Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar and share amounts in millions except percentages and per share amounts, except where noted otherwise)
The following discussion and analysis of our financial condition and results of operations contains forward-looking statements and should be read in conjunction with Item 1A: Risk Factors, our Consolidated Financial Statements and related Notes thereto, as well as other cautionary statements and risks described elsewhere in this 2020 Annual Report, before deciding to purchase, hold or sell shares of our common stock.
OVERVIEW
Looking back at 2020, we took aggressive actions as we navigated through the pandemic to increase our financial flexibility and accelerate our strategic initiatives to better serve customers. As shifts in customer expectations and behavior accelerated, our multi-year investments and strong financial position enabled our transformation into a digital-first business.
For the year, net loss was $690, or $4.39 per diluted share. Generating more than $425 in operating cash flow over the past three quarters, we ended the year with $1,481 in liquidity, including $681 in cash.
While our net sales decreased 32%, which reflected temporary store closures during the first half of 2020, we are encouraged by the continued sequential improvement in topline trends during the second half. Notably, we saw encouraging customer trends in the fourth quarter, including 40% growth in new customers acquired online. In addition, Nordy Club loyalty members represented 40% of our customer base and contributed two-thirds of sales.
During the year, we took the following actions to ensure we can successfully emerge from this pandemic in a stronger position:
•Expense discipline – rebased our cost structure, reflecting more than $300 in permanent overhead reductions
•Market strategy – scaled to top 10 markets, making up more than 50% of sales, providing customers with four times more merchandise selection on average and faster delivery
•Rack – integrated store and online inventory to increase online selection and enable order pickup and store fulfillment capabilities
Going forward, our brand promise of getting “closer to you” is the guiding principle of our growth plans. We are committed to significantly expanding the breadth of who we serve, and where and how we serve them. We are doing this by unlocking the full power of the digital-first platform we have built to capture market share gains, drive profitable growth, and create significant value for our shareholders. We are dedicated to executing on our strategy across our three areas of highest priority:
Winning in our most important markets. We are continuing to scale our market strategy by doubling our exposure from 10 to 20 markets by the end of March 2021, making up 75% of our business. This includes key markets such as San Diego, Houston, Minneapolis and Miami.
Broadening the reach of Nordstrom Rack. We are focused on growing our share of the price-oriented customer segment, which we see as a two billion dollar incremental sales opportunity over time. Our efforts are underway as we recently repositioned 70 stores by reimagining the merchandising offering and store experience.
Increasing the velocity of our digital business. We are focused on more effectively translating the heritage of service that defines us in this digitally connected world. This means delivering personalization at scale by creating greater linkages between digital and physical experiences. As an example, we are currently migrating Nordstromrack.com to the JWN e-commerce platform to enhance the customer experience while creating efficiencies in our infrastructure and operations.
We are grateful for our team’s efforts to strengthen our financial flexibility and accelerate our strategic priorities to serve customers in new and differentiated ways. These actions have put us in a strong position to capitalize on our market share opportunity as customer demand recovers. Heading into 2021 and beyond, we are confident in our ability to deliver profitable sales growth.
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing a seamless 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. While our customers may engage with us through multiple ways, we know they value the integrated brand experience and view us simply as one company, which is ultimately how we view our company. We have one Retail reportable segment and analyze our results on a total company basis, using customer, market share, operational and net sales metrics.
For our comparison and discussion of 2019 and 2018, see Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2019 Annual Report.
Net Sales
The following table summarizes net sales:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
2019
|
|
Nordstrom
|
$6,997
|
|
|
$9,943
|
|
Nordstrom Rack
|
3,360
|
|
|
5,189
|
|
|
|
|
|
Total net sales
|
$10,357
|
|
|
$15,132
|
|
|
|
|
|
Net sales (decrease) increase:
|
|
|
|
Nordstrom
|
(29.6
|
%)
|
|
(3.5
|
%)
|
Nordstrom Rack
|
(35.3
|
%)
|
|
0.2
|
%
|
Total Company
|
(31.6
|
%)
|
|
(2.2
|
%)
|
|
|
|
|
Digital sales as a % of net sales
|
55
|
%
|
|
33
|
%
|
Digital sales increase
|
16
|
%
|
|
7
|
%
|
In 2020, total Company net sales decreased 31.6% compared with 2019. These declines primarily resulted from COVID-19, and the temporary store closures that occurred in the first half of the year. Digital sales increased 16% compared with 2019 and order pickup as a percentage of digital sales increased compared with 2019 due to accelerated growth from the impacts COVID-19 has had on customer shopping behavior and expanded fulfillment capabilities. During the year, we opened one Nordstrom Rack and two Nordstrom Locals, and closed sixteen Nordstrom stores, six Nordstrom Trunk Club clubhouses and three Jeffrey boutiques.
Nordstrom net sales decreased 29.6% compared with 2019. Nordstrom Rack net sales decreased 35.3% compared with 2019. These declines resulted primarily from the impacts of COVID-19 and temporary store closures in the first half of the year. The average sales price at both Nordstrom and Nordstrom Rack decreased primarily due to customer shopping behavior and category shift. Home, Active and Beauty were the top-performing merchandise categories in 2020.
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 were $358 in 2020, compared with $392 in 2019. This decrease was primarily a result of lower finance charges and late fee revenues throughout the year driven by changes in customer behavior resulting from the COVID-19 pandemic and lower interchange revenue from lower spend on our credit cards at other merchants.
Gross Profit
The following table summarizes gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
2019
|
|
Gross profit
|
$2,757
|
|
|
$5,200
|
|
Gross profit as a % of net sales
|
26.6
|
%
|
|
34.4
|
%
|
Inventory turnover rate
|
4.42
|
|
|
4.79
|
|
Gross profit decreased $2,443 primarily due to lower sales volume, and the rate decreased 780 basis points compared with 2019 due to deleverage from lower sales volume and higher markdowns.
Ending inventory as of January 30, 2021 decreased 3.0% compared with prior year. While inventory levels were above our expectations, the majority of the overage reflected current receipts and non-seasonal merchandise and we are taking actions to clear excess seasonal and underperforming categories.
Nordstrom, Inc. and subsidiaries 23
Selling, General and Administrative Expenses
SG&A is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
2019
|
|
SG&A expenses
|
$4,162
|
|
|
$4,808
|
|
SG&A expenses as a % of net sales
|
40.2
|
%
|
|
31.8
|
%
|
SG&A decreased $646 in 2020 compared with 2019 primarily from lower variable expenses associated with lower sales volume and the permanent reductions in overhead costs, partially offset by COVID-19 charges related primarily to asset impairment from store closures and restructuring charges. SG&A rate increased 840 basis points primarily as a result of deleverage on lower sales volume and higher labor and shipping expenses associated with COVID-19, partially offset by the reduced overhead costs.
Earnings (Loss) Before Interest and Income Taxes
EBIT is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
2019
|
|
EBIT
|
($1,047)
|
|
|
$784
|
|
EBIT as a % of net sales
|
(10.1
|
%)
|
|
5.2
|
%
|
EBIT decreased $1,831 in 2020 compared with 2019, as a result of the impacts from COVID-19, deleverage on lower sales volume and higher markdowns, partially offset by permanent reductions in overhead costs. COVID-19 related charges of $303 consisted primarily of asset impairments from store closures, premium pay and benefits and restructuring charges (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Interest Expense, Net
Interest expense, net is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
|
|
Interest on long-term debt and short-term borrowings
|
$199
|
|
|
$151
|
|
|
|
Less:
|
|
|
|
|
|
Interest income
|
(3)
|
|
|
(10)
|
|
|
|
Capitalized interest
|
(15)
|
|
|
(39)
|
|
|
|
Interest expense, net
|
$181
|
|
|
$102
|
|
|
|
Interest expense, net increased $79 in 2020 compared with 2019 primarily due to additional interest related to the new 8.750% senior secured notes due May 2025 and the Revolver drawdown, as well as lower capitalized interest in 2020 due to a decrease in capitalized expenditures.
Income Tax Expense
Income tax expense is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
|
Income tax (benefit) expense
|
($538)
|
|
|
$186
|
|
|
|
Effective tax rate
|
43.8
|
%
|
|
27.3
|
%
|
|
|
The following table illustrates the components of our effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
|
Statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
|
CARES Act impact
|
17.6
|
%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes, net of federal income taxes
|
6.1
|
%
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
Federal credits
|
0.5
|
%
|
|
(0.9
|
%)
|
|
|
|
|
|
|
|
|
Other, net
|
(1.4
|
%)
|
|
1.8
|
%
|
|
|
Effective tax rate
|
43.8
|
%
|
|
27.3
|
%
|
|
|
The increase in the effective tax rate for 2020 compared with 2019 was primarily due to the CARES Act that allows us to carry back 2020 losses at the higher tax rate applicable in previous years.
Earnings Per Share
EPS is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
2019
|
|
|
|
Basic
|
($4.39)
|
|
|
$3.20
|
|
|
|
Diluted
|
($4.39)
|
|
|
$3.18
|
|
|
|
Diluted EPS decreased $7.57 in 2020 compared with 2019 primarily due to lower sales as a result of COVID-19, higher markdowns and shipping costs, partially offset by permanent reductions in overhead costs and a tax benefit from the CARES Act. COVID-19 related charges reduced diluted EPS by $1.22 per share.
2021 Outlook
We are focused on increasing total shareholder returns through four key financial objectives: accelerating revenue growth, expanding operating profit margin, improving return on invested capital and generating cash flow. While the timing of recovery of customer demand remains uncertain, we have provided the following financial expectations for fiscal 2021, which assume stores remain open during the year:
•Revenue, including retail sales and credit card revenues, is expected to grow more than 25%, with digital representing approximately 50% of sales
•EBIT margin is expected to be approximately 3% of sales
•Income tax rate is expected to be approximately 27%
•Our Leverage Ratio is expected to be approximately 3x by year-end
•For the first half of the year, EBIT is expected to be approximately breakeven, reflecting approximately 45% of total year sales
Nordstrom, Inc. and subsidiaries 25
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
|
Net (loss) earnings
|
($690)
|
|
|
$496
|
|
|
|
Add: income tax (benefit) expense
|
(538)
|
|
|
186
|
|
|
|
Add: interest expense
|
184
|
|
|
112
|
|
|
|
(Loss) earnings before interest and income tax expense
|
(1,044)
|
|
|
794
|
|
|
|
|
|
|
|
|
|
Add: operating lease interest1
|
95
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net operating (loss) profit
|
(949)
|
|
|
895
|
|
|
|
|
|
|
|
|
|
Less: estimated income tax benefit (expense)
|
416
|
|
|
(244)
|
|
|
|
Adjusted net operating (loss) profit after tax
|
($533)
|
|
|
$651
|
|
|
|
|
|
|
|
|
|
Average total assets
|
$9,718
|
|
|
$9,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: average deferred property incentives in excess of ROU assets2
|
(276)
|
|
|
(307)
|
|
|
|
Less: average non-interest-bearing current liabilities
|
(3,138)
|
|
|
(3,439)
|
|
|
|
Average invested capital
|
$6,304
|
|
|
$6,019
|
|
|
|
|
|
|
|
|
|
Return on assets3
|
(7.1
|
%)
|
|
5.1
|
%
|
|
|
Adjusted ROIC3
|
(8.5
|
%)
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
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 For fiscal year 2020, COVID-19 related charges negatively impacted return on assets by approximately 200 basis points and Adjusted ROIC by approximately 280 basis points. Integration charges, primarily related to Trunk Club, of $32 in fiscal 2019, were primarily non-cash related and negatively impacted return on assets by approximately 30 basis points and Adjusted ROIC by approximately 30 basis points.
LIQUIDITY AND CAPITAL RESOURCES
In response to the uncertainty related to the COVID-19 pandemic, we took action to provide further liquidity and flexibility during these unprecedented times. Our stores were temporarily closed in the first half of the year. We continue to review state and local legal requirements and conditions and may need to close some or all of the stores currently open as COVID-19 and other uncertainties continue to unfold. No matter how customers choose to shop, we are committed to delivering superior services, products and experiences and are ready to serve our customers online, through our applications and other digital means, including virtual styling and selling tools, online order pickup and contactless curbside services. We have taken the following actions in 2020 to increase our cash position and preserve financial flexibility:
•Drew down $800 on our Revolver, of which we subsequently repaid $800 by the end of fiscal 2020, and issued $600 in 8.750% senior secured notes
•Suspended quarterly cash dividends beginning in the second quarter of 2020 and share repurchases
•Achieved expense savings in excess of $400 and further net cash savings in capital expenditures and working capital
We ended fiscal year 2020 with $681 in cash and cash equivalents and $800 of additional liquidity available on our Revolver. In March 2021, subsequent to year end and consistent with the seasonal cash needs of our business, we drew down $200 on our Revolver, which we expect to repay before the end of the first half of the year. With our financial position strengthened, we are prioritizing market share gains and profitable sales growth. In 2021, we expect to receive approximately $500 in income tax refunds in the second or third quarter.
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. In 2020, due to COVID-19 impacts, the incremental financing we drew on in the first quarter of 2020 aided in the funding of our cash requirements. We believe 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.
The following is a summary of our cash flows by activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
|
Net cash (used in) provided by operating activities
|
($348)
|
|
|
$1,236
|
|
|
|
Net cash used in investing activities
|
(347)
|
|
|
(909)
|
|
|
|
Net cash provided by (used in) financing activities
|
530
|
|
|
(431)
|
|
|
|
Operating Activities
The majority of our operating cash inflows are derived from sales. We also receive cash payments for property incentives from developers. Our operating cash outflows generally consist of payments to our merchandise vendors (net of vendor allowances) and shipping carriers, payments to our employees for wages, salaries and other employee benefits and payments to our landlords for rent. Operating cash outflows also include payments for income taxes and interest payments on our short-term and long-term borrowings.
Cash from operating activities decreased by $1,584 between 2020 and 2019 primarily due to a reduction in net earnings from the impacts of COVID-19 and temporary store closures in the first half of the year, partially offset by the benefits of the CARES Act.
Investing Activities
Our investing cash outflows include payments for capital expenditures, including stores, supply chain improvements and technology costs. Our investing cash inflows are generally from proceeds from sales of property and equipment.
Net cash used in investing activities decreased by $562 between 2020 and 2019 due to a decrease in capital expenditures as the prior period included investments in our Nordstrom NYC store, as well as supply chain costs related to our market strategy. We also reduced non-critical store reinvestment in 2020.
Nordstrom, Inc. and subsidiaries 27
Capital Expenditures
Our capital expenditures, net are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
|
Capital expenditures
|
$385
|
|
|
$935
|
|
|
|
Less: deferred property incentives1
|
(41)
|
|
|
(85)
|
|
|
|
Capital expenditures, net
|
$344
|
|
|
$850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net category allocation:
|
|
|
|
|
|
Technology
|
64
|
%
|
|
25
|
%
|
|
|
Supply chain
|
23
|
%
|
|
27
|
%
|
|
|
New stores, relocations, remodels and other
|
13
|
%
|
|
48
|
%
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
1 Deferred property incentives are included in our cash provided by operations in our Consolidated Statements of Cash Flows in Item 8. We operationally view the property incentives we receive from our developers and vendors as an offset to our capital expenditures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
20211
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Capital expenditures % of net sales
|
3%-4%
|
|
3.7
|
%
|
|
6.2
|
%
|
|
4.2
|
%
|
|
4.8
|
%
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Rates represent 2021 forecasted amounts.
Capital expenditures as a percentage of net sales were higher in 2016 through 2019 as we made investments in Nordstrom NYC, NRHL, Canada and our Supply Chain Network. Going forward, we expect to maintain our capital expenditure requirement at 3% to 4% of net sales primarily to support investments in technology and our Supply Chain Network.
Financing Activities
The majority of our financing activities include repurchases of common stock, long-term debt proceeds and/or payments and dividend payments.
Cash from financing activities increased $961 between 2020 and 2019 primarily due to the net proceeds from the 8.750% senior secured notes.
Borrowing Activity
During 2020, we issued $600 aggregate principle amount of 8.750% senior secured notes due May 2025. During 2019, we issued $500 aggregate principal amount of 4.375% senior unsecured notes due April 2030. We recorded debt issuance costs incurred as a result of the issuance in other financing activities, net in the Consolidated Statements of Cash Flows. With the proceeds of these new notes, we retired our $500 senior unsecured notes in 2019 that were due May 2020 (see Note 8: Debt and Credit Facilities in Item 8).
Additionally, in the first quarter of 2020, we drew down $800 on our Revolver and paid down $800 during the second through fourth quarters.
In 2018, we fully repaid $47 outstanding on our Puerto Rican unsecured borrowing facility.
Share Repurchases
In August 2018, our Board of Directors authorized a new 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 our common stock in 2020, compared with 4.1 shares for an aggregate purchase price of $186 during 2019. We had $707 remaining in share repurchase capacity as of January 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.
Dividends
In 2020, we paid dividends of $58, or $0.37 per share, compared with $229, or $1.48 per share, in 2019 (see Note 11: Shareholders’ Equity in Item 8). In determining the dividends to pay, we analyze our dividend payout ratio and dividend yield, while taking into consideration our current and projected operating performance and liquidity.
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 in) provided by operating activities. The following is a reconciliation of net cash (used in) provided by operating activities to Free Cash Flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Net cash (used in) provided by operating activities
|
($348)
|
|
|
$1,236
|
|
|
$1,296
|
|
Less: capital expenditures
|
(385)
|
|
|
(935)
|
|
|
(654)
|
|
(Less) Add: change in cash book overdrafts
|
(4)
|
|
|
8
|
|
|
—
|
|
Free Cash Flow
|
($737)
|
|
|
$309
|
|
|
$642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA and Adjusted EBITDAR (Non-GAAP financial measures)
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 EBITDAR is also one of our key financial metrics as it is used to measure compliance with one of our Revolver covenants for the year-ended January 30, 2021. Additionally, as of the fourth quarter of 2020, Adjusted EBITDAR is used as an input in the Fixed Charge Coverage Ratio for the covenant. Adjusted EBITDAR reflects the items in Adjusted EBITDA, excludes rent expense as defined by the Revolver, and captures other differences between the contractual requirements in the Revolver and Adjusted EBITDA, including the inclusion or exclusion of certain non-cash charges. The financial measure calculated under GAAP, which is most directly comparable to Adjusted EBITDAR, is net earnings.
Adjusted EBITDA and Adjusted EBITDAR are not measures 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 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 and Adjusted EBITDAR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
Net (loss) earnings
|
($690)
|
|
|
$496
|
|
|
$564
|
|
|
|
|
|
(Less) Add: income tax (benefit) expense
|
(538)
|
|
|
186
|
|
|
169
|
|
|
|
|
|
Add: interest expense, net
|
181
|
|
|
102
|
|
|
104
|
|
|
|
|
|
(Loss) earnings before interest and income taxes
|
(1,047)
|
|
|
784
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: depreciation and amortization expenses
|
671
|
|
|
671
|
|
|
669
|
|
|
|
|
|
Less: amortization of developer reimbursements
|
(86)
|
|
|
(75)
|
|
|
(79)
|
|
|
|
|
|
Add: asset impairments
|
137
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
($325)
|
|
|
$1,380
|
|
|
$1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: rent expense1
|
313
|
|
|
339
|
|
|
330
|
|
|
|
|
|
Add: other Revolver covenant adjustments2
|
3
|
|
|
10
|
|
|
15
|
|
|
|
|
|
Adjusted EBITDAR
|
($9)
|
|
|
$1,729
|
|
|
$1,772
|
|
|
|
|
|
1 Rent expense, exclusive of amortization of developer reimbursements, is added back for consistency with our debt covenant calculation requirements, and is calculated under the previous lease standard.
2 Other adjusting items to reconcile Adjusted EBITDA to Adjusted EBITDAR as defined by our Revolver covenant include interest income and certain non-cash charges where relevant.
Nordstrom, Inc. and subsidiaries 29
Credit Capacity and Commitments
During the first quarter of 2020, we amended our existing Revolver and drew down $800. As of January 30, 2021, we paid the entirety of the outstanding balance under the facility. 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. 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 8: Debt and Credit Facilities in Item 8.
We maintain trade and standby letters of credit to facilitate our international payments. As of January 30, 2021, we have $8 available and none outstanding under the trade letter of credit and $15 available and $2 outstanding under the standby letter of credit.
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 covenants we follow.
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
|
Baa3
|
|
Negative
|
Standard & Poor’s
|
BB+
|
|
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.
In June 2020, we amended our program agreement with TD to eliminate the prior requirement to post collateral and extend the term of the agreement until April 2024.
Debt Covenants
As of January 30, 2021, we met all of our covenants while our Leverage Ratio exceeded four. Under our current debt covenants, 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 and we will be precluded from repurchasing shares or paying dividends on our common stock. For more information about our debt covenants, see Note 8: Debt and Credit Facilities in Item 8.
Contractual Obligations
The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of January 30, 2021. We expect to fund these commitments primarily with operating cash flows generated in the normal course of business and credit available to us under existing and potential future facilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less than
1 year
|
|
1 – 3 years
|
|
3 – 5 years
|
|
More than
5 years
|
Long-term debt
|
$5,336
|
|
|
$686
|
|
|
$343
|
|
|
$898
|
|
|
$3,409
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
2,461
|
|
|
344
|
|
|
650
|
|
|
482
|
|
|
985
|
|
Purchase obligations
|
2,035
|
|
|
1,964
|
|
|
63
|
|
|
7
|
|
|
1
|
|
Other long-term liabilities
|
391
|
|
|
49
|
|
|
58
|
|
|
44
|
|
|
240
|
|
Total
|
$10,223
|
|
|
$3,043
|
|
|
$1,114
|
|
|
$1,431
|
|
|
$4,635
|
|
Included in the required debt repayments disclosed above are estimated total interest payments of $1,972 as of January 30, 2021, payable over the remaining life of the debt.
The operating lease obligations in the table above do not include payments for variable lease costs that are required by most of our lease agreements. These costs include variable payments related to real estate taxes, common area maintenance costs and additional rent payments based upon a percentage of our sales, which totaled $100 in 2020.
Purchase obligations primarily consist of inventory purchase orders and capital expenditure commitments.
Other long-term liabilities consist of workers’ compensation and other liability insurance reserves and postretirement benefits. The payment amounts presented above were estimated based on historical payment trends. Other long-term liabilities not requiring cash payments, such as property incentives that exceed the associated ROU asset, were excluded from the table above. Also excluded from the table above are unrecognized tax benefits of $36, as we are unable to reasonably estimate the timing of future cash payments, if any, for these liabilities.
Off-Balance Sheet Arrangements
In management’s opinion, we have no off-balance sheet arrangements that have a material current or future effect on our financial condition or financial statements.
CRITICAL ACCOUNTING 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. The following discussion highlights the estimates we believe are critical and should be read in conjunction with the Notes to Consolidated Financial Statements in Item 8. Our management has discussed the development and selection of these critical accounting estimates with the Audit and Finance Committee of our Board of Directors, and the Audit and Finance Committee has reviewed our disclosures that follow.
Sales Return Reserve
We reduce sales and cost of sales by an estimate of future customer merchandise returns, which is calculated based on historical and expected return patterns, and record a sales return allowance and an estimated returns asset. We record the impact of the sales return allowance in our separate Nordstrom and Nordstrom Rack brands. The majority of our returns from both digital and physical sales come through our stores. As a result of COVID-19 and the related change in customer buying trends, we have experienced declines in our online return rates, which historically are higher than our overall average return rates. Accordingly, we have adjusted our estimates of future return rates to reflect recent experience. Estimating future returns requires substantial judgement based on current and historical trends and actual returns may vary from our estimates. A 10% change in the sales return allowance net of the estimated returns assets would have had an approximately $15 impact on our EBIT for the year ended January 30, 2021. Due to the continued volatility surrounding COVID-19, we may not anticipate changes in return trends or the impact of the sales return reserve accurately in our results.
The Nordy Club Loyalty Program and Gift Cards
We record breakage revenue on unused points, unredeemed Nordstrom Notes and gift cards based on expected customer redemption. We estimate breakage for The Nordy Club and gift cards based on historical trends. Actual redemptions may vary from our estimates. We have seen a reduction in redemption rate trends of Nordstrom Notes and gift cards, leading to increased breakage rates. A one percentage point change in our gift card breakage rate would impact our EBIT by approximately $40 for the year ended January 30, 2021.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market value using the retail inventory method. Under the retail method, the valuation of inventories is determined by applying a calculated cost-to-retail ratio to the retail value of ending inventory. Inherent in the retail inventory method are certain management judgments that may affect the ending inventory valuation as well as gross profit. To determine if the retail value of our inventory should be marked down, we consider current and anticipated demand, customer preferences, age of the merchandise and fashion trends. We record excess and obsolescence based on historical trends and specific identification.
We take physical inventory counts and adjust our records accordingly. Following each physical inventory cycle, we adjust shrinkage to actual results and an estimate is recorded for shrinkage from the count date to year end. We evaluate and determine our estimated shrinkage rate, which is based on a percentage of sales, using the most recent physical inventory and historical results.
Impairment of Long-Lived Assets
When facts and circumstances indicate that the carrying values of buildings, equipment and ROU assets may be impaired, we compare the carrying value to the related projected future cash flows, among other quantitative and qualitative analyses. Cash flow analysis requires judgment regarding many factors, such as revenues, growth rates, expenses and capital expenditures.
These projections are inherently subject to uncertainties and while we believe the inputs and assumptions utilized in our future cash flows are reasonable, our estimates may change in the near term based on our future performance.
Income Taxes
We pay income taxes based on the tax statutes, regulations and case law of the various jurisdictions in which we operate. Our income tax expense and deferred tax assets and liabilities reflect our best estimate of current and future taxes to be paid. Tax expense may be affected by numerous items, such as changes in tax law, changes in business operations, the results of tax audits and changes to our forecasts of income and loss due to economic and other conditions, such as the COVID-19 pandemic. Significant judgments and estimates are required in determining consolidated tax expense.
Nordstrom, Inc. and subsidiaries 31
Deferred tax assets and liabilities arise from differences between the financial reporting and tax basis of assets and liabilities and for operating loss and tax credit carryforwards. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws expected to be in effect when the differences are expected to reverse. In evaluating the likelihood of realizing the benefit of our deferred tax assets, we consider all available evidence, including historical results and projected future taxable income. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying business.
We recorded a valuation allowance against certain foreign deferred tax assets as of January 30, 2021 and February 1, 2020 and intend to maintain the valuation allowance until there is sufficient evidence to support its reversal. We believe there is a reasonable possibility within the next 12 months sufficient positive evidence may become available to allow us to reach a conclusion the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain foreign deferred tax assets and decrease our income tax expense for the period the release is recorded.
The benefits of uncertain tax positions are recorded in our financial statements only after determining it is more likely than not the uncertain tax positions would sustain challenge by taxing authorities. We are periodically audited by federal, state and foreign tax authorities related to our tax filing positions and allocation of income among various tax jurisdictions. Although we believe our liabilities for uncertain tax positions are reasonable, because of the complexity of some of these uncertainties, the ultimate resolution may result in an outcome that is materially different from our current estimated liability. These differences will be reflected as increases or decreases to income tax expense in the period of resolution.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8 for a discussion of recent accounting pronouncements and the impact these standards are anticipated to have on our results of operations, liquidity or capital resources.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
(Dollars in millions)
INTEREST RATE RISK
For our long-term debt of $3,269, our exposure to interest rate risk is primarily limited to changes in fair value. As our debt is primarily fixed-rate, changes in interest rates do not significantly impact our cash flows. However, changes in interest rates increase or decrease the fair value of our debt, depending on whether market rates are lower or higher than our fixed rates. In addition, $500 of our 4.00% senior unsecured notes will mature in October 2021, and if we refinance this debt, we are at risk of interest rate changes with respect to any difference between the existing interest rate and the interest rate on its replacement. As of January 30, 2021, the fair value of our long-term debt was $3,430 (see Note 8: Debt and Credit Facilities and Note 9: Fair Value Measurements in Item 8).
We are exposed to interest rate risk primarily from changes in short-term interest rates. Interest rate fluctuations can affect our interest income and interest expense. As of January 30, 2021, we had cash and cash equivalents of $681 which generate interest income at variable rates.
FOREIGN CURRENCY EXCHANGE RISK
The majority of our revenues, expenses and capital expenditures are transacted in U.S. Dollars. Our U.S. operations periodically enter into merchandise purchase orders denominated in British Pounds or Euros. From time to time, we may use forward contracts to hedge against fluctuations in foreign currency prices. As of January 30, 2021, our outstanding forward contracts did not have a material impact on our Consolidated Financial Statements.
Our Canadian operations are comprised of the Nordstrom.ca website, six Nordstrom stores and seven Nordstrom Rack stores. Our Canadian operations enter into merchandise purchase orders denominated in U.S. Dollars for some portion of its inventory. As sales in Canada are denominated in the Canadian Dollar, gross profit for our Canadian operations can be impacted by foreign currency fluctuations. As of January 30, 2021, activities associated with foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8.)
Item 8: Financial Statements and Supplementary Data.
|
|
|
|
|
|
TABLE OF CONTENTS
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
Consolidated Statements of Earnings
|
|
Consolidated Statements of Comprehensive Earnings
|
|
Consolidated Balance Sheets
|
|
Consolidated Statements of Shareholders’ Equity
|
|
Consolidated Statements of Cash Flows
|
|
Notes to Consolidated Financial Statements
|
|
Note 1: Nature of Operations and Summary of Significant Accounting Policies
|
|
Note 2: Revenue
|
|
Note 3: Leases
|
|
Note 4: Land, Property and Equipment
|
|
Note 5: Self-Insurance
|
|
Note 6: 401(k) Plan
|
|
Note 7: Postretirement Benefits
|
|
Note 8: Debt and Credit Facilities
|
|
Note 9: Fair Value Measurements
|
|
Note 10: Commitments and Contingencies
|
|
Note 11: Shareholders’ Equity
|
|
Note 12: Stock-based Compensation
|
|
Note 13: Income Taxes
|
|
Note 14: Earnings Per Share
|
|
Note 15: Segment Reporting
|
|
|
|
Nordstrom, Inc. and subsidiaries 33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Nordstrom, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the “Company”) as of January 30, 2021 and February 1, 2020, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows for each of the three years in the period ended January 30, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 30, 2021, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the financial statements, the Company changed its method for accounting for leases effective February 3, 2019, due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 842, Leases. The Company adopted the new lease standard using the transition method provided in Accounting Standards Update (ASU) No. 2018-11 such that prior period amounts are not adjusted and continue to be reported in accordance with ASC 840, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the Audit and Finance Committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Merchandise Inventories — Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company’s merchandise inventories are generally stated at the lower of cost or market using the retail inventory method (“RIM”). Under the RIM, the valuation of inventories is determined by applying a calculated cost-to-retail ratio to the retail value of ending inventory. The value of the Company’s inventory on the balance sheet is then reduced by a charge to cost of sales for retail inventory markdowns taken on the selling price. Markdowns are recorded to reduce the price of merchandise from its originally marked and recorded retail price to a retail price at which it is expected to be marked and finally sold. To determine if the retail value of its inventory should be marked down, the Company considers many factors, including current and anticipated demand, customer preferences, age of the merchandise and fashion trends. Recorded markdowns represent one of the most significant inputs into the RIM calculation due to their impact on inventory valuation. Accordingly, the Company’s process of recording markdowns is subjective, particularly as it relates to timing of markdowns. If markdowns are not recorded timely, ending inventory will not be accurately stated in the financial statements.
Given the management judgments necessary to identify and record markdowns in a timely manner, performing audit procedures to evaluate the timeliness of markdowns required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the timing of markdowns taken, included the following, among others:
•We tested the effectiveness of controls designed to ensure that markdowns are recorded timely.
•We evaluated the reasonableness of the timing of markdowns recorded by performing analytical procedures to compare current period trends to historical trends at varying levels of disaggregation (i.e., total company, operating segment, and business unit level) across multiple fiscal periods, including, but not limited to, metrics such as markdowns relative to sales trends, inventory turnover, and inventory aging.
•We evaluated management’s ability to identify triggering events and accurately forecast markdown activity by:
▪Comparing actual markdowns recorded to management’s historical forecasts
▪Reading forecasted information included in Company press releases
▪Reading internal communications to management and the Board of Directors.
•We performed a retrospective review of markdowns recorded in periods subsequent to fiscal year-end to assess whether any unusual trends occurred that would indicate untimely markdowns.
Impairment of Long-Lived Assets — Refer to Notes 1 and 9 to the financial statements
Critical Audit Matter Description
The Company evaluates long-lived retail store assets for impairment when facts or circumstances indicate that the carrying values of its long-lived retail store assets may be impaired. Events that result in an impairment review include plans to close a retail store or a significant decrease in the operating results of the retail store. When such an indicator occurs, the Company evaluates its long-lived retail store assets for impairment by comparing the undiscounted future cash flows, at the individual store level, to the carrying value of the long-lived assets of the retail store. If the carrying value of an asset exceeds the estimated undiscounted future cash flows, an analysis is performed to estimate the fair value of the asset. An impairment is recorded if the fair value of the long-lived retail store asset is less than the carrying amount.
The Company makes significant assumptions to evaluate long-lived retail store assets for possible indications of impairment. Changes in these assumptions could have a significant impact on the long-lived retail store assets identified for further analysis. For the year ended January 30, 2021, asset impairment charges of $137 million were recognized related to long-lived retail store assets.
Given the Company’s evaluation of possible indications of impairment of retail store assets requires management to make significant assumptions, performing audit procedures to evaluate whether management appropriately identified facts or circumstances indicating that the carrying amounts of long-lived retail store assets may not be recoverable involved especially subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of long-lived retail store assets for possible indications of impairment included the following, among others:
•We tested the effectiveness of the controls over management’s identification of possible circumstances that may indicate that the carrying amounts of long-lived retail store assets are no longer recoverable.
•We evaluated management’s analysis of retail store assets for indications of impairment by:
▪Testing long-lived retail store assets for possible indications of impairment, including searching for locations with a history of losses, current period loss, or projected losses.
▪Performing inquiries of management regarding the process and assumptions used to identify potential indicators of impairment and evaluating the consistency of the assumptions with evidence obtained in other areas of the audit.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 15, 2021
We have served as the Company’s auditor since 1970.
Nordstrom, Inc. and subsidiaries 35
Nordstrom, Inc.
Consolidated Statements of Earnings
(In millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Net sales
|
$10,357
|
|
|
$15,132
|
|
|
$15,480
|
|
Credit card revenues, net
|
358
|
|
|
392
|
|
|
380
|
|
Total revenues
|
10,715
|
|
|
15,524
|
|
|
15,860
|
|
Cost of sales and related buying and occupancy costs
|
(7,600)
|
|
|
(9,932)
|
|
|
(10,155)
|
|
Selling, general and administrative expenses
|
(4,162)
|
|
|
(4,808)
|
|
|
(4,868)
|
|
(Loss) earnings before interest and income taxes
|
(1,047)
|
|
|
784
|
|
|
837
|
|
Interest expense, net
|
(181)
|
|
|
(102)
|
|
|
(104)
|
|
(Loss) earnings before income taxes
|
(1,228)
|
|
|
682
|
|
|
733
|
|
Income tax benefit (expense)
|
538
|
|
|
(186)
|
|
|
(169)
|
|
Net (loss) earnings
|
($690)
|
|
|
$496
|
|
|
$564
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
Basic
|
($4.39)
|
|
|
$3.20
|
|
|
$3.37
|
|
Diluted
|
($4.39)
|
|
|
$3.18
|
|
|
$3.32
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
Basic
|
157.2
|
|
|
155.2
|
|
|
167.3
|
|
Diluted
|
157.2
|
|
|
156.1
|
|
|
170.0
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc.
Consolidated Statements of Comprehensive Earnings
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Net (loss) earnings
|
($690)
|
|
|
$496
|
|
|
$564
|
|
Postretirement plan adjustments, net of tax of $0, $9 and ($5)
|
(1)
|
|
|
(27)
|
|
|
14
|
|
Foreign currency translation adjustment
|
(1)
|
|
|
(4)
|
|
|
(17)
|
|
Comprehensive net (loss) earnings
|
($692)
|
|
|
$465
|
|
|
$561
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc.
Consolidated Balance Sheets
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$681
|
|
|
$853
|
|
Accounts receivable, net
|
245
|
|
|
179
|
|
Merchandise inventories
|
1,863
|
|
|
1,920
|
|
Prepaid expenses and other
|
853
|
|
|
278
|
|
Total current assets
|
3,642
|
|
|
3,230
|
|
|
|
|
|
Land, property and equipment, net
|
3,732
|
|
|
4,179
|
|
Operating lease right-of-use assets
|
1,581
|
|
|
1,774
|
|
Goodwill
|
249
|
|
|
249
|
|
Other assets
|
334
|
|
|
305
|
|
Total assets
|
$9,538
|
|
|
$9,737
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$1,960
|
|
|
$1,576
|
|
Accrued salaries, wages and related benefits
|
352
|
|
|
510
|
|
Current portion of operating lease liabilities
|
260
|
|
|
244
|
|
Other current liabilities
|
1,048
|
|
|
1,190
|
|
Current portion of long-term debt
|
500
|
|
|
—
|
|
Total current liabilities
|
4,120
|
|
|
3,520
|
|
|
|
|
|
Long-term debt, net
|
2,769
|
|
|
2,676
|
|
|
|
|
|
Non-current operating lease liabilities
|
1,687
|
|
|
1,875
|
|
Other liabilities
|
657
|
|
|
687
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
Common stock, no par value: 1,000 shares authorized; 157.8 and 155.6 shares issued and outstanding
|
3,205
|
|
|
3,129
|
|
Accumulated deficit
|
(2,830)
|
|
|
(2,082)
|
|
Accumulated other comprehensive loss
|
(70)
|
|
|
(68)
|
|
Total shareholders’ equity
|
305
|
|
|
979
|
|
Total liabilities and shareholders’ equity
|
$9,538
|
|
|
$9,737
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 37
Nordstrom, Inc.
Consolidated Statements of Shareholders’ Equity
(In millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended
|
January 30, 2021
|
|
February 1, 2020
|
|
February 2, 2019
|
Common stock
|
|
|
|
|
|
Balance, beginning of year
|
$3,129
|
|
|
$3,048
|
|
|
$2,816
|
|
Issuance of common stock under stock compensation plans
|
16
|
|
|
29
|
|
|
163
|
|
Stock-based compensation
|
60
|
|
|
52
|
|
|
69
|
|
Balance, end of year
|
$3,205
|
|
|
$3,129
|
|
|
$3,048
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
Balance, beginning of year
|
($2,082)
|
|
|
($2,138)
|
|
|
($1,810)
|
|
Cumulative effect of adopted accounting standards
|
—
|
|
|
(25)
|
|
|
60
|
|
Net (loss) earnings
|
(690)
|
|
|
496
|
|
|
564
|
|
Dividends
|
(58)
|
|
|
(229)
|
|
|
(250)
|
|
Repurchase of common stock
|
—
|
|
|
(186)
|
|
|
(702)
|
|
Balance, end of year
|
($2,830)
|
|
|
($2,082)
|
|
|
($2,138)
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
Balance, beginning of year
|
($68)
|
|
|
($37)
|
|
|
($29)
|
|
Cumulative effect of adopted accounting standards
|
—
|
|
|
—
|
|
|
(5)
|
|
Other comprehensive loss
|
(2)
|
|
|
(31)
|
|
|
(3)
|
|
Balance, end of year
|
($70)
|
|
|
($68)
|
|
|
($37)
|
|
|
|
|
|
|
|
Total
|
$305
|
|
|
$979
|
|
|
$873
|
|
|
|
|
|
|
|
Dividends per share
|
$0.37
|
|
|
$1.48
|
|
|
$1.48
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc.
Consolidated Statements of Cash Flows
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Operating Activities
|
|
|
|
|
|
Net (loss) earnings
|
($690)
|
|
|
$496
|
|
|
$564
|
|
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization expenses and other, net
|
675
|
|
|
671
|
|
|
669
|
|
Asset impairment
|
137
|
|
|
—
|
|
|
—
|
|
Amortization of deferred property incentives
|
—
|
|
|
—
|
|
|
(75)
|
|
Right-of-use asset amortization
|
168
|
|
|
183
|
|
|
—
|
|
Deferred income taxes, net
|
(7)
|
|
|
52
|
|
|
(34)
|
|
Stock-based compensation expense
|
67
|
|
|
69
|
|
|
90
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(46)
|
|
|
82
|
|
|
(4)
|
|
Merchandise inventories
|
53
|
|
|
30
|
|
|
15
|
|
Prepaid expenses and other assets
|
(607)
|
|
|
(38)
|
|
|
(8)
|
|
Accounts payable
|
432
|
|
|
98
|
|
|
12
|
|
Accrued salaries, wages and related benefits
|
(157)
|
|
|
(71)
|
|
|
1
|
|
Other current liabilities
|
(143)
|
|
|
(94)
|
|
|
15
|
|
|
|
|
|
|
|
Lease liabilities
|
(237)
|
|
|
(259)
|
|
|
—
|
|
Other liabilities
|
7
|
|
|
17
|
|
|
51
|
|
Net cash (used in) provided by operating activities
|
(348)
|
|
|
1,236
|
|
|
1,296
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
Capital expenditures
|
(385)
|
|
|
(935)
|
|
|
(654)
|
|
|
|
|
|
|
|
Other, net
|
38
|
|
|
26
|
|
|
1
|
|
Net cash used in investing activities
|
(347)
|
|
|
(909)
|
|
|
(653)
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
Proceeds from revolving line of credit
|
800
|
|
|
—
|
|
|
—
|
|
Payments on revolving line of credit
|
(800)
|
|
|
—
|
|
|
—
|
|
Proceeds from long-term borrowings
|
600
|
|
|
499
|
|
|
—
|
|
Principal payments on long-term borrowings
|
—
|
|
|
(500)
|
|
|
(56)
|
|
|
|
|
|
|
|
(Decrease) increase in cash book overdrafts
|
(4)
|
|
|
8
|
|
|
—
|
|
Cash dividends paid
|
(58)
|
|
|
(229)
|
|
|
(250)
|
|
Payments for repurchase of common stock
|
—
|
|
|
(210)
|
|
|
(678)
|
|
Proceeds from issuances under stock compensation plans
|
16
|
|
|
29
|
|
|
163
|
|
Tax withholding on share-based awards
|
(9)
|
|
|
(17)
|
|
|
(20)
|
|
Other, net
|
(15)
|
|
|
(11)
|
|
|
(26)
|
|
Net cash provided by (used in) financing activities
|
530
|
|
|
(431)
|
|
|
(867)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(7)
|
|
|
—
|
|
|
—
|
|
Net decrease in cash and cash equivalents
|
(172)
|
|
|
(104)
|
|
|
(224)
|
|
Cash and cash equivalents at beginning of year
|
853
|
|
|
957
|
|
|
1,181
|
|
Cash and cash equivalents at end of year
|
$681
|
|
|
$853
|
|
|
$957
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
Income taxes, net of refunds
|
$23
|
|
|
$178
|
|
|
$280
|
|
Interest, net of capitalized interest
|
168
|
|
|
111
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 39
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Founded in 1901 as a retail shoe business in Seattle, Washington, our Company is a leading fashion retailer that offers an extensive selection of high-quality brand-name and private label merchandise focused on apparel, shoes, beauty, accessories and home goods for women, men, young adults and children. This breadth of merchandise allows us to serve a wide range of customers who appreciate quality fashion and a superior shopping experience. We offer brand-name and private label merchandise across our digital and physical assets in both our Nordstrom and Nordstrom Rack brands. Our facilities and stores are located in 40 states in the U.S. and three provinces in Canada. Nordstrom includes:
•Nordstrom.com
•TrunkClub.com
•Nordstrom.ca
•94 Nordstrom stores in the U.S.
•six Nordstrom stores and seven Nordstrom Rack stores in Canada
•seven Nordstrom Locals
Nordstrom Rack includes:
•Nordstromrack.com
•HauteLook.com
•242 Nordstrom Rack stores in the U.S.
•two Last Chance clearance stores.
Fiscal Year
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2020 and all years except 2017 within this document are based on a 52-week fiscal year, while 2017 is based on a 53-week fiscal year.
Principles of Consolidation
The Consolidated Financial Statements include the balances of Nordstrom, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation.
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 impact of COVID-19 going forward and as a result our estimates may change in the near term.
Revenue
During the first quarter of 2018, we adopted the Revenue Standard, using the modified retrospective method. We recorded a net cumulative effect adjustment of $55 which decreased beginning accumulated deficit.
Net Sales
We recognize sales revenue net of estimated returns and excluding sales taxes. Revenue from sales to customers shipped from our Supply Chain Network facilities, stores and directly from our vendors, which includes shipping revenue when applicable, is recognized at shipping point, the point in time where control has transferred to the customer. Costs to ship orders to customers are expensed as a fulfillment activity at shipping point, commissions from sales at our Nordstrom stores are expensed at the point of sale and both are recorded in SG&A expenses.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
We reduce sales and cost of sales by an estimate of future customer merchandise returns, which is calculated based on historical and expected return patterns, and record a sales return allowance and an estimated returns asset. Our sales return allowance is classified in other current liabilities and our estimated returns asset, calculated based on the cost of merchandise sold, is classified in prepaid expenses and other on the Consolidated Balance Sheets. We record the impact of the sales return allowance in our separate Nordstrom and Nordstrom Rack brands. The majority of our returns from both digital and physical sales come through our stores. Due to the seasonality of our business, these balances typically increase when higher sales occur in the last month of a period, such as the Anniversary Sale, which usually occurs at the end of the second quarter, and decrease in the following period. As a result of COVID-19 and the related change in customer buying trends, we have experienced declines in our online return rates, which historically are higher than our overall average return rates. Accordingly, we have adjusted our estimates of future return rates to reflect recent experience. Estimating future returns requires substantial judgement based on current and historical trends and actual returns may vary from our estimates.
Loyalty Program
The Nordy Club is our customer loyalty program that incorporates a traditional point and benefit system, while providing customers exclusive access to products and events, enhanced services, personalized experiences and more convenient ways to shop. Customers accumulate points based on their level of spending and type of participation. Upon reaching certain point thresholds, customers receive Nordstrom Notes, which can be redeemed for goods or services across Nordstrom and Nordstrom Rack. The Nordy Club benefits vary based on the level of customer spend, and include Bonus Points days and shopping and fashion events.
We offer customers access to a variety of payment products and services, including a selection of Nordstrom-branded Visa® credit cards in the U.S. and Canada, as well as a Nordstrom-branded private label credit card for Nordstrom purchases. When customers use a Nordstrom-branded credit or debit card, they also participate in The Nordy Club and receive additional benefits, which can vary depending on the level of spend, including early access to the Anniversary Sale, enhanced alteration and stylist benefits and incremental accumulation of points toward Nordstrom Notes.
As our customers earn points and Nordstrom Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-alone selling price of points, Nordstrom Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when the Nordstrom Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the Consolidated Balance Sheets. We record breakage revenue of unused points and unredeemed Nordstrom Notes based on expected customer redemption. We estimate, based on historical usage, that approximately 10% of Nordstrom Notes and approximately 8% of points will be unredeemed. Estimating future breakage rates requires judgment based on current and historical trends and actual breakage rates may vary from our estimates. Other benefits of the loyalty program, including shopping and fashion events, are recorded in SG&A expenses as these are not a material right of the program.
As of January 30, 2021 and February 1, 2020, our outstanding performance obligation for The Nordy Club, which consists primarily of unredeemed points and Nordstrom Notes at retail value under the Revenue Standard was $137 and $162. Almost all Nordstrom Notes are redeemed within approximately eleven months of issuance.
Gift Cards
We record deferred revenue from the sale of gift cards at the time of purchase. As gift cards are redeemed, we recognize revenue and reduce our contract liability. Although our gift cards do not have an expiration date, we include this deferred revenue in other current liabilities on the Consolidated Balance Sheets as customers can redeem gift cards at any time.
As of January 30, 2021 and February 1, 2020, our outstanding performance obligation for unredeemed gift cards was $341 and $414. Almost all gift cards are redeemed within two years of issuance. We record breakage revenue on unused gift cards based on expected customer redemption. We estimate, based on historical usage, that 3% will be unredeemed and recognized as revenue. Estimating future breakage rates requires judgment based on current and historical trends and actual breakage rates may vary from our estimates. We have seen a reduction in redemption rate trends, which increases our breakage rate and combined with higher volumes of gifts cards issued over the past several years, our breakage income has increased. Breakage income was $81, $17 and $14 in 2020, 2019 and 2018.
Credit Card Revenues, net
Although the primary purpose of offering our credit cards is to foster greater customer loyalty and drive more sales, we also receive credit card revenue through our program agreement with TD, whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. Credit card revenues, net include our portion of the ongoing credit card revenue, net of credit losses, pursuant to our program agreement with TD.
Nordstrom, Inc. and subsidiaries 41
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Cost of Sales
Cost of sales primarily includes the purchase and manufacturing costs of inventory sold, net of vendor allowances, and in-bound freight expense.
Buying and Occupancy Costs
Buying costs consist primarily of compensation and other costs incurred by our merchandising and product development groups. Occupancy costs include rent, depreciation, property taxes and facility operating costs of our retail, corporate center and Supply Chain Network facilities.
Selling, General and Administrative Expenses
SG&A expenses consist primarily of compensation and benefit costs, marketing, supply chain and technology.
Severance
In 2020, we paid out $88 in 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 Consolidated Statement of Earnings.
Estimated Non-recurring Charge
We recognized an Estimated Non-recurring Charge of $72, or $49 net of tax, in 2018, resulting from some delinquent Nordstrom credit card accounts being charged higher interest in error. Less than 4% of Nordstrom cardmembers received a cash refund or credit to outstanding balances, with most receiving less than one hundred dollars. We recorded an estimated charge representing our costs through 2018, which were comprised primarily of amounts we have refunded to impacted cardmembers. In 2018, the Estimated Non-recurring Charge increased our SG&A expenses on our Consolidated Statement of Earnings and other current liabilities on our Consolidated Balance Sheet.
Advertising
Advertising production costs for internet, magazines, store events and other media are expensed the first time the advertisement is run. Online marketing costs are expensed when incurred. Total advertising expenses, net of vendor allowances, of $283, $299 and $246 in 2020, 2019 and 2018 were included in SG&A expenses.
Vendor Allowances
We receive allowances from merchandise vendors for purchase price adjustments, beauty expenses, advertising programs and various other expenses. Purchase price adjustments are recorded as a reduction of cost of sales at the point they have been earned and the related merchandise has been marked down or sold. Allowances for beauty expenses, advertising programs and other expenses are recorded in SG&A expenses as a reduction of the related costs when incurred. Vendor allowances earned are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Purchase price adjustments
|
$77
|
|
|
$171
|
|
|
$180
|
|
Beauty expenses
|
79
|
|
|
140
|
|
|
149
|
|
Advertising
|
82
|
|
|
101
|
|
|
115
|
|
Other
|
2
|
|
|
6
|
|
|
6
|
|
Total vendor allowances
|
$240
|
|
|
$418
|
|
|
$450
|
|
Shipping and Handling Costs
Our shipping and handling costs include payments to third-party shippers and costs to hold, move and prepare merchandise for shipment. These costs do not include in-bound freight to our Supply Chain Network facilities, which we include in the cost of our inventory. Shipping and handling costs of $828, $627 and $589 in 2020, 2019 and 2018 were included in SG&A expenses.
Stock-Based Compensation
The 2019 Plan authorizes the grant of stock options, PSUs, RSUs, stock appreciation rights and both restricted and unrestricted shares of common stock to employees and nonemployee directors. We grant stock-based awards under our 2019 Plan and employees may purchase our stock at a discount under our ESPP. We predominantly recognize stock-based compensation expense related to stock-based awards at their estimated grant date fair value, recorded on a straight-line basis over the requisite service period. Compensation expense for certain award holders is accelerated based upon age and years of service. Compensation expense for PSUs is adjusted based on the payout percentage of the PSU grant subject to achieving specific performance measures. The total compensation expense is reduced by actual forfeitures as they occur over the vesting period of the awards.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. The fair value of RSUs are determined based on the number of RSUs granted and the quoted price of our common stock on the date of grant, less the estimated present value of dividends over the vesting period. PSUs granted are classified as equity and the fair value is determined based on the number of PSUs granted and the quoted price of our common stock on the date of grant, less the estimated present value of dividends over the vesting period.
Issuance of common stock under stock compensation plans on the Consolidated Statements of Shareholders’ Equity includes proceeds from our common stock option exercises and purchases of shares under the ESPP, while stock-based compensation primarily includes stock-based compensation expense for our common stock options, RSUs and PSUs partially offset by shares withheld for taxes on RSUs.
New Store Opening Costs
Non-capital expenditures associated with opening new stores, including marketing expenses, relocation expenses and occupancy costs, are charged to expense as incurred. These costs are included in both buying and occupancy costs and SG&A, according to their nature as disclosed above.
Income Taxes
We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between the financial reporting and tax basis of assets and liabilities and for operating loss and tax credit carryforwards. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that some portion of the tax benefit will not be realized.
We regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various federal, state and foreign filings by considering all relevant facts, circumstances and information available. If we believe it is more likely than not that our position will be sustained, we recognize a benefit at the largest amount that we believe is cumulatively greater than 50% likely to be realized. Interest and penalties related to income tax matters are classified as a component of income tax expense.
Income taxes require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances. Also, as audits are completed or statutes of limitations lapse, it may be necessary to record adjustments to our taxes payable, deferred taxes, tax reserves or income tax expense.
CARES Act
On March 27, 2020, the CARES Act was signed into law, providing payroll tax credits for employee retention, deferral of payroll taxes and several income tax provisions including modifications to the net interest deduction limitation, changes to certain property depreciation and allowing for carryback of certain operating losses.
We have estimated the impacts of the CARES Act and other COVID-19 related stimulus in accordance with our overall approach for determining our income tax provision, which uses an estimated annual effective tax rate based on our best estimates and adjusts for discrete taxable events that occur during the quarter. As a result, we will carryback our 2020 U.S. federal operating loss and recover taxes previously paid at the applicable 35% tax rate rather than the current rate of 21%. Our estimated annual effective tax rate reflects this benefit and is the primary driver for the rate increase when compared with 2019. As a result, we recorded $560 in taxes receivable as of January 30, 2021, which is classified in prepaid expenses and other on the Consolidated Balance Sheet.
In addition, for the year ended January 30, 2021, we recognized $69 in employee retention payroll tax credits and elected to defer payment of the employer portion of social security taxes, both as provided for under the CARES Act and other COVID-19 related stimulus.
Comprehensive Net Earnings
Comprehensive net earnings consist of net earnings and other gains and losses affecting equity that are excluded from net earnings. These consist of postretirement plan adjustments, net of related income tax effects, and foreign currency translation adjustments.
Cash Equivalents
Cash equivalents are short-term investments with a maturity of three months or less from the date of purchase and are carried at cost, which approximates fair value. At the end of 2020 and 2019, checks not yet presented for payment drawn in excess of our bank deposit balances were $106 and $110 and included within accounts payable on our Consolidated Balance Sheets.
Nordstrom, Inc. and subsidiaries 43
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Accounts Receivable
Accounts receivable, net primarily includes receivables from non-Nordstrom-branded credit and debit cards and developer reimbursements.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market value using the retail inventory method. Under the retail method, the valuation of inventories is determined by applying a calculated cost-to-retail ratio to the retail value of ending inventory. The value of our inventory on the balance sheet is then reduced by a charge to cost of sales for retail inventory markdowns taken on the selling price. To determine if the retail value of our inventory should be marked down, we consider current and anticipated demand, customer preferences, age of the merchandise and fashion trends. We record excess and obsolescence based on historical trends and specific identification.
We take physical inventory counts and adjust our records accordingly. Following each physical inventory cycle, we adjust shrinkage to actual results and an estimate is recorded for shrinkage from the count date to year end. We evaluate and determine our estimated shrinkage rate, which is based on a percentage of sales, using the most recent physical inventory and historical results.
Leases
We record leases, which consist primarily of operating leases, on the Consolidated Balance Sheets as operating lease ROU assets, current portion of operating lease liabilities and non-current operating lease liabilities. Operating lease liabilities are initially recognized based on the net present value of the fixed portion of our lease and common area maintenance payments from lease commencement through the lease term. To calculate the net present value, we apply an incremental borrowing rate. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest we would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use quoted interest rates obtained from financial institutions as an input to derive our incremental borrowing rate as the discount rate for the lease. We recognize ROU assets based on operating lease liabilities reduced by property incentives. We test ROU assets for impairment in the same manner as long-lived assets and exclude the related operating lease liability and operating lease payments in our analysis.
We lease the land, buildings, or land and buildings for many of our stores, office facilities and Supply Chain Network facilities. We also lease equipment and have service contracts including transportation agreements and warehouse agreements where we control identified assets such as vehicles, warehouse space and equipment and therefore represent embedded leases under the Lease Standard.
Land, Property and Equipment
Land is recorded at historical cost, while property and equipment are recorded at cost less accumulated depreciation and amortization. Capitalized software includes the costs of developing or obtaining internal-use software, including external direct costs of materials and services and internal payroll costs related to the software project.
We capitalize interest on construction in progress and software projects during the period in which expenditures have been made, activities are in progress to prepare the asset for its intended use and actual interest costs are being incurred. Depreciation and amortization are computed using the straight-line method over the asset’s estimated useful life, which is determined by asset category as follows:
|
|
|
|
|
|
Asset
|
Life (in years)
|
Buildings and improvements
|
5 – 40
|
Store fixtures and equipment
|
3 – 15
|
Leasehold improvements
|
5 – 40
|
Capitalized software
|
2 – 7
|
Leasehold improvements and leased property and equipment that are purchased at the inception of the lease, or during the lease term, are amortized over the shorter of the lease term or the asset life. Lease terms include the fixed, non-cancellable term of a lease, plus any renewal periods determined to be reasonably assured.
We receive contributions from vendors for the construction of certain fixtures in our stores.
Long-Lived Assets
When facts and circumstances indicate that the carrying values of buildings, equipment and ROU assets may be impaired, we compare the carrying value to the related projected future cash flows, among other quantitative and qualitative analyses. Cash flow analysis requires judgment regarding many factors, such as revenues, growth rates, expenses and capital expenditures. These projections are inherently subject to uncertainties and while we believe the inputs and assumptions utilized in our future cash flows are reasonable, our estimates may change in the near term based on our future performance.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment, while cash flows for our retail store assets are identified at the individual store level.
As we optimized our mix of physical and digital assets to align with longer-term customer trends, we closed 16 Nordstrom stores, six Trunk Club clubhouses and three Jeffrey boutiques in the first half of 2020. As part of these closures, we incurred non-cash impairment charges on long-lived tangible and ROU assets, primarily associated with the Nordstrom store closures, 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:
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
|
Long-lived asset impairment1
|
$96
|
|
|
|
Operating lease ROU asset impairment1
|
41
|
|
|
|
Total asset impairment
|
$137
|
|
|
|
1 As of January 30, 2021, the carrying value of the applicable long-lived and operating lease ROU assets after impairment was $13 and $3.
These charges are primarily included in our Retail segment SG&A expense on the Consolidated Statement of Earnings.
Amortization expense for acquired intangibles was $7 and $11 in 2019 and 2018. In 2019, as a result of the Nordstrom Trunk Club integration, we fully impaired the remaining acquired Nordstrom Trunk Club intangible asset and recorded a loss of $11. No amortization expense was recorded beyond 2019.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of the related net assets acquired and is not subject to amortization. We review our goodwill annually for impairment, as of the first day of the fourth quarter, or when circumstances indicate that the carrying value may exceed the fair value. We perform this evaluation at the Nordstrom and NRHL reporting unit level, all within our Retail segment. When evaluating these assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we perform a quantitative fair value test, where we compare the carrying value of the reporting unit to its estimated fair value, which is based on the expected present value of future cash flows (income approach), comparable public companies and acquisitions (market approach), or a combination of both. If fair value is lower than the carrying value, an impairment charge is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. As of January 30, 2021 and February 1, 2020, we had goodwill of $249. Based on the results of our tests, fair value substantially exceeded carrying value, and we therefore had no goodwill impairment in 2020, 2019 or 2018.
Self-Insurance
We retain a portion of the risk for certain losses related to employee health and welfare, workers’ compensation and other liability claims. Liabilities associated with these losses include undiscounted estimates of both losses reported and losses incurred but not yet reported. We estimate our ultimate cost using an actuarially-based analysis of claims experience, regulatory changes and other relevant factors.
Foreign Currency
Our Canadian operations are comprised of the Nordstrom.ca website, six Nordstrom stores and seven Nordstrom Rack stores. The functional currency of our Canadian operations is the Canadian Dollar. We translate assets and liabilities into U.S. Dollars using the exchange rate in effect at the balance sheet date, while we translate revenues and expenses using an average exchange rate for the period. We record these translation adjustments as a component of accumulated other comprehensive loss on the Consolidated Balance Sheets.
In addition, our U.S. operations incur certain expenditures denominated in Canadian Dollars and our Canadian operations incur certain expenditures denominated in U.S. Dollars. This activity results in transaction gains and losses that arise from exchange rate fluctuations, which are recorded as gains or losses in the Consolidated Statements of Earnings.
Recent Accounting Pronouncements
In August 2020, the SEC adopted the final rule under SEC Release No. 33-10825, Modernization of Regulation S-K Items 101, 103, and 105, which modernizes the description of business, legal proceedings and risk factor disclosures. This final rule was effective for us in the fourth quarter of 2020. The adoption of this final rule will not have a material effect on our Consolidated Financial Statements.
Nordstrom, Inc. and subsidiaries 45
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
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. Though this final rule is effective for us beginning in the first quarter of 2021, we have elected to early adopt the amendments to provision 301, Selected financial data and provision 302, Supplementary financial information in the fourth quarter of 2020. The adoption of this final rule will not have a material effect on our Consolidated Financial Statements.
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 Consolidated Balance Sheets and are as follows:
|
|
|
|
|
|
|
Contract Liabilities
|
Balance as of February 2, 2019
|
$548
|
|
Balance as of February 1, 2020
|
576
|
|
Balance as of January 30, 2021
|
478
|
|
Revenues recognized from our beginning contract liability balance were $261 and $313 for the years ended January 30, 2021 and February 1, 2020.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Nordstrom
|
$6,997
|
|
$9,943
|
|
$10,299
|
Nordstrom Rack
|
3,360
|
|
5,189
|
|
5,181
|
|
|
|
|
|
|
Total net sales
|
$10,357
|
|
$15,132
|
|
$15,480
|
|
|
|
|
|
|
Digital sales as % of total net sales
|
55%
|
|
33%
|
|
30%
|
The following table summarizes the percent of net sales by merchandise category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Women’s Apparel
|
29%
|
|
31%
|
|
32%
|
Shoes
|
26%
|
|
24%
|
|
24%
|
Women’s Accessories
|
14%
|
|
11%
|
|
11%
|
Men’s Apparel
|
12%
|
|
16%
|
|
16%
|
Beauty
|
12%
|
|
11%
|
|
11%
|
Kids’ Apparel
|
4%
|
|
4%
|
|
4%
|
Other
|
3%
|
|
3%
|
|
2%
|
Total net sales
|
100%
|
|
100%
|
|
100%
|
|
|
|
|
|
|
NOTE 3: LEASES
We lease the land or the land and buildings at many of our facilities, warehouses, stores and offices, as well as equipment. The majority of our fixed, non-cancellable lease terms are 15 to 30 years for Nordstrom stores, approximately 10 years for Nordstrom Rack stores and 5 to 20 years for office facilities and Supply Chain Network facilities. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period. At the commencement of a lease, we generally include only the initial lease term as we have determined that options to extend are not reasonably certain to occur. The exercise of lease renewal options is generally at our sole discretion. At the renewal of an expiring lease, we reassess our options in the agreement and include all reasonably certain extensions in the measurement of our lease term.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Most of our leases also require we pay certain expenses, such as common area maintenance charges, real estate taxes and other executory costs, the fixed portion of which is included in Operating Lease Cost. We recognize Operating Lease Cost, which is primarily included in occupancy costs, on a straight-line basis over the lease term. Variable lease cost includes payments for variable common area maintenance charges and additional payments based on a percentage of sales, which are recognized when probable. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table summarizes the components of lease cost:
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
2019
|
Operating Lease Cost
|
$263
|
|
$278
|
|
Variable lease cost1
|
100
|
|
105
|
|
Sublease income
|
(19)
|
|
(9)
|
|
Total lease cost, net
|
$344
|
|
$374
|
|
1 Variable lease cost includes short-term lease cost, which was immaterial in 2020 and 2019.
The following table summarizes future lease payments as of January 30, 2021:
|
|
|
|
|
|
|
|
Fiscal year
|
|
|
Operating Leases
|
2021
|
|
|
$344
|
|
2022
|
|
|
338
|
|
2023
|
|
|
312
|
|
2024
|
|
|
265
|
|
2025
|
|
|
217
|
|
Thereafter
|
|
|
985
|
|
Total lease payments
|
|
|
2,461
|
|
|
|
|
|
Less: amount representing interest
|
|
|
(514)
|
|
Present value of net lease payments1
|
|
|
$1,947
|
|
1 None of our payments for operating leases were signed but not yet commenced as of January 30, 2021.
The following table includes supplemental information:
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
2019
|
Cash paid related to operating lease liabilities
|
$332
|
|
$360
|
|
Operating lease interest
|
95
|
|
101
|
|
Operating lease liabilities arising upon adoption of the Lease Standard
|
—
|
|
2,224
|
|
Operating lease liabilities arising from the commencement of lease agreements
|
79
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
February 1, 2020
|
Weighted-average remaining lease term
|
9 years
|
10 years
|
Weighted-average discount rate
|
4.7
|
%
|
4.7
|
%
|
Previous Lease Standard Disclosures
During the first quarter of 2019, we adopted the Lease Standard using the transition method provided in ASU 2018-11. As a result, reporting periods beginning in the first quarter of 2019 are presented under the Lease Standard while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840 — Leases. Adoption of the Lease Standard did not have a material impact on our Consolidated Statement of Earnings, Consolidated Statement of Comprehensive Earnings, Consolidated Statement of Cash Flows or Consolidated Statement of Shareholders’ Equity.
Nordstrom, Inc. and subsidiaries 47
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
The following table summarizes rent expense before adoption of the Lease Standard:
|
|
|
|
|
|
Fiscal year
|
2018
|
Minimum rent
|
$321
|
|
Percentage rent
|
9
|
|
Property incentives
|
(79)
|
|
Total rent expense
|
$251
|
|
The rent expense above does not include common area maintenance charges, real estate taxes and other executory costs, which were $138 in 2018.
NOTE 4: LAND, PROPERTY AND EQUIPMENT
Land, property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Land and land improvements
|
$285
|
|
|
$288
|
|
Buildings and building improvements
|
1,446
|
|
|
1,591
|
|
Leasehold improvements
|
3,212
|
|
|
3,263
|
|
Store fixtures and equipment
|
3,993
|
|
|
4,015
|
|
Capitalized software
|
1,724
|
|
|
1,547
|
|
Construction in progress
|
231
|
|
|
470
|
|
Land, property and equipment
|
10,891
|
|
|
11,174
|
|
Less: accumulated depreciation and amortization
|
(7,159)
|
|
|
(6,995)
|
|
Land, property and equipment, net
|
$3,732
|
|
|
$4,179
|
|
Depreciation and amortization expense was $671, $654 and $661 in 2020, 2019 and 2018.
Our net non-cash investing activities primarily related to Nordstrom NYC and our Supply Chain Network capital expenditure accruals and resulted in a (decrease) increase to accounts payable of ($48) and $60 in 2020 and 2019.
NOTE 5: SELF-INSURANCE
Our self-insurance reserves are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Workers’ compensation
|
$74
|
|
|
$79
|
|
Employee health and welfare
|
25
|
|
|
25
|
|
Other liability
|
15
|
|
|
14
|
|
Total self-insurance reserve
|
$114
|
|
|
$118
|
|
Our workers’ compensation policies have a retention per claim of $1 or less and no policy limits.
We are self-insured for the majority of our employee health and welfare coverage and we do not use stop-loss coverage. Participants contribute to the cost of their coverage through premiums and out-of-pocket expenses for deductibles, co-pays and co-insurance.
Our liability policies, encompassing an employment practices liability, with a policy limit up to $30, and a commercial general liability policy, with a limit up to $101, have a retention per claim of $3 or less. Subsequent to January 30, 2021, we no longer carry an employment practices liability policy. This risk will be self-insured by the Company.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
NOTE 6: 401(K) PLAN
We provide a 401(k) plan for our employees that allows for employee elective contributions and our discretionary contributions. Employee elective contributions are funded through voluntary payroll deductions. Our discretionary contribution is funded in an amount determined by our Board of Directors each year.
Due to COVID-19 and the steps we took to strengthen our financial flexibility, we temporarily paused our employer match contribution and incurred no expenses related to Company contributions in 2020. Total expenses related to Company contributions were $85 and $102 in 2019 and 2018 and were included in both buying and occupancy costs and SG&A expenses on our Consolidated Statements of Earnings.
NOTE 7: POSTRETIREMENT BENEFITS
We have a SERP, which provides retirement benefits to certain officers and select employees. The SERP has different benefit levels depending on the participant’s role. At the end of 2020, we had 57 participants in the plan, including eight officers and select employees eligible for SERP benefits, 46 retirees and three beneficiaries. This plan is non-qualified and does not have a minimum funding requirement.
Benefit Obligations and Funded Status
Our benefit obligation and funded status is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Change in benefit obligation:
|
|
|
|
Benefit obligation at beginning of year
|
$224
|
|
|
$190
|
|
Participant service cost
|
2
|
|
|
2
|
|
Interest cost
|
6
|
|
|
7
|
|
Benefits paid
|
(10)
|
|
|
(9)
|
|
Actuarial loss
|
7
|
|
|
34
|
|
|
|
|
|
Benefit obligation at end of year
|
229
|
|
|
224
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets at beginning of year
|
—
|
|
|
—
|
|
Employer contribution
|
10
|
|
|
9
|
|
Benefits paid
|
(10)
|
|
|
(9)
|
|
Fair value of plan assets at end of year
|
—
|
|
|
—
|
|
Underfunded status at end of year
|
($229)
|
|
|
($224)
|
|
The accumulated benefit obligation, which is the present value of benefits, assuming no future compensation changes, was $227 and $222 at the end of 2020 and 2019.
Amounts recognized as liabilities in the Consolidated Balance Sheets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Accrued salaries, wages and related benefits
|
$11
|
|
|
$11
|
|
Other liabilities (noncurrent)
|
218
|
|
|
213
|
|
Net amount recognized
|
$229
|
|
|
$224
|
|
Components of SERP Expense
The components of SERP expense recognized in the Consolidated Statements of Earnings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Participant service cost
|
$2
|
|
|
$2
|
|
|
$2
|
|
Interest cost
|
6
|
|
|
7
|
|
|
7
|
|
Amortization of net loss and other
|
9
|
|
|
1
|
|
|
5
|
|
Total SERP expense
|
$17
|
|
|
$10
|
|
|
$14
|
|
Nordstrom, Inc. and subsidiaries 49
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Amounts not yet reflected in SERP expense and included in accumulated other comprehensive loss (pre-tax) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Accumulated loss
|
($61)
|
|
|
($62)
|
|
Prior service credit
|
—
|
|
|
—
|
|
Total accumulated other comprehensive loss
|
($61)
|
|
|
($62)
|
|
Assumptions
Weighted-average assumptions used to determine our benefit obligation and SERP expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Assumptions used to determine benefit obligation:
|
|
|
|
|
|
Discount rate
|
2.62
|
%
|
|
2.97
|
%
|
|
4.27
|
%
|
Rate of compensation increase
|
2.50
|
%
|
|
2.50
|
%
|
|
2.50
|
%
|
Assumptions used to determine SERP expense:
|
|
|
|
|
|
Discount rate
|
2.97
|
%
|
|
4.27
|
%
|
|
3.95
|
%
|
Rate of compensation increase
|
2.50
|
%
|
|
2.50
|
%
|
|
3.00
|
%
|
|
|
|
|
|
|
Future Benefit Payments and Contributions
As of January 30, 2021, the expected future benefit payments based upon the assumptions described above and including benefits attributable to estimated future employee service are as follows:
|
|
|
|
|
|
Fiscal year
|
|
2021
|
$11
|
|
2022
|
11
|
|
2023
|
12
|
|
2024
|
12
|
|
2025
|
12
|
|
2026 – 2030
|
62
|
|
NOTE 8: DEBT AND CREDIT FACILITIES
Debt
A summary of our long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of unamortized discount:
|
|
|
|
|
|
|
|
Senior notes, 4.00%, due October 2021
|
500
|
|
|
500
|
|
Senior notes, 8.75%, due May 2025
|
600
|
|
|
—
|
|
Senior notes, 4.00%, due March 2027
|
349
|
|
|
349
|
|
Senior debentures, 6.95%, due March 2028
|
300
|
|
|
300
|
|
Senior notes, 4.375%, due April 2030
|
500
|
|
|
500
|
|
Senior notes, 7.00%, due January 2038
|
147
|
|
|
147
|
|
Senior notes, 5.00%, due January 2044
|
900
|
|
|
897
|
|
Deferred bond issuance costs
|
(27)
|
|
|
(17)
|
|
Total long-term debt
|
3,269
|
|
|
2,676
|
|
|
|
|
|
Less: current portion
|
(500)
|
|
|
—
|
|
Total due beyond one year
|
$2,769
|
|
|
$2,676
|
|
|
|
|
|
|
|
|
|
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Required principal payments on long-term debt are as follows:
|
|
|
|
|
|
Fiscal year
|
|
2021
|
$500
|
|
2022
|
—
|
|
2023
|
—
|
|
2024
|
—
|
|
2025
|
600
|
|
Thereafter
|
2,264
|
|
During the first quarter of 2020, we issued $600 aggregate principal amount of 8.750% senior secured notes due May 2025. These notes are guaranteed by certain subsidiaries and secured by various store, distribution center and corporate properties. The 8.750% senior secured notes contain covenants that include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, dividend payments and equity distributions, in addition to certain change of control triggering events and provisions for events of default. Any redemption prior to the second quarter of 2022 may require a make-whole premium. Beginning the second quarter of 2022, we will be permitted to prepay all or part of our 8.750% senior secured notes.
Interest Expense
The components of interest expense, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Interest on long-term debt and short-term borrowings
|
$199
|
|
|
$151
|
|
|
$146
|
|
Less:
|
|
|
|
|
|
Interest income
|
(3)
|
|
|
(10)
|
|
|
(15)
|
|
Capitalized interest
|
(15)
|
|
|
(39)
|
|
|
(27)
|
|
Interest expense, net
|
$181
|
|
|
$102
|
|
|
$104
|
|
Credit Facilities
During the first quarter of 2020, we amended our existing Revolver and drew down $800. As of January 30, 2021, we paid the entirety of the outstanding balance under the facility. 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. Under the terms of the amendment, 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 borrowings under our Revolver will be secured by substantially all our personal property and we will be subject to asset coverage, fixed charge coverage and minimum liquidity covenants. If our Leverage Ratio is below four and our unsecured debt is rated at or above BBB- with a stable outlook at Standard & Poor’s or 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. Should these covenants not be met, we would have restrictions on borrowing additional debt from the Revolver. As of January 30, 2021, our Leverage Ratio exceeded four and we did not meet or exceed our credit rating threshold. We met all other financial covenant measures for the quarter.
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.
The Revolver expires in September 2023 and is available for working capital, capital expenditures and general corporate purposes. As of January 30, 2021 and February 1, 2020, we had no borrowings outstanding under our Revolver.
Our $800 commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding, of reducing available liquidity under the Revolver by an amount equal to the principal amount of commercial paper. As of January 30, 2021 and February 1, 2020, we had no issuances outstanding under our commercial paper program.
In 2018, we fully repaid $47 outstanding on our Puerto Rican unsecured borrowing facility and did not renew the facility upon expiration in the fourth quarter of 2018.
Nordstrom, Inc. and subsidiaries 51
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
NOTE 9: FAIR VALUE MEASUREMENTS
We disclose our financial assets and liabilities that are measured at fair value in our 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 and accounts payable, 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 Level 2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Carrying value of long-term debt
|
$3,269
|
|
|
$2,676
|
|
Fair value of long-term debt
|
3,430
|
|
|
2,905
|
|
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. For more information regarding long-lived tangible and ROU asset impairment charges for the year-ended January 30, 2021, see Note 1: Nature of Operations and Summary of Significant Accounting Policies.
NOTE 10: COMMITMENTS AND CONTINGENCIES
Our estimated total purchase obligations, which primarily consist of capital expenditure commitments and inventory purchase orders, were $2,035 as of January 30, 2021. In connection with the purchase of foreign merchandise, we have no outstanding trade letters of credit as of January 30, 2021.
Our NYC flagship store opened in October 2019 and the related building and equipment assets were placed into service as of 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 January 30, 2021, we have a fee interest in the retail condominium unit. We are committed to make one remaining 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.
NOTE 11: SHAREHOLDERS’ EQUITY
The following is a summary of the activity related to our share repurchase programs in 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Average price
per share
|
|
Amount
|
Capacity at February 3, 2018
|
|
|
|
|
$414
|
|
August 2018 authorization (no expiration)
|
|
|
|
|
1,500
|
|
Shares repurchased
|
14.3
|
|
|
$49
|
|
|
(702)
|
|
Expiration of unused February 2017 authorization capacity in August 2018
|
|
|
|
|
(319)
|
|
Capacity at February 2, 2019
|
|
|
|
|
893
|
|
|
|
|
|
|
|
Shares repurchased
|
4.1
|
|
|
$45
|
|
|
(186)
|
|
Capacity at February 1, 2020
|
|
|
|
|
707
|
|
|
|
|
|
|
|
Shares repurchased
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Capacity at January 30, 2021
|
|
|
|
|
$707
|
|
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
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. 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.
The amendment to our Revolver contains negative covenants with respect to the payment of dividends and share repurchases when either our Leverage Ratio is above 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. As of January 30, 2021, our Leverage Ratio exceeded four and we did not meet our credit rating covenant, preventing us from paying dividends or repurchasing shares.
We paid dividends of $0.37 in 2020 and $1.48 per share in 2019 and 2018.
NOTE 12: STOCK-BASED COMPENSATION
Under our deferred and stock-based compensation plan arrangements, we issued 2.2, 2.1 and 4.9 shares of common stock
in 2020, 2019 and 2018. Under the 2019 Plan, the aggregate number of shares to be issued may not exceed 9.5 plus any shares currently outstanding under the 2010 Plan that are forfeited or expire during the term of the 2019 Plan. As of January 30, 2021, we have 24.5 shares authorized, 16.2 shares issued and outstanding and 18.3 shares remaining available for future grants under the 2019 Plan.
Under the ESPP, employees may make payroll deductions of up to 10% of their base and bonus compensation for the purchase of Nordstrom common stock. At the end of each six-month offering period, participants apply their accumulated payroll deductions toward the purchase of shares of our common stock at 90% of the fair market value on the last day of the offer period. As of January 30, 2021, we had 12.6 shares authorized and 3.8 shares available for issuance under the ESPP. We issued 1.0 and 0.5 shares under the ESPP during 2020 and 2019. At the end of 2020 and 2019, we had current liabilities of $5 for future purchases of shares under the ESPP.
During the year, we cancelled the grant of PSU awards to employees due to negative financial impacts of the COVID-19 pandemic and we therefore had no financial impacts from these awards during the year.
The following table summarizes our stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
RSUs
|
$53
|
|
|
$49
|
|
|
$71
|
|
Stock options
|
12
|
|
|
11
|
|
|
12
|
|
Other1
|
2
|
|
|
9
|
|
|
7
|
|
Total stock-based compensation expense, before income tax benefit
|
67
|
|
|
69
|
|
|
90
|
|
Income tax benefit
|
(26)
|
|
|
(18)
|
|
|
(23)
|
|
Total stock-based compensation expense, net of income tax benefit
|
$41
|
|
|
$51
|
|
|
$67
|
|
1 Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards.
The stock-based compensation expense before income tax benefit was recorded in our Consolidated Statements of Earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Cost of sales and related buying and occupancy costs
|
$16
|
|
|
$20
|
|
|
$28
|
|
SG&A expenses
|
51
|
|
|
49
|
|
|
62
|
|
Total stock-based compensation expense, before income tax benefit
|
$67
|
|
|
$69
|
|
|
$90
|
|
Restricted Stock
Our Compensation, People and Culture Committee of our Board of Directors approves grants of restricted stock units to employees. The number of units granted to an individual are determined based upon a percentage of the recipient’s base salary and the fair value of the restricted stock. Restricted stock units typically vest over four years.
Nordstrom, Inc. and subsidiaries 53
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
A summary of restricted stock unit activity for 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
Shares
|
|
Weighted-average grant date fair value per unit
|
Outstanding, beginning of year
|
3.2
|
|
|
$44
|
|
Granted
|
3.6
|
|
|
21
|
|
Vested
|
(1.2)
|
|
|
51
|
|
Forfeited or cancelled
|
(0.8)
|
|
|
31
|
|
Outstanding, end of year
|
4.8
|
|
|
$37
|
|
The aggregate fair value of restricted stock units vested during 2020, 2019 and 2018 was $44, $65 and $54. As of January 30, 2021, the total unrecognized stock-based compensation expense related to nonvested restricted stock units was $74, which is expected to be recognized over a weighted-average period of 25 months.
Stock Options
Our Compensation, People and Culture Committee of our Board of Directors approves grants of nonqualified stock options to employees. We used the following assumptions to estimate the fair value for stock options at each grant date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year1
|
|
2020
|
|
|
|
|
|
2019
|
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate: Represents the yield on U.S. Treasury zero-coupon securities that mature over the 10-year life of the stock options.
|
|
|
|
0.18% – 0.62%
|
|
|
|
|
|
2.5% – 2.7%
|
|
Weighted-average volatility: Based on a combination of the historical volatility of our common stock and the implied volatility of exchange-traded options for our common stock.
|
|
|
|
60.1
|
%
|
|
|
|
|
|
34.6
|
%
|
|
Weighted-average expected dividend yield: Our forecasted dividend yield for the next 10 years.
|
|
|
|
3.4
|
%
|
|
|
|
|
|
1.9
|
%
|
|
Expected life in years: Represents the estimated period of time until option exercise. The expected term of options granted was derived from the output of the Binomial Lattice option valuation model and was based on our historical exercise behavior, taking into consideration the contractual term of the option and our employees’ expected exercise and post-vesting employment termination behavior.
|
|
|
|
7.7
|
|
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date Information
|
|
|
|
|
|
|
|
|
|
|
|
Date of grant
|
|
|
|
June 1, 2020
|
|
|
|
|
|
March 5, 2019
|
|
Weighted-average fair value per option
|
|
|
|
$7
|
|
|
|
|
|
|
$15
|
|
|
Exercise price per option
|
|
|
|
$17
|
|
|
|
|
|
|
$45
|
|
1 There were no stock options granted in 2018.
Additional nonqualified stock options were also granted to certain company leaders on August 27, 2020 at an exercise price per option of $15. The assumptions used to estimate the fair value for the additional stock options were similar to the grant assumptions presented above. In 2020, we also granted stock options to certain qualified employees outside of the June and August grant dates, which were insignificant in aggregate. The number of awards granted to an individual are determined based upon target award amounts and fair value of stock options at the time of grant. Our options primarily vest equally over a four year period or at the end of two years, and expire ten years after the date of grant.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
A summary of stock option activity for 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
Shares
|
|
Weighted-
average
exercise price
|
|
Weighted-average
remaining
contractual
life (years)
|
|
Aggregate
intrinsic
value
|
Outstanding, beginning of year
|
8.3
|
|
|
$53
|
|
|
|
|
|
Granted
|
3.9
|
|
|
16
|
|
|
|
|
|
Exercised
|
(0.2)
|
|
|
34
|
|
|
|
|
|
Forfeited or cancelled
|
(1.0)
|
|
|
53
|
|
|
|
|
|
Outstanding, end of year
|
11.0
|
|
|
$40
|
|
|
6
|
|
$52
|
|
Vested, end of year
|
6.3
|
|
|
$54
|
|
|
3
|
|
$117
|
|
Vested or expected to vest, end of year
|
10.9
|
|
|
$40
|
|
|
6
|
|
$51
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
|
|
2020
|
|
2019
|
|
2018
|
Aggregate intrinsic value of options exercised
|
|
|
$1
|
|
|
$5
|
|
|
$67
|
|
Fair value of stock options vested
|
|
|
$8
|
|
|
$17
|
|
|
$22
|
|
As of January 30, 2021, the total unrecognized stock-based compensation expense related to nonvested stock options was $24, which is expected to be recognized over a weighted-average period of 20 months.
NOTE 13: INCOME TAXES
U.S. and foreign components of earnings before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
2019
|
|
|
2018
|
|
U.S.
|
($1,210)
|
|
|
$654
|
|
|
$792
|
|
Foreign
|
(18)
|
|
|
28
|
|
|
(59)
|
|
(Loss) earnings before income taxes
|
($1,228)
|
|
|
$682
|
|
|
$733
|
|
|
|
|
|
|
|
Income tax expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current income taxes:
|
|
|
|
|
|
Federal
|
($501)
|
|
|
$90
|
|
|
$147
|
|
State and local
|
(34)
|
|
|
44
|
|
|
56
|
|
Foreign
|
4
|
|
|
—
|
|
|
—
|
|
Total current income tax (benefit) expense
|
(531)
|
|
|
134
|
|
|
203
|
|
Deferred income taxes:
|
|
|
|
|
|
Federal
|
47
|
|
|
43
|
|
|
(5)
|
|
State and local
|
(57)
|
|
|
3
|
|
|
(3)
|
|
Foreign
|
3
|
|
|
6
|
|
|
(26)
|
|
Total deferred income tax (benefit) expense
|
(7)
|
|
|
52
|
|
|
(34)
|
|
Total income tax (benefit) expense
|
($538)
|
|
|
$186
|
|
|
$169
|
|
Nordstrom, Inc. and subsidiaries 55
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
|
2019
|
|
|
2018
|
|
Statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
CARES Act impact
|
17.6
|
%
|
|
—
|
|
|
—
|
|
Tax Act impact
|
—
|
|
|
—
|
|
|
(0.1
|
%)
|
State and local income taxes, net of federal income taxes
|
6.1
|
%
|
|
5.4
|
%
|
|
5.8
|
%
|
Federal credits
|
0.5
|
%
|
|
(0.9
|
%)
|
|
(1.5
|
%)
|
Valuation allowance release
|
—
|
|
|
—
|
|
|
(1.2
|
%)
|
Other, net
|
(1.4
|
%)
|
|
1.8
|
%
|
|
(0.9
|
%)
|
Effective tax rate
|
43.8
|
%
|
|
27.3
|
%
|
|
23.1
|
%
|
|
|
|
|
|
|
The components of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Deferred tax assets:
|
|
|
|
Lease liabilities
|
$505
|
|
|
$555
|
|
Compensation and benefits accruals
|
139
|
|
|
145
|
|
Allowance for sales returns
|
43
|
|
|
47
|
|
Accrued expenses
|
28
|
|
|
29
|
|
Merchandise inventories
|
22
|
|
|
20
|
|
Gift cards
|
10
|
|
|
39
|
|
The Nordy Club loyalty program
|
19
|
|
|
10
|
|
Net operating losses
|
72
|
|
|
33
|
|
Other
|
23
|
|
|
5
|
|
Total deferred tax assets
|
861
|
|
|
883
|
|
Valuation allowance
|
(24)
|
|
|
(41)
|
|
Total net deferred tax assets
|
837
|
|
|
842
|
|
Deferred tax liabilities:
|
|
|
|
ROU assets
|
(337)
|
|
|
(377)
|
|
Land, property and equipment
|
(341)
|
|
|
(312)
|
|
Debt exchange premium
|
(12)
|
|
|
(13)
|
|
Total deferred tax liabilities
|
(690)
|
|
|
(702)
|
|
Net deferred tax assets
|
$147
|
|
|
$140
|
|
The following sets forth information on approximate net operating loss carryforwards for income tax purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
State
|
$1,036
|
|
|
$25
|
|
Foreign
|
54
|
|
|
102
|
|
The net operating loss carryforwards are subject to certain statutory limitations of applicable state and foreign laws. If not utilized, a portion of our state and foreign net operating loss carryforwards will begin to expire in 2024 and 2033.
As of January 30, 2021 and February 1, 2020, we believe there are certain foreign net operating loss carryforwards and deferred tax assets that will not be realized in the foreseeable future. As such, valuation allowances of $24 and $41 have been recorded as of January 30, 2021 and February 1, 2020. The net change in valuation allowance for 2020 and 2019 was a decrease of $17 and $2.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Unrecognized tax benefit at beginning of year
|
$22
|
|
|
$30
|
|
|
$31
|
|
Gross increase to tax positions in prior periods
|
4
|
|
|
—
|
|
|
9
|
|
Gross decrease to tax positions in prior periods
|
—
|
|
|
—
|
|
|
(14)
|
|
Gross increase to tax positions in current period
|
6
|
|
|
3
|
|
|
6
|
|
Lapses in statute
|
—
|
|
|
(1)
|
|
|
(2)
|
|
Settlements
|
—
|
|
|
(10)
|
|
|
—
|
|
Unrecognized tax benefit at end of year
|
$32
|
|
|
$22
|
|
|
$30
|
|
At the end of 2020 and 2019, $30 and $22 of the ending gross unrecognized tax benefit related to items which, if recognized, would affect the effective tax rate.
There was no material expense for interest and penalties in 2020, 2019 and 2018. At the end of 2020 and 2019, our liability for interest and penalties was $4 and $3.
We file income tax returns in the U.S. and a limited number of foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations for years before 2012. As of January 30, 2021, we believe it is reasonably possible unrecognized tax benefits related to federal, state and local tax positions may decrease $18 by January 29, 2022, due to the completion of examinations and the expiration of various statutes of limitations.
NOTE 14: EARNINGS PER SHARE
Earnings per basic share is computed using the weighted-average number of common shares outstanding during the year. Earnings per diluted share uses the weighted-average number of common shares outstanding during the year plus dilutive common stock equivalents, primarily RSUs and stock options. Dilutive common stock is calculated using the treasury stock method and includes unvested RSUs and outstanding options that would reduce the amount of earnings for which each share is entitled. Anti-dilutive shares (including stock options and other shares) are excluded from the calculation of diluted shares and earnings per diluted share because their impact could increase earnings per diluted share. The computation of earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
2020
|
|
2019
|
|
2018
|
Net (loss) earnings
|
($690)
|
|
|
$496
|
|
|
$564
|
|
|
|
|
|
|
|
Basic shares
|
157.2
|
|
|
155.2
|
|
|
167.3
|
|
Dilutive effect of common stock equivalents
|
—
|
|
|
0.9
|
|
|
2.7
|
|
Diluted shares
|
157.2
|
|
|
156.1
|
|
|
170.0
|
|
|
|
|
|
|
|
(Loss) earnings per basic share
|
($4.39)
|
|
|
$3.20
|
|
|
$3.37
|
|
(Loss) earnings per diluted share
|
($4.39)
|
|
|
$3.18
|
|
|
$3.32
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents
|
13.5
|
|
|
10.0
|
|
|
5.2
|
|
Nordstrom, Inc. and subsidiaries 57
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
NOTE 15: SEGMENT REPORTING
Segments
We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments. We have one reportable “Retail” segment to align with how management operates and evaluates the results of our operations. Our principal executive officer, who is our CODM, reviews results on a total company, Nordstrom and Nordstrom Rack basis and uses EBIT as a measure of profitability.
Our Retail reportable segment aggregates our two operating segments, Nordstrom and Nordstrom Rack. Nordstrom consists of Nordstrom.com, TrunkClub.com, Nordstrom-branded U.S. stores, Canada, which includes Nordstrom.ca, Nordstrom Canadian stores and Nordstrom Rack Canadian stores, Nordstrom Local and, prior to the second quarter of 2020, Jeffrey. Nordstrom Rack consists of Nordstromrack.com, HauteLook.com, Nordstrom Rack-branded U.S. stores and Last Chance clearance stores.
Our Nordstrom and Nordstrom Rack operating segments both generate revenue by offering customers an extensive selection of high-quality brand-name and private label merchandise focused on apparel, shoes, beauty, accessories and home goods for women, men, young adults and children. We continue to focus on omni-channel initiatives by integrating the operations, merchandising and technology necessary to be consistent with our customers’ expectations of a seamless shopping experience regardless of channel or business. Nordstrom and Nordstrom Rack have historically had similar economic characteristics and are expected to have similar economic characteristics and long-term financial performance in future periods. They also have other similar qualitative characteristics, including suppliers, method of distribution, type of customer and regulatory environment. Due to their similar qualitative and economic characteristics, we have aggregated our Nordstrom and Nordstrom Rack operating segments into a single reportable segment.
Amounts in the Corporate/Other column include unallocated corporate expenses and assets (including unallocated assets in corporate headquarters, consisting primarily of cash, land, buildings and equipment and deferred tax assets), inter-segment eliminations and other adjustments to segment results necessary for the presentation of consolidated financial results in accordance with GAAP.
Accounting Policy
We present our segment results for all years in the way that management views our results internally and the accounting policies of the operating segments are the same as those described in Note 1: Nature of Operations and Summary of Significant Accounting Policies.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
The following table sets forth information for our reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
Corporate/Other
|
|
Total
|
Fiscal year 2020
|
|
|
|
|
|
Net sales
|
$10,357
|
|
|
$—
|
|
|
$10,357
|
|
Credit card revenues, net
|
—
|
|
|
358
|
|
|
358
|
|
Loss before interest and income taxes
|
(924)
|
|
|
(123)
|
|
|
(1,047)
|
|
Interest expense, net
|
—
|
|
|
(181)
|
|
|
(181)
|
|
Loss before income taxes
|
(924)
|
|
|
(304)
|
|
|
(1,228)
|
|
Capital expenditures
|
(175)
|
|
|
(210)
|
|
|
(385)
|
|
Depreciation and amortization
|
(404)
|
|
|
(267)
|
|
|
(671)
|
|
Assets
|
6,100
|
|
|
3,438
|
|
|
9,538
|
|
|
|
|
|
|
|
Fiscal year 2019
|
|
|
|
|
|
Net sales
|
$15,132
|
|
|
$—
|
|
|
$15,132
|
|
Credit card revenues, net
|
—
|
|
|
392
|
|
|
392
|
|
Earnings (loss) before interest and income taxes
|
1,028
|
|
|
(244)
|
|
|
784
|
|
Interest expense, net
|
—
|
|
|
(102)
|
|
|
(102)
|
|
Earnings (loss) before income taxes
|
1,028
|
|
|
(346)
|
|
|
682
|
|
Capital expenditures
|
(726)
|
|
|
(209)
|
|
|
(935)
|
|
Depreciation and amortization
|
(428)
|
|
|
(233)
|
|
|
(661)
|
|
Assets1
|
6,831
|
|
|
2,906
|
|
|
9,737
|
|
|
|
|
|
|
|
Fiscal year 2018
|
|
|
|
|
|
Net sales
|
$15,480
|
|
|
$—
|
|
|
$15,480
|
|
Credit card revenues, net
|
—
|
|
|
380
|
|
|
380
|
|
Earnings (loss) before interest and income taxes
|
1,059
|
|
|
(222)
|
|
|
837
|
|
Interest expense, net
|
—
|
|
|
(104)
|
|
|
(104)
|
|
Earnings (loss) before income taxes
|
1,059
|
|
|
(326)
|
|
|
733
|
|
Capital expenditures
|
(415)
|
|
|
(239)
|
|
|
(654)
|
|
Depreciation and amortization
|
(436)
|
|
|
(233)
|
|
|
(669)
|
|
Assets
|
5,300
|
|
|
2,586
|
|
|
7,886
|
|
1 In 2019, we adopted the Lease Standard using the transition method provided in ASU 2018-11. See Note 3: Leases for further information.
For information about disaggregated revenues, see Note 2: Revenue.
Nordstrom, Inc. and subsidiaries 59