SEATTLE--(BUSINESS WIRE)--Nordstrom, Inc. (NYSE:JWN) today reported earnings per diluted share of $0.26 for the first quarter ended April 30, 2016. Total Company net sales increased 2.5 percent while comparable sales decreased 1.7 percent, compared with the same period last year.
First quarter earnings were below the Company's expectations, primarily driven by lower than planned sales and higher markdowns to better align inventory to current trends. First quarter results included a reduction in earnings per diluted share of $0.10 related to higher credit chargeback expenses associated with an industry change in liability rules effective October 2015 in addition to severance charges related to the realignment of corporate support functions.
“Our first quarter results were impacted by lower than expected sales. In response we have made further adjustments to our inventory and expense plans,” said Blake Nordstrom, co-president, Nordstrom, Inc. “As the pace of change in retail continues to accelerate, we remain committed to serving customers by taking steps that will continue to meet their expectations while driving profitable growth.”
FIRST QUARTER SUMMARY
-
First quarter net earnings were $46 million and earnings before
interest and taxes (EBIT) were $106 million, or 3.3 percent of net
sales, compared with net earnings of $128 million and EBIT of $245
million, or 7.9 percent of net sales, during the same period in fiscal
2015.
- Retail EBIT decreased $107 million compared with the same quarter last year, reflecting increased markdowns and higher credit chargeback expenses in addition to planned fulfillment and technology costs supporting the Company's growth initiatives.
- Credit EBIT decreased $32 million related to an expected reduction in net revenue from the revenue sharing program agreement with TD Bank ("TD") beginning in October 2015.
- Total Company net sales of $3.2 billion for the first quarter increased 2.5 percent compared with net sales of $3.1 billion during the same period in fiscal 2015. Total Company comparable sales for the first quarter decreased 1.7 percent.
- Full-price net sales, which consist of U.S. full-line stores and Nordstrom.com, combined with Canada and Trunk Club, decreased 2.2 percent and comparable sales decreased 4.3 percent.
- Across U.S. full-line stores and Nordstrom.com, the top-performing merchandise category was Beauty. The younger customer-focused departments in Women's Apparel continued to reflect strength with positive comparable sales increases. The Midwest was the top-performing full-price geographic region.
- Off-price net sales, which consist of Nordstrom Rack stores and Nordstromrack.com/HauteLook, increased 11.8 percent and comparable sales increased 4.6 percent. The East was the top-performing off-price geographic region.
- Gross profit, as a percentage of net sales, of 34.2 percent decreased 164 basis points compared with the same period in fiscal 2015, primarily due to higher markdowns to better align inventory to current trends. While sales trends were below expectations, we ended the period with inventory growth of 5.4 percent and net sales growth of 2.5 percent resulting in a negative spread of 3 percent, which represents an improvement over the negative spread of 7 percent in the fourth quarter of 2015.
- Selling, general and administrative expenses, as a percentage of net sales, of 32.7 percent increased 149 basis points compared with the same period in fiscal 2015, primarily due to higher credit chargebacks and severance charges in addition to planned fulfillment and technology costs supporting the Company's growth initiatives. With the roll-out of an upgraded point-of-sale system completed in February, the Company anticipates the impact of credit chargebacks to substantially lessen in the second quarter.
- The Nordstrom Rewards loyalty program continued to contribute to overall results, with members shopping more frequently and spending more on average than non-members. The Company opened approximately 240,000 new accounts in the first quarter. With 4.7 million active members, sales from members represented 38 percent of sales. To build on the success of its loyalty program, the Company plans to expand its program with a tender-neutral offering in the second quarter.
- During the first quarter, the Company repurchased 1.0 million shares of its common stock for $50 million. A total of $761 million remains available under its existing share repurchase board authorizations. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission (“SEC”) rules.
- Return on invested capital (ROIC) for the 12 fiscal months ended April 30, 2016 was 10.0 percent compared with 12.2 percent in the prior 12-month period. This decrease was primarily due to reduced earnings. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.
EXPANSION UPDATE
To date in fiscal 2016, the Company relocated one full-line store and opened six Nordstrom Rack stores. The Company opened the following stores in the first quarter of 2016:
| Location | Store Name |
Square |
Timing | |||
| Nordstrom full-line - U.S. | ||||||
| Honolulu, Hawaii1 | Ala Moana Center | 195 | March 11 | |||
| Nordstrom Rack | ||||||
| Lafayette, Louisiana | Ambassador Town Center | 25 | March 10 | |||
| Orem, Utah | University Crossing | 30 | March 10 | |||
| Virginia Beach, Virginia | Pembroke Mall | 34 | March 10 | |||
| Colorado Springs, Colorado | Chapel Hills East | 31 | April 28 | |||
| Folsom, California | Palladio at Broadstone | 33 | April 28 | |||
| Tucson, Arizona | Wilmot Plaza | 25 | April 28 | |||
|
1 Nordstrom relocated its full-line store at Ala Moana Center in Honolulu to another location within the same center. |
||||||
| Number of stores | April 30, 2016 | May 2, 2015 | ||
| Nordstrom full-line - U.S. | 118 | 116 | ||
| Nordstrom full-line - Canada | 3 | 2 | ||
| Nordstrom Rack | 200 | 177 | ||
| Other1 | 8 | 8 | ||
| Total | 329 | 303 | ||
|
1 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. |
||||
| Gross square footage | 28,772,000 | 27,520,000 | ||
FISCAL YEAR 2016 OUTLOOK
The Company updated its annual earnings per diluted share expectations, reflecting its updated sales outlook and expectations for a continued promotional environment. Nordstrom's expectations for fiscal 2016 are as follows:
| Prior Outlook | Current Outlook | |||
| Net sales (percent) | 3.5 to 5.5 increase | 2.5 to 4.5 increase | ||
| Comparable sales (percent) | 0 to 2 increase | 1 decrease to 1 increase | ||
| Retail EBIT (percent) | 3 to 10 increase | 10 to 20 decrease | ||
| Credit EBIT | $70 to $80 million | $70 to $80 million | ||
| Earnings per diluted share (excluding the impact of any future share repurchases) | $3.10 to $3.35 | $2.50 to $2.70 | ||
The Anniversary Sale, which historically is the Company's largest sale event of the year, is planned to start one week later in July relative to last year. This event shift is expected to result in a less favorable comparison in the second quarter, offset by a favorable comparison in the third quarter. Comparable sales are expected to be impacted by approximately 200 basis points in the second quarter and approximately 250 basis points in the third quarter.
CONFERENCE CALL INFORMATION
The Company's senior management will host a conference call to discuss first quarter 2016 results and fiscal 2016 outlook at 4:45 p.m. Eastern Daylight Time today. To listen to the live call online and view the speakers' prepared remarks and the conference call slides, visit the Investor Relations section of the Company's corporate website at http://investor.nordstrom.com. An archived webcast with the speakers' prepared remarks and the conference call slides will be available in the Quarterly Earnings section for one year. Interested parties may also dial 201-689-8354. A telephone replay will be available beginning approximately three hours after the conclusion of the call by dialing 877-660-6853 or 201-612-7415 and entering Conference ID 13635358, until the close of business on May 19, 2016.
ABOUT NORDSTROM
Nordstrom, Inc. is a leading fashion specialty retailer based in the U.S. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 329 stores in 39 states, including 121 full-line stores in the United States, Canada and Puerto Rico; 200 Nordstrom Rack stores; two Jeffrey boutiques; and one clearance store. Additionally, customers are served online through Nordstrom.com, Nordstromrack.com and HauteLook. The Company also owns Trunk Club, a personalized clothing service serving customers online at TrunkClub.com and its five clubhouses. Nordstrom, Inc.'s common stock is publicly traded on the NYSE under the symbol JWN.
Certain statements in this news release contain or may suggest "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial outlook for the fiscal year ending January 28, 2017, anticipated annual total and comparable sales rates, anticipated new store openings in existing, new and international markets, anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: successful execution of our customer strategy, including expansion into new domestic and international markets, acquisitions, investments in our stores and online as well as investments in technology, our ability to realize the anticipated benefits from growth initiatives and our ability to provide a seamless experience across all channels; timely and effective execution of our ecommerce initiatives and ability to manage the costs and organizational changes associated with this evolving business model; timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties; our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders; effective inventory management processes and systems, fulfillment processes and systems, disruptions in our supply chain and our ability to control costs; the impact of any systems failures, cybersecurity and/or security breaches, including any security breach of our systems or those of a third-party provider that results in the theft, transfer or unauthorized disclosure of customer, employee or Company information or compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; our ability to effectively utilize data in strategic planning and decision making; efficient and proper allocation of our capital resources; our ability to realize the expected benefits, respond to potential risks and appropriately manage potential costs associated with our program agreement with TD; our ability to safeguard our reputation and maintain our vendor relationships; our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online, and evolve our business model; the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry; the timing, price, manner and amounts of share repurchases by the Company, if any, or any share issuances by the Company, including issuances associated with option exercises or other matters; the impact of economic and market conditions and the resultant impact on consumer spending patterns; weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the resulting impact on consumer spending patterns; our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to banking, employment and tax and the outcome of claims and litigation and resolution of such matters; impact of the current regulatory environment and financial system and health care reforms; and compliance with debt covenants, availability and cost of credit, changes in our credit rating, changes in interest rates, debt repayment patterns and personal bankruptcies. Our SEC reports, including our Form 10-K for the fiscal year ended January 30, 2016, contain other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
|
NORDSTROM, INC. |
||||||||
| Quarter Ended | ||||||||
| April 30, 2016 | May 2, 2015 | |||||||
| Net sales | $ | 3,192 | $ | 3,115 | ||||
| Credit card revenues, net | 57 | 100 | ||||||
| Total revenues | 3,249 | 3,215 | ||||||
| Cost of sales and related buying and occupancy costs | (2,100 | ) | (1,999 | ) | ||||
| Selling, general and administrative expenses | (1,043 | ) | (971 | ) | ||||
| Earnings before interest and income taxes | 106 | 245 | ||||||
| Interest expense, net | (31 | ) | (33 | ) | ||||
| Earnings before income taxes | 75 | 212 | ||||||
| Income tax expense | (29 | ) | (84 | ) | ||||
| Net earnings | $ | 46 | $ | 128 | ||||
| Earnings per share: | ||||||||
| Basic | $ | 0.27 | $ | 0.67 | ||||
| Diluted | $ | 0.26 | $ | 0.66 | ||||
| Weighted-average shares outstanding: | ||||||||
| Basic | 173.1 | 190.6 | ||||||
| Diluted | 175.7 | 194.9 | ||||||
|
NORDSTROM, INC. |
||||||||||||
| April 30, 2016 | January 30, 2016 | May 2, 2015 | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 470 | $ | 595 | $ | 769 | ||||||
| Accounts receivable, net | 224 | 196 | 2,266 | |||||||||
| Merchandise inventories | 2,125 | 1,945 | 2,017 | |||||||||
| Current deferred tax assets, net | — | — | 256 | |||||||||
| Prepaid expenses and other | 173 | 278 | 110 | |||||||||
| Total current assets | 2,992 | 3,014 | 5,418 | |||||||||
| Land, property and equipment (net of accumulated depreciation of $5,170, $5,108 and $4,793) | 3,789 | 3,735 | 3,445 | |||||||||
| Goodwill | 435 | 435 | 447 | |||||||||
| Other assets | 483 | 514 | 252 | |||||||||
| Total assets | $ | 7,699 | $ | 7,698 | $ | 9,562 | ||||||
| Liabilities and Shareholders' Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 1,456 | $ | 1,324 | $ | 1,573 | ||||||
| Accrued salaries, wages and related benefits | 320 | 416 | 312 | |||||||||
| Other current liabilities | 1,150 | 1,161 | 1,057 | |||||||||
| Current portion of long-term debt | 10 | 10 | 8 | |||||||||
| Total current liabilities | 2,936 | 2,911 | 2,950 | |||||||||
| Long-term debt, net | 2,776 | 2,795 | 3,138 | |||||||||
| Deferred property incentives, net | 536 | 540 | 540 | |||||||||
| Other liabilities | 576 | 581 | 379 | |||||||||
| Commitments and contingencies | ||||||||||||
| Shareholders' equity: | ||||||||||||
| Common stock, no par value: 1,000 shares authorized; 173.4, 173.5 and 191.0 shares issued and outstanding | 2,582 | 2,539 | 2,422 | |||||||||
| (Accumulated deficit) Retained earnings | (1,677 | ) | (1,610 | ) | 190 | |||||||
| Accumulated other comprehensive loss | (30 | ) | (58 | ) | (57 | ) | ||||||
| Total shareholders' equity | 875 | 871 | 2,555 | |||||||||
| Total liabilities and shareholders' equity | $ | 7,699 | $ | 7,698 | $ | 9,562 | ||||||
|
NORDSTROM, INC. |
||||||||
| Quarter Ended | ||||||||
| April 30, 2016 | May 2, 2015 | |||||||
| Operating Activities | ||||||||
| Net earnings | $ | 46 | $ | 128 | ||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
| Depreciation and amortization expenses | 155 | 137 | ||||||
| Amortization of deferred property incentives and other, net | (17 | ) | (22 | ) | ||||
| Deferred income taxes, net | 6 | (10 | ) | |||||
| Stock-based compensation expense | 20 | 19 | ||||||
| Tax benefit from stock-based compensation | — | 10 | ||||||
| Excess tax benefit from stock-based compensation | (1 | ) | (10 | ) | ||||
| Bad debt expense | — | 10 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (27 | ) | 16 | |||||
| Merchandise inventories | (212 | ) | (248 | ) | ||||
| Prepaid expenses and other assets | 94 | (11 | ) | |||||
| Accounts payable | 192 | 239 | ||||||
| Accrued salaries, wages and related benefits | (100 | ) | (106 | ) | ||||
| Other current liabilities | (6 | ) | 1 | |||||
| Deferred property incentives | 13 | 50 | ||||||
| Other liabilities | 8 | 5 | ||||||
| Net cash provided by operating activities | 171 | 208 | ||||||
| Investing Activities | ||||||||
| Capital expenditures | (205 | ) | (259 | ) | ||||
| Change in credit card receivables originated at third parties | — | 16 | ||||||
| Other, net | 31 | 4 | ||||||
| Net cash used in investing activities | (174 | ) | (239 | ) | ||||
| Financing Activities | ||||||||
| Proceeds from long-term borrowings, net of discounts | — | 16 | ||||||
| Principal payments on long-term borrowings | (2 | ) | (2 | ) | ||||
| Decrease in cash book overdrafts | (33 | ) | (10 | ) | ||||
| Cash dividends paid | (63 | ) | (71 | ) | ||||
| Payments for repurchase of common stock | (50 | ) | (28 | ) | ||||
| Proceeds from issuances under stock compensation plans | 28 | 58 | ||||||
| Excess tax benefit from stock-based compensation | 1 | 10 | ||||||
| Other, net | (3 | ) | — | |||||
| Net cash used in financing activities | (122 | ) | (27 | ) | ||||
| Net decrease in cash and cash equivalents | (125 | ) | (58 | ) | ||||
| Cash and cash equivalents at beginning of period | 595 | 827 | ||||||
| Cash and cash equivalents at end of period | $ | 470 | $ | 769 | ||||
NORDSTROM, INC.
STATEMENTS OF
EARNINGS — RETAIL BUSINESS
(unaudited; dollar amounts in
millions)
Retail Business
Our Retail Business includes our Nordstrom-branded full-line stores and online store, Nordstrom Rack stores, Nordstromrack.com/HauteLook, Trunk Club, Jeffrey and our Last Chance clearance store. It also includes unallocated corporate center expenses. The following table summarizes the results of our Retail Business for the first quarter ended 2016 compared with the same period in 2015:
| Quarter Ended | ||||||||||||||
| April 30, 2016 | May 2, 2015 | |||||||||||||
| Amount | % of net sales1 | Amount | % of net sales1 | |||||||||||
| Net sales | $ | 3,192 | 100.0 | % | $ | 3,115 | 100.0 | % | ||||||
| Cost of sales and related buying and occupancy costs | (2,099 | ) | (65.8 | %) | (1,997 | ) | (64.1 | %) | ||||||
| Gross profit | 1,093 | 34.2 | % | 1,118 | 35.9 | % | ||||||||
| Selling, general and administrative expenses | (1,003 | ) | (31.4 | %) | (921 | ) | (29.6 | %) | ||||||
| Earnings before interest and income taxes | 90 | 2.8 | % | 197 | 6.3 | % | ||||||||
|
1 Subtotals and totals may not foot due to rounding. |
||||||||||||||
The following table summarizes net sales within our Retail Business:
| Quarter Ended | ||||||||||||||
| April 30, 2016 | May 2, 2015 | |||||||||||||
| Sales | Comp % | Sales | Comp % | |||||||||||
| Nordstrom full-line stores - U.S. | $ | 1,582 | (7.7 | %) | $ | 1,699 | 0.5 | % | ||||||
| Nordstrom.com | 495 | 3.1 | % | 480 | 19.8 | % | ||||||||
| Full-price | 2,077 | (5.4 | %) | 2,179 | 4.2 | % | ||||||||
| Nordstrom Rack | 894 | (0.8 | %) | 831 | (0.2 | %) | ||||||||
| Nordstromrack.com/HauteLook | 166 | 41.8 | % | 117 | 51.2 | % | ||||||||
| Off-price | 1,060 | 4.6 | % | 948 | 4.9 | % | ||||||||
| Other retail1 | 121 | 64 | ||||||||||||
| Total Retail segment | 3,258 | 3,191 | ||||||||||||
| Corporate/Other | (66 | ) | (76 | ) | ||||||||||
| Total net sales | $ | 3,192 | (1.7 | %) | $ | 3,115 | 4.4 | % | ||||||
|
1 Other retail includes Nordstrom Canada full-line stores, Trunk Club and Jeffrey boutiques. |
||||||||||||||
NORDSTROM, INC.
STATEMENTS OF
EARNINGS — CREDIT
(unaudited; dollar amounts in millions)
Credit
On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. Prior to the close of the credit card receivable transaction, credit card revenues included finance charges, interchange fees, late fees and other revenue, recorded net of estimated uncollectible finance charges and fees. We continue to recognize revenue in this manner for the credit card receivables retained subsequent to the close of the transaction.
Following the close of the transaction and pursuant to the program agreement with TD, we receive our portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables, which is recorded in credit card revenues, net. Asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the transaction are also recorded in credit card revenues, net.
The following tables summarize the results of our Credit segment for the first quarter ended 2016 compared with the same period in 2015:
| Quarter Ended | ||||||||||
| April 30, 2016 | May 2, 2015 | |||||||||
| Credit card revenues, net | $ | 57 | $ | 100 | ||||||
| Credit expenses | (41 | ) | (52 | ) | ||||||
| Earnings before interest and income taxes | 16 | 48 | ||||||||
| Interest expense | — | (5 | ) | |||||||
| Earnings before income taxes | $ | 16 | $ | 43 | ||||||
| Quarter Ended | ||||||||||
| April 30, 2016 | May 2, 2015 | |||||||||
| Allowance at beginning of period | $ | 1 | $ | 75 | ||||||
| Bad debt expense | — | 10 | ||||||||
| Write-offs | — | (19 | ) | |||||||
| Recoveries | — | 4 | ||||||||
| Allowance at end of period | $ | 1 | $ | 70 | ||||||
| Annualized net write-offs as a percentage of average credit card receivables1 | N/A | 2.6 | % | |||||||
| 30 days or more delinquent as a percentage of ending credit card receivables1 | N/A | 1.8 | % | |||||||
|
1 Metrics for the current period are no longer meaningful given the balance of our remaining accounts receivables, net. |
||||||||||
NORDSTROM, INC.
RETURN ON INVESTED
CAPITAL (NON-GAAP FINANCIAL MEASURE)
(unaudited; dollar
amounts in millions)
We believe ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important component of shareholders' return over the long term. In addition, we incorporate ROIC in our executive incentive compensation measures. For the 12 fiscal months ended April 30, 2016, our ROIC decreased to 10.0% compared with 12.2% for the 12 fiscal months ended May 2, 2015, primarily due to reduced earnings.
We define ROIC as our net operating profit after tax divided by our average invested capital using the trailing 12-month average. ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to ROIC is return on assets. The following is a reconciliation of the components of ROIC and return on assets:
| 12 Fiscal Months Ended | ||||||||
| April 30, 2016 | May 2, 2015 | |||||||
| Net earnings | $ | 518 | $ | 709 | ||||
| Add: income tax expense | 321 | 459 | ||||||
| Add: interest expense | 123 | 136 | ||||||
| Earnings before interest and income tax expense | 962 | 1,304 | ||||||
| Add: rent expense | 182 | 143 | ||||||
| Less: estimated depreciation on capitalized operating leases1 | (96 | ) | (76 | ) | ||||
| Net operating profit | 1,048 | 1,371 | ||||||
| Less: estimated income tax expense | (402 | ) | (539 | ) | ||||
| Net operating profit after tax | $ | 646 | $ | 832 | ||||
| Average total assets | $ | 8,719 | $ | 9,069 | ||||
| Less: average non-interest-bearing current liabilities | (3,039 | ) | (2,806 | ) | ||||
| Less: average deferred property incentives | (552 | ) | (510 | ) | ||||
| Add: average estimated asset base of capitalized operating leases2 | 1,312 | 1,085 | ||||||
| Average invested capital | $ | 6,440 | $ | 6,838 | ||||
| Return on assets | 5.9 | % | 7.8 | % | ||||
| ROIC | 10.0 | % | 12.2 | % | ||||
1 Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property. Asset base is calculated as described in footnote 2 below.
2 Based upon the trailing 12-month average of the monthly asset base. The asset base for each month is calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1.
NORDSTROM, INC.
ADJUSTED DEBT TO
EBITDAR (NON-GAAP FINANCIAL MEASURE)
(unaudited; dollar
amounts in millions)
Adjusted Debt to earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of less than four times. As of April 30, 2016, our Adjusted Debt to EBITDAR was 2.4, compared with 2.1 as of May 2, 2015. This increase was primarily driven by reduced earnings.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted Debt to EBITDAR is debt to net earnings. The following is a reconciliation of the components of Adjusted Debt to EBITDAR and debt to net earnings:
|
20161 |
20151 |
|||||||||
| Debt | $ | 2,786 | $ | 3,146 | ||||||
| Add: estimated capitalized operating lease liability2 | 1,459 | 1,147 | ||||||||
| Less: fair value hedge adjustment included in long-term debt | (21 | ) | (33 | ) | ||||||
| Adjusted Debt | $ | 4,224 | $ | 4,260 | ||||||
| Net earnings | $ | 518 | $ | 709 | ||||||
| Add: income tax expense | 321 | 459 | ||||||||
| Add: interest expense, net | 123 | 136 | ||||||||
| Earnings before interest and income taxes | 962 | 1,304 | ||||||||
| Add: depreciation and amortization expenses | 593 | 526 | ||||||||
| Add: rent expense | 182 | 143 | ||||||||
| Add: non-cash acquisition-related charges | 9 | 14 | ||||||||
| EBITDAR | $ | 1,746 | $ | 1,987 | ||||||
| Debt to Net Earnings | 5.4 | 4.4 | ||||||||
| Adjusted Debt to EBITDAR | 2.4 | 2.1 | ||||||||
1 The components of Adjusted Debt are as of April 30, 2016 and May 2, 2015, while the components of EBITDAR are for the 12 months ended April 30, 2016 and May 2, 2015.
2 Based upon the estimated lease liability as of the end of the period, calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property.
NORDSTROM, INC.
FREE CASH FLOW
(NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in
millions)
Free Cash Flow is one of our key liquidity measures, and when used in conjunction with GAAP measures, provides investors with a meaningful analysis of our ability to generate cash from our business. For the first quarter ended 2016, we had negative Free Cash Flow of ($130) compared with ($116) for the first quarter ended 2015.
Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
| Quarter Ended | ||||||||
| April 30, 2016 | May 2, 2015 | |||||||
| Net cash provided by operating activities | $ | 171 | $ | 208 | ||||
| Less: capital expenditures | (205 | ) | (259 | ) | ||||
| Less: cash dividends paid | (63 | ) | (71 | ) | ||||
| Add: change in credit card receivables originated at third parties | — | 16 | ||||||
| Less: change in cash book overdrafts | (33 | ) | (10 | ) | ||||
| Free Cash Flow | $ | (130 | ) | $ | (116 | ) | ||
| Net cash used in investing activities | $ | (174 | ) | $ | (239 | ) | ||
| Net cash used in financing activities | (122 | ) | (27 | ) | ||||
