Nordstrom Reports Fourth Quarter and Fiscal 2018 Earnings

Nordstrom, Inc. (NYSE: JWN) today reported earnings per diluted share for the fourth quarter ended February 2, 2019 of $1.48. Earnings were generally in-line with the Company’s updated expectations provided in its holiday sales release on January 15, 2019. Net sales decreased 4.7 percent, or increased 0.1 percent excluding the 53rd week in 2017 of approximately $220 million. Comparable sales, which were not impacted by the 53rd week, increased 0.1 percent.

For fiscal 2018, earnings per diluted share was $3.32, which included a $0.05 favorable income tax benefit related to prior periods and an estimated non-recurring credit-related charge of $0.28. Net sales for fiscal 2018 increased 2.3 percent, or 3.8 percent excluding the 53rd week. Comparable sales increased 1.7 percent.

Nordstrom aspires to be the best fashion retailer in a digital world, focused on better serving customers through three strategic pillars: providing a compelling product offering, delivering outstanding services and experiences, and leveraging the strength of the Nordstrom brand. In 2018, the Company achieved the following milestones in executing its customer strategy:

• Approximately 10 million customers, or one-third of total customers, shopped across multiple channels, which leads to higher customer spend. This represents an increase of 6 percent.
• Nordstrom’s combined physical and digital presence represents a competitive advantage in offering customers a differentiated experience. Digital sales increased 16 percent and made up 30 percent of sales.
• Nordstrom launched its local market strategy, which drove outsized market share gains in Los Angeles and increased product selection, delivery speed and convenience for customers.
• Generational investments continued to scale, contributing approximately $2 billion in sales and improvement in profitability. Nordstromrack.com/HauteLook exceeded $1 billion in sales. Trunk Club delivered sales growth of 35 percent. The Company opened its Men’s Store in New York City and furthered its expansion into Canada with the introduction of six Nordstrom Rack stores.
• Nordstrom maintained a strong financial position, generating annual operating cash flow in excess of $1 billion for 10 consecutive years and returning $1 billion to shareholders in 2018.

FOURTH QUARTER SUMMARY

• Fourth quarter net earnings were $248 million compared with $151 million during the same period in fiscal 2017. This increase was primarily due to lower income tax expense associated with corporate tax reform.
• Earnings before interest and taxes (EBIT) was $333 million, or 7.6 percent of net sales, compared with $350 million, or 7.6 percent of net sales for the same period in fiscal 2017.
• In Full-Price, comparable sales decreased 1.6 percent, primarily driven by softer traffic trends in full-line stores. Off-Price sales reflected continued momentum with a comparable sales increase of 4.0 percent, in-line with the Company’s expectations.
• Gross profit, as a percentage of net sales, of 35.1 percent decreased 33 basis points compared with the same period in fiscal 2017, primarily due to higher markdowns taken in response to softer Full-Price sales trends and an elevated promotional environment. Ending inventory decreased 2.4 percent from last year.
• Selling, general and administrative expenses, as a percentage of net sales, of 29.8 percent decreased 23 basis points compared with the same period in fiscal 2017, primarily due to a one-time employee investment of $16 million associated with last year’s tax reform. The Company demonstrated disciplined expense execution, reflecting an improvement in expense rate relative to its expectations.

FULL YEAR SUMMARY

• Full year net earnings were $564 million compared with $437 million for fiscal 2017. This increase was primarily due to lower income tax expense associated with corporate tax reform.
• EBIT was $837 million, or 5.4 percent of net sales, compared with $926 million, or 6.1 percent of net sales, for fiscal 2017. Excluding an estimated non-recurring credit-related charge of $72 million in 2018, EBIT as a percent of net sales, was 5.9 percent.
• In Full-Price, comparable sales increased 0.9 percent. In Off-Price, comparable sales increased 3.5 percent.
• Gross profit, as a percentage of net sales, of 34.4 percent decreased 26 basis points compared with fiscal 2017 largely due to higher Full-Price markdowns in the fourth quarter.
• Selling, general and administrative expenses, as a percentage of net sales, of 31.5 percent increased 65 basis points compared with fiscal 2017. Excluding an estimated non-recurring credit-related charge of $72 million, expenses increased 19 basis points. Annual expense growth moderated to 4 percent driven by ongoing productivity improvements in digital capabilities.
• During the year, the Company repurchased 14.3 million shares of its common stock for $702 million. A total capacity of $893 million remains available under its existing share repurchase authorization. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission (“SEC”) rules.
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EXPANSION UPDATE

Nordstrom has announced plans to open the following stores in fiscal 2019, consisting of two new full-line stores and five new Nordstrom Rack stores:

FISCAL YEAR 2019 OUTLOOK

Nordstrom remains committed to achieving its long-term financial targets, which support three strategic objectives in driving shareholder returns: continuing market share gains, improving profitability and returns, and maintaining disciplined capital allocation. The Company’s expectations for fiscal 2019 are as follows:

The Company’s guidance also incorporates the following assumptions:

• The Company measures its performance through market share, customers, and net sales metrics. As comparable sales growth is expected to approximate net sales growth in 2019, the Company will only be reporting net sales growth.
• The effective tax rate is expected to be approximately 26 percent.
• Estimated annual average outstanding shares are expected to be approximately 162 million, which excludes the impact of any future share repurchases.

Nordstrom plans to report quarterly results for fiscal 2019 on the following dates:

CONFERENCE CALL INFORMATION

The Company’s senior management will host a conference call to discuss fourth quarter and fiscal 2018 results and fiscal 2019 outlook at 4:45 p.m. Eastern Standard Time today. To listen to the live call online and view the speakers’ prepared remarks and the conference call slides, visit the Investor Relations section of the Company’s corporate website at http://investor.nordstrom.com. An archived webcast with the speakers’ prepared remarks and the conference call slides will be available on the website 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 13687183, until the close of business on March 7, 2019.

ABOUT NORDSTROM

Nordstrom, Inc. is a leading fashion retailer based in the U.S. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 379 stores in 40 states, including 121 full-line stores in the United States, Canada and Puerto Rico; 244 Nordstrom Rack stores; three Jeffrey boutiques; two clearance stores; six Trunk Club clubhouses; and three Nordstrom Local service concepts. Additionally, customers are served online through Nordstrom.com, Nordstromrack.com, HauteLook and TrunkClub.com. Nordstrom, Inc.’s common stock is publicly traded on the NYSE under the symbol JWN.

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 than 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 most recent reports the Company files with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018 and its Form 10-Q for the fiscal quarters ended May 5, 2018, August 4, 2018 and November 3, 2018. These forward-looking statements are not guarantees of future performance and speak only as of the date hereof, 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.

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

During the first quarter of 2018, we adopted the new revenue recognition standard (Revenue Standard) using the modified retrospective adoption method. Results beginning in the first quarter of 2018 are presented under the new Revenue Standard, while prior period amounts are not adjusted. Also beginning in 2018, we aligned our sales presentation with how we view the results of our operations internally and how our customers view us, by our Full-Price and Off-Price businesses.

Our Full-Price business includes our Nordstrom U.S. full-line stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local. Our Off-Price business includes Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores. The following table summarizes net sales and comparable sales for the quarter and year ended February 2, 2019 compared with the same periods in fiscal 2017:

NORDSTROM, INC.
ADJUSTED RETURN ON INVESTED CAPITAL (“ADJUSTED ROIC”)
(NON-GAAP FINANCIAL MEASURES)
(unaudited; dollar amounts 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. Adjusted ROIC adjusts our operating leases as if they met the criteria for capital leases or we had purchased the properties. This provides additional supplemental information that reflects the investment in our off-balance sheet operating leases, controls for differences in capital structure between us and our competitors and provides investors and credit agencies with another way to comparably evaluate the efficiency and effectiveness of our capital investments over time. In addition, we incorporate Adjusted ROIC into our executive incentive measures and it is an important indicator of shareholders’ return over the long term.

We define Adjusted ROIC as our adjusted net operating profit after tax divided by our average invested capital using the trailing 12-month average. Adjusted ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. Estimated depreciation on capitalized operating leases and average estimated asset base of capitalized operating leases are not calculated in accordance with, or an alternative for, GAAP and should not be considered in isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP which is most directly comparable to Adjusted ROIC is return on assets. The following is a reconciliation of the components and adjustments to Adjusted ROIC and return on assets:

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

Adjusted Debt to earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of no more than four times.

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

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

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

Beginning in the first quarter of fiscal 2018, we no longer adjust free cash flow for cash dividends paid. We believe this presentation is more reflective of our operating performance and more consistent with the way we manage our business, how our peers calculate free cash flows and prevailing industry practice. Prior period Free Cash Flow financial measures have been recast to conform with current period presentation.

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

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

Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) is our key financial metric to reflect our view of cash flow from net earnings. Adjusted EBITDA excludes significant items which are non-operating in nature in order to evaluate our core operating performance against prior periods. The financial measure calculated under GAAP which is most directly comparable to Adjusted EBITDA is net earnings.

Adjusted EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for net earnings, overall change in cash or liquidity of the business as a whole. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The following is a reconciliation of net earnings to Adjusted EBITDA:

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INVESTOR CONTACT:
Trina Schurman
Nordstrom, Inc.
(206) 303-6503

MEDIA CONTACT:
Gigi Ganatra Duff
Nordstrom, Inc.
(206) 303-3030