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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 | | Six Months Ended |
| August 3, 2024 | July 29, 2023 | | August 3, 2024 | July 29, 2023 |
| Net sales | $ | | $ | | | $ | | $ | |
| Credit card revenues, net | | | | | | | | | |
| Total revenues | | | | | | | | | |
Cost of sales and related buying and occupancy costs | () | | () | | | () | | () | |
| Selling, general and administrative expenses | () | | () | | | () | | () | |
| Canada wind-down costs | | | | | | | | () | |
| Earnings (loss) before interest and income taxes | | | | | | | | () | |
| Interest expense, net | () | | () | | | () | | () | |
| Earnings (loss) before income taxes | | | | | | | | () | |
| Income tax (expense) benefit | () | | () | | | () | | | |
| Net earnings (loss) | $ | | $ | | | $ | | ($) | |
| | | | | |
| Earnings (loss) per share: | | | | | |
| Basic | $ | | $ | | | $ | | ($) | |
| Diluted | $ | | $ | | | $ | | ($) | |
| | | | | |
| Weighted-average shares outstanding: | | | | | |
| Basic | | | | | | | | | |
| Diluted | | | | | | | | | |
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 | | Six Months Ended |
| August 3, 2024 | July 29, 2023 | | August 3, 2024 | July 29, 2023 |
| Net earnings (loss) | $ | | $ | | | $ | | ($) | |
| Foreign currency translation adjustment | | | | | | | | () | |
| | |
| Comprehensive net earnings (loss) | $ | | $ | | | $ | | ($) | |
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)
| | | | | | | | | | | |
| August 3, 2024 | February 3, 2024 | July 29, 2023 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | | $ | | $ | |
| Accounts receivable, net | | | | | | |
| Merchandise inventories | | | | | | |
| Prepaid expenses and other current assets | | | | | | |
| Total current assets | | | | | | |
| | | |
Land, property and equipment (net of accumulated depreciation of $, $ and $) | | | | | | |
| Operating lease right-of-use assets | | | | | | |
| Goodwill | | | | | | |
| Other assets | | | | | | |
| Total assets | $ | | $ | | $ | |
| | | |
| Liabilities and Shareholders’ Equity | | | |
| Current liabilities: | | | |
|
| Accounts payable | $ | | $ | | $ | |
| Accrued salaries, wages and related benefits | | | | | | |
| Current portion of operating lease liabilities | | | | | | |
| Other current liabilities | | | | | | |
| Current portion of long-term debt | | | | | | |
| Total current liabilities | | | | | | |
| | | |
| Long-term debt, net | | | | | | |
|
| Noncurrent operating lease liabilities | | | | | | |
| Other liabilities | | | | | | |
| | | |
| Commitments and contingencies | par value: shares authorized; , and shares issued and outstanding | | | | | | |
| Accumulated deficit | () | | () | | () | |
| Accumulated other comprehensive gain | | | | | | |
| Total shareholders’ equity | | | | | | |
| Total liabilities and shareholders’ equity | $ | | $ | | $ | |
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 | | Six Months Ended |
| August 3, 2024 | July 29, 2023 | | August 3, 2024 | July 29, 2023 |
| Common stock | | | | | |
| Balance, beginning of period | $ | | $ | | | $ | | $ | |
Issuance of common stock under stock compensation plans | | | | | | | | | |
| Stock-based compensation | | | | | | | | | |
| Balance, end of period | $ | | $ | | | $ | | $ | |
| | | | | |
| Accumulated deficit | | | | | |
| Balance, beginning of period | ($) | | ($) | | | ($) | | ($) | |
| Cumulative effect of change in accounting principle, net of tax | | | | | | | | | |
| Net earnings (loss) | | | | | | | | () | |
| Dividends | () | | () | | | () | | () | |
| Repurchase of common stock | | | | | | | | () | |
| Balance, end of period | ($) | | ($) | | | ($) | | ($) | |
| | | | | |
| Accumulated other comprehensive gain (loss) | | | | | |
| Balance, beginning of period | $ | | $ | | | $ | | ($) | |
| Accumulated translation loss reclassified to earnings | | | | | | | | | |
| Other comprehensive loss | | | | | | | | () | |
| Balance, end of period | $ | | $ | | | $ | | $ | |
| | | | | |
| Total shareholders’ equity | $ | | $ | | | $ | | $ | |
| | | | | |
| Dividends per share | $ | | $ | | | $ | | $ | |
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)
| | | | | | | | |
| Six Months Ended |
| August 3, 2024 | July 29, 2023 |
| Operating Activities | | |
| Net earnings (loss) | $ | | ($) | |
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | |
| Depreciation and amortization expenses | | | | |
| Canada wind-down costs | | | | |
| Asset impairment | | | | |
| Right-of-use asset amortization | | | | |
| Deferred income taxes, net | () | | () | |
| Stock-based compensation expense | | | | |
| Other, net | () | | () | |
| Change in operating assets and liabilities: | | |
| Merchandise inventories | () | | () | |
| Other current and noncurrent assets | | | () | |
| Accounts payable | | | | |
| Accrued salaries, wages and related benefits | | | | |
| Lease liabilities | () | | () | |
| Other current and noncurrent liabilities | | | | |
| Net cash provided by operating activities | | | | |
| | |
| Investing Activities | | |
| Capital expenditures | () | | () | |
| Decrease in cash and cash equivalents resulting from Canada deconsolidation | | | () | |
| Proceeds from the sale of assets and other, net | | | | |
| Net cash used in investing activities | () | | () | |
| | |
| Financing Activities | | |
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| Principal payments on long-term debt | () | | | |
| Change in cash book overdrafts | | | | |
| Cash dividends paid | () | | () | |
| Payments for repurchase of common stock | | | () | |
| Proceeds from issuances under stock compensation plans | | | | |
| Other, net | () | | () | |
| Net cash used in financing activities | () | | () | |
| | |
| Net increase in cash and cash equivalents | | | | |
| Cash and cash equivalents at beginning of period | | | | |
| Cash and cash equivalents at end of period | $ | | $ | |
| | |
| Supplemental Cash Flow Information | | |
| Income taxes paid, net of refunds received | $ | | $ | |
| Interest paid, net of capitalized interest | | | | |
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)
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Non-cash charges associated with the wind-down of operations in Canada in 2023 are included in Canada wind-down costs on the Condensed Consolidated Statement of Cash Flows. The decrease in cash due to the deconsolidation of Nordstrom Canada is included in investing activities on the Condensed Consolidated Statement of Cash Flows and all other impacts are included in operating cash flows.
Prior to deconsolidation, Nordstrom made loans to the Canadian subsidiaries and incurred liabilities related to certain intercompany charges. These were considered intercompany transactions and were eliminated in consolidation of Nordstrom. Subsequent to deconsolidation, these liabilities and receivables were no longer eliminated through consolidation, are considered related-party transactions and are recorded in our Condensed Consolidated Balance Sheets at estimated fair value. Nordstrom had outstanding liability to Nordstrom Canada as of August 3, 2024.
Leases
We incurred operating lease liabilities arising from lease agreements of $ for the six months ended August 3, 2024 and $ for the six months ended July 29, 2023.
Supply Chain Asset Impairment
During the second quarter of 2024, we decommissioned certain supply chain assets and incurred a non-cash impairment charge of $ as a result of a change in our supply chain optimization strategy. This included $ on long-lived tangible assets and $ on ROU assets to adjust the carrying values to their estimated fair values. These charges are included in our Corporate/Other SG&A expense on the Condensed Consolidated Statement of Earnings and asset impairment on the Condensed Consolidated Statement of Cash Flows.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires additional quarterly and annual reportable segment disclosures, primarily around significant segment expenses. Annual disclosure requirements will be effective for us for the fourth quarter of 2024, and quarterly disclosure requirements will be effective for us in the first quarter of 2025, with early adoption permitted. We are currently evaluating the impact of this ASU on our disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of additional income tax information, primarily related to the rate reconciliation and income taxes paid. Annual disclosure requirements will be effective for us for the fourth quarter of 2025, with early adoption permitted. We are currently evaluating the impact of this ASU on our disclosures.
Subsequent Events
In April 2024, we announced that our Board of Directors had established a special committee of independent and disinterested directors (the “Special Committee”) in response to interest expressed by Erik B. Nordstrom, our Chief Executive Officer, and Peter E. Nordstrom, our President and Chief Brand Officer, in pursuing a potential transaction in which Nordstrom would become a private company in conjunction with the Board’s exploration of possible avenues to enhance shareholder value. On September 4, 2024, the Special Committee confirmed receipt of a proposal from Erik and Pete Nordstrom, other members of the Nordstrom family, and El Puerto de Liverpool, S.A.B. de C.V. (collectively, the “Bid Group”) to acquire all of the outstanding shares of the Company, other than shares held by members of the Bid Group, for $ per share in cash.
The Special Committee and the other independent directors will carefully review the proposal in consultation with independent financial and legal advisors to determine the course of action that is in the best interests of Nordstrom and all shareholders. There can be no assurance that the Company will pursue this transaction or other strategic outcome, or that a proposed transaction will be approved or consummated. We do not intend to disclose further developments regarding this matter unless and until further disclosure is determined to be appropriate or necessary.
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
| $ | |
| Balance as of April 29, 2023 | | | | |
| Balance as of July 29, 2023 | | | | |
|
| | |
| Balance as of February 3, 2024 | | | | |
| Balance as of May 4, 2024 | | | | |
| Balance as of August 3, 2024 | | | | |
Revenues recognized from our beginning contract liability balance were $ and $ for the quarter and six months ended August 3, 2024 and $ and $ for the quarter and six months ended July 29, 2023.
Disaggregation of Revenue
| $ | | | $ | | $ | |
| Nordstrom Rack | | | | | | | | | |
| | |
| Total net sales | $ | | $ | | | $ | | $ | |
| | | | | |
| Digital sales as a % of total net sales | | % | | % | | | % | % |
| | | % | | % | | | % | | % |
| Shoes | | % | | % | | | % | | % |
| Men’s Apparel | | % | | % | | | % | | % |
| Beauty | | % | | % | | | % | | % |
| Accessories | | % | | % | | | % | | % |
| Kids’ Apparel | | % | | % | | | % | | % |
| Other | | % | | % | | | % | | % |
| Total net sales | | % | | % | | | % | | % |
| | |
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
Credit Facilities
As of August 3, 2024 and July 29, 2023 we had outstanding borrowings under the Revolver that expires in May 2027. As of August 3, 2024, we have an outstanding standby letter of credit of $ resulting in available short-term borrowing capacity of $. This letter of credit is not reflected in our Condensed Consolidated Balance Sheets. Provided that we obtain written consent from the lenders, we have the option to increase the Revolver by up to $, to a total of $, and options to extend the Revolver for additional one-year terms.
Any outstanding borrowings under the Revolver are secured by substantially all our personal and intellectual property assets and are guaranteed by certain of our subsidiaries. Under the Revolver, our obligation to secure any outstanding borrowings will be eliminated if no default exists and we either have an unsecured investment-grade debt rating from of specified ratings agencies, or we have investment-grade rating and achieve consecutive fiscal quarters with a Leverage Ratio of less than times.
Under the Revolver, we have financial covenant tests that need to be met on a quarterly basis: a Leverage Ratio that is less than or equal to times and a fixed charge coverage ratio that is greater than or equal to times. As of August 3, 2024, we were in compliance with all covenants.
The Revolver contains customary representations, warranties, covenants and terms, including paying a variable rate of interest and a facility fee based on our debt rating, and is available for working capital, capital expenditures and general corporate purposes. The Revolver allows us to issue dividends and repurchase shares provided we are not in default and no default would arise as a result of such payments. If the pro-forma Leverage Ratio after such payments is less than times, then such payments are unlimited. If the pro-forma Leverage Ratio is greater than or equal to times but less than times, then we are limited to $ per fiscal quarter and if the pro-forma Leverage Ratio is greater than or equal to times, then the limit is $ per fiscal quarter.
Our $ commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect of reducing available liquidity under the Revolver by an amount equal to the principal amount of commercial paper outstanding. Conversely, 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 August 3, 2024 and July 29, 2023, we had 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)
| $ | | $ | |
| Fair value of long-term debt | | | | | | |
We measure certain items at fair value on a nonrecurring basis, primarily goodwill and long-lived tangible and ROU assets, in connection with periodic evaluations for potential impairment. For more information regarding long-lived tangible asset impairment charges for the six months ended August 3, 2024, see Note 1: Basis of Presentation. We estimate the fair value of these assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements. In the first quarter of 2023, we measured our investment in Nordstrom Canada, our related-party receivables and related lease guarantees at fair value. See our 2023 Annual Report for more detailed information on charges associated with the wind-down of our Canada operations. Investments Measured at NAV
From time to time, we invest in financial interests of private companies and venture capital funds that align with our business and omni-channel strategies, which are classified in other assets in the Condensed Consolidated Balance Sheets and proceeds from the sale of assets and other, net within investing activities on the Condensed Consolidated Statements of Cash Flows. These investments are measured at fair value using the NAV per share, or its equivalent, as a practical expedient. This class of investments consists of partnership interests that mainly invest in venture capital strategies with a focus on privately held consumer and technology companies. The NAV is based on the fair value of the underlying net assets owned by the fund and the relative interest of each participating investor in the fair value of the underlying assets. Our interest in these partnerships is generally not redeemable and is subject to significant restrictions regarding transfers. Distributions from each fund will be received as the underlying assets of the funds are liquidated. Liquidation is triggered by clauses within the partnership agreements or at the funds’ stated end date. The contractual terms of the partnership interests range from six to ten years.
As of August 3, 2024, February 3, 2024 and July 29, 2023, we held $, $ and $ of investments measured at NAV.
| $ | | | $ | | $ | | | Stock options | | | | | | | | | |
Other1 | | | | | | | | | |
Total stock-based compensation expense, before income tax benefit | | | | | | | | | |
| Income tax benefit | () | | () | | | () | | () | |
Total stock-based compensation expense, net of income tax benefit | $ | | $ | | | $ | | $ | |
NORDSTROM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in millions except per share, per option and per unit amounts)
(Unaudited)
| $ | | | | | $ | | | Stock options | | | | | | | | $ | |
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EBIT decreased $2 for the second quarter of 2024, compared with the same period in 2023, due to a charge primarily related to a supply chain asset impairment in 2024 and a gain on the sale of a real estate asset in 2023, partially offset by higher sales volume. EBIT margin decreased 25 basis points for the second quarter of 2024, primarily driven by a supply chain asset impairment charge and a 2023 gain on the sale of a real estate asset, partially offset by leverage on higher sales.
EBIT increased $236 and 340 basis points as a percent of net sales for the six months ended August 3, 2024, compared with the same period in 2023, primarily due to $309 of expenses in 2023 associated with the wind-down of Canadian operations, partially offset by a charge primarily related to a supply chain asset impairment and a 2023 gain on the sale of a real estate asset.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where otherwise noted)
Interest Expense, Net
Interest expense, net is summarized in the following table:
| | | | | | | | | | | | | | | | | |
| Quarter Ended | | Six Months Ended |
| Fiscal year | August 3, 2024 | July 29, 2023 | | August 3, 2024 | July 29, 2023 |
| Interest on long-term debt and short-term borrowings | $35 | | $37 | | | $72 | | $74 | |
| Interest income | (7) | | (8) | | | (15) | | (15) | |
| Capitalized interest | (2) | | (3) | | | (4) | | (5) | |
| Interest expense, net | $26 | | $26 | | | $53 | | $54 | |
Interest expense, net was flat for the second quarter of 2024 and decreased $1 for the six months ended August 3, 2024, compared with the same periods in 2023, primarily due to the retirement of our 2.30% senior notes in April 2024, partially offset by a decrease in capitalized interest.
Income Tax Expense
Income tax expense (benefit) is summarized in the following table: | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Six Months Ended |
| August 3, 2024 | July 29, 2023 | | August 3, 2024 | July 29, 2023 |
| Income tax expense (benefit) | $42 | | $29 | | | $33 | | ($54) | |
| Effective tax rate | 25.7 | % | 17.2 | % | | 29.1 | % | 44.3 | % |
The effective tax rate increased in the second quarter of 2024, compared with the same period in 2023, primarily due to the favorable resolution of certain tax matters in the second quarter of 2023. The effective tax rate decreased for the six months ended August 3, 2024, compared with the same period in 2023, primarily due to the favorable resolution of certain tax matters and net tax benefits of $93 related to the wind-down of Canadian operations recorded in the first half of 2023.
Earnings Per Share
EPS is as follows:
| | | | | | | | | | | | | | | | | |
| Quarter Ended | | Six Months Ended |
| August 3, 2024 | July 29, 2023 | | August 3, 2024 | July 29, 2023 |
| Basic | $0.74 | | $0.85 | | | $0.50 | | ($0.42) | |
| Diluted | $0.72 | | $0.84 | | | $0.49 | | ($0.42) | |
Diluted EPS decreased $0.12 for the second quarter of 2024, compared with the same period in 2023, due to a charge primarily related to a supply chain asset impairment that had a net unfavorable impact of $0.24 per diluted share in the second quarter of 2024, partially offset by higher sales volume. For the six months ended August 3, 2024, diluted EPS increased $0.91 compared with the same period in 2023, primarily due to charges related to the wind-down of Canadian operations that had a net unfavorable impact of $1.33 per diluted share in the six months ended July 29, 2023.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where otherwise noted)
Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Margin and Adjusted EPS (Non-GAAP Financial Measures)
The following are key financial metrics and, when used in conjunction with GAAP measures, we believe they provide useful information for evaluating our core business performance, enable comparison of financial results across periods and allow for greater transparency with respect to key metrics used by management for financial and operational decision-making. Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT margin and Adjusted EPS exclude certain items that we do not consider representative of our core operating performance. The financial measure calculated under GAAP which is most directly comparable to Adjusted EBIT and Adjusted EBITDA is net earnings (loss). The financial measure calculated under GAAP which is most directly comparable to Adjusted EBIT margin is net earnings as a percent of net sales. The financial measure calculated under GAAP which is most directly comparable to Adjusted EPS is diluted EPS.
Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT margin and Adjusted EPS are not measures of financial performance under GAAP and should be considered in addition to, and not as a substitute for, net earnings, net earnings as a percent of net sales, operating cash flows, earnings per share, earnings per diluted share or other financial measures performed in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ financial measures and therefore may not be comparable to methods used by other companies.
The following is a reconciliation of net earnings (loss) to Adjusted EBIT and Adjusted EBITDA and net earnings as a percent of net sales to Adjusted EBIT margin: | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Six Months Ended |
| August 3, 2024 | July 29, 2023 | | August 3, 2024 | July 29, 2023 |
| Net earnings (loss) | $122 | | $137 | | | $83 | | ($67) | |
| Income tax expense (benefit) | 42 | | 29 | | | 33 | | (54) | |
| Interest expense, net | 26 | | 26 | | | 53 | | 54 | |
| Earnings (loss) before interest and income taxes | 190 | | 192 | | | 169 | | (67) | |
| Supply chain asset impairment and other | 54 | | — | | | 54 | | — | |
| Canada wind-down costs | — | | — | | | — | | 309 | |
| Adjusted EBIT | 244 | | 192 | | | 223 | | 242 | |
| Depreciation and amortization expenses | 150 | | 141 | | | 302 | | 285 | |
| Amortization of developer reimbursements | (15) | | (17) | | | (29) | | (35) | |
| Adjusted EBITDA | $379 | | $316 | | | $496 | | $492 | |
| | | | | |
| Net sales | $3,785 | | $3,662 | | | $7,006 | | $6,726 | |
Net earnings (loss) as a % of net sales | 3.2 | % | 3.8 | % | | 1.2 | % | (1.0 | %) |
| EBIT margin | 5.0 | % | 5.3 | % | | 2.4 | % | (1.0 | %) |
| Adjusted EBIT margin | 6.4 | % | 5.3 | % | | 3.2 | % | 3.6 | % |
The following is a reconciliation of diluted EPS to Adjusted EPS: | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Six Months Ended |
| August 3, 2024 | July 29, 2023 | | August 3, 2024 | July 29, 2023 |
| Diluted EPS | $0.72 | | $0.84 | | | $0.49 | | ($0.42) | |
| Supply chain asset impairment and other | 0.32 | | — | | | 0.32 | | — | |
| Canada wind-down costs | — | | — | | | — | | 1.91 | |
Income tax impact on adjustments1 | (0.08) | | — | | | (0.08) | | (0.58) | |
| Adjusted EPS | $0.96 | | $0.84 | | | $0.73 | | $0.91 | |
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| | |
1 The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate for the respective non-GAAP adjustment.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where otherwise noted)
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. Our Adjusted ROIC calculation excludes certain items that we do not consider representative of our core operating performance.
Adjusted ROIC is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other GAAP financial measures. Our method of calculating a non-GAAP financial measure may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted ROIC is return on assets. The following shows the components to reconcile the return on assets calculation to Adjusted ROIC: | | | | | | | | |
| Four Quarters Ended |
| August 3, 2024 | July 29, 2023 |
| Net earnings | $284 | | $32 | |
| Income tax expense (benefit) | 100 | | (22) | |
| Interest expense | 137 | | 137 | |
| Earnings before interest and income tax expense | 521 | | 147 | |
| | |
Operating lease interest1 | 88 | | 85 | |
Non-operating related adjustments2 | 60 | | 380 | |
| Adjusted net operating profit | 669 | | 612 | |
Adjusted estimated income tax expense3 | (186) | | (141) | |
| Adjusted net operating profit after tax | $483 | | $471 | |
| | |
| Average total assets | $8,675 | | $8,986 | |
Average noncurrent deferred property incentives in excess of ROU assets4 | (137) | | (177) | |
| Average non-interest bearing current liabilities | (2,949) | | (3,149) | |
Non-operating related adjustments2 | 143 | | 184 | |
| Adjusted average invested capital | $5,732 | | $5,844 | |
| | |
| Return on assets | 3.3 | % | 0.4 | % |
| Adjusted ROIC | 8.4 | % | 8.1 | % |
1 Operating lease interest is a component of operating lease cost recorded in occupancy costs. We add back operating lease interest for purposes of calculating adjusted net operating profit for consistency with the treatment of interest expense on our debt.
2 Non-operating related adjustments primarily included supply chain impairment charges and the wind-down of our Canadian operations. See the Adjusted EBIT and Adjusted EBITDA section, as well as our 2023 Annual Report, for detailed information on certain non-operating related adjustments.
3 Adjusted estimated income tax expense is calculated by multiplying the adjusted net operating profit by the adjusted effective tax rate (which removes the impact of non-operating related adjustments) for the trailing twelve-month periods ended August 3, 2024 and July 29, 2023. The adjusted effective tax rate is calculated by dividing adjusted income tax expense by adjusted earnings before income taxes for the same trailing twelve-month periods.
4 For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities on the Condensed Consolidated Balance Sheets. The current and noncurrent amounts are used to reduce average total assets above, as this better reflects how we manage our business.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where otherwise noted)
LIQUIDITY
We strive to maintain a level of liquidity sufficient to allow us to cover our seasonal cash needs and appropriate levels of short-term borrowing capacity. In the short term, our ongoing working capital and capital expenditure requirements, and any dividend payments or share repurchases, are generally funded through cash flows generated from operations. In addition, we have access to the commercial paper market and can draw on our Revolver for working capital, capital expenditures and general corporate purposes. 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, share repurchases and other future investments.
We ended the second quarter of 2024 with $679 in cash and cash equivalents and $771 of additional liquidity available on our Revolver. Cash and cash equivalents as of August 3, 2024 decreased $206 from $885 as of July 29, 2023, driven primarily by payments for capital expenditures and principal payments on long-term debt, partially offset by net earnings.
During the first quarter of 2024, we retired our 2.30% senior notes that were due in April 2024 using cash on hand. We believe that our cash flows from operations are sufficient to meet our cash requirements for the next 12 months and beyond. Our cash requirements are subject to change as business conditions warrant and opportunities arise, and we may elect to raise additional funds in the future through the issuance of either debt or equity.
The following is a summary of our cash flows by activity:
| | | | | | | | |
| Six Months Ended |
| August 3, 2024 | July 29, 2023 |
| Net cash provided by operating activities | $528 | | $465 | |
| Net cash used in investing activities | (194) | | (229) | |
| Net cash used in financing activities | (283) | | (38) | |
Operating Activities
Net cash provided by operating activities increased $63 for the six months ended August 3, 2024, compared with the same period in 2023, primarily due to timing of purchases and payments for merchandise inventories and cash flows from earnings, partially offset by changes in compensation.
Investing Activities
Net cash used in investing activities decreased $35 for the six months ended August 3, 2024, compared with the same period in 2023, primarily due to the decrease in cash and cash equivalents resulting from the deconsolidation of Canada in 2023 (see Note 1: Basis of Presentation in Item 1).
Capital Expenditures
Our capital expenditures, net are summarized as follows:
| | | | | | | | |
| Six Months Ended |
| August 3, 2024 | July 29, 2023 |
| Capital expenditures | $204 | | $225 | |
Deferred property incentives1 | (6) | | (15) | |
| Capital expenditures, net | $198 | | $210 | |
| | |
| Capital expenditures as a % of net sales | 2.9 | % | 3.3 | % |
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 used in financing activities increased $245 for the six months ended August 3, 2024, compared with the same period in 2023, primarily due to the retirement of our 2.30% senior notes due April 2024 using cash on hand (see Note 3: Debt and Credit Facilities in Item 1).
Dividends
We paid dividends of $62 and $61 for the six months ended August 3, 2024 and July 29, 2023, or $0.38 per share for each year-to-date period.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except per share amounts and where otherwise noted)
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 a non-GAAP financial measure may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
| | | | | | | | |
| Six Months Ended |
| August 3, 2024 | July 29, 2023 |
| Net cash provided by operating activities | $528 | | $465 | |
| Capital expenditures | (204) | | (225) | |
| Change in cash book overdrafts | 30 | | 18 | |
| Free Cash Flow | $354 | | $258 | |
|
|
|
|
| Operating lease liabilities | 1,617 | |
| Adjusted debt | $4,232 | |
| |
| Four Quarters Ended August 3, 2024 |
| Net earnings | $284 | |
| Income tax expense | 100 | |
| Interest expense, net | 103 | |
|
|
| * Management contract, compensatory plan or arrangement |
| † Filed herewith electronically |
| ‡ Furnished 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/ Catherine R. Smith |
| Catherine R. Smith |
| Chief Financial Officer |
| (Principal Financial Officer and Principal Accounting Officer) |
| |
| Date: | September 5, 2024 |
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