UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 1,October 30, 2021
or
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☐ | 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)
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Washington | | 91-0515058 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1617 Sixth Avenue, Seattle, Washington 98101
(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:
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Title of each class | Trading Symbol | Name of each exchange on which registered |
Common stock, without par value | JWN | New York Stock Exchange |
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 ☑ 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 ☑ 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.
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☑ | Large 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 ☑
Common stock outstanding as of May 28,November 26, 2021: 158,898,676159,313,408 shares
TABLE OF CONTENTS
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Item 1. | | |
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| Condensed Consolidated Statements of Earnings | |
| Condensed Consolidated Statements of Comprehensive Earnings | |
| Condensed Consolidated Balance Sheets | |
| Condensed Consolidated Statements of Shareholders’ Equity | |
| Condensed Consolidated Statements of Cash Flows | |
| Notes to Condensed Consolidated Financial Statements | |
| Note 1: Basis of Presentation | |
| Note 2: Revenue | |
| Note 3: Debt and Credit Facilities | |
| Note 4: Fair Value Measurements | |
| Note 5: Commitments and Contingencies | |
| Note 6: Shareholders’ Equity | |
| Note 7: Stock-based Compensation | |
| Note 8: Earnings Per Share | |
| Note 9: Segment Reporting | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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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, youforward-looking statements can identify forward-looking statementsbe identified 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 January 29, 2022, trends in our operations and the following:
Strategic and Operational
•the novel coronavirus (“COVID-19”) global pandemic and civil unrest, each of which may make it necessary to close our physical stores and facilities in affected areas and may have a negative impact on our business and results, any of which may exacerbate the risks below,
•successful execution of our customer strategy to provide customers superior service, products and experiences online, through our fulfillment capabilities and in stores,
•timely and effective implementation and execution of our evolving business model, including:
◦scaling our market strategy by providing a differentiated and seamless experience, which consists of the integration of our digital and physical assets, development of new supply chain capabilities and timely delivery of products,
◦expanding the reach of Nordstrom Rack, including expanding our price range and selection and leveraging our digital and physical assets,
◦increasing our digital velocity by enhancing our platforms and processes to deliver core capabilities to drive customer, employee and partner experiences both digitally and service,in-store,
•our ability to effectively manage our merchandise strategy, including our ability to offer compelling assortments,
•our ability to effectively utilize internal and third-party data in strategic planning and decision making,
•our ability to effectively allocate and scale our marketing strategies and resources, as well as realize the expected benefits between The Nordy Club, advertising and promotional campaigns,
•our ability to respond to the evolving retail environment, including new fashion trends, environmental considerations and our customers’ changing expectations of service and experience in stores and online, and our development of new market strategies and customer offerings,
•our ability to prevent or mitigate disruptions in the global supply chain, including factory closures, transportation challenges or stoppages of certain imports, and rising freight expenses and control costs through effective inventory management, fulfillment and supply chain processes and systems,
•our ability to realize the expected benefits, anticipate and respond to potential risks and appropriately manage costs associated with our credit card revenue sharing program,
•our ability to acquire, develop and retain qualified and diverse talent by providing appropriate training, compelling work environments and offer competitive compensation and benefits, especially in areas with increased market compensation,
•potential goodwill impairment charges, future impairment charges, fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames or our strategic direction changes,
Data, Cybersecurity and Information Technology
•successful execution of our information technology strategy, including engagement with third-party service providers,
•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, and our compliance with information security and privacy laws and regulations, as well as third-party contractual obligations in the event of such an incident,
Reputation and Relationships
•our ability to maintain our reputation and relationships with our customers, vendors and third-party partners and landlords,
•our ability to maintain relationships with and motivate our employees, including sustaining our corporate culture and to effectively attract, develop and retainemployee morale amid our top talent and future leaders,changing corporate work model,
•our ability to market our brand onand distribute our products through a variety of third-party publisher or platform channels, as well as our access to mobile operating systems and website identifiers for personalized delivery of targeted advertising,
Investment and Capital
•efficient and proper allocation of our capital resources,
•our ability to properly balance our investments in technology, Supply Chain Network facilities and existing and new store locations, including the expansion of our market strategy,
•our ability to maintain or expand our presence, including timely completion of construction associated with Supply Chain Network facilities and new, relocated and remodeled stores, as well as any potential store closures, all of which may be impacted by third parties, consumer demand and other natural or man-made disruptions, and government responses to any such disruptions,
•market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real estate,
•compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,
•the actual timing, price, manner and amounts of future share repurchases, dividend payments or share issuances, if any,
Economic and External
•the length and severity of epidemics or pandemics, such as the COVID-19 pandemic, or other catastrophic events, and the related impact on customer behavior, store and online operations and supply chain functions, as well as our future consolidated financial position, results of operations and cash flows,
•the impact of the seasonal nature of our business and cyclical customer spending,
•the impact of economic and market conditions in the U.S. and Canada, including inflation and the resulting changes to our customer purchasing behavior, unemployment and bankruptcy rates, as well as any fiscal stimulus and the resultant impact on consumer spending and credit patterns,
•the impact of economic, environmental or political conditions in the U.S. and Canada and countries where our third-party vendors operate,
•the impact of changing traffic patterns at shopping centers and malls,
•financial insecurity or potential insolvency experienced by our vendors, suppliers, landlords, peers,competitors or customers as a result of any economic downturn,
•weather conditions, natural disasters, climate change, national security concerns, other market and supply chain disruptions, the effects of tariffs, or the prospects of these events, and the resulting impact on consumer spending patterns or information technology systems and communications,
Legal and Regulatory
•our, and our vendors’, compliance with applicable domestic and international laws, regulations and ethical standards, including those related to COVID-19, minimum wage, employment and tax, information security and privacy, consumer credit and environmental regulations and the outcome of any claims, litigation and regulatory investigations and resolution of such matters,
•the impact of the current regulatory environment, financial system 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.
These and other factors, including those factors we discussed in Part II, Item 1A: Risk Factors, 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, youundue reliance should not place undue reliancebe placed 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 thisThis Quarterly Report on Form 10-Q should be read 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 “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.
DEFINITIONS
The following table includes definitions of our commonly used terms: OF COMMONLY USED TERMS
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Term | | Definition |
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2019 Plan | | 2019 Equity Incentive Plan |
2020 Annual Report | | Annual Report on Form 10-K filed on March 15, 2021 |
Adjusted EBITDA | | Adjusted earnings (loss) before interest, income taxes, depreciation and amortization (a non-GAAP financial measure) |
Adjusted EBITDAR | | Adjusted earnings (loss) before interest, income taxes, depreciation, amortization and rent, as defined by our Revolver covenant (a non-GAAP financial measure) |
Adjusted ROIC | | Adjusted return on invested capital (a non-GAAP financial measure) |
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ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
CARES Act | | Coronavirus Aid, Relief and Economic Security Act |
CODM | | Chief operating decision maker |
COVID-19 | | Novel coronavirus |
Digital sales | | Sales conducted through a digital platform such as our websites or mobile apps. Digital sales may be self-guided by the customer, as in a traditional online order, or facilitated by a salesperson using a virtual styling or selling tool, such as Nordstrom Trunk Club or Style Board. Digital sales may be delivered to the customer or picked up in our Nordstrom stores, Nordstrom Rack stores or Nordstrom Local service hubs. Digital sales also include a reserve for estimated returns. |
EBIT | | Earnings (Loss)(loss) before interest and income taxes |
EPS | | Earnings (Loss)(loss) per share |
ESPP | | Employee Stock Purchase Plan |
Exchange Act | | Securities Exchange Act of 1934, as amended |
Express Services | | Nordstrom order pickups and returns offered at certain Nordstrom Rack stores |
FASB | | Financial Accounting Standards Board |
FirstThird quarter of 2021 | | 13 fiscal weeks ending May 1,October 30, 2021 |
FirstThird quarter of 2020 | | 13 fiscal weeks ending May 2,October 31, 2020 |
FirstThird quarter of 2019 | | 13 fiscal weeks ending May 4,November 2, 2019 |
Fiscal year 2021 | | 52 fiscal weeks ending January 29, 2022 |
Fiscal year 2020 | | 52 fiscal weeks ending January 30, 2021 |
GAAP | | GenerallyU.S. generally accepted accounting principles |
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Gross profit | | Net sales less cost of sales and related buying and occupancy costs |
Inventory turnover rate | | Trailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter average inventory |
Lease Standard | | ASU No. 2016-02, Leases, and all related amendments (ASC 842) |
Leverage Ratio | | The sum of the preceding twelve months of rent expense under the previous lease guidance multiplied by six and funded debt divided by the preceding twelve months of Adjusted EBITDAR as defined by our debt covenantRevolver covenant. See Liquidity and Capital Resources in Item 2 for a reconciliation of our non-GAAP financial measure. |
MD&A | | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Nordstrom | | Nordstrom.com, TrunkClub.com, Nordstrom-branded U.S. stores, Canada, which includes Nordstrom.ca, Nordstrom Canadian stores and Nordstrom Rack Canadian stores, and Nordstrom Local |
Nordstrom Local | | Nordstrom Local service hubs, which offer Nordstrom order pickups, returns, alterations and other services |
Nordstrom NYC | | Our New York City Nordstrom flagship store, including the Men’s location |
Nordstrom Rack | | Nordstromrack.com,NordstromRack.com, Nordstrom Rack-branded U.S. stores, Last Chance clearance stores and, prior to the first quarter of 2021, HauteLook.com |
The Nordy Club | | Our customer loyalty program |
NYSE | | New York Stock Exchange |
Operating Lease Cost | | Fixed rent expense, including fixed common area maintenance expense, net of developer reimbursement amortization |
PCAOB | | Public Company Accounting Oversight Board (United States) |
Property incentives | | Developer and vendor reimbursements |
PSU | | Performance share unit |
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Revolver | | Senior revolving credit facility |
ROU asset | | Operating lease right-of-use asset |
RSU | | Restricted stock unit |
SEC | | Securities and Exchange Commission |
SERP | | Unfunded defined benefit Supplemental Executive Retirement Plan |
Secured Notes | | 8.750% senior secured notes due May 2025 |
SG&A | | Selling, general and administrative |
Supply Chain Network | | Fulfillment centers that primarily process and ship orders to our customers, distribution centers that primarily 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 |
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TD | | Toronto-Dominion Bank, N.A. |
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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 Ended | | Quarter Ended | | Nine Months Ended |
| | | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Net sales | Net sales | | $2,921 | | | $2,026 | | Net sales | $3,534 | | $3,002 | | | $10,020 | | $6,806 | |
Credit card revenues, net | Credit card revenues, net | | 88 | | | 93 | | Credit card revenues, net | 103 | | 87 | | | 283 | | 264 | |
Total revenues | Total revenues | | 3,009 | | | 2,119 | | Total revenues | 3,637 | | 3,089 | | | 10,303 | | 7,070 | |
Cost of sales and related buying and occupancy costs | Cost of sales and related buying and occupancy costs | | (2,019) | | | (1,810) | | Cost of sales and related buying and occupancy costs | (2,294) | | (2,019) | | | (6,646) | | (5,235) | |
Selling, general and administrative expenses | Selling, general and administrative expenses | | (1,075) | | | (1,122) | | Selling, general and administrative expenses | (1,216) | | (964) | | | (3,464) | | (2,912) | |
Loss before interest and income taxes | | (85) | | | (813) | | |
Earnings (loss) before interest and income taxes | | Earnings (loss) before interest and income taxes | 127 | | 106 | | | 193 | | (1,077) | |
Interest expense, net | Interest expense, net | | (137) | | | (34) | | Interest expense, net | (36) | | (48) | | | (213) | | (133) | |
Loss before income taxes | | (222) | | | (847) | | |
Income tax benefit | | 56 | | | 326 | | |
Net loss | | ($166) | | | ($521) | | |
Earnings (loss) before income taxes | | Earnings (loss) before income taxes | 91 | | 58 | | | (20) | | (1,210) | |
Income tax (expense) benefit | | Income tax (expense) benefit | (27) | | (5) | | | (2) | | 487 | |
Net earnings (loss) | | Net earnings (loss) | $64 | | $53 | | | ($22) | | ($723) | |
| Loss per share: | | | |
Earnings (loss) per share: | | Earnings (loss) per share: | |
Basic | Basic | | ($1.05) | | | ($3.33) | | Basic | $0.40 | | $0.34 | | | ($0.14) | | ($4.60) | |
Diluted | Diluted | | ($1.05) | | | ($3.33) | | Diluted | $0.39 | | $0.34 | | | ($0.14) | | ($4.60) | |
| Weighted-average shares outstanding: | Weighted-average shares outstanding: | | | Weighted-average shares outstanding: | |
Basic | Basic | | 158.5 | | | 156.4 | | Basic | 159.2 | | 157.5 | | | 158.9 | | 157.0 | |
Diluted | Diluted | | 158.5 | | | 156.4 | | Diluted | 162.5 | | 158.2 | | | 158.9 | | 157.0 | |
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 Ended | | Quarter Ended | | Nine Months Ended |
| | | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Net loss | | ($166) | | | ($521) | | |
Net earnings (loss) | | Net earnings (loss) | $64 | | $53 | | | ($22) | | ($723) | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | 10 | | | (24) | | Foreign currency translation adjustment | 1 | | 1 | | | 7 | | (12) | |
Post retirement plan adjustments, net of tax | Post retirement plan adjustments, net of tax | | 1 | | | 2 | | Post retirement plan adjustments, net of tax | 2 | | 2 | | | 5 | | 5 | |
Comprehensive net loss | | ($155) | | | ($543) | | |
Comprehensive net earnings (loss) | | Comprehensive net earnings (loss) | $67 | | $56 | | | ($10) | | ($730) | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
(Unaudited)
| | | May 1, 2021 | | January 30, 2021 | | May 2, 2020 | | October 30, 2021 | January 30, 2021 | October 31, 2020 |
Assets | Assets | | Assets | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $377 | | | $681 | | | $1,355 | | Cash and cash equivalents | $267 | | $681 | | $889 | |
Accounts receivable, net | Accounts receivable, net | 238 | | | 245 | | | 154 | | Accounts receivable, net | 273 | | 245 | | 256 | |
Merchandise inventories | Merchandise inventories | 1,961 | | | 1,863 | | | 1,489 | | Merchandise inventories | 2,863 | | 1,863 | | 1,860 | |
Prepaid expenses and other | Prepaid expenses and other | 923 | | | 853 | | | 669 | | Prepaid expenses and other | 374 | | 853 | | 902 | |
Total current assets | Total current assets | 3,499 | | | 3,642 | | | 3,667 | | Total current assets | 3,777 | | 3,642 | | 3,907 | |
| Land, property and equipment (net of accumulated depreciation of $7,322, $7,159 and $6,683) | 3,642 | | | 3,732 | | | 3,974 | | |
Land, property and equipment (net of accumulated depreciation of $7,617, $7,159 and $6,987) | | Land, property and equipment (net of accumulated depreciation of $7,617, $7,159 and $6,987) | 3,558 | | 3,732 | | 3,770 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 1,560 | | | 1,581 | | | 1,722 | | Operating lease right-of-use assets | 1,527 | | 1,581 | | 1,611 | |
Goodwill | Goodwill | 249 | | | 249 | | | 249 | | Goodwill | 249 | | 249 | | 249 | |
Other assets | Other assets | 383 | | | 334 | | | 357 | | Other assets | 423 | | 334 | | 274 | |
Total assets | Total assets | $9,333 | | | $9,538 | | | $9,969 | | Total assets | $9,534 | | $9,538 | | $9,811 | |
| Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | Liabilities and Shareholders’ Equity | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Borrowings under revolving line of credit | Borrowings under revolving line of credit | $200 | | | $0 | | | $800 | | Borrowings under revolving line of credit | $200 | | $— | | $200 | |
Accounts payable | Accounts payable | 1,676 | | | 1,960 | | | 1,125 | | Accounts payable | 2,310 | | 1,960 | | 2,053 | |
Accrued salaries, wages and related benefits | Accrued salaries, wages and related benefits | 330 | | | 352 | | | 280 | | Accrued salaries, wages and related benefits | 276 | | 352 | | 254 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | 246 | | | 260 | | | 243 | | Current portion of operating lease liabilities | 240 | | 260 | | 269 | |
Other current liabilities | Other current liabilities | 1,056 | | | 1,048 | | | 1,351 | | Other current liabilities | 1,063 | | 1,048 | | 1,119 | |
Current portion of long-term debt | Current portion of long-term debt | 500 | | | 500 | | | 0 | | Current portion of long-term debt | — | | 500 | | 499 | |
Total current liabilities | Total current liabilities | 4,008 | | | 4,120 | | | 3,799 | | Total current liabilities | 4,089 | | 4,120 | | 4,394 | |
| Long-term debt, net | Long-term debt, net | 2,847 | | | 2,769 | | | 3,264 | | Long-term debt, net | 2,851 | | 2,769 | | 2,767 | |
| Non-current operating lease liabilities | Non-current operating lease liabilities | 1,662 | | | 1,687 | | | 1,836 | | Non-current operating lease liabilities | 1,602 | | 1,687 | | 1,726 | |
Other liabilities | Other liabilities | 650 | | | 657 | | | 673 | | Other liabilities | 633 | | 657 | | 672 | |
| Commitments and contingencies (Note 5) | Commitments and contingencies (Note 5) | 0 | | 0 | | 0 | Commitments and contingencies (Note 5) | 0 |
| Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
Common stock, no par value: 1,000 shares authorized; 158.9, 157.8 and 157.0 shares issued and outstanding | 3,221 | | | 3,205 | | | 3,148 | | |
Common stock, no par value: 1,000 shares authorized; 159.3, 157.8 and 157.7 shares issued and outstanding | | Common stock, no par value: 1,000 shares authorized; 159.3, 157.8 and 157.7 shares issued and outstanding | 3,269 | | 3,205 | | 3,190 | |
Accumulated deficit | Accumulated deficit | (2,996) | | | (2,830) | | | (2,661) | | Accumulated deficit | (2,852) | | (2,830) | | (2,863) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (59) | | | (70) | | | (90) | | Accumulated other comprehensive loss | (58) | | (70) | | (75) | |
Total shareholders’ equity | Total shareholders’ equity | 166 | | | 305 | | | 397 | | Total shareholders’ equity | 359 | | 305 | | 252 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $9,333 | | | $9,538 | | | $9,969 | | Total liabilities and shareholders’ equity | $9,534 | | $9,538 | | $9,811 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in millions except per share amounts)
(Unaudited)
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Common stock | Common stock | | | Common stock | |
Balance, beginning of period | Balance, beginning of period | | $3,205 | | | $3,129 | | Balance, beginning of period | $3,245 | | $3,168 | | | $3,205 | | $3,129 | |
Issuance of common stock under stock compensation plans | Issuance of common stock under stock compensation plans | | 7 | | | 11 | | Issuance of common stock under stock compensation plans | 7 | | 5 | | | 14 | | 16 | |
Stock-based compensation | Stock-based compensation | | 9 | | | 8 | | Stock-based compensation | 17 | | 17 | | | 50 | | 45 | |
Balance, end of period | Balance, end of period | | $3,221 | | | $3,148 | | Balance, end of period | $3,269 | | $3,190 | | | $3,269 | | $3,190 | |
| Accumulated deficit | Accumulated deficit | | | Accumulated deficit | |
Balance, beginning of period | Balance, beginning of period | | ($2,830) | | | ($2,082) | | Balance, beginning of period | ($2,916) | | ($2,916) | | | ($2,830) | | ($2,082) | |
| Net loss | | (166) | | | (521) | | |
Net earnings (loss) | | Net earnings (loss) | 64 | | 53 | | | (22) | | (723) | |
Dividends | Dividends | | 0 | | | (58) | | Dividends | — | | — | | | — | | (58) | |
| Balance, end of period | Balance, end of period | | ($2,996) | | | ($2,661) | | Balance, end of period | ($2,852) | | ($2,863) | | | ($2,852) | | ($2,863) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | | Accumulated other comprehensive loss | |
Balance, beginning of period | Balance, beginning of period | | ($70) | | | ($68) | | Balance, beginning of period | ($61) | | ($78) | | | ($70) | | ($68) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | 11 | | | (22) | | Other comprehensive income (loss) | 3 | | 3 | | | 12 | | (7) | |
Balance, end of period | Balance, end of period | | ($59) | | | ($90) | | Balance, end of period | ($58) | | ($75) | | | ($58) | | ($75) | |
| Total Shareholders’ Equity | | $166 | | | $397 | | |
Total shareholders’ equity | | Total shareholders’ equity | $359 | | $252 | | | $359 | | $252 | |
| Dividends per share | Dividends per share | | $0 | | | $0.37 | | Dividends per share | $— | | $— | | | $— | | $0.37 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
NORDSTROM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
| | | Quarter Ended | | Nine Months Ended |
| | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 |
Operating Activities | Operating Activities | | Operating Activities | |
Net loss | Net loss | ($166) | | | ($521) | | Net loss | ($22) | | ($723) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
Depreciation and amortization expenses | Depreciation and amortization expenses | 162 | | | 176 | | Depreciation and amortization expenses | 477 | | 505 | |
Asset impairment | Asset impairment | 0 | | | 117 | | Asset impairment | — | | 137 | |
| Right-of-use asset amortization | Right-of-use asset amortization | 43 | | | 44 | | Right-of-use asset amortization | 130 | | 126 | |
Deferred income taxes, net | Deferred income taxes, net | 8 | | | (54) | | Deferred income taxes, net | 25 | | 39 | |
Stock-based compensation expense | Stock-based compensation expense | 22 | | | 13 | | Stock-based compensation expense | 64 | | 50 | |
Other, net | Other, net | 86 | | | 2 | | Other, net | 81 | | 13 | |
Change in operating assets and liabilities: | Change in operating assets and liabilities: | | Change in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | 7 | | | 25 | | Accounts receivable | (27) | | (57) | |
Merchandise inventories | Merchandise inventories | (16) | | | 228 | | Merchandise inventories | (687) | | 175 | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (126) | | | (393) | | Prepaid expenses and other assets | 408 | | (641) | |
Accounts payable | Accounts payable | (296) | | | (292) | | Accounts payable | 90 | | 409 | |
Accrued salaries, wages and related benefits | Accrued salaries, wages and related benefits | (22) | | | (227) | | Accrued salaries, wages and related benefits | (76) | | (254) | |
Other current liabilities | Other current liabilities | 7 | | | 167 | | Other current liabilities | 15 | | (72) | |
Lease liabilities | Lease liabilities | (81) | | | (65) | | Lease liabilities | (218) | | (163) | |
Other liabilities | Other liabilities | 8 | | | 2 | | Other liabilities | 17 | | 20 | |
Net cash used in operating activities | (364) | | | (778) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 277 | | (436) | |
| Investing Activities | Investing Activities | | Investing Activities | |
Capital expenditures | Capital expenditures | (126) | | | (131) | | Capital expenditures | (361) | | (311) | |
Other, net | Other, net | 16 | | | 5 | | Other, net | (17) | | 20 | |
Net cash used in investing activities | Net cash used in investing activities | (110) | | | (126) | | Net cash used in investing activities | (378) | | (291) | |
| Financing Activities | Financing Activities | | Financing Activities | |
Proceeds from revolving line of credit | Proceeds from revolving line of credit | 200 | | | 800 | | Proceeds from revolving line of credit | 400 | | 800 | |
| Payments on revolving line of credit | | Payments on revolving line of credit | (200) | | (600) | |
Proceeds from long-term borrowings | Proceeds from long-term borrowings | 675 | | | 600 | | Proceeds from long-term borrowings | 675 | | 600 | |
Principal payments on long-term borrowings | Principal payments on long-term borrowings | (600) | | | 0 | | Principal payments on long-term borrowings | (1,100) | | — | |
(Decrease) increase in cash book overdrafts | (Decrease) increase in cash book overdrafts | (17) | | | 83 | | (Decrease) increase in cash book overdrafts | (4) | | 39 | |
Cash dividends paid | Cash dividends paid | 0 | | | (58) | | Cash dividends paid | — | | (58) | |
| Proceeds from issuances under stock compensation plans | Proceeds from issuances under stock compensation plans | 7 | | | 11 | | Proceeds from issuances under stock compensation plans | 14 | | 16 | |
Tax withholding on share-based awards | Tax withholding on share-based awards | (13) | | | (8) | | Tax withholding on share-based awards | (15) | | (8) | |
Make-whole payment and other, net | (85) | | | (11) | | |
Net cash provided by financing activities | 167 | | | 1,417 | | |
Make-whole premium payment and other, net | | Make-whole premium payment and other, net | (85) | | (16) | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (315) | | 773 | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | 3 | | | (11) | | Effect of exchange rate changes on cash and cash equivalents | 2 | | (10) | |
Net (decrease) increase in cash and cash equivalents | Net (decrease) increase in cash and cash equivalents | (304) | | | 502 | | Net (decrease) increase in cash and cash equivalents | (414) | | 36 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 681 | | | 853 | | Cash and cash equivalents at beginning of period | 681 | | 853 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $377 | | | $1,355 | | Cash and cash equivalents at end of period | $267 | | $889 | |
| Supplemental Cash Flow Information | Supplemental Cash Flow Information | | Supplemental Cash Flow Information | |
Cash paid during the period for: | | |
Cash (received) paid during the period for: | | Cash (received) paid during the period for: | |
Income taxes, net | Income taxes, net | $3 | | | $0 | | Income taxes, net | ($486) | | $9 | |
Interest, net of capitalized interest | Interest, net of capitalized interest | 63 | | | 34 | | Interest, net of capitalized interest | 136 | | 107 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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 2020 Annual Report 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 1,October 30, 2021 and May 2,October 31, 2020 are unaudited. The Condensed Consolidated Balance Sheet as of January 30, 2021 has been derived from the audited Consolidated Financial Statements included in our 2020 Annual Report. The interim Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and related footnote disclosures contained in our 2020 Annual Report.
Seasonality
Our business, like that of other retailers, is subject to seasonal fluctuations and cyclical trends in consumer spending. Our sales are typically higher in our second quarter, which usually includes our Anniversary Sale, and the holidays in the fourth quarter, due to the holidays. In 2021, approximately one week of the Anniversary Sale shifted into the third quarter. As a result of COVID-19 in 2020, the Anniversary Sale was moved to August, in 2020, which fell entirely in our third fiscal quarter.
Results for any one quarter may not be indicative of the results that may be achieved for a full fiscal year. We plan our merchandise receipts to coincide with expected sales trends and other supply chain factors. For instance,Historically, our merchandise purchases and receipts increase prior to the Anniversary Sale and we purchase and receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (fromfrom late November through December).December. In 2021, we accelerated holiday merchandise purchases into the third quarter in response to global supply chain and labor disruptions. Consistent with our seasonal fluctuations, our working capital requirements have historically increased during the months leading up to the Anniversary Sale and the holidays as we purchase inventory in anticipation of increased sales.
Use of Estimates
The preparation of financial statements in conformity with GAAP in the U.S. requires that we make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results may differ from these estimates and assumptions. Our most significant accounting judgments and estimates include revenue recognition, inventory valuation, long-lived asset recoverability and income taxes, all of which involve assumptions about future events. We may be unable to accurately predict the ongoing impact of COVID-19 going forward and as a result our estimates may change in the near term.
Investments
In July 2021, we acquired a minority interest in the Topshop, Topman, Miss Selfridge and HIIT brands through a strategic partnership with ASOS.com Ltd. We invest in certain debt and equity securities of private companies that align with our business and omni-channel strategies, which are recorded in other assets in the Condensed Consolidated Balance Sheets and investing other, net on the Condensed Consolidated Statements of Cash Flows.
We hold a limited partnership interest in a corporate office building that is classified as held for sale, as we plan to sell our interest within one year. The carrying value of the interest is not material as of October 30, 2021.
Land, Property and EquipmentEquipment
Our net non-cash investing activities primarily related to technology expenditures and resulted in a decrease to accounts payable of $44$35 in 2021.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Long-Lived Assets
In the first quarter of 2020, as we optimized our mix of physical and digital assets to align with longer-term customer trends, we closed 16 Nordstrom stores. In conjunction with these closures, we incurred non-cash impairment charges on long-lived tangible and ROU assets to adjust the carrying values to their estimated fair value. The following table provides details related to asset impairment charges as a result of COVID-19:
| | | | | | | | | | |
| | | | |
| October 31, 2020 | |
| Quarter Ended | | May 2, 2020Nine Months Ended | | |
Long-lived asset impairment1 | $— | | $9496 | | | |
Operating lease ROU asset impairment1
| — | | 2341 | | | |
Total asset impairment | $— | | $117137 | | | |
1 As of May 2,October 31, 2020, the carrying value of the applicable long-lived and operating lease ROU assets after impairment was $15$13 and $6.$3.
These charges are primarily included in our Retail segment SG&A expense on the Condensed Consolidated Statement of Earnings.
Income Taxes
We recorded $576$43 and $275$544 in current taxes receivable as of May 1,October 30, 2021 and May 2,October 31, 2020, which is classified in prepaid expenses and other on the Condensed Consolidated Balance Sheet.Sheets. In addition, we recorded $60$74 and $2 in noncurrent taxes receivable as of May 1,October 30, 2021 and May 2,October 31, 2020, which is classified in other assets on the Condensed Consolidated Balance Sheet. TheSheets. In the second quarter of 2021, we were refunded $492 of the current and noncurrent income tax receivables are primarilytaxes receivable associated with the loss carryback provision of the CARES Act.Act, which is classified in prepaid expenses and other assets on the Condensed Consolidated Statement of Cash Flows.
Severance
In the first quarter of 2020, we recorded $88 of restructuring costs in connection with our regional and corporate reorganization, including $25 recorded in cost of sales and related buying and occupancy costs and $63 in SG&A on the Condensed Consolidated Statement of Earnings.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Leases
We incurred operating lease liabilities arising from the commencement of lease agreements of$33 $108 for the quarternine months ended May 1,October 30, 2021 and $3755 for the quarternine months ended May 2,October 31, 2020.
Reclassification
We reclassified our fiscal 2020 Condensed Consolidated Statement of Cash Flows to conform with current period presentation. To adjust our net loss to reconcile to operating activity cash flows, we present depreciation and amortization separate from other, net, which includes the “make-whole“make-whole” premium in the first quarter of 2021 (see Note 3: Debt and Credit Facilities).
Recent Accounting Pronouncements
In November 2020, the SEC adopted the final rule under SEC Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, which eliminates the requirement for selected financial data, streamlines certain disclosures in MD&A and eliminates duplicative disclosures with the intention of simplifying reporting compliance. In the fourth quarter of 2020, we early adopted the amendments to provision 301, Selected financial dataFinancial Data and provision 302, Supplementary financial information.Financial Information. In the first quarter of 2021, we adopted all remaining provisions of this final rule. The adoption of this final rule did not have a material effect on our Consolidated Financial Statements.
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 2: REVENUE
Contract Liabilities
Contract liabilities represent our obligation to transfer goods or services to customers and include deferred revenue for The Nordy Club (including points and Nordstrom Notes) and gift cards. Our contract liabilities are classified as current on the Condensed Consolidated Balance Sheets and are as follows:
| | | | | |
| Contract Liabilities |
Balance as of February 1, 2020 | $576 | |
Balance as of May 2, 2020 | 489 | |
Balance as of August 1, 2020 | 498 | |
Balance as of October 31, 2020 | 478 | |
| |
Balance as of January 30, 2021 | 478 | |
Balance as of May 1, 2021 | 436 | |
Balance as of July 31, 2021 | 433 | |
Balance as of October 30, 2021 | 417 | |
Revenues recognized from our beginning contract liability balance were $114$106 and $212 for the quarter and nine months ended May 1,October 30, 2021 and $130$98 and $223 for the quarter and nine months ended May 2,October 31, 2020.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Nordstrom | Nordstrom | | $1,854 | | | $1,357 | | Nordstrom | $2,343 | | $2,120 | | | $6,614 | | $4,543 | |
Nordstrom Rack | Nordstrom Rack | | 1,067 | | | 669 | | Nordstrom Rack | 1,191 | | 882 | | | 3,406 | | 2,263 | |
| Total net sales | Total net sales | | $2,921 | | | $2,026 | | Total net sales | $3,534 | | $3,002 | | | $10,020 | | $6,806 | |
| Digital sales as a % of total net sales | Digital sales as a % of total net sales | | 46 | % | | 54 | % | Digital sales as a % of total net sales | 40 | % | 54 | % | | 42 | % | 56 | % |
|
The following table summarizes the percent of net sales by merchandise category:
| | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Women’s Apparel | 29 | % | 31 | % | | 30 | % | 30 | % |
Shoes | 26 | % | 26 | % | | 25 | % | 26 | % |
Men’s Apparel | 14 | % | 10 | % | | 14 | % | 11 | % |
Women’s Accessories | 12 | % | 13 | % | | 13 | % | 13 | % |
Beauty | 12 | % | 13 | % | | 11 | % | 13 | % |
Kids’ Apparel | 4 | % | 4 | % | | 4 | % | 4 | % |
Other | 3 | % | 3 | % | | 3 | % | 3 | % |
Total net sales | 100 | % | 100 | % | | 100 | % | 100 | % |
| | | | | |
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 summarizes the percent of net sales by merchandise category:
| | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | May 1, 2021 | | May 2, 2020 |
Women’s Apparel | | | | | 31 | % | | 33 | % |
Shoes | | | | | 26 | % | | 24 | % |
Women’s Accessories | | | | | 14 | % | | 12 | % |
Men’s Apparel | | | | | 12 | % | | 12 | % |
Beauty | | | | | 11 | % | | 12 | % |
Kids’ Apparel | | | | | 4 | % | | 4 | % |
Other | | | | | 2 | % | | 3 | % |
Total net sales | | | | | 100 | % | | 100 | % |
| | | | | | | |
NOTE 3: DEBT AND CREDIT FACILITIES
Debt
A summary of our long-term debt is as follows: | | | | | | | | | | | |
| October 30, 2021 | January 30, 2021 | October 31, 2020 |
Long-term debt, net of unamortized discount: | | | |
Senior notes, 4.00%, due October 2021 | $— | | $500 | | $500 | |
Senior notes, 2.30%, due April 2024 | 250 | | — | | — | |
Secured Notes, 8.75%, due May 2025 | — | | 600 | | 600 | |
Senior notes, 4.00%, due March 2027 | 349 | | 349 | | 349 | |
Senior debentures, 6.95%, due March 2028 | 300 | | 300 | | 300 | |
Senior notes, 4.375%, due April 2030 | 500 | | 500 | | 499 | |
Senior notes, 4.25%, due August 2031 | 425 | | — | | — | |
Senior notes, 7.00%, due January 2038 | 147 | | 147 | | 147 | |
Senior notes, 5.00%, due January 2044 | 902 | | 900 | | 899 | |
Deferred bond issue costs | (22) | | (27) | | (28) | |
Total long-term debt | 2,851 | | 3,269 | | 3,266 | |
| | | |
Less: current portion | — | | (500) | | (499) | |
Total due beyond one year | $2,851 | | $2,769 | | $2,767 | |
During the first quarter of 2021, we issued $250 aggregate principal amount of 2.3%2.30% senior notes due April 2024 and $425 aggregate principal amount of 4.25% senior notes due August 2031. These notes are unsecured and maycan be redeemed at any time in whole or in part. The April 2024 notes can be redeemed at par starting in April 2022. With the net proceeds of these new notes, together with cash on hand, we retired our $600 Secured Notes. We recorded $88 related to the redemption in interest expense, net, which primarily consisted of a one-time payment of $78 for a “make-whole” premium, and the write-off of unamortized balances associated with the debt discount and issuance costs. The make-whole“make-whole” premium payment was not included in cash paid during the period for interest, net of capitalized interest.
interest on the Condensed Consolidated Statement of Cash Flows. As a result of this redemption, our outstanding long-term debt is unsecured and all real estate will beis unencumbered.
During the second quarter of 2021, we retired our 4.00% senior notes that were due October 2021 using cash on hand.
Credit Facilities
During the first quarter of 2021, we borrowed $200 and amended our existing Revolver. Under the Revolver, we are in a “Collateral Period” if our Leverage Ratio is greater than 4 or our unsecured debt is rated below BBB- with a stable outlook at Standard & Poor’s or Baa3 with a stable outlook at Moody’s. In the Collateral Period, any outstanding borrowings under our Revolver will be secured by substantially all our personal property and we will be subject to asset coverage and minimum liquidity covenants, as well as a fixed charge coverage covenant. If our Leverage Ratio is belowless than or equal to 4 and our unsecured debt is rated at or above BBB- with a stable outlook at Standard & Poor’s orand Baa3 with a stable outlook at Moody’s, any borrowings under our Revolver will be unsecured, we will not be subject to the above covenants and the restrictions on dividend payments and share repurchases will be removed. In MayAs of October 30, 2021, subsequent to quarter end, we completely repaid $200 onwere in a Collateral Period as we did not meet or exceed our Revolver.credit rating threshold. We were in compliance with all our Revolver covenants.
Under our Revolver amendment, we created flexibility for dividends and share repurchases during the Collateral Period, provided no default or event of default exists as a result of such payments, the pro-forma Leverage Ratio as of the most recent fiscal quarter is less than 3.75, pro-forma liquidity at the date of such payment is at least $600, and the amount of such payments do not exceed the amount of the corresponding fiscal quarter of 2019. Additionally, the “make-whole” premium and unamortized deferred bond issuance costs related to the redemption of the $600 Secured Notes is excluded from the Revolver amendment’s definition of interest expense. As of October 30, 2021, our Leverage Ratio was greater than 3.75, thus we did not meet the requirements under our Revolver amendment to pay dividends or repurchase shares.
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 Revolver expires in September 2023 and is classified in total current liabilities on the Condensed Consolidated Balance Sheet.Sheets. In 2021, we borrowed $200 under our Revolver in the first quarter, which was fully repaid in the second quarter, and borrowed an additional $200 in the third quarter. As of May 1,October 30, 2021, we had $200 in borrowings outstanding under this facility, our borrowings underRevolver. In November 2021, subsequent to quarter end, we completely repaid the outstanding balance on our Revolver.
The Revolver were classified as secured ascontains customary representations, warranties, covenants and terms, including paying a variable rate of interest and a commitment fee based on our Leverage Ratio exceeded 4debt rating, and we did not meet or exceed our credit rating threshold. We met all other financial covenant measuresis available for the quarter.working capital, capital expenditures and general corporate purposes. Provided that we obtain written consent from the lenders, we have the option to increase the Revolver by up to $200, to a total of $1,000, and 2 options to extend the Revolver by one year. The Revolver contains customary representations, warranties, covenants and terms, including paying a variable rate of interest and a commitment fee based on our debt rating. The Revolver is available for working capital, capital expenditures and general corporate purposes.
As a result of our borrowings under the Revolver, the full capacity of ourOur $800 commercial paper program is not available to us at this time. When available, the 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 of reducing available liquidity under the Revolver by an amount equal to the principal amount of commercial paper outstanding. In addition, borrowings under our Revolver have the effect of reducing the available capacity of our commercial paper program by an amount equal to the amount outstanding. As of May 1,October 30, 2021, we had 0no issuances outstanding under our commercial paper program.
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: 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 Measured at Carrying Value
Financial instruments measured at carrying value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable and our Revolver, which approximate fair value due to their short-term nature.
Long-term debt is recorded at carrying value. If long-term debt was measured at fair value, 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:
| | | May 1, 2021 | | January 30, 2021 | | May 2, 2020 | | October 30, 2021 | January 30, 2021 | October 31, 2020 |
Carrying value of long-term debt | Carrying value of long-term debt | $3,347 | | | $3,269 | | | $3,264 | | Carrying value of long-term debt | $2,851 | | $3,269 | | $3,266 | |
Fair value of long-term debt | Fair value of long-term debt | 3,480 | | | 3,430 | | | 2,804 | | Fair value of long-term debt | 2,992 | | 3,430 | | 2,865 | |
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, long-lived tangible and ROU 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 0no material impairment charges for these assets for the quarternine months ended May 1,October 30, 2021. For more information regarding long-lived tangible and ROU asset impairment charges for the quarternine months ended May 2,October 31, 2020, see Note 1: Basis of Presentation.
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 5: COMMITMENTS AND CONTINGENCIES
Our NYC flagship store opened in October 2019 and the related building and equipment assets were placed into service at the end of the third quarter of 2019. While our store has opened, construction continues in the residential condominium units above the store. As of May 1,October 30, 2021, we have a fee interest in the retail condominium unit. We are committed to make 1remainingIn the third quarter of 2021, we paid the majority of our final installment payment based on the developer meeting final pre-established construction and development milestones. Precautions related to COVID-19 have caused delays in meeting these milestones and the timing of the remaining payment.
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 6: 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. On March 23, 2020, in response to uncertainty from the COVID-19 pandemic, we announced the suspension of our quarterly dividend payments beginning in the second quarter of 2020 and the immediate suspension of our share repurchase program. We remain committed to these programs over the long-term and intend to resume dividend payments and share repurchases when appropriate. We had $707 remaining in share repurchase capacity as of May 1,October 30, 2021. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to the discretion of the Board of Directors, contractual commitments, market and economic conditions and applicable SEC rules.
Our Revolver contains negative covenants with respect to the payment of dividends and share repurchases. As of May 1, 2021,Under our Leverage Ratio exceeded 4Revolver amendment, we created flexibility for dividends and we did not meet our credit rating covenant, preventing us from paying dividends or repurchasing shares. For more information regarding our debt covenants, seeshare repurchases, provided certain requirements are met (see Note 3: Debt and Credit Facilities.Facilities).
NOTE 7: STOCK-BASED COMPENSATION
The following table summarizes our stock-based compensation expense:
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
RSUs | RSUs | | $14 | | | $13 | | RSUs | $12 | | $13 | | | $41 | | $42 | |
Stock options | Stock options | | 7 | | | 2 | | Stock options | 5 | | 4 | | | 19 | | 8 | |
Other1 | Other1 | | 1 | | | (2) | | Other1 | 1 | | — | | | 4 | | — | |
Total stock-based compensation expense, before income tax benefit | Total stock-based compensation expense, before income tax benefit | | 22 | | | 13 | | Total stock-based compensation expense, before income tax benefit | 18 | | 17 | | | 64 | | 50 | |
Income tax benefit | Income tax benefit | | (6) | | | (5) | | Income tax benefit | (5) | | (6) | | | (17) | | (19) | |
Total stock-based compensation expense, net of income tax benefit | Total stock-based compensation expense, net of income tax benefit | | $16 | | | $8 | | Total stock-based compensation expense, net of income tax benefit | $13 | | $11 | | | $47 | | $31 | |
1 Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards.
The following table summarizes our grant allocations:
| | | Quarter Ended | | Nine Months Ended |
| | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | | October 31, 2020 |
| | Granted | | Weighted-average grant-date fair value per unit | | Granted | | Weighted-average grant-date fair value per unit | | Granted | Weighted-average grant-date fair value per unit | | Granted | Weighted-average grant-date fair value per unit |
RSUs | RSUs | 1.4 | | | $33 | | | 2.2 | | | $23 | | RSUs | 1.7 | | $32 | | | 3.5 | | $20 | |
Stock options | Stock options | 1.2 | | | $13 | | | 0.3 | | | $7 | | Stock options | 1.2 | | $13 | | | 3.9 | | $7 | |
PSUs | PSUs | 0 | | | 0 | | | 0.4 | | | $24 | | PSUs | — | | — | | | 0.4 | | $24 | |
Under our deferred and stock-based compensation plan arrangements, we issued 1.10.4 and 1.6 shares of common stock during the first quarter ofand nine months ended October 30, 2021 and 1.50.5 and 2.1 shares during the first quarter ofand nine months ended October 31, 2020.
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 8: EARNINGS PER SHARE
The computation of EPS is as follows:
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Net loss | | ($166) | | | ($521) | | |
Net earnings (loss) | | Net earnings (loss) | $64 | | $53 | | | ($22) | | ($723) | |
| Basic shares | Basic shares | | 158.5 | | | 156.4 | | Basic shares | 159.2 | | 157.5 | | | 158.9 | | 157.0 | |
Dilutive effect of common stock equivalents | Dilutive effect of common stock equivalents | | 0 | | | 0 | | Dilutive effect of common stock equivalents | 3.3 | | 0.7 | | | — | | — | |
Diluted shares | Diluted shares | | 158.5 | | | 156.4 | | Diluted shares | 162.5 | | 158.2 | | | 158.9 | | 157.0 | |
| Loss per basic share | | ($1.05) | | | ($3.33) | | |
Loss per diluted share | | ($1.05) | | | ($3.33) | | |
Earnings (loss) per basic share | | Earnings (loss) per basic share | $0.40 | | $0.34 | | | ($0.14) | | ($4.60) | |
Earnings (loss) per diluted share | | Earnings (loss) per diluted share | $0.39 | | $0.34 | | | ($0.14) | | ($4.60) | |
| Anti-dilutive common stock equivalents | Anti-dilutive common stock equivalents | | 12.7 | | | 13.1 | | Anti-dilutive common stock equivalents | 7.5 | | 14.4 | | | 11.6 | | 14.2 | |
NOTE 9: SEGMENT REPORTING
The following table sets forth information for our reportable segment:
| | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Retail segment EBIT | Retail segment EBIT | | ($55) | | | ($711) | | Retail segment EBIT | $197 | | $121 | | | $335 | | ($984) | |
Corporate/Other EBIT | Corporate/Other EBIT | | (30) | | | (102) | | Corporate/Other EBIT | (70) | | (15) | | | (142) | | (93) | |
Interest expense, net | Interest expense, net | | (137) | | | (34) | | Interest expense, net | (36) | | (48) | | | (213) | | (133) | |
Loss before income taxes | | ($222) | | | ($847) | | |
Earnings (loss) before income taxes | | Earnings (loss) before income taxes | $91 | | $58 | | | ($20) | | ($1,210) | |
For information about disaggregated revenues, see Note 2: Revenue.
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
Our firstIn the third quarter, results reflected improving sales momentum andwe made continued progress toward our strategic and financial goals, driven by strong digital growth, the integrated capabilities enabled by our market strategy and increased net sales in our transformation as we work to unlock the full potential of our digital-first platform. Nordstrom banner stores.
Net lossearnings for the firstthird quarter was $166,were $64, or $1.05$0.39 per diluted share, including an after-tax debt refinancing charge of $0.41. Firstshare. Third quarter net sales increased 44%18% from the same period in 2020 and decreased 13%1% from the same period in 2019, representing2019. The timing of this year’s Anniversary Sale, with approximately one week falling into the third quarter of 2021, had a sequentialpositive impact of approximately 2 percentage points on net sales compared with fiscal 2019.
We have long benefited from a commitment to customer service, interconnected digital and physical assets and innovative brand partnerships. However, we need to move faster and more aggressively to better capitalize on those strengths. We’ve taken a comprehensive look at opportunities to improve our business, engaging external consultants with function-specific expertise across three key areas: improving Nordstrom Rack performance, increasing profitability and optimizing our supply chain and inventory flow.
Nordstrom Rack — We are optimizing our inventory levels by diversifying our supplier base, and increasing our opportunistic use of pack and hold inventory, allowing us to buy larger quantities of relevant items when available, then hold a portion of it to deploy in periods with high demand, tight supply or system constraints. We are also rebalancing our assortment and expanding our selection in top brands. To strengthen brand awareness and drive traffic, we launched a new “More Reasons to Rack” marketing campaign. Through these efforts, we expect to grow market share and improve profitability at Nordstrom Rack and anticipate improvement of 720 basis points relative toin the fourth quarter, with more significant improvement to follow in the first half of 2020.fiscal 2022.
OurProfitability — We are committedto delivering significant improvement in our merchandise and EBIT margins. We have meaningful opportunities in promotion and markdown optimization, data-driven category management and expanding our private label brands, which are more profitable than our third-party brand product. Within SG&A, we rebased our overhead cost structure in 2020 and we remain committed to sustaining a substantial portion of that reduction. While we have seen significant macro-related pressure in fulfillment and labor costs, we are taking action to mitigate our overall impact from those pressures.
Supply Chain and Inventory Flow Optimization — In response to macro-related supply chain challenges, we are implementing actions to improve our network and processes. We have identified various ways to diversify our carrier capacity, gain end-to-end visibility of inventory as it moves through our supply chain, increase velocity and throughput in our distribution and fulfillment centers and better position our inventory to get it closer to the customer. We expect that these initiatives will enhance the customer experience and drive top-line trends increased sequentially for the third quarter in a row, with improvements ingrowth at both Nordstrom and Nordstrom Rack supported by recoveryincreasing delivery speed and expanding the selection for in-store shopping as well as same day and next day pickup, while also driving efficiencies in stores as COVID-19 restrictions were lifted,labor and continued growth in digital. Sales trends reflected broad-based improvement across channels, regions and merchandise categories, both in-store and online. Stores in markets that opened up earlier outperformed other markets by 7fulfillment. We expect to 10 percentage points, giving us increasing optimism about the pace of recovery as we look to the remainder of the year. Our performancesee benefits from these actions beginning in the quarter reflects solid execution toward the growth prioritiesfirst half of fiscal 2022.
As we laid out atshared in our 2021 investor day in February: winevent, winning in our most important markets broaden the reach of Nordstrom Rack and increaseincreasing our digital velocity.velocity are key strategic priorities for us, and we are making progress in these areas.
Market Strategy – Our— In terms of winning in our top markets, the convenience and connection delivered by our market strategy helpscontinues to be a powerful enabler for the business. We are leveraging a strong store fleet that positions us engage withphysically closer to the customer and drives value across the business. As a result, we are able to better serve customers through better service and provide greater access to product no matter how they choose to shop. Duringby linking our assets at the market level. This quarter, we successfully expanded this strategy toone-third of next day Nordstrom.com orders were picked up at Nordstrom Rack stores, showing continued evidence of the power of integrating capabilities across our two brands and across our digital and physical platforms. In our top 20 markets which comprise approximately 75%where our market strategy continues to gain traction, order pickup accounted for 12% of sales. We continued to scale the enhanced capabilitiesdigital demand, versus 4% in other markets. Since we launched in 2020, such as the expansion of order pick-up and ship-to-store to allpickup at Nordstrom Rack stores. Almost one-third of next day order pickup volume for Nordstrom.com in our top 20 markets was picked up at Rack stores, aslast year, we continue to integrate our capabilities across our two powerful brands.
Nordstrom Rack –First quarter Nordstrom Rack sales declined 13% compared with 2019, a 10-percentage point sequential improvement from the fourth quarter of 2020. Merchandise repositioning across price, hybrid and brand doors is progressing, in spite of challenges managing slower than anticipated inbound inventory flow. We remainhave seen 70% growth in the early stages of these initiatives, and our progress is encouraging. Increased customer choice of price-oriented offerings in Kids, Home and Active supported a 37% increase in sales compared with 2019 in these categories.program.
Digital Velocity –— We maintained strong growth at Nordstrom.comalso continue to increase our digital velocity across Nordstrom and Nordstromrack.com in the firstNordstrom Rack. This quarter, even as store traffic anddigital sales rebounded. Digital sales increased 23%decreased 12% over last year, reflecting the impact of the Anniversary Sale in the prior year, and 28%increased 20% over the firstthird quarter of 2019. With continued growth inThe timing of this year’s Anniversary Sale had a positive impact on our digital our total penetration has increased by 15sales of approximately 4 percentage points over the past two years, to 46%. One key opportunity we see is to offer our customers more choices, with plans to increase choice count to approximately 1.5 million over the next several years. This quarter, choice counts increased almost 20% compared with 2019, primarily driven by an expanded dropship assortmentthe third quarter of 2019. Digital sales represented 40% of our business in both our core categoriesthe third quarter, and in-demand categories like Home, Active and Kids. This allowed uswe continued to drive growth over 2019 while store traffic improved sequentially.
Our third quarter results show some pockets of strength as well as several areas for improvement. We made progress toward our goals, with strong salesdigital growth and improving trends in our digital business without a corresponding increaseNordstrom banner stores, and remain on track to deliver our fiscal 2021 targets. We have pulled inventory receipts forward in anticipation of holiday demand and expect elevated inventory levels through the end of the fiscal year. We also have line of sight to achieving the commitments we set forth at our inventory investment.
Asinvestor event: delivering EBIT margins greater than 6% and annual operating cash flow greater than $1 billion. We recognize that we look aheadneed to the second quarter,deliver more and we believe that our Anniversary Sale will be well-timed to benefit from customers’ increasing confidence and return to pre-pandemic activities. Our goal is to have an event that rewards and engages our best customersare acting with a superior shopping experience. We will also significantly increase selection for Anniversary this year, with total customer choices up double-digits compared with 2019, supported by an expansionsense of alternative partnership models with our vendors.
Our focus on accelerating our strategic prioritiesurgency to serve customers in newdeliver greater profitability and differentiated ways is gaining momentum. We are in a stronger position than ever to capitalize on ourcash flow as we grow market share, opportunity as customer demand recovers. While there is still considerable uncertainty with respect to COVID-19, we remainoptimize across platforms and drive scale. We are confident in our ability to deliver onpath forward and excited about the future of our targets for 2021 and generate profitable sales growth as demand recovers.business.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share amounts in millions except per share amounts)
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing a seamless retail experience across our Company. We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores and online, and in both Nordstrom and Nordstrom Rack brands. Whilebanners. By connecting our digital and physical assets across Nordstrom and Nordstrom Rack, we are able to better serve customers may engage with us through multiple ways, we knowwhen, where and how they value the integrated brand experience, which is ultimately how we view our company.want to shop. We have one Retail reportable segment and analyze our results on a total company basis, using customer, market share, operational and net sales metrics.
Due to the extraordinary impact of COVID-19 on our results in fiscal year 2020, we analyzed the third quarter of fiscal year 2021 net sales through EBIT against boththe same fiscal yearsquarters in 2020 and 2019 to provide useful supplemental comparability.
Our Anniversary Sale, historically the largest event of the year, typically falls in the second quarter. In 2021, approximately one week of the Anniversary Sale shifted into the third quarter. As a result of COVID-19 in 2020, the Anniversary Sale was moved to August, which fell entirely in our third quarter. In 2019, the Anniversary Sale was entirely in the second quarter.
Net Sales
The following table summarizes net sales:
| | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | May 1, 2021 | | May 2, 2020 | | May 4, 2019 | | October 30, 2021 | October 31, 2020 | | | October 30, 2021 | October 31, 2020 | |
Net sales: | Net sales: | | Net sales: | | | | |
Nordstrom | Nordstrom | $1,854 | | | $1,357 | | | $2,127 | | Nordstrom | $2,343 | | $2,120 | | | | $6,614 | | $4,543 | | |
Nordstrom Rack | Nordstrom Rack | 1,067 | | | 669 | | | 1,222 | | Nordstrom Rack | 1,191 | | 882 | | | | 3,406 | | 2,263 | | |
| Total net sales | Total net sales | $2,921 | | | $2,026 | | | $3,349 | | Total net sales | $3,534 | | $3,002 | | | | $10,020 | | $6,806 | | |
| Net sales increase (decrease): | Net sales increase (decrease): | | Net sales increase (decrease): | | | | |
Nordstrom | Nordstrom | 36.7 | % | | (36.2 | %) | | (5.1 | %) | Nordstrom | 10.5 | % | (6.6 | %) | | | 45.6 | % | (34.4 | %) | |
Nordstrom Rack | Nordstrom Rack | 59.5 | % | | (45.2 | %) | | (0.6 | %) | Nordstrom Rack | 35.2 | % | (32.0 | %) | | | 50.6 | % | (39.9 | %) | |
Total Company | Total Company | 44.2 | % | | (39.5 | %) | | (3.5 | %) | Total Company | 17.7 | % | (15.8 | %) | | | 47.2 | % | (36.4 | %) | |
| Digital sales as a % of total net sales | Digital sales as a % of total net sales | 46 | % | | 54 | % | | 31 | % | Digital sales as a % of total net sales | 40 | % | 54 | % | | | 42 | % | 56 | % | |
Digital sales increase | 23 | % | | 5 | % | | 7 | % | |
Digital sales (decrease) increase | | Digital sales (decrease) increase | (12 | %) | 37 | % | | | 10 | % | 13 | % | |
|
Net Sales (2021 vs. 2020)
Total Company net sales increased 44% forfor the firstthird quarter ofand nine months ended October 30, 2021, compared with the same periodperiods in 2020, during which2020. Our stores were temporarily closed for approximately halfthree of the quarter due tonine months ended October 31, 2020 as a result of COVID-19. During the nine months ended October 30, 2021,Total Company digital sales we opened one and closeincreased 23% ind three Nordstrom Rack stores. The top-performing merchandise categories were Men’s Apparel and Active for the firstthird quarter of 2021 and Men’s Apparel, Active and Accessories for the nine months ended October 30, 2021, compared with the same periodperiods in 2020 and represented 46% of total net2020.
Digital sales during the first quarter of 2021. During the quarter ended May 1, 2021, we closed one Nordstrom Rack store.
Nordstrom net sales increased 37% decreased for the firstthird quarter ofand increased for the nine months ended October 30, 2021, compared with the same periodperiods in 2020. Nordstrom and Nordstrom Rack net sales increased 59% for the firstthird quarter ofand nine months ended October 30, 2021, compared with the same periodperiods in 2020. Home, active, designer and beauty were the top-performing merchandise categories.
Net Sales (2021 vs. 2019)
Total Company net sales decreased 13%0.9% for the first quarter of 2021, compared with the same period in 2019, and marked sequential improvement of 720 basis points relative to the fourth quarter of 2020. Total Company digital sales increased 28% in the first quarter of 2021, compared with the same period in 2019.
Nordstrom net sales decreased 13% for the firstthird quarter of 2021, compared with the same period in 2019. Nordstrom RackThe timing shift of the Anniversary Sale had a positive impact on net sales decreased 13% forof approximately 2 percentage points compared with the firstthird quarter of 2019. Home, Active and Designer were the top-performing merchandise categories in the third quarter of 2021, compared with the same period in 2019.
Digital sales increased 20%, Nordstrom net sales increased 3.2% and Nordstrom Rack net sales decreased 8.0% for the third quarter of 2021, compared with the same period in 2019.
See Note 2: Revenue in Item 1 for information about disaggregated revenues.
Item 2. Management’s Discussion and kids were the top-performing merchandise categories.Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts)
Credit Card Revenues, Net
Credit card revenues, net include our portion of the ongoing credit card revenue, net of credit losses, pursuant to our program agreement with TD. TD is the exclusive issuer of our consumer credit cards and we perform the account servicing functions.
Credit Card Revenues, Net (2021 vs. 2020)
Credit card revenues, net increased $16 and $19 for the third quarter and nine months ended October 30, 2021, compared with the same periods in 2020, primarily as a result of higher interchange fees due to increased spend on credit cards, lower losses from bad debt and, 2021for the third quarter, higher late fee revenue.
Credit Card Revenues, Net (2021 vs. 2019)
Credit card revenues, net were $88 decreased $3 for the third quarter ended May 1,of 2021, compared with $93 and $94 for the same periodsperiod in 2020 and 2019. These decreases were2019, primarily as a result of lower finance charges and late fee revenues throughout the first quarter of 2021 due to lower outstanding balances as consumers made higher payments, driven in part by government stimulus packages.balances.
Gross Profit
The following table summarizes gross profit:
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 30, 2021 | October 31, 2020 | November 2, 2019 | | October 30, 2021 | October 31, 2020 | November 2, 2019 |
Gross profit | $1,240 | $983 | $1,222 | | $3,374 | $1,571 | $3,645 |
Gross profit as a % of net sales | 35.1% | 32.8% | 34.3% | | 33.7% | 23.1% | 34.1% |
| | | | | | | |
| | | | | October 30, 2021 | October 31, 2020 | November 2, 2019 |
Inventory turnover rate | | | | | 4.20 | 4.38 | 4.47 |
Gross Profit (2021 vs. 2020)
Gross profit increased $257 and 2 percentage points as a rate of net sales for the third quarter of 2021, and $1,803 and 11 percentage points as a rate of net sales for the nine months ended October 30, 2021 compared with the same periods in 2020, primarily due to fewer markdowns and leverage from higher net sales.
Ending inventory as of October 30, 2021 increased 54% versus an 18% increase in sales for the third quarter of 2021 compared with the same period in 2020. The change in inventory levels compared with 2020 was due to our actions to pull forward receipts into the third quarter of 2021 to support early holiday sales and mitigate continuing supply chain backlogs, as well as decreased inventory levels in 2020 that aligned with lower sales from the impacts of COVID-19. Higher inventory levels led to a decrease in inventory turnover rate as of October 30, 2021 compared with October 31, 2020.
Gross Profit (2021 vs. 2019)
Gross profit increased $18 for the third quarter of 2021, compared with the same period in 2019, due to lower buying and occupancy costs. Gross profit increased 1 percentage point as a rate of net sales for the same period, due to increased leverage on lower buying and occupancy costs as well as higher merchandise margins.
Ending inventory increased 13% versus a 1% decrease in sales for the third quarter of 2021 compared with the same period in 2019. The change in inventory levels compared with 2019 was due to our actions to pull forward receipts to support early holiday sales and mitigate continuing supply chain backlogs.
Selling, General and Administrative Expenses
SG&A is summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 30, 2021 | October 31, 2020 | November 2, 2019 | | October 30, 2021 | October 31, 2020 | November 2, 2019 |
SG&A expenses | $1,216 | $964 | $1,135 | | $3,464 | $2,912 | $3,453 |
SG&A expenses as a % of net sales | 34.4% | 32.1% | 31.8% | | 34.6% | 42.8% | 32.3% |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share amounts in millions except per share amounts)
Gross Profit
The following table summarizes gross profit:
| | | | | | | | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 | | May 4, 2019 |
Gross profit | $902 | | | $216 | | | $1,121 | |
Gross profit as a % of net sales | 30.9 | % | | 10.7 | % | | 33.5 | % |
Inventory turnover rate | 4.51 | | | 4.81 | | | 4.68 | |
Gross ProfitSG&A (2021 vs. 2020)
Gross profitSG&A increased $686$252 during the third quarter of 2021, and 20$552 for the nine months ended October 30, 2021, compared with the same periods in 2020, primarily due to variable labor and fulfillment costs on higher sales volume, partially offset for the nine months ended October 30, 2021 by the impact of COVID-19 related charges that occurred in the first half of 2020. SG&A rate increased 2 percentage points as a rate of net sales during the firstthird quarter of 2021 compared with the same period in 2020 primarily due to lower markdowns and leverage from higher net sales volume.
Gross Profit (2021 vs. 2019)
Gross profit decreased $219 and 260 basis points during the first quarter of 2021, compared with the same period in 2019,, as a result of deleverage on lower sales and lower merchandise margins,labor cost pressure, partially offset by permanent reductions in buying and occupancy costs.
Ending inventoryleverage on higher sales. SG&A rate decreased 2% compared with the same period in 2019, versus a 13% decrease in sales. The change in inventory levels compared with 2019 includes an approximately 700 basis point impact resulting from the acceleration of vendor shipments to support sales trends and mitigate potential supply chain backlogs in the second quarter.
Selling, General and Administrative Expenses
SG&A is summarized in the following table:
| | | | | | | | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 | | May 4, 2019 |
SG&A expenses | $1,075 | | | $1,122 | | | $1,138 | |
SG&A expenses as a % of net sales | 36.8 | % | | 55.4 | % | | 34.0 | % |
SG&A (2021 vs. 2020)
SG&A decreased $47 and 198 percentage points as a rate of net sales duringfor the first quarter ofnine months ended October 30, 2021, compared with the same period in 2020, as a result of $250 in charges associated with the impact of COVID-19 in 2020, leverage on higher sales and COVID-19 related charges that occurred in the continued benefitfirst half of permanent reductions in overhead expenses of approximately 15%. This was partially offset by higher variable expenses such as supply chain costs associated with the sales volume increase.2020.
SG&A (2021 vs. 2019)
SG&A decreased $63increased $81 and 3 percentage points as a rate of net sales during the firstthird quarter of 2021, compared with the same period in 2019, primarily due to planned cost savings initiativesfulfillment and lower sales volume, partially offset by COVID-19 related labor and freight cost pressures. SG&A rate increased 280 basis points during the first quarter of 2021, compared with the same period in 2019, as a result of COVID-19 related labor and freight cost pressures, partially offset by our planned savings initiatives.the continued benefits from resetting the cost structure in 2020.
Earnings (Loss)Earnings Before Interest and Income Taxes
EBIT is summarized in the following table:
| | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | May 1, 2021 | | May 2, 2020 | | May 4, 2019 | | October 30, 2021 | October 31, 2020 | November 2, 2019 | | October 30, 2021 | October 31, 2020 | November 2, 2019 |
EBIT | EBIT | ($85) | | | ($813) | | | $77 | | EBIT | $127 | $106 | $193 | | $193 | ($1,077) | $485 |
EBIT as a % of net sales | EBIT as a % of net sales | (2.9 | %) | | (40.1 | %) | | 2.3 | % | EBIT as a % of net sales | 3.6% | 3.5% | 5.4% | | 1.9% | (15.8%) | 4.5% |
EBIT (2021 vs. 2020)
EBIT improved $728 during$21 for the firstthird quarter of 2021 which was flat as a rate of net sales, compared with the same period in 2020, primarily due to higher sales volume and improved merchandise margins, partially offset by labor cost pressure. EBIT improved $1,270 and 18 percentage points as a rate of net sales for the nine months ended October 30, 2021, compared with the same period in 2020. The increase was2020, primarily due to higher sales volume, lower markdownsgross margin improvement and $280 in charges in the first quarter of 2020 related to the impacts of COVID-19.
EBIT (2021 vs. 2019)
For the firstthird quarter of 2021, EBIT decreased $162,$66 and 2 percentage points as a rate of net sales, compared with the same period in 2019, primarily due to lower sales volume as we continue to recover from the pandemicfulfillment and higher freightlabor cost pressures, partially offset by our planned savings initiatives.the continued benefits from resetting the cost structure in 2020.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)
Interest Expense, Net
Interest expense, net was $137$36 for the firstthird quarter of 2021, compared with $34$48 for the same period in 2020, and $213 for the nine months ended October 30, 2021, compared with $133 for the same period in 2020. The increasedecrease for the third quarter of 2021 was primarily due to the redemptions of the Secured Notes during the first quarter of 2021 and the 4.0% unsecured notes during the second quarter of 2021. The increase for the nine months ended October 30, 2021 was primarily due to debt refinance charges of $88 $88 related to the redemption of the Secured Notes. in the first quarter of 2021.
Income Tax Expense
Income tax expense is summarized in the following table:
| | | | Quarter Ended | | Quarter Ended | | Nine Months Ended |
| | | May 1, 2021 | | May 2, 2020 | | | October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Income tax (benefit) expense | | ($56) | | | ($326) | | | |
Income tax expense (benefit) | | Income tax expense (benefit) | $27 | | $5 | | | $2 | | ($487) | |
Effective tax rate | Effective tax rate | | 25.4 | % | | 38.4 | % | | Effective tax rate | 29.9 | % | 7.9 | % | | (7.6 | %) | 40.3 | % |
The effective tax rate decreasedincreased in the firstthird quarter of 2021, compared with the same period in 2020, primarily due to additional tax benefits recorded in 2020 associated with losses eligible for carryback under the CARES Act. The decrease was partially offset by non-deductible stock compensation.effective tax rate decreased for the nine months ended October 30, 2021, compared with the same period in 2020, primarily due to the CARES Act that allowed us to carry back the 2020 loss at the higher tax rate applicable in previous years. Income tax expense for the nine months ended October 30, 2021, when compared with a loss before income taxes, resulted in a negative rate.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts)
Earnings (Loss) Per Share
EPS is as follows:
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | | | May 1, 2021 | | May 2, 2020 | | |
Basic | | | | | ($1.05) | | | ($3.33) | | | |
Diluted | | | | | ($1.05) | | | ($3.33) | | | |
| | | | | | | | | | | | | | | | | |
| Quarter Ended | | Nine Months Ended |
| October 30, 2021 | October 31, 2020 | | October 30, 2021 | October 31, 2020 |
Basic | $0.40 | | $0.34 | | | ($0.14) | | ($4.60) | |
Diluted | $0.39 | | $0.34 | | | ($0.14) | | ($4.60) | |
Earnings (loss) per diluted share increased $2.28 $0.05 for the firstthird quarter of 2021 comparedand $4.46 for the nine months ended October 30, 2021, compared with the same periodperiods in 2020, during which stores were temporarily closed for approximately halfthree of the quarter,nine months ended October 31, 2020. These increases were primarily due to higher sales and improved merchandise margins, partially offset for the nine months ended October 30, 2021 by $0.41 per diluted share for an interest expense charge of $88, or $0.41 per diluted share related to the redemption of the Secured Notes in the first quarter of 2021. In the first quarter of 2020, we incurred COVID-19 related charges, which reduced net earnings for the nine months ended October 31, 2020 by $1.06 per diluted share by $1.10..
Fiscal Year 2021 Outlook
The Company hasWe have reaffirmed the following financial expectations for fiscal 2021:
•Revenue, including retail sales and credit card revenues, is expected to grow more than 25%,35 percent versus fiscal 2020
•EBIT margin is expected to be approximately 3%3.0 to 3.5 percent of sales
•Income tax rate is expected to be approximately 27%,27 percent
•Leverage ratio is expected to be approximately 3x by year-end
•21 of For the first half of the year, EBIT is expected to be approximately breakeven, reflecting approximately 45% of total year sales.29
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share 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 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.
Adjusted ROIC is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other GAAP financial measures. Our method of calculating 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 return on assets to Adjusted ROIC:
| | | Four Quarters Ended | | Four Quarters Ended |
| | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 |
Net loss | ($334) | | | ($62) | | |
Net earnings (loss) | | Net earnings (loss) | $11 | | ($530) | |
Less: income tax benefit | Less: income tax benefit | (269) | | | (156) | | Less: income tax benefit | (49) | | (417) | |
Add: interest expense | Add: interest expense | 285 | | | 121 | | Add: interest expense | 262 | | 176 | |
Loss before interest and income tax expense | (318) | | | (97) | | |
Earnings (loss) before interest and income tax expense | | Earnings (loss) before interest and income tax expense | 224 | | (771) | |
| Add: operating lease interest1 | Add: operating lease interest1 | 93 | | | 102 | | Add: operating lease interest1 | 89 | | 97 | |
| Adjusted net operating (loss) profit | (225) | | | 5 | | |
Adjusted net operating income (loss) | | Adjusted net operating income (loss) | 313 | | (674) | |
| Add (Less): estimated income tax benefit (expense) | 100 | | | (4) | | |
Adjusted net operating (loss) profit after tax | ($125) | | | $1 | | |
(Less) Add: estimated income tax (benefit) expense | | (Less) Add: estimated income tax (benefit) expense | (406) | | 297 | |
Adjusted net operating loss after tax | | Adjusted net operating loss after tax | ($93) | | ($377) | |
| Average total assets | Average total assets | $9,637 | | | $9,811 | | Average total assets | $9,489 | | $9,825 | |
| Less: average deferred property incentives in excess of ROU assets2 | Less: average deferred property incentives in excess of ROU assets2 | (265) | | | (303) | | Less: average deferred property incentives in excess of ROU assets2 | (243) | | (287) | |
Less: average non-interest-bearing current liabilities | (3,095) | | | (3,324) | | |
Less: average non-interest bearing current liabilities | | Less: average non-interest bearing current liabilities | (3,423) | | (3,215) | |
Average invested capital | Average invested capital | $6,277 | | | $6,184 | | Average invested capital | $5,823 | | $6,323 | |
| Return on assets3 | Return on assets3 | (3.5 | %) | | (0.6 | %) | Return on assets3 | 0.1 | % | (5.4 | %) |
Adjusted ROIC3 | Adjusted ROIC3 | (2.0 | %) | | — | % | Adjusted ROIC3 | (1.6 | %) | (6.0 | %) |
1 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.
2 For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities and reduce average total assets, as this better reflects how we manage our business.
3 COVID-19 related charges during fiscalfor the four quarters ended October 31, 2020 negatively impacted return on assets by approximately 180170 basis points and Adjusted ROIC by approximately 130270 basis points for the four quarters ended May 2, 2020.points.
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. Our ongoing working capital requirements are generally funded primarily through cash flows generated from operations. In addition, we have access to the commercial paper market and can draw on our revolving credit facilities for working capital, capital expenditures and general corporate purposes. We ended the firstthird quarter of 2021 with $377$267 in cash and cash equivalents and $600 of additional liquidity available on our Revolver. In May 2021, subsequent to quarter end, we completely repaid $200 on our Revolver. We believe that our operating cash flows 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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts)
The following is a summary of our cash flows by activity:
| | | | | | | | | | | |
| Quarter Ended |
| May 1, 2021 | | May 2, 2020 |
Net cash used in operating activities | ($364) | | | ($778) | |
Net cash used in investing activities | (110) | | | (126) | |
Net cash provided by financing activities | 167 | | | 1,417 | |
| | | | | | | | |
| Nine Months Ended |
| October 30, 2021 | October 31, 2020 |
Net cash provided by (used in) operating activities | $277 | | ($436) | |
Net cash used in investing activities | (378) | | (291) | |
Net cash (used in) provided by financing activities | (315) | | 773 | |
Operating Activities
Net cash used infrom operating activities improved $414increased $713 for the quarternine months ended May 1,October 30, 2021, compared with the same period in 2020, primarily due to an improvement in net earnings and a decreasereceipt of the income tax refund related to the loss carryback provision of the CARES Act, partially offset by an increase in performance-related payments.inventory purchased.
Investing Activities
Net cash used in investing activities decreased $16increased $87 for the quarternine months ended May 1,October 30, 2021, compared with the same period in 2020, primarily due to increased proceeds from the salepayment of assets.the majority of our final installment related to Nordstrom NYC and our investment in ASOS.com Ltd.
Capital Expenditures
Our capital expenditures, net are summarized as follows:
| | | Quarter Ended | | Nine Months Ended |
| | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 |
Capital expenditures | Capital expenditures | $126 | | | $131 | | Capital expenditures | $361 | | $311 | |
Less: deferred property incentives1 | Less: deferred property incentives1 | (6) | | | (8) | | Less: deferred property incentives1 | (10) | | (32) | |
Capital expenditures, net | Capital expenditures, net | $120 | | | $123 | | Capital expenditures, net | $351 | | $279 | |
| Capital expenditures % of net sales | 4.3 | % | | 6.4 | % | |
Capital expenditures as a % of net sales | | Capital expenditures as a % of net sales | 3.6 | % | 4.6 | % |
1 Deferred property incentives are included in our cash provided by operations in our Condensed Consolidated Statements of Cash Flows in Item 1. We operationally view the property incentives we receive from our developers and vendors as an offset to our capital expenditures.
Financing Activities
Net cash provided byfrom financing activities decreased $1,250$1,088 for the quarternine months ended May 1,October 30, 2021, compared with the same period in 2020, primarily due to decreased proceeds on the Revolver and the retirement of the Secured Notes and 4.0% senior unsecured notes that were due October 2021 (see Note 3: Debt and Credit Facilities in Item 1).
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 calculating 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 (used in) operating activities. The following is a reconciliation of net cash used inprovided by (used in) operating activities to Free Cash Flow:
| | | Quarter Ended | | Nine Months Ended |
| | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 |
Net cash used in operating activities | ($364) | | | ($778) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | $277 | | ($436) | |
Less: capital expenditures | Less: capital expenditures | (126) | | | (131) | | Less: capital expenditures | (361) | | (311) | |
(Less) Add: change in cash book overdrafts | (Less) Add: change in cash book overdrafts | (17) | | | 83 | | (Less) Add: change in cash book overdrafts | (4) | | 39 | |
Free Cash Flow | Free Cash Flow | ($507) | | | ($826) | | Free Cash Flow | ($88) | | ($708) | |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts)
Adjusted EBITDA (Non-GAAP financial measure)
Adjusted EBITDA is one of our key financial metrics 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 calculating a non-GAAP financial measure may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The following is a reconciliation of net loss to Adjusted EBITDA:
| | | Quarter Ended | | Nine Months Ended |
| | May 1, 2021 | | May 2, 2020 | | October 30, 2021 | October 31, 2020 |
Net loss | Net loss | ($166) | | | ($521) | | Net loss | ($22) | | ($723) | |
Less: income tax benefit | (56) | | | (326) | | |
Add (Less): income tax expense (benefit) | | Add (Less): income tax expense (benefit) | 2 | | (487) | |
Add: interest expense, net | Add: interest expense, net | 137 | | | 34 | | Add: interest expense, net | 213 | | 133 | |
Loss before interest and income taxes | (85) | | | (813) | | |
Earnings (loss) before interest and income taxes | | Earnings (loss) before interest and income taxes | 193 | | (1,077) | |
| Add: depreciation and amortization expenses | Add: depreciation and amortization expenses | 162 | | | 176 | | Add: depreciation and amortization expenses | 477 | | 505 | |
Less: amortization of developer reimbursements | Less: amortization of developer reimbursements | (20) | | | (19) | | Less: amortization of developer reimbursements | (59) | | (65) | |
Add: asset impairments | Add: asset impairments | — | | | 117 | | Add: asset impairments | — | | 137 | |
| Adjusted EBITDA | Adjusted EBITDA | $57 | | | ($539) | | Adjusted EBITDA | $611 | | ($500) | |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts in millions except per share amounts)
Credit Capacity and Commitments
During the first quarter ofIn 2021, we borrowed $200 under our Revolver in the first quarter, which was fully repaid in the second quarter, and amended our existing Revolver. borrowed an additional $200 in the third quarter. As of May 1,October 30, 2021, we had $200 in borrowings outstanding under our Revolver. In November 2021, subsequent to quarter end, we completely repaid the facility. outstanding balance on our Revolver.
The Revolver contains customarycustomary representations, warranties, covenants and terms, including paying a variable rate of interest and a commitment fee based on our debt rating. The Revolverrating, and is available for working capital, capital expenditures and general corporate purposes. Provided that we obtain written consent from our lenders, we have the option to increase the Revolver by up to $200, to a total of $1,000, and two options to extend the Revolver by one year. For more information about our credit facilities, see Note 3: Debt and Credit Facilities in Item 1.
Impact of Credit Ratings
Changes in our credit ratings may impact our costs to borrow, whether our personal property secures our Revolver and the debt covenantswhether we follow.are permitted to pay dividends or conduct share repurchases.
For our Revolver, the interest rate applicable to any borrowings we may enter into depends upon the type of borrowing incurred plus an applicable margin, which is determined based on our credit ratings. At the time of this report, our credit ratings and outlook were as follows:
| | | | | | | | | | | |
| Credit Ratings | | Outlook |
Moody’s | Baa3Ba1 | | NegativeStable |
Standard & Poor’s | BB+ | | Stable |
Fitch | BBB- | | Negative |
Should the ratings assigned to our long-term debt improve, the applicable margin associated with any borrowings under the Revolver may decrease, resulting in a lower borrowing cost under this facility. Conversely, should the ratings assigned to our long-term debt worsen, the applicable margin associated with any borrowings under the Revolver may increase, resulting in a higher borrowing cost under this facility.
DebtRevolver Covenants
As of May 1,October 30, 2021, we metwere in compliance with all our covenants while our Leverage Ratio exceeded four.Revolver covenants. Under our current debt covenants,covenant structure, if our Leverage Ratio is greater than four or our unsecured debt is rated below BBB- with a stable outlook at Standard & Poor’s or Baa3 with a stable outlook at Moody’s, any outstanding borrowings under our Revolver will be secured by substantially all our personal property andproperty.
As of October 30, 2021, our Leverage Ratio was greater than 3.75, thus we will be prevented from payingdid not meet the requirements under our Revolver amendment to pay dividends and repurchasingor repurchase shares. For more information about our debtRevolver covenants, see Note 3: Debt and Credit Facilities in Item 1.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Continued) (Amounts(Dollar and share 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 creditworthiness thatwhich could impact our credit rating and borrowing costs. This metric is calculated in accordance with our debtRevolver covenant and is a key component in assessing whether our revolving credit facility is secured or unsecured, as well as our ability to make dividend payments and share repurchases. Our goal is to manage debt levels to maintain an investment-grade credit rating while operating with an efficient capital structure.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other GAAP financial measures. Our method of 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 debt to net lossearnings to Adjusted Debt to EBITDAR:
| | | | | | | |
| May 1,October 30, 2021 | | |
Debt | $3,5473,051 | | | |
| | | |
| | | |
Add: estimated capitalized operating lease liability1 | 1,3351,374 | | | |
Adjusted Debt | $4,8824,425 | | | |
| | | |
Four Quarters Ended May 1,October 30, 2021 | | |
Net lossearnings | ($334)$11 | | | |
Less: income tax benefit | (269)(49) | | | |
Add: interest expense, net | 284261 | | | |
Add: asset impairments | 20 | | | |
Adjusted lossearnings before interest and income taxes | ($299)$223 | | | |
| | | |
Add: depreciation and amortization expenses | 658643 | | | |
| | | |
Add: rent expense, net2 | 223229 | | | |
| | | |
Add: other Revolver covenant adjustments3 | 21 | | | |
Adjusted EBITDAR | $5841,096 | | | |
| | | |
Debt to Net LossEarnings | (10.6)271.0 | | | |
Adjusted Debt to EBITDAR | 8.44.04 | | | |
1 Based upon the estimated lease liability as of the end of the period, calculated as the trailing four quarters of rent expense multiplied by six, a 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 and is calculated under the previous lease standard (ASC 840), consistent with our debtRevolver covenant calculation requirements. The estimated lease liability is not calculated in accordance with, nor an alternative for, GAAP and should not be considered in isolation or as a substitution for our results reported under GAAP.
2 Rent expense, net of amortization of developer reimbursements, is added back for consistency with our debtRevolver covenant calculation requirements, and is calculated under the previous lease standard.standard (ASC 840).
3 Other adjusting items to reconcile net lossearnings to Adjusted EBITDAR as defined by our Revolver covenant include interest income and certain non-cash charges where relevant.
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 2020 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. There have been no material changes to our significant accounting policies or critical accounting estimates as described in our 2020 Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We discussed our interest rate risk and foreign currency exchange risk in our 2020 Annual Report.Report. There have been no material changes to these risks since that time. Item 4. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
For the purposes of the Exchange Act, our Chief Executive Officer, Erik B. Nordstrom, serves as our principal executive officer and our Chief Financial Officer, Anne L. Bramman, is our principal financial officer.
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we have performed an evaluation of the design and effectiveness of our disclosure controls and procedures as of the last day of the period covered by this report.
Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified within the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed 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
There have been no 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.
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 may 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 2020 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)
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. As a result of uncertainties from COVID-19 impacts, we repurchased no shares of common stock during the firstthird quarter of 2021 and we had $707 remaining in share repurchase capacity as of May 1,October 30, 2021. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to the discretion of the Board of Directors, contractual commitments, market and economic conditions and applicable SEC rules.
Item 6. Exhibits.
(a) The information required under this item is incorporated herein by reference or filed or furnished as part of this report at: All other exhibits are omitted because they are not applicable, not required or because the information required has been given as part of this report.
NORDSTROM, INC.
Exhibit Index
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Exhibit | | Method of Filing |
| | | | Filed herewith electronically |
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| | | | Filed herewith electronically |
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| | | | Filed herewith electronically |
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| | | | Filed herewith electronically |
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| | | | Filed herewith electronically |
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| | | | Filed herewith electronically |
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| | | | Furnished herewith electronically |
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101.INS | | Inline XBRL Instance Document | | Filed herewith electronically |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | Filed herewith electronically |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith electronically |
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101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document | | Filed herewith electronically |
| | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith electronically |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith electronically |
| | | | |
104 | | Cover Page Interactive Data File (Inline XBRL) | | Filed herewith electronically |
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 4,December 3, 2021 |