in 2018. The increases of $6 and $13 for the quarter and nine months ended November 2, 2019 were primarily a result of growing the related receivables and associated revenue.


18 of 28







Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)




Gross Profit
The following table summarizes gross profit:
Quarter EndedQuarter Ended Nine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Gross profit
$1,121
 
$1,181

$1,222
 
$1,213
 
$3,645
 
$3,786
Gross profit as a % of net sales33.5% 34.1%34.3% 33.3% 34.1% 34.1%
       
    November 2, 2019
 November 3, 2018
Inventory turnover rate4.68
 4.63
    4.47
 4.56
Our gross profit rate decreased 60increased 100 basis points for the firstthird quarter of 2019, compared with the same period in 2018, primarily due to plannedfewer markdowns to realignfrom continued inventory todiscipline in Off-Price and higher sell-through of Anniversary Sale product in Full-Price.
Lower sales trends and deleverage of occupancy expenses on lower sales. Continued inventory executionvolume led to improvementsa decrease in inventory turnover rate as of May 4,November 2, 2019. Ending inventory as of November 2, 2019 decreased 2.7% compared with the prior period, reflecting three consecutive quarters of maintaining a positive spread between the change in inventory and sales.
Selling, General and Administrative Expenses 
SG&A is summarized in the following table:
Quarter EndedQuarter Ended Nine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
 November 2, 2019

November 3, 2018
SG&A expenses
$1,138
 
$1,120

$1,135
 
$1,208
 
$3,453
 
$3,562
SG&A expenses as a % of net sales34.0% 32.3%31.8% 33.1% 32.3% 32.1%
ForSG&A decreased 132 basis points and $73 for the firstthird quarter of 2019, compared with the same period in 2018. Excluding the Estimated Non-recurring Charge of $72 in 2018, expenses deleveraged by approximately 60 basis points, which was primarily driven by New York City flagship pre-opening costs. SG&A expenses increased $1819 basis points for the nine months ended November 2, 2019, primarily due to our fixed expense deleverage and higher marketing costs and planned supply chain investments. Ourspend. SG&A rate increased 168 basis pointsdecreased $109 for the nine months ended November 2, 2019, primarily due to fixedour continued expense deleverage on lower sales volume.efficiencies and the $72 Estimated Non-recurring Charge.
Earnings Before Interest and Income Taxes 
EBIT is summarized in the following table:
Quarter EndedQuarter Ended Nine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
EBIT
$77
 
$153

$193
 
$105
 
$485
 
$504
EBIT as a % of net sales2.3% 4.4%
EBIT as a % of sales5.4% 2.9% 4.5% 4.5%
ForEBIT increased $88 and 252 basis points for the firstthird quarter of 2019, compared with the same period in 2018. Excluding a $72 Estimated Non-recurring Charge in 2018, EBIT margin expanded by approximately 50 basis points, which was primarily due to our ongoing inventory discipline and progress in bending the expense curve. EBIT decreased $76 and EBIT rate decreased 212 basis points$19 for the nine months ended November 2, 2019, compared with the same period in 2018, primarily due primarily to lower sales volume.
Interest Expense, Net
Interest expense, net was $24$20 for the firstthird quarter of 2019, compared with $28$25 for the same period in 2018, and $66 for the nine months ended November 2, 2019, compared with $81 for the same period in 2018. The decrease for the third quarter of 2019 and nine months ended November 2, 2019 was primarily due to higher capitalized interest in 2019 associated with investments in our New York City flagship store and Supply Chain Network.Networks.
Income Tax Expense
Income tax expense is summarized in the following table:
 Quarter Ended
 May 4, 2019
 May 5, 2018
Income tax expense
$16
 
$38
Effective tax rate31.0% 30.4%
The effective tax rate increased for the first quarter of 2019, compared with the same period in 2018, due to the unfavorable impact of stock compensation, partially offset by the reduced impact of the mix of income between the U.S. and Canada.


19 of 28







Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)




Earnings Per ShareIncome Tax Expense
EPSIncome tax expense is as follows:summarized in the following table:
 Quarter Ended
 May 4, 2019
 May 5, 2018
Basic
$0.24
 
$0.52
Diluted
$0.23
 
$0.51
 Quarter Ended Nine Months Ended
 November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Income tax expense
$47
 
$13
 
$115
 
$107
Effective tax rate26.9% 16.4% 27.6% 25.3%
Earnings per diluted share decreased $0.28The effective tax rate increased for the firstthird quarter of 2019, compared with the same period in 2018, primarily due to the tax benefit recorded in the third quarter of 2018 for the Estimated Non-recurring Charge. The effective tax rate increased for the nine months ended November 2, 2019, compared with the same period in 2018, primarily due to decreased tax benefits from stock compensation.
Earnings Per Share
Earnings per share is as follows:
 Quarter Ended Nine Months Ended
 November 2, 2019
 November 3, 2018
 November 2, 2019
 November 3, 2018
Basic
$0.81
 
$0.40
 
$1.96
 
$1.88
Diluted
$0.81
 
$0.39
 
$1.95
 
$1.85
Earnings per diluted share increased $0.42 for the third quarter of 2019, compared with the same period in 2018, primarily due to the Estimated Non-recurring Charge in the third quarter of 2018, in addition to strong inventory and expense execution in the third quarter of 2019. Earnings per diluted share increased $0.10 for the nine months ended November 2, 2019, primarily due to the Estimated Non-recurring Charge in the third quarter of 2018 and the impact of share repurchases in 2018, partially offset by lower sales.sales volumes.
Fiscal Year 2019 Outlook
We remain focused on three strategic objectivesOur revised annual earnings per diluted share outlook of $3.30 to $3.50 does not include an estimated one-time charge of approximately $0.04 related to our debt refinancing in driving shareholder returns: gaining market share, improving profitability and returns and maintaining disciplined capital allocation. We revised our annual outlookthe fourth quarter. The impact of tariffs is not expected to reflect current trends:be material for the year.
 Prior OutlookCurrent Outlook
Net sales1 toApproximately 2 percent increasedecreaseApproximately 2 percent decrease to flat
Credit card revenues, netMidLow to highmid single-digit growthLow to midMid single-digit growth
EBIT$915805 to $970$855 million$805815 to $890$855 million
EBIT margin5.9 to 6.1 percent5.3 to 5.85.6 percent5.4 to 5.6 percent
Earnings per diluted share (excluding the impact of any potential future share repurchases)$3.65 to $3.90$3.25 to $3.65$3.50$3.30 to $3.50


20 of 28







Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)




Adjusted ROIC (Non-GAAP financial measure)
We believe that Adjusted ROIC is a useful financial measure for investors and credit agencies in evaluating the efficiency and effectiveness of the capital we have invested in our business to generate returns over time. 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.
For 2019, income statement activity for adjusted net operating profit and balance sheet amounts for average invested capital are comprised of one quarterthree quarters of activity under the Lease Standard for 2019, and the last three quartersfourth quarter of 2018 under the previous lease standard. Under the previous lease standard, we estimated the value of our operating leases as if they met the criteria for capital leases or we had purchased the properties. This provided additional supplemental information that estimated the investment in our operating leases. Estimated depreciation on capitalized operating leases and average estimated asset base of capitalized operating leases are not calculated in accordance with, nor an alternative for, GAAP and should not be considered in isolation or as a substitution offor our results as reported under GAAP.
Adjusted ROIC is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other GAAP financial measures. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted ROIC is return on assets.
The following is a reconciliation of the components of Adjusted ROIC and return on assets:assets to Adjusted ROIC:
Four Quarters EndedFour Quarters Ended
May 4, 2019

May 5, 2018
November 2, 2019

November 3, 2018
Net earnings
$513
 
$461

$551
 
$467
Add: income tax expense147
 351
178
 276
Add: interest expense115
 123
101
 124
Earnings before interest and income tax expense775
 935
830
 867
      
Add: operating lease interest1
23
 
76
 
Add: rent expense, net189
 254
66
 251
Less: estimated depreciation on capitalized operating leases2
(101) (135)(35) (134)
Adjusted net operating profit886
 1,054
937
 984
      
Less: estimated income tax expense(198) (456)(228) (365)
Adjusted net operating profit after tax
$688
 
$598

$709
 
$619
      
Average total assets
$8,591
 
$8,067

$9,403
 
$8,269
Less: average non-interest-bearing current liabilities(3,438) (3,306)(3,563) (3,429)
Less: average deferred property incentives in excess of ROU assets3
(77) 
(232) 
Add: average estimated asset base of capitalized operating leases2
1,508
 1,893
502
 1,994
Less: average deferred property incentives and deferred rent liability(459) (642)(150) (625)
Average invested capital
$6,125
 
$6,012

$5,960
 
$6,209
      
Return on assets4
6.0% 5.7%5.9% 5.6%
Adjusted ROIC4
11.3% 9.9%11.9% 10.0%
1 As a result of the adoption of the Lease Standard, we add back the operating lease interest to reflect how we manage our business. Operating lease interest is a component of operating lease cost recorded in occupancy costs and is calculated in accordance with the Lease Standard.
2 Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating under the previous lease standard if they had met the criteria for a finance lease or we had purchased the property. The asset base for each quarter is calculated as the trailing four quarters of rent expense multiplied by eight, a commonly used method to estimate the asset base we would record for our capitalized operating leases.  
3 For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities. As a result of the adoption of the Lease Standard, we reduce average total assets, as this better reflects how we manage our business.  
4 Results for the four quarters ended May 4, 2019November 3, 2018 included the $72 impact related to the Estimated Non-recurring Charge, which negatively impacted return on assets by approximately 60 basis points and Adjusted ROIC by approximately 7080 basis points. In addition,For the impactfour quarters ended November 2, 2019, the adoption of the Lease Standard negatively impacted return on assets by approximately 3090 basis points and Adjusted ROIC by approximately 20 basis points.


21 of 28







Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)




LIQUIDITY AND CAPITAL RESOURCES
We strive to maintain a level of liquidity sufficient to allow us to cover our seasonal cash needs and to maintain appropriate levels of short-term borrowings. We believe that our operating cash flows, available credit facility and potential future borrowings are sufficient to meet our cash requirements for the next 12 months and beyond.
Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial position, manage refinancing risk and allow flexibility for strategic initiatives. We regularly assess our debt and leverage levels, capital expenditure requirements, debt service payments, dividend payouts, potential share repurchases and other future investments. We believe that as of May 4,November 2, 2019, our existing cash and cash equivalents on-hand of $448,$487, available credit facility of $800 and potential future operating cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives.
The following is a summary of our cash flows by activity:
Quarter EndedNine Months Ended
Fiscal yearMay 4, 2019
 May 5, 2018
Net cash used in operating activities
($31) 
($28)

November 2, 2019
 November 3, 2018
Net cash provided by operating activities
$569
 
$642
Net cash used in investing activities(248) (149)(717) (448)
Net cash used in financing activities(230) (38)(322) (248)
Operating Activities
Net cash used inprovided by operating activities increased $3decreased $73 for the period ended May 4,November 2, 2019, compared with the same period in 2018, primarily due to a decrease in sales, partially offset by less inventory purchased.payments made related to the Estimated Non-recurring Charge.
Investing Activities
Net cash used in investing activities increased $99$269 for the period ended May 4,November 2, 2019, compared with the same period in 2018, primarily due to an increase in capital expenditures related to Nordstrom NYC and our Supply Chain Network, including our Omni-channel center.
The opening of our first large-scale Omni-channel center in Riverside, California, openingwhich will initially support our Full-Price customers in late 2019.the West Coast region and Off-Price customers in the future, is expected to open in the spring of 2020. We also plan to open a smaller Local Omni-channel Hub in Torrance, California by the end of fiscal year 2019, which will support the greater Los Angeles market as part of our market strategy.
Financing Activities
Net cash used in financing activities increased $192$74 for the period ended May 4,November 2, 2019, compared with the same period in 2018, primarily due to increased share repurchase activity.activity executed in the first quarter of 2019.

22 of 28




Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)


Free Cash Flow (Non-GAAP financial measure)
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 determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash used inprovided by operating activities. The following is a reconciliation of net cash used inprovided by operating activities to Free Cash Flow:
Quarter EndedNine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
Net cash used in operating activities
($31) 
($28)
Net cash provided by operating activities
$569
 
$642
Less: capital expenditures(249) (129)(741) (429)
Add: change in cash book overdrafts40
 27
58
 34
Free Cash Flow
($240)

($130)
($114)

$247

22 of 28




Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)


Adjusted EBITDA (Non-GAAP financial measure)
Adjusted EBITDA is our key financial metric to reflect our view of cash flow from net earnings. Adjusted EBITDA excludes significant items which are non-operating in nature in order to evaluate our core operating performance against prior periods. The financial measure calculated under GAAP which is most directly comparable to Adjusted EBITDA is net earnings.
Adjusted EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for net earnings, overall change in cash or liquidity of the business as a whole. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The following is a reconciliation of net earnings to Adjusted EBITDA:
Quarter EndedNine Months Ended
May 4, 2019
 May 5, 2018
November 2, 2019
 November 3, 2018
Net earnings
$37
 
$87

$304
 
$316
Add: income tax expense16
 38
115
 107
Add: interest expense, net24
 28
66
 81
Earnings before interest and income taxes77
 153
485
 504
      
Add: depreciation and amortization expenses163
 169
486
 498
Less: amortization of developer reimbursements(19) (21)(56) (60)
Adjusted EBITDA
$221
 
$301

$915
 
$942
Credit Capacity and Commitments
We haveAs of November 2, 2019, we had total short-term borrowing capacity of $800 under the revolverRevolver that expires September 2023. Provided that we obtain written consent from our lenders, we have the option to increase the revolverRevolver by up to $200, to a total of $1,000, and two options to extend the revolverRevolver by one year. As of May 4,November 2, 2019, we had no borrowings outstanding under our revolver.Revolver. For more information about our credit facilities, see Note 5: Debt and Credit Facilities in Item 1.
Impact of Credit Ratings
UnderChanges in our credit ratings may impact our costs to borrow and may require we hold collateral.
For our Revolver, the terms of our revolver,interest rate applicable to any borrowings we may enter into will accrue interest for Euro-Dollar Rate Loans at a floating base rate tied to LIBOR, for Canadian Dealer Offer Rate Loans at a floating rate tied to CDOR, and for Base Rate Loans at the highest of: (i) the Euro-Dollar rate plus 100 basis points, (ii) the federal funds rate plus 50 basis points or (iii) the prime rate.
The rate depends upon the type of borrowing incurred plus in each case, an applicable margin. This applicable margin, varies depending upon thewhich is determined based on our credit ratings assigned to our long-term unsecured debt.ratings. At the time of this report, our long-term unsecured debtcredit ratings outlook and resulting applicable marginoutlook were as follows:
 Credit Ratings Outlook
Moody’sBaa1Baa2 Stable
Standard & Poor’sBBB+BBB Stable

23 of 28




Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)

Base Interest RateApplicable Margin
Euro-Dollar Rate LoanLIBOR1.03%
Canadian Dealer Offer Rate LoanCDOR1.03%
Base Rate Loanvarious0.03%

Should the ratings assigned to our long-term unsecured debt improve, the applicable margin associated with any such borrowings under the Revolver may decrease, resulting in a lower borrowing cost under this facility. ShouldConversely, should the ratings assigned to our long-term unsecured debt worsen, the applicable margin associated with ourany borrowings under the Revolver may increase, resulting in a higher borrowing cost under this facility.
Debt Covenants
The revolverRevolver requires that we maintain an adjusted debt to EBITDAR leverage ratio of no more than four times. The Revolver’s ratio calculation methodology has not been impacted by the adoption of the new Lease Standard. As of May 4,November 2, 2019, we were in compliance with this covenant.

23 of 28




Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)


Adjusted Debt to EBITDAR (Non-GAAP financial measure)
Adjusted Debt to EBITDAR is one of our key financial metrics and we believe that our debt levels are best analyzed using this measure, as it provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. Our goal is to manage debt levels to maintain an investment-grade credit rating and operatewhile operating with an efficient capital structure. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of no more than four times.
For 2019, income statement activity for adjustedAdjusted EBITDAR is comprised of one quarterthree quarters of activity under the Lease Standard for 2019 and the last three quartersfourth quarter of 2018 under the previous lease standard. Balance sheet amounts are as of the end of the quarter, and under the new Lease Standard for 2019 and the previous lease standard for 2018. Under the previous lease standard, we estimated the value of our operating leases as if they met the criteria for capital leases or we had purchased the properties. This provided additional supplemental information that estimated the investment in our operating leases. Estimated capitalized operating lease liability is not calculated in accordance with, nor an alternative for, GAAP and should not be considered in isolation or as a substitution offor our results as reported under GAAP.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other GAAP financial measures. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies.
The following is a reconciliation of the components ofdebt to net earnings to Adjusted Debt to EBITDAR and debt to net earnings:EBITDAR:
20191

 
20181

20191

 
20181

Debt
$2,676
 
$2,736

$2,679
 
$2,686
Add: operating lease liabilities2,188
 
2,133
 
Add: estimated capitalized operating lease liability2

 2,029

 2,011
Adjusted Debt
$4,864
 
$4,765

$4,812
 
$4,697
      
Net earnings
$513
 
$461

$551
 
$467
Add: income tax expense147
 351
178
 276
Add: interest expense, net100
 116
89
 111
Earnings before interest and income taxes760
 928
818
 854
      
Add: depreciation and amortization expenses663
 674
656
 686
Add: operating lease cost3
69
 
Add: lease costs, net3
205
 
Add: rent expense, net189
 254
66
 251
Add: non-cash acquisition-related charges
 1
Adjusted EBITDAR
$1,681
 
$1,857

$1,745
 
$1,791
      
Debt to Net Earnings4
5.2
 5.9
4.9
 5.8
Adjusted Debt to EBITDAR4
2.9
 2.6
2.8
 2.6
1 The components of Adjusted Debt are as of May 4,November 2, 2019 and May 5,November 3, 2018, while the components of Adjusted EBITDAR are for the four quarters ended May 4,November 2, 2019 and May 5,November 3, 2018.
2 Based upon the estimated lease liability as of the end of the period, calculated as the trailing four quarters of rent expense multiplied by eight, a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property.
3 As a result of the adoption of the Lease Standard, we add back the operating lease costcosts, net to calculate Adjusted EBITDAR.  
4 Results for the four quarters ended May 4, 2019November 3, 2018 included the $72 impact related to the Estimated Non-recurring Charge, which negatively impacted Debt to Net Earnings by approximately 50 basis points0.5 and Adjusted Debt to EBITDAR by approximately 10 basis points. In addition,0.1. For the impactfour quarters ended November 2, 2019, the adoption of the Lease Standard had no impact on Debt to Net Earnings and negatively impactednor Adjusted Debt to EBITDAR by approximately 10 basis points.EBITDAR.


24 of 28







Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)




Off-Balance Sheet Arrangements
As of May 4,November 2, 2019, there have been no material changes to our off-balance sheet arrangements as disclosed in our 2018 Annual Report except for our operating leases, which are recorded on the balance sheet as a result of adopting the Lease Standard.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe that the estimates, assumptions and judgments involved in the accounting policies referred to in our 2018 Annual Report have the greatest potential effect on our financial statements, so we consider these to be our critical accounting policies and estimates. Our management has discussed the development and selection of these critical accounting estimates with the Audit & Finance Committee of our Board of Directors.
Except as disclosed in Note 2: Leases of Item 1, pertaining to our adoption of the Lease Standard, there have been no significantmaterial changes to our significant accounting policies or critical accounting estimates as described in our 2018 Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We discussed our interest rate risk and our foreign currency exchange risk in our 2018 Annual Report. There have been no material changes to these risks since that time.
Item 4. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, we performed an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the design and effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the quarternine months ended May 4,November 2, 2019, we adopted the Lease Standard. As a result of our adoption of the Lease Standard, we implemented a new lease accounting information system and modified our processes and internal controls over lease accounting.
There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


25 of 28







Table of Contents






PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits alleging violations of state and/or federal wage and hour and other employment laws, privacy and other consumer-based claims. Some of these lawsuits include certified classes of litigants, or purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We believe the recorded accruals in our Condensed Consolidated Financial Statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any currently identified claim, proceeding or litigation, either alone or in the aggregate, will have a material impact on our results of operations, financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future.
Item 1A. Risk Factors.
There have been no material changes to the risk factors we discussed in our 2018 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) SHARE REPURCHASES
(Dollar and share amounts in millions, except per share amounts)
The following is a summary of our first quarter share repurchases:
 
Total Number
of Shares
Purchased

 
Average
Price Paid
per Share

 
Total Number of Shares Purchased
as Part of Publicly Announced
Plans or Programs

 
Approximate Dollar Value
of Shares that may
yet be Purchased Under
the Plans or Programs

February 2019
(February 3, 2019 to March 2, 2019)
3.5
 
$45.37
 3.5
 
$736
March 2019
(March 3, 2019 to April 6, 2019)
0.6
 
$44.08
 0.6
 
$707
April 2019
(April 7, 2019 to May 4, 2019)

 
 
 
$707
Total4.1
 
$45.17
 4.1
  
In August 2018, our Board of Directors authorized a program to repurchase up to $1,500 of our outstanding common stock, with no expiration date. During the third quarterof2019, we did not repurchase any shares of our common stock and we had $707 remaining in share repurchase capacity as of November 2, 2019. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules.
Item 6. Exhibits.
Exhibits are incorporated herein by reference or are filed or furnished with this report as set forth in the Exhibit Index on page 27 hereof.


26 of 28







Table of Contents






NORDSTROM, INC.
Exhibit Index
Exhibit Method of Filing
  Incorporated by reference from the Registrant’s Form 8-K filed on May 29,November 6, 2019, Exhibit 3.14.1
     
  Filed herewith electronically
     
  Filed herewith electronically
     
 Filed herewith electronically
 Furnished herewith electronically
     
101.INS Inline XBRL Instance Document Filed herewith electronically
     
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith electronically
     
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith electronically
     
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document Filed herewith electronically
     
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith electronically
     
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed herewith electronically
     
104Cover Page Interactive Data File (Inline XBRL)Filed herewith electronically


27 of 28







Table of Contents






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NORDSTROM, INC.
(Registrant)
  
/s/ Anne L. Bramman
Anne L. Bramman
Chief Financial Officer
(Principal Financial Officer)
  
Date:June 5,December 4, 2019


28 of 28