Nordstrom Reports Second Quarter 2023 Earnings

Sample article from our Logistic & Supply Chain

August 25, 2023 (press release) –

  • Reports EPS of $0.84 , compared to EPS of $0.77 and adjusted EPS of $0.81 in the prior year1
  • Results reflect continued progress on Company's key priorities of Nordstrom Rack improvement, inventory productivity and supply chain optimization
  • Reaffirms fiscal 2023 revenue and adjusted earnings outlook

SEATTLE , Aug. 24, 2023 /PRNewswire/ -- Nordstrom, Inc. (NYSE: JWN) today reported second quarter net earnings of $137 million , or earnings per diluted share ("EPS") of $0.84 , and earnings before interest and taxes ("EBIT") of $192 million .

For the second quarter ended July 29, 2023 , net sales decreased 8.3 percent versus the same period in fiscal 2022, compared to a decrease of 11.6 percent in the first quarter, reflecting sequential improvement in sales at both Nordstrom and Nordstrom Rack. Gross merchandise value ("GMV") decreased 8.5 percent. Second quarter net sales include a 275 basis point negative impact from the wind-down of Canadian operations. Anniversary Sale timing, with one week shifting from the second quarter to the third quarter, had a negative impact of approximately 200 basis points on net sales compared with 2022. Excluding the impacts of the Canadian wind-down and Anniversary Sale timing shift, net sales would have been down approximately 4 percent. During the quarter, Nordstrom banner net sales decreased 10.1 percent and GMV decreased 10.4 percent. Net sales for Nordstrom Rack decreased 4.1 percent.

"We've worked hard to improve our operating model, and our solid results reflect the continued progress we made against our top priorities to improve Nordstrom Rack performance, increase inventory productivity and deliver efficiencies through supply chain optimization," said Erik Nordstrom , chief executive officer of Nordstrom, Inc. "These 2023 priorities improve the way we operate and drive profitability in the near term, and better position us to succeed and deliver value to our shareholders in the long-term. Looking ahead, we remain confident in our ability to deliver on these priorities, all while keeping the customer at the center of everything we do."

In the second quarter, active and beauty grew by low single-digits versus 2022. Kids' apparel and men's apparel performed better than average for the quarter.

"Our annual Anniversary Sale was a successful event, especially among our most loyal customers. We were pleased by strong sell-through of new merchandise from the best brands, both in stores and online," said Pete Nordstrom , president and chief brand officer of Nordstrom, Inc. "In the second quarter, we were also encouraged by sequential improvement in sales trends at both Nordstrom and Rack. We remain focused on managing inventory with greater discipline, improving mix and productivity, and thank our teams for their hard work in bringing it all to life for our customers."

As previously announced, on August 16, 2023 , the board of directors declared a quarterly cash dividend of $0.19 per share, payable on September 13, 2023 , to shareholders of record at the close of business on August 29, 2023 .

SECOND QUARTER 2023 SUMMARY

  • Total Company net sales decreased 8.3 percent, improving sequentially from the first quarter decrease of 11.6 percent, and GMV decreased 8.5 percent compared with the same period in fiscal 2022. The wind-down of Canadian operations had a negative impact on total Company net sales of 275 basis points. The second quarter of 2023 included no sales from Canadian operations, compared with a full quarter of sales from Canadian operations in the second quarter of 2022. The timing shift of the Anniversary Sale, with roughly one week falling into the third quarter of 2023 versus one day in 2022, had a negative impact on net sales of approximately 200 basis points compared with the second quarter of 2022.
  • For the Nordstrom banner, net sales decreased 10.1 percent, improving sequentially from the first quarter decrease of 11.4 percent, and GMV decreased 10.4 percent compared with the same period in fiscal 2022. The wind-down of Canadian operations had a negative impact on Nordstrom banner net sales of 400 basis points. The timing shift of the Anniversary Sale had a negative impact on Nordstrom banner net sales of approximately 300 basis points compared with the second quarter of 2022.
  • For the Nordstrom Rack banner, net sales decreased 4.1 percent compared with the same period in fiscal 2022, improving sequentially from the first quarter decrease of 11.9 percent. Eliminating store fulfillment for Nordstrom Rack digital orders during the third quarter of fiscal 2022 negatively impacted second quarter Rack banner sales by approximately 500 basis points.
  • Digital sales decreased 12.9 percent compared with the same period in fiscal 2022. Collectively, eliminating store fulfillment for Nordstrom Rack digital orders during the third quarter of fiscal 2022 and sunsetting Trunk Club during the second quarter of fiscal 2022 negatively impacted second quarter digital sales by approximately 500 basis points. The timing shift of the Anniversary Sale had a negative impact on Company digital sales of approximately 300 basis points compared with the second quarter of 2022. Digital sales represented 36 percent of total sales during the quarter.
  • Gross profit, as a percentage of net sales, of 35.0 percent decreased 20 basis points compared with the same period in fiscal 2022 primarily due to deleverage on lower sales, partially offset by lower buying and occupancy costs.
  • Ending inventory decreased 17.5 percent compared with the same period in fiscal 2022, versus an 8.3 percent decrease in sales, reflecting continued strong discipline.
  • SG&A expenses, as a percentage of net sales, of 32.8 percent was flat compared with the same period in fiscal 2022 primarily due to improvements in variable costs from supply chain efficiency initiatives and more favorable carrier rates than expected, and a gain on the sale of a real estate asset. These were offset by higher labor costs and deleverage from lower sales.
  • EBIT was $192 million in the second quarter of 2023, compared with $202 million during the same period in fiscal 2022. Adjusted EBIT of $210 million in the second quarter of 2022 excluded costs associated with the wind-down of Trunk Club .2
  • Interest expense, net, of $26 million decreased from $34 million during the same period in fiscal 2022 due to higher interest income.
  • Income tax expense was $29 million , or 17.2 percent of pretax earnings, compared with income tax expense of $42 million , or 25.2 percent of pretax earnings, in the same period in fiscal 2022. The decrease in the second quarter of fiscal 2023 was driven by the favorable resolution of certain tax matters.
  • The Company ended the second quarter with $1.7 billion in available liquidity, including $885 million in cash and the full $800 million available on its revolving line of credit.

STORES UPDATE

To date in fiscal 2023, the Company has opened or relocated nine stores:

City

 

Location

 

Square Footage
(000s)

 

Timing of
Opening

Nordstrom Rack

           

Los Angeles, CA

 

NOHO West

 

26

 

April 13, 2023

Clovis, CA

 

Clovis Crossing

 

31

 

April 13, 2023

Delray Beach, FL

 

Delray Place

 

26

 

May 11, 2023

Chattanooga, TN

 

The Terrace at Hamilton Place

 

24

 

May 18, 2023

Las Vegas, NV

 

Best in the West

 

31

 

May 18, 2023

Birmingham, AL

 

The Summit (relocation from River Ridge )

 

27

 

May 25, 2023

Wichita, KS

 

Bradley Fair

 

28

 

May 25, 2023

San Clemente, CA

 

San Clemente Plaza

 

32

 

May 25, 2023

Aurora, CO

 

Southlands

 

30

 

August 17, 2023

The Company has also announced plans to open the following stores:

City

 

Location

 

Square Footage
 
(000s)

 

Timing of
Opening

Nordstrom Rack

           

Union Gap, WA

 

Valley Mall

 

28

 

Fall 2023

Olympia, WA

 

Cooper Point Marketplace

 

32

 

Fall 2023

Salem, OR

 

Willamette Town Center

 

25

 

Fall 2023

Anaheim Hills, CA

 

Anaheim Hills Festival

 

24

 

Fall 2023

Overland Park, KS

 

Overland Crossing

 

27

 

Fall 2023

San Luis Obispo, CA

 

SLO Promenade

 

24

 

Fall 2023

Allen, TX

 

The Village at Allen

 

29

 

Fall 2023

Visalia, CA

 

Sequoia Mall

 

29

 

Fall 2023

Denton, TX

 

Denton Crossing

 

25

 

Fall 2023

Sacramento, CA

 

The Promenade at Sacramento Gateway

 

26

 

Fall 2023

San Antonio, TX

 

Northwoods

 

35

 

Fall 2023

Pinole, CA

 

Pinole Vista Crossing

 

23

 

Spring 2024

Kennesaw, GA

 

Barrett Place

 

25

 

Spring 2024

Elk Grove, CA

 

The Ridge Elk Grove

 

25

 

Spring 2024

Gilroy, CA

 

Gilroy Crossing

 

25

 

Spring 2024

Oceanside, CA

 

Pacific Coast Plaza

 

31

 

Spring 2024

Wheaton, IL

 

Danada Square East

 

29

 

Spring 2024

Snellville, GA

 

Presidential Markets

 

35

 

Spring 2024

Macedonia, OH

 

Macedonia Gateway

 

28

 

Spring 2024

Jacksonville Beach, FL

 

South Beach Regional

 

30

 

Spring 2024

Queen Creek, AZ

 

Queen Creek Marketplace

 

28

 

Spring 2024

San Mateo, CA

 

Bridgepointe Shopping Center

 

36

 

Fall 2024

Davis, CA

 

The Davis Collection

 

25

 

Spring 2025

The Company had the following store counts as of quarter-end:

 

July 29, 2023

 

July 30, 2022

Nordstrom

     

Nordstrom    U.S.

94

 

94

Nordstrom    Canada

 

6

Nordstrom Local service hubs

7

 

7

ASOS | Nordstrom

1

 

1

Nordstrom Rack

     

Nordstrom Rack   U.S.

247

 

240

Nordstrom Rack   Canada

 

7

Last Chance clearance stores

2

 

2

Total

351

 

357

 

Gross store square footage

26,348,000

 

27,555,000

During the second quarter, the Company closed one U.S. Nordstrom Rack store.

FISCAL YEAR 2023 OUTLOOK

The Company reaffirmed its revenue and adjusted financial outlook for fiscal 2023, which includes a 53rd week:

  • Revenue decline, including retail sales and credit card revenues, of 4.0 to 6.0 percent versus fiscal 2022, including an approximately 250 basis point negative impact from the wind-down of Canadian operations and an approximately 130 basis point positive impact from the 53rd week
  • EBIT margin (including the negative impact of charges related to the wind-down of Canadian operations) of 1.5 to 2.0 percent of sales
  • Adjusted EBIT margin (excluding charges related to the wind-down of Canadian operations) of 3.7 to 4.2 percent of sales3
  • Income tax rate of approximately 6 percent, including an approximately 2,100 basis point favorable impact primarily from the one-time Canada charges
  • EPS (including the negative impact of charges related to the wind-down of Canadian operations) of $0.60 to $1.00 , excluding the impact of share repurchase activity, if any
  • Adjusted EPS (excluding charges related to the wind-down of Canadian operations) of $1.80 to $2.20 , excluding the impact of share repurchase activity, if any3

CONFERENCE CALL INFORMATION

The Company's senior management will host a conference call to provide a business update and to discuss second quarter 2023 financial results and fiscal 2023 outlook at 4:45 p.m. EDT today. To listen to the live call online and view the speakers' prepared remarks and the conference call slides, visit the Investor Relations section of the Company's corporate website at investor.nordstrom.com. An archived webcast with the speakers' prepared remarks and the conference call slides will be available in the Quarterly Results section for one year. Interested parties may also dial 201-689-8354. A telephone replay will be available beginning approximately three hours after the conclusion of the call by dialing 877-660-6853 or 201-612-7415 and entering Conference ID 13740522, until the close of business on August 31, 2023 .

ABOUT NORDSTROM  

At Nordstrom, Inc. (NYSE: JWN), we exist to help our customers feel good and look their best. Since starting as a shoe store in 1901, how to best serve customers has been at the center of every decision we make. This heritage of service is the foundation we're building on as we provide convenience and true connection for our customers. Our digital-first platform enables us to serve customers when, where and how they want to shop – whether that's in-store at more than 350 Nordstrom , Nordstrom Local and Nordstrom Rack locations or digitally through our Nordstrom and Rack apps and websites. Through it all, we remain committed to leaving the world better than we found it.

Certain statements in this press release contain or may suggest "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risks and uncertainties that could cause results to be materially different from expectations. The words "will," "may," "designed to," "outlook," "believes," "should," "targets," "anticipates," "assumptions," "plans," "expects" or "expectations," "intends," "estimates," "forecasts," "guidance" and similar expressions identify certain of these forward-looking statements. The Company also may provide forward-looking statements in oral statements or other written materials released to the public. All statements contained or incorporated in this press release or in any other public statements that address such future events or expectations are forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements are detailed in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 , and our Form 10-Qs for the fiscal quarters ended April 29, 2023 and July 29, 2023 , to be filed with the SEC on or about September 1, 2023 . In addition, forward-looking statements contained in this release may be impacted by the actual outcome of events or occurrences related to the wind-down of business operations in Canada . These forward-looking statements are not guarantees of future performance and speak only as of the date made, and, except as required by law, the Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances. In addition, the actual timing, price, manner and amounts of future share repurchases, if any, will be subject to the discretion of our board of directors, contractual commitments, market and economic conditions and applicable Securities and Exchange Commission rules.

_______________________________

1 Adjusted EPS is a non-GAAP financial measure. Refer to the "Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Margin and Adjusted EPS" section of this release for additional information as well as reconciliations between the Company's GAAP and non-GAAP financial results.

2 Adjusted EBIT is a non-GAAP financial measure. Refer to the "Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Margin and Adjusted EPS" section of this release for additional information as well as reconciliations between the Company's GAAP and non-GAAP financial results.

3 Adjusted EBIT margin and adjusted EPS are non-GAAP financial measures. Refer to the "Forward-Looking Non-GAAP Measures" section of this release for additional information as well as reconciliations between the Company's GAAP and non-GAAP financial expectations.

 

NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited; amounts in millions, except per share amounts)

 
 

Quarter Ended

 

Six Months Ended

 

July 29, 2023

 

July 30, 2022

 

July 29, 2023

 

July 30, 2022

Net sales

$3,662

 

$3,991

 

$6,726

 

$7,458

Credit card revenues, net

110

 

104

 

227

 

207

Total revenues

3,772

 

4,095

 

6,953

 

7,665

Cost of sales and related buying and
     occupancy costs

(2,380)

 

(2,586)

 

(4,407)

 

(4,917)

Selling, general and administrative expenses

(1,200)

 

(1,307)

 

(2,304)

 

(2,473)

Canada wind-down costs

 

 

(309)

 

Earnings (loss) before interest and income
      taxes

192

 

202

 

(67)

 

275

Interest expense, net

(26)

 

(34)

 

(54)

 

(69)

Earnings (loss) before income taxes

166

 

168

 

(121)

 

206

Income tax (expense) benefit

(29)

 

(42)

 

54

 

(60)

Net earnings (loss)

$137

 

$126

 

( $67 )

 

$146

               

Earnings (loss) per share:

             

Basic

$0.85

 

$0.78

 

( $0.42 )

 

$0.91

Diluted

$0.84

 

$0.77

 

( $0.42 )

 

$0.90

               

Weighted-average shares outstanding:

             

Basic

161.7

 

160.6

 

161.3

 

160.3

Diluted

163.2

 

162.9

 

161.3

 

162.9

               

Percent of net sales:

             

Gross profit

35.0 %

 

35.2 %

 

34.5 %

 

34.1 %

Selling, general and administrative expenses

32.8 %

 

32.8 %

 

34.3 %

 

33.2 %

Earnings (loss) before interest and income
     taxes

5.3 %

 

5.1 %

 

(1.0 %)

 

3.7 %

 

NORDSTROM, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; amounts in millions)

 
 

July 29, 2023

 

January 28, 2023

 

July 30, 2022

Assets

         

Current assets:

         

Cash and cash equivalents

$885

 

$687

 

$494

Accounts receivable, net

246

 

265

 

300

Merchandise inventories

1,979

 

1,941

 

2,399

Prepaid expenses and other current assets

400

 

316

 

408

Total current assets

3,510

 

3,209

 

3,601

           

Land, property and equipment (net of accumulated depreciation of
     $8,254, $8,289 and $7,943 )

3,181

 

3,351

 

3,443

Operating lease right-of-use assets

1,381

 

1,470

 

1,466

Goodwill

249

 

249

 

249

Other assets

480

 

466

 

403

Total assets

$8,801

 

$8,745

 

$9,162

           

Liabilities and Shareholders' Equity

         

Current liabilities:

         

Accounts payable

$1,434

 

$1,238

 

$1,747

Accrued salaries, wages and related benefits

375

 

291

 

302

Current portion of operating lease liabilities

224

 

258

 

253

Other current liabilities

1,264

 

1,203

 

1,254

Current portion of long-term debt

249

 

 

Total current liabilities

3,546

 

2,990

 

3,556

           

Long-term debt, net

2,609

 

2,856

 

2,853

Non-current operating lease liabilities

1,392

 

1,526

 

1,526

Other liabilities

580

 

634

 

564

           

Commitments and contingencies

         
           

Shareholders' equity:

         

Common stock, no par value: 1,000 shares authorized; 161.7,
     160.1 and 159.8 shares issued and outstanding

3,388

 

3,353

 

3,314

Accumulated deficit

(2,717)

 

(2,588)

 

(2,601)

Accumulated other comprehensive gain (loss)

3

 

(26)

 

(50)

Total shareholders' equity

674

 

739

 

663

Total liabilities and shareholders' equity

$8,801

 

$8,745

 

$9,162

 

NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; amounts in millions)

 
 

Six Months Ended

 

July 29, 2023

 

July 30, 2022

Operating Activities

     

Net (loss) earnings

( $67 )

 

$146

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

     

Depreciation and amortization expenses

285

 

301

Canada wind-down costs

220

 

Right-of-use asset amortization

86

 

93

Deferred income taxes, net

(17)

 

(31)

Stock-based compensation expense

28

 

39

Other, net

(47)

 

(41)

Change in operating assets and liabilities:

     

Merchandise inventories

(78)

 

(38)

Other current and noncurrent assets

(81)

 

(116)

Accounts payable

99

 

133

Accrued salaries, wages and related benefits

89

 

(82)

Lease liabilities

(134)

 

(133)

Other current and noncurrent liabilities

82

 

102

Net cash provided by operating activities

465

 

373

       

Investing Activities

     

Capital expenditures

(225)

 

(215)

Decrease in cash and cash equivalents resulting from Canada deconsolidation

(33)

 

Proceeds from the sale of assets and other, net

29

 

82

Net cash used in investing activities

(229)

 

(133)

       

Financing Activities

     

Change in cash book overdrafts

18

 

36

Cash dividends paid

(61)

 

(60)

Payments for repurchase of common stock

(1)

 

(35)

Proceeds from issuances under stock compensation plans

13

 

9

Other, net

(7)

 

(18)

Net cash used in financing activities

(38)

 

(68)

       

Net increase in cash and cash equivalents

198

 

172

Cash and cash equivalents at beginning of period

687

 

322

Cash and cash equivalents at end of period

$885

 

$494

NORDSTROM, INC.
ADJUSTED EBIT, ADJUSTED EBITDA, ADJUSTED EBIT MARGIN AND ADJUSTED EPS 
(NON-GAAP FINANCIAL MEASURES)
(unaudited; amounts in millions, except per share amounts)

The following are key financial metrics and, when used in conjunction with GAAP measures, we believe they provide useful information for evaluating our core business performance, enable comparison of financial results across periods and allow for greater transparency with respect to key metrics used by management for financial and operational decision-making. Adjusted EBIT, adjusted EBITDA, adjusted EBIT margin and adjusted EPS exclude certain items that we do not consider representative of our core operating performance. The financial measure calculated under GAAP which is most directly comparable to adjusted EBIT and adjusted EBITDA is net earnings (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

 

July 29, 2023

 

July 30, 2022

 

July 29, 2023

 

July 30, 2022

Net earnings (loss)

$137

 

$126

 

( $67 )

 

$146

Income tax expense (benefit)

29

 

42

 

(54)

 

60

Interest expense, net

26

 

34

 

54

 

69

Earnings (loss) before interest and income
taxes

192

 

202

 

(67)

 

275

Canada wind-down costs

 

 

309

 

Trunk Club wind-down costs

 

8

 

 

18

Gain on sale of interest in a corporate office
building

 

 

 

(51)

Adjusted EBIT

192

 

210

 

242

 

242

Depreciation and amortization expenses

141

 

149

 

285

 

301

Amortization of developer reimbursements

(17)

 

(18)

 

(35)

 

(37)

Adjusted EBITDA

$316

 

$341

 

$492

 

$506

               

Net sales

$3,662

 

$3,991

 

$6,726

 

$7,458

Net earnings (loss) as a % of net sales

3.8 %

 

3.1 %

 

(1.0 %)

 

2.0 %

EBIT margin %

5.3 %

 

5.1 %

 

(1.0 %)

 

3.7 %

Adjusted EBIT margin %

5.3 %

 

5.3 %

 

3.6 %

 

3.2 %

The following is a reconciliation of diluted EPS to adjusted EPS:

 

Quarter Ended

 

Six Months Ended

 

July 29, 2023

 

July 30, 2022

 

July 29, 2023

 

July 30, 2022

Diluted EPS

$0.84

 

$0.77

 

( $0.42 )

 

$0.90

Canada wind-down costs

 

 

1.91

 

Trunk Club wind-down costs

 

0.05

 

 

0.11

Gain on sale of interest in a corporate office
building

 

 

 

(0.31)

Income tax impact on adjustments1

 

(0.01)

 

(0.58)

 

0.05

Adjusted EPS

$0.84

 

$0.81

 

$0.91

 

$0.75

   

1

The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate for the respective non-GAAP adjustment.

NORDSTROM, INC.
SUMMARY OF NET SALES
(unaudited; amounts in millions)

Our Nordstrom brand includes Nordstrom.com, Nordstrom   U.S. stores, Nordstrom Local and ASOS | Nordstrom . Nordstrom also included Canada operations prior to March 2, 2023 , inclusive of Nordstrom.ca, Nordstrom Canadian stores and Nordstrom Rack Canadian stores, and TrunkClub.com prior to October 2022 . Our Nordstrom Rack brand includes NordstromRack.com, Nordstrom Rack U.S. stores and Last Chance clearance stores. The following table summarizes net sales for the quarter and six months ended July 29, 2023 , compared with the quarter and six months ended July 30, 2022 :

 

Quarter Ended

 

Six Months Ended

 

July 29, 2023

 

July 30, 2022

 

July 29, 2023

 

July 30, 2022

Net sales:

             

Nordstrom

$2,491

 

$2,771

 

$4,518

 

$5,060

Nordstrom Rack

1,171

 

1,220

 

2,208

 

2,398

Total net sales

$3,662

 

$3,991

 

$6,726

 

$7,458

               

Net sales (decrease) increase:

             

Nordstrom

(10.1 %)

 

14.7 %

 

(10.7 %)

 

18.5 %

Nordstrom Rack

(4.1 %)

 

6.3 %

 

(7.9 %)

 

8.2 %

Total Company

(8.3 %)

 

12.0 %

 

(9.8 %)

 

15.0 %

               

Digital sales as % of total net sales1

36 %

 

38 %

 

36 %

 

38 %

   

1

Sales conducted through a digital platform such as our websites or mobile apps. Digital sales may be self-guided by the customer, as in a traditional online order, or facilitated by a salesperson using a virtual styling or selling tool. Digital sales may be delivered to the customer or picked up in our Nordstrom stores, Nordstrom Rack stores or Nordstrom Local service hubs. Digital sales also includes a reserve for estimated returns.

NORDSTROM, INC.
FISCAL YEAR 2023 FORWARD-LOOKING NON-GAAP MEASURES
(NON-GAAP FINANCIAL MEASURES)
(unaudited)

Our adjusted EBIT as a percent of net sales ("adjusted EBIT margin") and adjusted EPS outlook for fiscal year 2023 excludes the impacts from certain items that we do not consider representative of our core operating performance. These items include charges from the wind-down of Canadian operations recognized in the first quarter of 2023.

The following is a reconciliation of expected net earnings as a percent of net sales to expected adjusted EBIT margin included within our Fiscal Year 2023 Outlook:

 

53 Weeks Ending February 3, 2024

 

Low

 

High

Expected net earnings as a % of net sales

0.7 %

 

1.1 %

Income tax expense

— %

 

0.1 %

Interest expense, net

0.8 %

 

0.8 %

Expected EBIT as a % of net sales

1.5 %

 

2.0 %

       

Canada wind-down costs

2.2 %

 

2.2 %

Expected adjusted EBIT margin

3.7 %

 

4.2 %

The following is a reconciliation of expected diluted EPS to expected adjusted EPS included within our Fiscal Year 2023 Outlook:

 

53 Weeks Ending February 3, 2024

 

Low

 

High

Expected diluted EPS

$0.60

 

$1.00

Canada wind-down costs

1.89

 

1.89

Income tax impact on adjustments

(0.69)

 

(0.69)

Expected adjusted EPS

$1.80

 

$2.20

NORDSTROM, INC.
ADJUSTED RETURN ON INVESTED CAPITAL ("ADJUSTED ROIC")
(NON-GAAP FINANCIAL MEASURE)
(unaudited; dollars in millions)

We believe that Adjusted ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of the capital we have invested in our business to generate returns over time. In addition, we have incorporated it in our executive incentive measures and we believe it is an important indicator of shareholders' return over the long term. 

Beginning in the second quarter of 2023, the Adjusted ROIC calculation was updated to exclude certain items that we do not consider representative of our core operating performance. Refer to non-operating related adjustments included within adjusted net operating profit and adjusted average invested capital. Prior periods have been modified to conform with current period presentation.

Adjusted ROIC is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other GAAP financial measures. Our method of calculating a non-GAAP financial measure may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted ROIC is return on assets. The following shows the components to reconcile the return on assets calculation to Adjusted ROIC:

 

Four Quarters Ended

 

July 29, 2023

 

July 30, 2022

Net earnings

$32

 

$410

Income tax (benefit) expense

(22)

 

153

Interest expense

137

 

140

Earnings before interest and income tax expense

147

 

703

       

Operating lease interest1

85

 

84

Non-operating related adjustments2

380

 

(32)

Adjusted net operating profit

612

 

755

Adjusted estimated income tax expense3

(141)

 

(206)

Adjusted net operating profit after tax

$471

 

$549

       

Average total assets

$8,986

 

$9,194

Average non-current deferred property incentives in excess of operating lease right-of-use
      (ROU) assets4

(177)

 

(214)

Average non-interest bearing current liabilities

(3,149)

 

(3,396)

Non-operating related adjustments5

184

 

(15)

Adjusted average invested capital

$5,844

 

$5,569

       

Return on assets

0.4 %

 

4.5 %

Adjusted ROIC

8.1 %

 

9.9 %

   

1

Operating lease interest is a component of operating lease cost recorded in occupancy costs. We add back operating lease interest for purposes of calculating adjusted net operating profit for consistency with the treatment of interest expense on our debt.

2

Non-operating related adjustments primarily relate to the wind-down of our Canadian operations and a supply chain impairment charge for the four quarters ended July 29, 2023 and the gain on sale of interest in a corporate office building for the four quarters ended July 30, 2022 . See the Adjusted EBIT and Adjusted EBITDA section, as well as our 2022 Annual Report, for detailed information of 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 July 29, 2023 and July 30, 2022 . The adjusted effective tax rate is calculated by dividing adjusted income tax by adjusted earnings before income taxes for the same trailing twelve-month periods.

4

For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities on the Condensed Consolidated Balance Sheets. The current and non-current amounts are used to reduce average total assets above, as this better reflects how we manage our business. 

5

Non-operating related adjustments primarily relate to the wind-down of our Canadian operations for the trailing twelve-month period ended July 29, 2023 and the gain on sale of interest in a corporate office building for the trailing twelve-month period ended July 30, 2022 .

NORDSTROM, INC.
ADJUSTED DEBT TO EBITDAR (NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in millions)

Adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") is one of our key financial metrics and we believe that our debt levels are best analyzed using this measure, as it provides a reflection of our creditworthiness which could impact our credit ratings and borrowing costs. This metric is calculated in accordance with the updates in our Revolver covenant and is a key component in assessing whether our revolving credit facility is secured or unsecured, as well as our ability to make dividend payments and share repurchases. Our goal is to manage debt levels to achieve and maintain investment-grade credit ratings while operating with an efficient capital structure.

Adjusted debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other GAAP financial measures. Our method of calculating a non-GAAP financial measure may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted debt to EBITDAR is debt to net earnings. The following shows the components to reconcile the debt to net earnings calculation to Adjusted debt to EBITDAR:

 

July 29, 2023

Debt

$2,858

Operating lease liabilities

1,616

Adjusted debt

$4,474

   
 

Four Quarters Ended
July 29, 2023

Net earnings

$32

Income tax benefit

(22)

Interest expense, net

114

Earnings before interest and income taxes

124

   

Depreciation and amortization expenses

588

Operating lease cost1

272

Amortization of developer reimbursements2

70

Canada wind-down costs

309

Other Revolver covenant adjustments3

108

Adjusted EBITDAR

$1,471

   

Debt to Net Earnings

88.8

Adjusted debt to EBITDAR

3.0

   

1

Operating lease cost is fixed rent expense, including fixed common area maintenance expense, net of developer reimbursement amortization.

2

Amortization of developer reimbursements is a non-cash reduction of operating lease cost and is therefore added back to operating lease cost for purposes of our Revolver covenant calculation.

3

Other adjusting items to reconcile net earnings to Adjusted EBITDAR as defined by our Revolver covenant include interest income, certain non-cash charges and other gains and losses where relevant. For the four quarters ended July 29, 2023 , other Revolver covenant adjustments primarily include a supply chain impairment charge. See our 2022 Annual Report for detailed information of certain non-operating related adjustments.

NORDSTROM, INC.
FREE CASH FLOW (NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in millions)

Free Cash Flow is one of our key liquidity measures and, when used in conjunction with GAAP measures, we believe it provides investors with a meaningful analysis of our ability to generate cash from our business. 

Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of calculating a non-GAAP financial measure may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow:

 

Six Months Ended

 

July 29, 2023

 

July 30, 2022

Net cash provided by operating activities

$465

 

$373

Capital expenditures

(225)

 

(215)

Change in cash book overdrafts

18

 

36

Free Cash Flow

$258

 

$194

 

INVESTOR CONTACT: 

 

Sara Penner

   

Nordstrom, Inc.

   

InvRelations@Nordstrom.com

     

MEDIA CONTACT:

 

Stephanie Corzett

   

Nordstrom, Inc.

   

NordstromPR@Nordstrom.com

 

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/nordstrom-reports-second-quarter-2023-earnings-301909487.html

SOURCE Nordstrom, Inc.

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