Hi guys I’am sharing my previous assigment as an attachment and Nordstrom INC 10K
In Module 3, you will focus on the task of evaluating investment opportunities. Investment analysis is simply a process of identifying risks and opportunities, developing and analyzing viable alternative courses of action, and making recommendations. Ideally an investment is desirable if the net present value (NPV) of its projected future incremental cash flows is greater than zero, when discounted at the estimated current risk-adjusted cost of capital. When choosing among multiple potential investments, the one with the highest NPV is preferable.
Sheet1
Sahvelet, Sehmus: Sahvelet, Sehmus:
Not:In the Most likely scenario, it is assumed that income and expense will increase according to the average of past years.
Sahvelet, Sehmus: Sahvelet, Sehmus:
The best case scenario is aimed at increasing the income compared to the previous years and decreasing the cost. The reason for this is that one of the important competitors leaves the market and the cost of internet sales is lower than normal sales. The rate of increase in Income tax expencese has been determined according to the company’s income tax rate in the past years.
Not:In the Most likely scenario, it is assumed that income and expense will increase according to the average of past years.
16
Fiscal Year 2016 2017 2018 2019 2020 2021
Net Sales 14,498 15,137 15,480
Credit Card Revenues, Net 259 341 380
Total Revenues 14,757 15,478 15,860
Total Revenue increase by percantage – 4.9% 2.5%
Cost of Sales and related buying and Occupancy Cost 9,440 9,890 10,155
Selling, general and administrative (“SG&A”) expenses 4,315 4,662 4,868
0 0 0 0 0 Goodwill Impairment 197 0 0 0 0 0
Earnings before interest and income taxes (“EBIT”) 805 926 837
121
Interest expense, net 121 136 104
790 837 Earning before income taxes 684 790 733
–
3.4% 3.1% 3.1% Total cost increase by percentage except income tax expense – 4.2% 2.9%
Income tax expense 330 353 169 406
Net earnings 354 437 564 609
Profit Margin 2.40% 2.82% 3.56%
https://www.businessinsider.com/sears-to-close-96-more-stores-kmart-list-sears-transformco-2019-11
https://www.statista.com/statistics/1057374/department-store-retailers-market-share-united-states/
https://shop.nordstrom.com/c/about-us
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193
4
For the fiscal year ended February 2, 2019
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19
34
For the transition period from ___________ to___________
Commission file number 001-15059
NORDSTROM, INC.
(Exact name of registrant as specified in its charter)
Washington 91-051505
8
State or other jurisdiction of
incorporation or organization
(I.R.S. Employer
Identification No.)
1617 Sixth Avenue, Seattle, Washington 98101
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (206) 628-2111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common stock, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
40
5 of the Securities Act. YES þ NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES þ NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO þ
As of August 3, 2018 the aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates of the Registrant was
approximately $6.6 billion using the closing sales price on that day of $50.58. On March 11, 2019, 155,002,755 shares of common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2019 Annual Meeting of Shareholders scheduled to be held on May 23, 2019 are incorporated into
Part III.
Nordstrom, Inc. and subsidiaries 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 2019
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to___________
Commission file number 001-15059
NORDSTROM, INC.
(Exact name of registrant as specified in its charter)
Washington 91-05150
58
State or other jurisdiction of
incorporation or organization
(I.R.S. Employer
Identification No.)
1617 Sixth Avenue, Seattle, Washington 98101
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (206) 628-2111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common stock, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES þ NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO þ
As of August 3, 2018 the aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates of the Registrant was
approximately $6.6 billion using the closing sales price on that day of $50.58. On March 11, 2019, 155,002,755 shares of common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2019 Annual Meeting of Shareholders scheduled to be held on May 23, 2019 are incorporated into
Part III.
Nordstrom, Inc. and subsidiaries 1
[This page intentionally left blank.]
TABLE OF CONTENTS
Page
Forward-Looking Statements 4
PART I
Item 1. Business.
6
Item 1A. Risk Factors. 9
Item 1B. Unresolved Staff Comments.
14
Item 2. Properties. 14
Item 3. Legal Proceedings.
16
Item 4. Mine Safety Disclosures. 16
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. 17
Item 6. Selected Financial Data. 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 2
0
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 34
Item 8. Financial Statements and Supplementary Data. 35
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 63
Item 9A. Controls and Procedures. 63
Item 9B. Other Information. 65
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 65
Item 11. Executive Compensation. 65
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. 65
Item 13. Certain Relationships and Related Transactions, and Director Independence. 65
Item 14. Principal Accounting Fees and Services. 65
PART IV
Item 15. Exhibits, Financial Statement Schedules.
66
Exhibit Index 67
Signatures
72
Consent of Independent Registered Public Accounting Firm 73
Nordstrom, Inc. and subsidiaries 3
TABLE OF CONTENTS
Page
Forward-Looking Statements 4
PART I
Item 1. Business. 6
Item 1A. Risk Factors. 9
Item 1B. Unresolved Staff Comments. 14
Item 2. Properties. 14
Item 3. Legal Proceedings. 16
Item 4. Mine Safety Disclosures. 16
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. 17
Item 6. Selected Financial Data. 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 34
Item 8. Financial Statements and Supplementary Data. 35
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 63
Item 9A. Controls and Procedures. 63
Item 9B. Other Information. 65
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 65
Item 11. Executive Compensation. 65
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. 65
Item 13. Certain Relationships and Related Transactions, and Director Independence. 65
Item 14. Principal Accounting Fees and Services. 65
PART IV
Item 15. Exhibits, Financial Statement Schedules. 66
Exhibit Index 67
Signatures 72
Consent of Independent Registered Public Accounting Firm 73
Nordstrom, Inc. and subsidiaries 3
[This page intentionally left blank.]
TABLE OF CONTENTS
Page
Forward-Looking Statements 4
PART I
Item 1. Business. 6
Item 1A. Risk Factors. 9
Item 1B. Unresolved Staff Comments. 14
Item 2. Properties. 14
Item 3. Legal Proceedings. 16
Item 4. Mine Safety Disclosures. 16
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. 17
Item 6. Selected Financial Data. 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 34
Item 8. Financial Statements and Supplementary Data. 35
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 63
Item 9A. Controls and Procedures. 63
Item 9B. Other Information. 65
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 65
Item 11. Executive Compensation. 65
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. 65
Item 13. Certain Relationships and Related Transactions, and Director Independence. 65
Item 14. Principal Accounting Fees and Services. 65
PART IV
Item 15. Exhibits, Financial Statement Schedules. 66
Exhibit Index 67
Signatures 72
Consent of Independent Registered Public Accounting Firm 73
Nordstrom, Inc. and subsidiaries 3
TABLE OF CONTENTS
Page
Forward-Looking Statements 4
PART I
Item 1. Business. 6
Item 1A. Risk Factors. 9
Item 1B. Unresolved Staff Comments. 14
Item 2. Properties. 14
Item 3. Legal Proceedings. 16
Item 4. Mine Safety Disclosures. 16
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. 17
Item 6. Selected Financial Data. 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 34
Item 8. Financial Statements and Supplementary Data. 35
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 63
Item 9A. Controls and Procedures. 63
Item 9B. Other Information. 65
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 65
Item 11. Executive Compensation. 65
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. 65
Item 13. Certain Relationships and Related Transactions, and Director Independence. 65
Item 14. Principal Accounting Fees and Services. 65
PART IV
Item 15. Exhibits, Financial Statement Schedules. 66
Exhibit Index 67
Signatures 72
Consent of Independent Registered Public Accounting Firm 73
Nordstrom, Inc. and subsidiaries 3
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those
sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our
management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “pursue,” “going forward,” and similar expressions intended
to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause
our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or
achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this
Annual Report on Form 10-K in Item 1A: Risk Factors, including, but not limited to, our anticipated financial outlook for the fiscal year ending
February 1, 2020, our anticipated annual total sales rates, our anticipated new store openings in existing, new and international markets, our
anticipated Return on Invested Capital, trends in our operations and the following:
Strategic and Operational
• timely and effective implementation of evolving our business model and successful execution of our customer strategy to provide a
differentiated and seamless experience across all Nordstrom channels,
• our ability to execute and manage the costs of our evolving business model, including the execution of new supply chain capabilities
and enhancement of existing ones, development of applications for electronic devices, improvement of customer-facing technologies,
timely delivery of products purchased digitally, enhancement of inventory management systems, more fluid inventory availability
between our digital channels and retail stores through our local market strategy, and greater consistency in marketing strategies,
• our ability to respond to the business and retail environment, as well as fashion trends and consumer preferences, including changing
expectations of service and experience in stores and online,
• our ability to properly balance our investments in existing and new store locations, technology and supply chain facilities, especially our
investments in our Nordstrom Men’s Store NYC and Nordstrom NYC and our Los Angeles market integration,
• successful execution of our information technology strategy, including engagement with third-party service providers,
• our ability to effectively utilize internal and third-party data in strategic planning and decision making,
• our ability to maintain or expand our presence, including timely completion of construction associated with new, relocated and
remodeled stores, and Supply Chain Network facilities, all of which may be impacted by third parties, consumer demand and other
natural or man-made disruptions,
• efficient and proper allocation of our capital resources,
• effective inventory management processes and systems, fulfillment and supply chain processes and systems, disruptions in our supply
chain and our ability to control costs,
• the impact of any systems or network 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,
• our ability to safeguard our reputation and maintain relationships with our vendors and third-party service providers,
• our ability to maintain relationships with and motivate our employees and to effectively attract, develop and retain our future leaders,
• our ability to realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program
agreement with TD Bank, N.A. (“TD”),
• the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive and promotional retail industry,
• market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real
estate,
• potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the
event projected financial results are not achieved within expected time frames,
• compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,
• the timing, price, manner and amounts of future share repurchases by us, if any, or any share issuances by us,
Economic and External
• the impact of the seasonal nature of our business and cyclical customer spending,
• the impact of economic and market conditions and the resultant impact on consumer spending and credit patterns,
• the impact of economic, environmental or political conditions in the U.S. and countries where our third-party vendors operate,
• weather conditions, natural disasters, health hazards, national security or other market and supply chain disruptions, including the
effects of tariffs, or the prospects of these events and the resulting impact on consumer spending patterns or information technology
systems and communications,
4
Legal and Regulatory
• our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to
employment and tax, information security and privacy, consumer credit and the outcome of any claims and litigation and resolution of
such matters,
• the impact of the current regulatory environment and financial system, health care and tax reforms,
• the impact of changes in accounting rules and regulations, changes in our interpretation of the rules or regulations, or changes in
underlying assumptions, estimates or judgments,
• the impact of claims, litigation and regulatory investigations, including those related to information security, privacy and consumer credit.
Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these
forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Annual Report
on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We
hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in
these forward-looking statements, even if new information becomes available in the future.
All references to “Nordstrom,” “we,” “us,” “our,” or the “Company” mean Nordstrom, Inc. and its subsidiaries.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are
based upon information available to us as of the filing date of this Annual Report on Form 10-K, and while we believe such information forms
a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate
that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently
uncertain and investors are cautioned not to unduly rely upon these statements.
Nordstrom, Inc. and subsidiaries 5
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those
sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our
management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “pursue,” “going forward,” and similar expressions intended
to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause
our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or
achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this
Annual Report on Form 10-K in Item 1A: Risk Factors, including, but not limited to, our anticipated financial outlook for the fiscal year ending
February 1, 2020, our anticipated annual total sales rates, our anticipated new store openings in existing, new and international markets, our
anticipated Return on Invested Capital, trends in our operations and the following:
Strategic and Operational
• timely and effective implementation of evolving our business model and successful execution of our customer strategy to provide a
differentiated and seamless experience across all Nordstrom channels,
• our ability to execute and manage the costs of our evolving business model, including the execution of new supply chain capabilities
and enhancement of existing ones, development of applications for electronic devices, improvement of customer-facing technologies,
timely delivery of products purchased digitally, enhancement of inventory management systems, more fluid inventory availability
between our digital channels and retail stores through our local market strategy, and greater consistency in marketing strategies,
• our ability to respond to the business and retail environment, as well as fashion trends and consumer preferences, including changing
expectations of service and experience in stores and online,
• our ability to properly balance our investments in existing and new store locations, technology and supply chain facilities, especially our
investments in our Nordstrom Men’s Store NYC and Nordstrom NYC and our Los Angeles market integration,
• successful execution of our information technology strategy, including engagement with third-party service providers,
• our ability to effectively utilize internal and third-party data in strategic planning and decision making,
• our ability to maintain or expand our presence, including timely completion of construction associated with new, relocated and
remodeled stores, and Supply Chain Network facilities, all of which may be impacted by third parties, consumer demand and other
natural or man-made disruptions,
• efficient and proper allocation of our capital resources,
• effective inventory management processes and systems, fulfillment and supply chain processes and systems, disruptions in our supply
chain and our ability to control costs,
• the impact of any systems or network 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,
• our ability to safeguard our reputation and maintain relationships with our vendors and third-party service providers,
• our ability to maintain relationships with and motivate our employees and to effectively attract, develop and retain our future leaders,
• our ability to realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program
agreement with TD Bank, N.A. (“TD”),
• the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive and promotional retail industry,
• market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real
estate,
• potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the
event projected financial results are not achieved within expected time frames,
• compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,
• the timing, price, manner and amounts of future share repurchases by us, if any, or any share issuances by us,
Economic and External
• the impact of the seasonal nature of our business and cyclical customer spending,
• the impact of economic and market conditions and the resultant impact on consumer spending and credit patterns,
• the impact of economic, environmental or political conditions in the U.S. and countries where our third-party vendors operate,
• weather conditions, natural disasters, health hazards, national security or other market and supply chain disruptions, including the
effects of tariffs, or the prospects of these events and the resulting impact on consumer spending patterns or information technology
systems and communications,
4
Legal and Regulatory
• our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to
employment and tax, information security and privacy, consumer credit and the outcome of any claims and litigation and resolution of
such matters,
• the impact of the current regulatory environment and financial system, health care and tax reforms,
• the impact of changes in accounting rules and regulations, changes in our interpretation of the rules or regulations, or changes in
underlying assumptions, estimates or judgments,
• the impact of claims, litigation and regulatory investigations, including those related to information security, privacy and consumer credit.
Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these
forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Annual Report
on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We
hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in
these forward-looking statements, even if new information becomes available in the future.
All references to “Nordstrom,” “we,” “us,” “our,” or the “Company” mean Nordstrom, Inc. and its subsidiaries.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are
based upon information available to us as of the filing date of this Annual Report on Form 10-K, and while we believe such information forms
a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate
that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently
uncertain and investors are cautioned not to unduly rely upon these statements.
Nordstrom, Inc. and subsidiaries 5
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those
sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our
management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “pursue,” “going forward,” and similar expressions intended
to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause
our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or
achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this
Annual Report on Form 10-K in Item 1A: Risk Factors, including, but not limited to, our anticipated financial outlook for the fiscal year ending
February 1, 2020, our anticipated annual total sales rates, our anticipated new store openings in existing, new and international markets, our
anticipated Return on Invested Capital, trends in our operations and the following:
Strategic and Operational
• timely and effective implementation of evolving our business model and successful execution of our customer strategy to provide a
differentiated and seamless experience across all Nordstrom channels,
• our ability to execute and manage the costs of our evolving business model, including the execution of new supply chain capabilities
and enhancement of existing ones, development of applications for electronic devices, improvement of customer-facing technologies,
timely delivery of products purchased digitally, enhancement of inventory management systems, more fluid inventory availability
between our digital channels and retail stores through our local market strategy, and greater consistency in marketing strategies,
• our ability to respond to the business and retail environment, as well as fashion trends and consumer preferences, including changing
expectations of service and experience in stores and online,
• our ability to properly balance our investments in existing and new store locations, technology and supply chain facilities, especially our
investments in our Nordstrom Men’s Store NYC and Nordstrom NYC and our Los Angeles market integration,
• successful execution of our information technology strategy, including engagement with third-party service providers,
• our ability to effectively utilize internal and third-party data in strategic planning and decision making,
• our ability to maintain or expand our presence, including timely completion of construction associated with new, relocated and
remodeled stores, and Supply Chain Network facilities, all of which may be impacted by third parties, consumer demand and other
natural or man-made disruptions,
• efficient and proper allocation of our capital resources,
• effective inventory management processes and systems, fulfillment and supply chain processes and systems, disruptions in our supply
chain and our ability to control costs,
• the impact of any systems or network 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,
• our ability to safeguard our reputation and maintain relationships with our vendors and third-party service providers,
• our ability to maintain relationships with and motivate our employees and to effectively attract, develop and retain our future leaders,
• our ability to realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program
agreement with TD Bank, N.A. (“TD”),
• the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive and promotional retail industry,
• market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real
estate,
• potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the
event projected financial results are not achieved within expected time frames,
• compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,
• the timing, price, manner and amounts of future share repurchases by us, if any, or any share issuances by us,
Economic and External
• the impact of the seasonal nature of our business and cyclical customer spending,
• the impact of economic and market conditions and the resultant impact on consumer spending and credit patterns,
• the impact of economic, environmental or political conditions in the U.S. and countries where our third-party vendors operate,
• weather conditions, natural disasters, health hazards, national security or other market and supply chain disruptions, including the
effects of tariffs, or the prospects of these events and the resulting impact on consumer spending patterns or information technology
systems and communications,
4
Legal and Regulatory
• our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to
employment and tax, information security and privacy, consumer credit and the outcome of any claims and litigation and resolution of
such matters,
• the impact of the current regulatory environment and financial system, health care and tax reforms,
• the impact of changes in accounting rules and regulations, changes in our interpretation of the rules or regulations, or changes in
underlying assumptions, estimates or judgments,
• the impact of claims, litigation and regulatory investigations, including those related to information security, privacy and consumer credit.
Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these
forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Annual Report
on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We
hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in
these forward-looking statements, even if new information becomes available in the future.
All references to “Nordstrom,” “we,” “us,” “our,” or the “Company” mean Nordstrom, Inc. and its subsidiaries.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are
based upon information available to us as of the filing date of this Annual Report on Form 10-K, and while we believe such information forms
a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate
that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently
uncertain and investors are cautioned not to unduly rely upon these statements.
Nordstrom, Inc. and subsidiaries 5
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those
sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our
management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “pursue,” “going forward,” and similar expressions intended
to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause
our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or
achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this
Annual Report on Form 10-K in Item 1A: Risk Factors, including, but not limited to, our anticipated financial outlook for the fiscal year ending
February 1, 2020, our anticipated annual total sales rates, our anticipated new store openings in existing, new and international markets, our
anticipated Return on Invested Capital, trends in our operations and the following:
Strategic and Operational
• timely and effective implementation of evolving our business model and successful execution of our customer strategy to provide a
differentiated and seamless experience across all Nordstrom channels,
• our ability to execute and manage the costs of our evolving business model, including the execution of new supply chain capabilities
and enhancement of existing ones, development of applications for electronic devices, improvement of customer-facing technologies,
timely delivery of products purchased digitally, enhancement of inventory management systems, more fluid inventory availability
between our digital channels and retail stores through our local market strategy, and greater consistency in marketing strategies,
• our ability to respond to the business and retail environment, as well as fashion trends and consumer preferences, including changing
expectations of service and experience in stores and online,
• our ability to properly balance our investments in existing and new store locations, technology and supply chain facilities, especially our
investments in our Nordstrom Men’s Store NYC and Nordstrom NYC and our Los Angeles market integration,
• successful execution of our information technology strategy, including engagement with third-party service providers,
• our ability to effectively utilize internal and third-party data in strategic planning and decision making,
• our ability to maintain or expand our presence, including timely completion of construction associated with new, relocated and
remodeled stores, and Supply Chain Network facilities, all of which may be impacted by third parties, consumer demand and other
natural or man-made disruptions,
• efficient and proper allocation of our capital resources,
• effective inventory management processes and systems, fulfillment and supply chain processes and systems, disruptions in our supply
chain and our ability to control costs,
• the impact of any systems or network 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,
• our ability to safeguard our reputation and maintain relationships with our vendors and third-party service providers,
• our ability to maintain relationships with and motivate our employees and to effectively attract, develop and retain our future leaders,
• our ability to realize the expected benefits, respond to potential risks and appropriately manage costs associated with our program
agreement with TD Bank, N.A. (“TD”),
• the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive and promotional retail industry,
• market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real
estate,
• potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the
event projected financial results are not achieved within expected time frames,
• compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,
• the timing, price, manner and amounts of future share repurchases by us, if any, or any share issuances by us,
Economic and External
• the impact of the seasonal nature of our business and cyclical customer spending,
• the impact of economic and market conditions and the resultant impact on consumer spending and credit patterns,
• the impact of economic, environmental or political conditions in the U.S. and countries where our third-party vendors operate,
• weather conditions, natural disasters, health hazards, national security or other market and supply chain disruptions, including the
effects of tariffs, or the prospects of these events and the resulting impact on consumer spending patterns or information technology
systems and communications,
4
Legal and Regulatory
• our compliance with applicable domestic and international laws, regulations and ethical standards, including those related to
employment and tax, information security and privacy, consumer credit and the outcome of any claims and litigation and resolution of
such matters,
• the impact of the current regulatory environment and financial system, health care and tax reforms,
• the impact of changes in accounting rules and regulations, changes in our interpretation of the rules or regulations, or changes in
underlying assumptions, estimates or judgments,
• the impact of claims, litigation and regulatory investigations, including those related to information security, privacy and consumer credit.
Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these
forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Annual Report
on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We
hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in
these forward-looking statements, even if new information becomes available in the future.
All references to “Nordstrom,” “we,” “us,” “our,” or the “Company” mean Nordstrom, Inc. and its subsidiaries.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are
based upon information available to us as of the filing date of this Annual Report on Form 10-K, and while we believe such information forms
a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate
that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently
uncertain and investors are cautioned not to unduly rely upon these statements.
Nordstrom, Inc. and subsidiaries 5
PART I
6
Item 1. Business.
DESCRIPTION OF BUSINESS
Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in Washington State in 1946 and went on to become one
of the leading fashion retailers based in the U.S. We aspire to be the best fashion retailer in a digital world by remaining focused on our
customers, serving them through our three strategic pillars: providing a compelling product offering, delivering outstanding services and
experiences and leveraging the strength of the Nordstrom brand. We offer an extensive selection of high-quality brand-name and private
label merchandise focused on apparel, shoes, cosmetics and accessories. No matter how customers choose to shop, we are committed to
delivering the best possible service, product and experience, including alterations, dining and styling, to make shopping fun, personalized
and convenient.
We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores and online, in
both our Full-Price and Off-Price businesses. Today, we have more than 60 combinations in which merchandise is ordered, fulfilled and
delivered. Though this has enabled us to serve customers in multiple ways, we are focused on providing a seamless experience for our
customer across stores and online. As a result of the evolution of our operations, our reportable segments have become progressively more
integrated such that, in the first quarter of 2018, we changed our reportable segments to one reportable segment to align with how
management views the results of our operations. For more information about our business and our reportable segments, see Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16: Segment Reporting in Item 8.
As of March 18, 2019, our reportable segment, Retail, includes:
Full-Price
• 115 Nordstrom-branded full-line stores in the U.S.
• six full-line and six Rack stores in Canada
• Full-Price Nordstrom.com website and mobile application
• TrunkClub.com website and six Trunk Club clubhouses
• three Jeffrey boutiques
• three Nordstrom Local neighborhood hubs (“Nordstrom Local”)
Our Full-Price operating segment integrates Nordstrom full-line stores and Nordstrom.com to allow us to provide our customers with a
seamless shopping experience. We engage with our customers on their terms, blurring the lines between the digital and in-store experience.
Our customers can pick up online orders in our Nordstrom full-line stores if inventory is available or it can be shipped to that location. Full-
Price also includes our full-line and Rack stores in Canada. We include our Canada operations in Full-Price as this is how we view and
manage our operations internally. Trunk Club offers personalized styling services for men and women, which enables customers to shop and
try on at home, paying only for what they decide to keep. Customers may also choose to shop using these personalized styling services in-
person at our clubhouses. We provide customers with the same quality merchandise available at Nordstrom full-line stores and online.
Nordstrom Local is a retail concept that is focused on services, providing customers convenient access to personal stylists, alterations, online
orders and more. Trunk Club stylists are able to meet customers at select full-line and Nordstrom Local locations. We also leverage the
expertise of our salespeople to enable customers to receive personalized product recommendations on their mobile phones through our
digital Style Board selling tool. These capabilities allow us to better serve customers across various channels and improve sales.
Off-Price
• 239 Off-Price Nordstrom Rack stores in the U.S.
• Off-Price Nordstromrack.com/HauteLook website and mobile application
• two Last Chance clearance stores
In Off-Price, Nordstrom Rack and Nordstromrack.com purchase merchandise primarily from the same vendors carried in our Full-Price
channel and also serve as outlets for clearance merchandise from the Full-Price channel. Nordstromrack.com/HauteLook offers both a
persistent selection of Off-Price merchandise, as well as limited-time flash sale events on fashion and lifestyle brands, and is integrated with
a single customer log-in, shared shopping cart and streamlined checkout process. Nordstromrack.com combines the technology expertise of
HauteLook with the merchant expertise of Nordstrom Rack.
FISCAL YEAR
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2018 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.
RETURN POLICY
We have a fair and reasonable approach to returns, handling them on a case-by-case basis with the ultimate objective of making our
customers happy. We have no formal policy on how long we accept returns at our Nordstrom full-line stores or Nordstrom.com. Our goal is to
take care of our customers, which includes making returns and exchanges easy, whether in stores or online, where we offer free shipping on
purchases and returns. Trunk Club accepts returns within five days of delivery, which are free for the customer if the items are returned in the
box provided by Trunk Club with the original price tag and packaging. Our Nordstrom Rack stores and Nordstromrack.com/HauteLook
generally accept returns of apparel, footwear, accessories and HauteLook home products up to 45 days from the date of purchase or date of
shipment with the original price tag and sales receipt. Off-Price merchandise can be returned by mail or at any Nordstrom Rack store
location.
SEASONALITY
Our business, like that of other retailers, is subject to seasonal fluctuations. Our sales are typically higher during our Anniversary Sale in July
and the holidays in the fourth quarter. Our Anniversary Sale shifted to the second quarter in 2018 compared with the second and third
quarters in 2017. Results for any one quarter are not indicative of the results that may be achieved for a full fiscal year.
LOYALTY PROGRAM
We evolved our customer loyalty program with the launch of The Nordy Club in October 2018, which incorporates a traditional point system
and the favorite benefits of our previous program, 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 (“Notes”), which can be redeemed for goods or
services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardmembers
can also earn rewards at Trunk Club. The Nordy Club member benefits will 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, Nordstrom to You (an in-home stylist) and incremental accumulation of points toward
Notes. See Note 3: Credit Card Receivable Transaction in Item 8.
COMPETITIVE CONDITIONS
We operate in a highly competitive business environment. We compete with other international, national, regional and local retailers,
including internet-based businesses, omni-channel department stores, specialty stores, off-price stores and boutiques, which may carry
similar lines of merchandise. Our specific competitors vary from market to market. We believe the keys to competing in our industry are what
will always matter most to our customers: providing compelling product and outstanding service backed by people who care, both digitally
and in stores. This includes serving customers on their terms, by providing a seamless digital and physical experience, offering compelling,
curated and quality products at multiple price points, and strategically partnering with relevant and limited distribution brands, all in top
markets.
SUPPLY CHAIN NETWORK
Our “Supply Chain Network” consists of:
• fulfillment centers that process and ship orders to our customers, located in Cedar Rapids, Iowa; Elizabethtown, Pennsylvania; and San
Bernardino, California,
• distribution centers that process and ship merchandise to our stores and other facilities and
• future Omni-channel centers that both fulfill customer orders and ship merchandise to our stores. These will open in 2019 and include
large-scale centers and smaller local hubs (Local Omni-channel Hub).
We have expanded our Supply Chain Network facilities and enhanced our inventory management systems to support our omni-channel
capabilities and provide greater access to merchandise selection and faster delivery. We select locations and customize inventory allocations
to enable merchandise to flow more efficiently and quickly to our customers.
Full-Price online purchases are primarily shipped to our customers from our Fulfillment Centers but may also be shipped from our Nordstrom
full-line stores or Omni-channel centers. Full-Price in-store purchases are primarily fulfilled from that store’s inventory, but when inventory is
unavailable at that store, it may also be shipped to our customers from our Fulfillment Centers, Omni-channel centers, or from other
Nordstrom full-line stores. Off-Price online purchases are shipped to our customers from our Fulfillment Centers. Both channels selectively
use vendor dropship to supplement their online offerings, which are then shipped directly from the vendor to the end customer.
Nordstrom, Inc. and subsidiaries 7
PART I
6
Item 1. Business.
DESCRIPTION OF BUSINESS
Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in Washington State in 1946 and went on to become one
of the leading fashion retailers based in the U.S. We aspire to be the best fashion retailer in a digital world by remaining focused on our
customers, serving them through our three strategic pillars: providing a compelling product offering, delivering outstanding services and
experiences and leveraging the strength of the Nordstrom brand. We offer an extensive selection of high-quality brand-name and private
label merchandise focused on apparel, shoes, cosmetics and accessories. No matter how customers choose to shop, we are committed to
delivering the best possible service, product and experience, including alterations, dining and styling, to make shopping fun, personalized
and convenient.
We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores and online, in
both our Full-Price and Off-Price businesses. Today, we have more than 60 combinations in which merchandise is ordered, fulfilled and
delivered. Though this has enabled us to serve customers in multiple ways, we are focused on providing a seamless experience for our
customer across stores and online. As a result of the evolution of our operations, our reportable segments have become progressively more
integrated such that, in the first quarter of 2018, we changed our reportable segments to one reportable segment to align with how
management views the results of our operations. For more information about our business and our reportable segments, see Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16: Segment Reporting in Item 8.
As of March 18, 2019, our reportable segment, Retail, includes:
Full-Price
• 115 Nordstrom-branded full-line stores in the U.S.
• six full-line and six Rack stores in Canada
• Full-Price Nordstrom.com website and mobile application
• TrunkClub.com website and six Trunk Club clubhouses
• three Jeffrey boutiques
• three Nordstrom Local neighborhood hubs (“Nordstrom Local”)
Our Full-Price operating segment integrates Nordstrom full-line stores and Nordstrom.com to allow us to provide our customers with a
seamless shopping experience. We engage with our customers on their terms, blurring the lines between the digital and in-store experience.
Our customers can pick up online orders in our Nordstrom full-line stores if inventory is available or it can be shipped to that location. Full-
Price also includes our full-line and Rack stores in Canada. We include our Canada operations in Full-Price as this is how we view and
manage our operations internally. Trunk Club offers personalized styling services for men and women, which enables customers to shop and
try on at home, paying only for what they decide to keep. Customers may also choose to shop using these personalized styling services in-
person at our clubhouses. We provide customers with the same quality merchandise available at Nordstrom full-line stores and online.
Nordstrom Local is a retail concept that is focused on services, providing customers convenient access to personal stylists, alterations, online
orders and more. Trunk Club stylists are able to meet customers at select full-line and Nordstrom Local locations. We also leverage the
expertise of our salespeople to enable customers to receive personalized product recommendations on their mobile phones through our
digital Style Board selling tool. These capabilities allow us to better serve customers across various channels and improve sales.
Off-Price
• 239 Off-Price Nordstrom Rack stores in the U.S.
• Off-Price Nordstromrack.com/HauteLook website and mobile application
• two Last Chance clearance stores
In Off-Price, Nordstrom Rack and Nordstromrack.com purchase merchandise primarily from the same vendors carried in our Full-Price
channel and also serve as outlets for clearance merchandise from the Full-Price channel. Nordstromrack.com/HauteLook offers both a
persistent selection of Off-Price merchandise, as well as limited-time flash sale events on fashion and lifestyle brands, and is integrated with
a single customer log-in, shared shopping cart and streamlined checkout process. Nordstromrack.com combines the technology expertise of
HauteLook with the merchant expertise of Nordstrom Rack.
FISCAL YEAR
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2018 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.
RETURN POLICY
We have a fair and reasonable approach to returns, handling them on a case-by-case basis with the ultimate objective of making our
customers happy. We have no formal policy on how long we accept returns at our Nordstrom full-line stores or Nordstrom.com. Our goal is to
take care of our customers, which includes making returns and exchanges easy, whether in stores or online, where we offer free shipping on
purchases and returns. Trunk Club accepts returns within five days of delivery, which are free for the customer if the items are returned in the
box provided by Trunk Club with the original price tag and packaging. Our Nordstrom Rack stores and Nordstromrack.com/HauteLook
generally accept returns of apparel, footwear, accessories and HauteLook home products up to 45 days from the date of purchase or date of
shipment with the original price tag and sales receipt. Off-Price merchandise can be returned by mail or at any Nordstrom Rack store
location.
SEASONALITY
Our business, like that of other retailers, is subject to seasonal fluctuations. Our sales are typically higher during our Anniversary Sale in July
and the holidays in the fourth quarter. Our Anniversary Sale shifted to the second quarter in 2018 compared with the second and third
quarters in 2017. Results for any one quarter are not indicative of the results that may be achieved for a full fiscal year.
LOYALTY PROGRAM
We evolved our customer loyalty program with the launch of The Nordy Club in October 2018, which incorporates a traditional point system
and the favorite benefits of our previous program, 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 (“Notes”), which can be redeemed for goods or
services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardmembers
can also earn rewards at Trunk Club. The Nordy Club member benefits will 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, Nordstrom to You (an in-home stylist) and incremental accumulation of points toward
Notes. See Note 3: Credit Card Receivable Transaction in Item 8.
COMPETITIVE CONDITIONS
We operate in a highly competitive business environment. We compete with other international, national, regional and local retailers,
including internet-based businesses, omni-channel department stores, specialty stores, off-price stores and boutiques, which may carry
similar lines of merchandise. Our specific competitors vary from market to market. We believe the keys to competing in our industry are what
will always matter most to our customers: providing compelling product and outstanding service backed by people who care, both digitally
and in stores. This includes serving customers on their terms, by providing a seamless digital and physical experience, offering compelling,
curated and quality products at multiple price points, and strategically partnering with relevant and limited distribution brands, all in top
markets.
SUPPLY CHAIN NETWORK
Our “Supply Chain Network” consists of:
• fulfillment centers that process and ship orders to our customers, located in Cedar Rapids, Iowa; Elizabethtown, Pennsylvania; and San
Bernardino, California,
• distribution centers that process and ship merchandise to our stores and other facilities and
• future Omni-channel centers that both fulfill customer orders and ship merchandise to our stores. These will open in 2019 and include
large-scale centers and smaller local hubs (Local Omni-channel Hub).
We have expanded our Supply Chain Network facilities and enhanced our inventory management systems to support our omni-channel
capabilities and provide greater access to merchandise selection and faster delivery. We select locations and customize inventory allocations
to enable merchandise to flow more efficiently and quickly to our customers.
Full-Price online purchases are primarily shipped to our customers from our Fulfillment Centers but may also be shipped from our Nordstrom
full-line stores or Omni-channel centers. Full-Price in-store purchases are primarily fulfilled from that store’s inventory, but when inventory is
unavailable at that store, it may also be shipped to our customers from our Fulfillment Centers, Omni-channel centers, or from other
Nordstrom full-line stores. Off-Price online purchases are shipped to our customers from our Fulfillment Centers. Both channels selectively
use vendor dropship to supplement their online offerings, which are then shipped directly from the vendor to the end customer.
Nordstrom, Inc. and subsidiaries 7
PART I
6
Item 1. Business.
DESCRIPTION OF BUSINESS
Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in Washington State in 1946 and went on to become one
of the leading fashion retailers based in the U.S. We aspire to be the best fashion retailer in a digital world by remaining focused on our
customers, serving them through our three strategic pillars: providing a compelling product offering, delivering outstanding services and
experiences and leveraging the strength of the Nordstrom brand. We offer an extensive selection of high-quality brand-name and private
label merchandise focused on apparel, shoes, cosmetics and accessories. No matter how customers choose to shop, we are committed to
delivering the best possible service, product and experience, including alterations, dining and styling, to make shopping fun, personalized
and convenient.
We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores and online, in
both our Full-Price and Off-Price businesses. Today, we have more than 60 combinations in which merchandise is ordered, fulfilled and
delivered. Though this has enabled us to serve customers in multiple ways, we are focused on providing a seamless experience for our
customer across stores and online. As a result of the evolution of our operations, our reportable segments have become progressively more
integrated such that, in the first quarter of 2018, we changed our reportable segments to one reportable segment to align with how
management views the results of our operations. For more information about our business and our reportable segments, see Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16: Segment Reporting in Item 8.
As of March 18, 2019, our reportable segment, Retail, includes:
Full-Price
• 115 Nordstrom-branded full-line stores in the U.S.
• six full-line and six Rack stores in Canada
• Full-Price Nordstrom.com website and mobile application
• TrunkClub.com website and six Trunk Club clubhouses
• three Jeffrey boutiques
• three Nordstrom Local neighborhood hubs (“Nordstrom Local”)
Our Full-Price operating segment integrates Nordstrom full-line stores and Nordstrom.com to allow us to provide our customers with a
seamless shopping experience. We engage with our customers on their terms, blurring the lines between the digital and in-store experience.
Our customers can pick up online orders in our Nordstrom full-line stores if inventory is available or it can be shipped to that location. Full-
Price also includes our full-line and Rack stores in Canada. We include our Canada operations in Full-Price as this is how we view and
manage our operations internally. Trunk Club offers personalized styling services for men and women, which enables customers to shop and
try on at home, paying only for what they decide to keep. Customers may also choose to shop using these personalized styling services in-
person at our clubhouses. We provide customers with the same quality merchandise available at Nordstrom full-line stores and online.
Nordstrom Local is a retail concept that is focused on services, providing customers convenient access to personal stylists, alterations, online
orders and more. Trunk Club stylists are able to meet customers at select full-line and Nordstrom Local locations. We also leverage the
expertise of our salespeople to enable customers to receive personalized product recommendations on their mobile phones through our
digital Style Board selling tool. These capabilities allow us to better serve customers across various channels and improve sales.
Off-Price
• 239 Off-Price Nordstrom Rack stores in the U.S.
• Off-Price Nordstromrack.com/HauteLook website and mobile application
• two Last Chance clearance stores
In Off-Price, Nordstrom Rack and Nordstromrack.com purchase merchandise primarily from the same vendors carried in our Full-Price
channel and also serve as outlets for clearance merchandise from the Full-Price channel. Nordstromrack.com/HauteLook offers both a
persistent selection of Off-Price merchandise, as well as limited-time flash sale events on fashion and lifestyle brands, and is integrated with
a single customer log-in, shared shopping cart and streamlined checkout process. Nordstromrack.com combines the technology expertise of
HauteLook with the merchant expertise of Nordstrom Rack.
FISCAL YEAR
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2018 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.
RETURN POLICY
We have a fair and reasonable approach to returns, handling them on a case-by-case basis with the ultimate objective of making our
customers happy. We have no formal policy on how long we accept returns at our Nordstrom full-line stores or Nordstrom.com. Our goal is to
take care of our customers, which includes making returns and exchanges easy, whether in stores or online, where we offer free shipping on
purchases and returns. Trunk Club accepts returns within five days of delivery, which are free for the customer if the items are returned in the
box provided by Trunk Club with the original price tag and packaging. Our Nordstrom Rack stores and Nordstromrack.com/HauteLook
generally accept returns of apparel, footwear, accessories and HauteLook home products up to 45 days from the date of purchase or date of
shipment with the original price tag and sales receipt. Off-Price merchandise can be returned by mail or at any Nordstrom Rack store
location.
SEASONALITY
Our business, like that of other retailers, is subject to seasonal fluctuations. Our sales are typically higher during our Anniversary Sale in July
and the holidays in the fourth quarter. Our Anniversary Sale shifted to the second quarter in 2018 compared with the second and third
quarters in 2017. Results for any one quarter are not indicative of the results that may be achieved for a full fiscal year.
LOYALTY PROGRAM
We evolved our customer loyalty program with the launch of The Nordy Club in October 2018, which incorporates a traditional point system
and the favorite benefits of our previous program, 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 (“Notes”), which can be redeemed for goods or
services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardmembers
can also earn rewards at Trunk Club. The Nordy Club member benefits will 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, Nordstrom to You (an in-home stylist) and incremental accumulation of points toward
Notes. See Note 3: Credit Card Receivable Transaction in Item 8.
COMPETITIVE CONDITIONS
We operate in a highly competitive business environment. We compete with other international, national, regional and local retailers,
including internet-based businesses, omni-channel department stores, specialty stores, off-price stores and boutiques, which may carry
similar lines of merchandise. Our specific competitors vary from market to market. We believe the keys to competing in our industry are what
will always matter most to our customers: providing compelling product and outstanding service backed by people who care, both digitally
and in stores. This includes serving customers on their terms, by providing a seamless digital and physical experience, offering compelling,
curated and quality products at multiple price points, and strategically partnering with relevant and limited distribution brands, all in top
markets.
SUPPLY CHAIN NETWORK
Our “Supply Chain Network” consists of:
• fulfillment centers that process and ship orders to our customers, located in Cedar Rapids, Iowa; Elizabethtown, Pennsylvania; and San
Bernardino, California,
• distribution centers that process and ship merchandise to our stores and other facilities and
• future Omni-channel centers that both fulfill customer orders and ship merchandise to our stores. These will open in 2019 and include
large-scale centers and smaller local hubs (Local Omni-channel Hub).
We have expanded our Supply Chain Network facilities and enhanced our inventory management systems to support our omni-channel
capabilities and provide greater access to merchandise selection and faster delivery. We select locations and customize inventory allocations
to enable merchandise to flow more efficiently and quickly to our customers.
Full-Price online purchases are primarily shipped to our customers from our Fulfillment Centers but may also be shipped from our Nordstrom
full-line stores or Omni-channel centers. Full-Price in-store purchases are primarily fulfilled from that store’s inventory, but when inventory is
unavailable at that store, it may also be shipped to our customers from our Fulfillment Centers, Omni-channel centers, or from other
Nordstrom full-line stores. Off-Price online purchases are shipped to our customers from our Fulfillment Centers. Both channels selectively
use vendor dropship to supplement their online offerings, which are then shipped directly from the vendor to the end customer.
Nordstrom, Inc. and subsidiaries 7
PART I
6
Item 1. Business.
DESCRIPTION OF BUSINESS
Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in Washington State in 1946 and went on to become one
of the leading fashion retailers based in the U.S. We aspire to be the best fashion retailer in a digital world by remaining focused on our
customers, serving them through our three strategic pillars: providing a compelling product offering, delivering outstanding services and
experiences and leveraging the strength of the Nordstrom brand. We offer an extensive selection of high-quality brand-name and private
label merchandise focused on apparel, shoes, cosmetics and accessories. No matter how customers choose to shop, we are committed to
delivering the best possible service, product and experience, including alterations, dining and styling, to make shopping fun, personalized
and convenient.
We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores and online, in
both our Full-Price and Off-Price businesses. Today, we have more than 60 combinations in which merchandise is ordered, fulfilled and
delivered. Though this has enabled us to serve customers in multiple ways, we are focused on providing a seamless experience for our
customer across stores and online. As a result of the evolution of our operations, our reportable segments have become progressively more
integrated such that, in the first quarter of 2018, we changed our reportable segments to one reportable segment to align with how
management views the results of our operations. For more information about our business and our reportable segments, see Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16: Segment Reporting in Item 8.
As of March 18, 2019, our reportable segment, Retail, includes:
Full-Price
• 115 Nordstrom-branded full-line stores in the U.S.
• six full-line and six Rack stores in Canada
• Full-Price Nordstrom.com website and mobile application
• TrunkClub.com website and six Trunk Club clubhouses
• three Jeffrey boutiques
• three Nordstrom Local neighborhood hubs (“Nordstrom Local”)
Our Full-Price operating segment integrates Nordstrom full-line stores and Nordstrom.com to allow us to provide our customers with a
seamless shopping experience. We engage with our customers on their terms, blurring the lines between the digital and in-store experience.
Our customers can pick up online orders in our Nordstrom full-line stores if inventory is available or it can be shipped to that location. Full-
Price also includes our full-line and Rack stores in Canada. We include our Canada operations in Full-Price as this is how we view and
manage our operations internally. Trunk Club offers personalized styling services for men and women, which enables customers to shop and
try on at home, paying only for what they decide to keep. Customers may also choose to shop using these personalized styling services in-
person at our clubhouses. We provide customers with the same quality merchandise available at Nordstrom full-line stores and online.
Nordstrom Local is a retail concept that is focused on services, providing customers convenient access to personal stylists, alterations, online
orders and more. Trunk Club stylists are able to meet customers at select full-line and Nordstrom Local locations. We also leverage the
expertise of our salespeople to enable customers to receive personalized product recommendations on their mobile phones through our
digital Style Board selling tool. These capabilities allow us to better serve customers across various channels and improve sales.
Off-Price
• 239 Off-Price Nordstrom Rack stores in the U.S.
• Off-Price Nordstromrack.com/HauteLook website and mobile application
• two Last Chance clearance stores
In Off-Price, Nordstrom Rack and Nordstromrack.com purchase merchandise primarily from the same vendors carried in our Full-Price
channel and also serve as outlets for clearance merchandise from the Full-Price channel. Nordstromrack.com/HauteLook offers both a
persistent selection of Off-Price merchandise, as well as limited-time flash sale events on fashion and lifestyle brands, and is integrated with
a single customer log-in, shared shopping cart and streamlined checkout process. Nordstromrack.com combines the technology expertise of
HauteLook with the merchant expertise of Nordstrom Rack.
FISCAL YEAR
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2018 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.
RETURN POLICY
We have a fair and reasonable approach to returns, handling them on a case-by-case basis with the ultimate objective of making our
customers happy. We have no formal policy on how long we accept returns at our Nordstrom full-line stores or Nordstrom.com. Our goal is to
take care of our customers, which includes making returns and exchanges easy, whether in stores or online, where we offer free shipping on
purchases and returns. Trunk Club accepts returns within five days of delivery, which are free for the customer if the items are returned in the
box provided by Trunk Club with the original price tag and packaging. Our Nordstrom Rack stores and Nordstromrack.com/HauteLook
generally accept returns of apparel, footwear, accessories and HauteLook home products up to 45 days from the date of purchase or date of
shipment with the original price tag and sales receipt. Off-Price merchandise can be returned by mail or at any Nordstrom Rack store
location.
SEASONALITY
Our business, like that of other retailers, is subject to seasonal fluctuations. Our sales are typically higher during our Anniversary Sale in July
and the holidays in the fourth quarter. Our Anniversary Sale shifted to the second quarter in 2018 compared with the second and third
quarters in 2017. Results for any one quarter are not indicative of the results that may be achieved for a full fiscal year.
LOYALTY PROGRAM
We evolved our customer loyalty program with the launch of The Nordy Club in October 2018, which incorporates a traditional point system
and the favorite benefits of our previous program, 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 (“Notes”), which can be redeemed for goods or
services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardmembers
can also earn rewards at Trunk Club. The Nordy Club member benefits will 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, Nordstrom to You (an in-home stylist) and incremental accumulation of points toward
Notes. See Note 3: Credit Card Receivable Transaction in Item 8.
COMPETITIVE CONDITIONS
We operate in a highly competitive business environment. We compete with other international, national, regional and local retailers,
including internet-based businesses, omni-channel department stores, specialty stores, off-price stores and boutiques, which may carry
similar lines of merchandise. Our specific competitors vary from market to market. We believe the keys to competing in our industry are what
will always matter most to our customers: providing compelling product and outstanding service backed by people who care, both digitally
and in stores. This includes serving customers on their terms, by providing a seamless digital and physical experience, offering compelling,
curated and quality products at multiple price points, and strategically partnering with relevant and limited distribution brands, all in top
markets.
SUPPLY CHAIN NETWORK
Our “Supply Chain Network” consists of:
• fulfillment centers that process and ship orders to our customers, located in Cedar Rapids, Iowa; Elizabethtown, Pennsylvania; and San
Bernardino, California,
• distribution centers that process and ship merchandise to our stores and other facilities and
• future Omni-channel centers that both fulfill customer orders and ship merchandise to our stores. These will open in 2019 and include
large-scale centers and smaller local hubs (Local Omni-channel Hub).
We have expanded our Supply Chain Network facilities and enhanced our inventory management systems to support our omni-channel
capabilities and provide greater access to merchandise selection and faster delivery. We select locations and customize inventory allocations
to enable merchandise to flow more efficiently and quickly to our customers.
Full-Price online purchases are primarily shipped to our customers from our Fulfillment Centers but may also be shipped from our Nordstrom
full-line stores or Omni-channel centers. Full-Price in-store purchases are primarily fulfilled from that store’s inventory, but when inventory is
unavailable at that store, it may also be shipped to our customers from our Fulfillment Centers, Omni-channel centers, or from other
Nordstrom full-line stores. Off-Price online purchases are shipped to our customers from our Fulfillment Centers. Both channels selectively
use vendor dropship to supplement their online offerings, which are then shipped directly from the vendor to the end customer.
Nordstrom, Inc. and subsidiaries 7
Our first large-scale Omni-channel center in Riverside, California will open in late 2019 and will initially support our Full-Price customers in
the West Coast region. Off-Price inventory and fulfillment will be added to this facility in the future. We also plan to open a smaller Local
Omni-channel Hub in Torrance, California in 2019, which will support the greater Los Angeles market as part of our new local market strategy
and will have highly customized inventory that serves the specialized needs of that market.
INVENTORY
We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and
receipts increase prior to our Anniversary Sale, which has historically extended over the last two weeks of July. We also purchase and
receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through December).
At Nordstrom Rack, we also invest in pack and hold inventory, which involves the strategic purchase of merchandise from some of our top
Full-Price brands in advance of the upcoming selling seasons, to take advantage of favorable buying opportunities. This inventory is typically
held for six months on average.
In order to offer merchandise that our customers want, we purchase from a wide variety of high-quality domestic and foreign suppliers. We
also have arrangements with agents and contract manufacturers to produce our private label merchandise. We expect our suppliers to meet
our “Nordstrom Partnership Guidelines,” which address our corporate social responsibility standards for matters such as legal and regulatory
compliance, labor, health and safety and the environment. This is available on our website at Nordstrom.com.
EMPLOYEES
During 2018, we employed approximately 71,000 employees on a full- or part-time basis. Due to the seasonal nature of our business,
employment increased to approximately 76,000 employees in July 2018 and 74,000 in December 2018. All of our employees are non-union.
We believe our relationship with our employees is good.
TRADEMARKS
Our most notable trademarks include Nordstrom, Nordstrom Rack, HauteLook, Trunk Club, Halogen, BP., Caslon, Zella, Leith, 1901,
Treasure & Bond, Tucker+Tate and 14th & Union. Each of our trademarks is renewable indefinitely, provided that it is still used in commerce
at the time of the renewal.
SEC FILINGS
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”).
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file with the SEC.
WEBSITE ACCESS
Our website address is Nordstrom.com. Our annual and quarterly reports on Form 10-K and Form 10-Q (including related filings in
eXtensible Business Reporting Language (“XBRL”) format), current reports on Form 8-K, proxy statements, our executives’ statements of
changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15
(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available for free on or through our website as soon as
reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of
quarterly earnings conference calls and other financial events through our website.
CORPORATE GOVERNANCE
We have a long-standing commitment to upholding a high level of ethical standards. In addition, as the listing standards of the New York
Stock Exchange (“NYSE”) and the rules of the SEC require, we have adopted Codes of Business Conduct and Ethics for our employees,
officers and directors (“Codes of Ethics”) and Corporate Governance Guidelines. Our Codes of Ethics, Corporate Governance Guidelines
and Committee Charters for the Audit and Finance, Compensation, Corporate Governance and Nominating, and Technology Committees are
posted on our website. Any amendments to these documents, or waivers of the requirements they contain, will also be available on our
website.
For printed versions of these items or any other inquiries, please contact:
Nordstrom Investor Relations
1
70
0 Seventh Avenue, Suite 1500
Seattle, Washington 98101
(206) 303-3
200
invrelations@nordstrom.com
8
Item 1A. Risk Factors.
Our business faces many risks. We believe the risks described below outline the items of most concern to us. In evaluating Nordstrom and
our business, you should carefully consider the following factors, in addition to the other information in this Annual Report on Form 10-K.
Before you buy our common stock or invest in our debt, you should know that making such an investment involves risks including, but not
limited to, the risks described below. Any one of the following risks could harm our business, financial condition, results of operations, or
reputation, which could cause our stock price to decline or a default on our debt payments, and you may lose all or a part of your investment.
Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business,
financial condition, results of operations or reputation.
RISKS DUE TO STRATEGIC AND OPERATIONAL FACTORS
Our inability to successfully execute our customer strategy or evolve our business model could negatively impact our business
and future profitability and growth.
The retail environment is rapidly evolving with customer shopping preferences continuing to shift to digital channels. Computers and mobile
electronic devices allow customers to browse and transact anywhere and anytime. In this changing landscape, we continue to focus on better
serving our customers through our three strategic pillars: providing a compelling product offering, delivering exceptional services and
experiences, and leveraging the strength of the Nordstrom brand. Our customer strategy focuses on providing a differentiated and seamless
experience in a digital world across all Nordstrom channels, including mobile and social channels. Our “One Nordstrom” model, in which
engagement across our four boxes of Full-Price, Off-Price, Stores and Digital encourages more visits and more spend, allows for our
company as a whole to be greater than the sum of the parts. Our local market strategy is an example of this where we bring all of our assets
together in one market to serve customers when, where and how they want by connecting physical and digital assets.
Our focus on the customer will require us to execute new supply chain capabilities and enhance existing ones, develop applications for
electronic devices, improve customer-facing technology, deliver digitally purchased products timely, enhance inventory management
systems, allow greater and more fluid inventory availability between digital and retail locations through our local market strategy, and create
greater consistency in marketing strategies. In addition, these strategies will require further expansion and reliance on data science and
analytics across all our channels. This business model has a high variable cost structure driven by fulfillment and marketing costs and will
continue to require investments in cross-channel operations and supporting technologies.
With the accelerated pace of change in the retail environment, we may not be able to meet our customers’ changing expectations of how
they shop in stores or through digital experiences. If we do not successfully implement our customer strategy, including our local market
strategy, or expand our digital and supply chain initiatives, or do not seamlessly integrate or maintain them properly, we may fall short of our
customer’s expectations, impacting our brand, reputation, profitability and growth. In addition, if customers shift to digital channels at a
different pace than we anticipate, we may need to quickly modify our initiatives and investments, which may adversely impact our profitability
and harm our competitive position. We also may not gather accurate and relevant data or effectively utilize that data, which may impact our
strategic planning, marketing and loyalty programs and our overall decision making.
Our business could suffer if we do not appropriately assess and react to competitive market forces and changes in customer
behavior.
We compete with other international, national, regional and local retailers, including internet-based businesses, omni-channel department
stores, specialty stores, off-price stores and boutiques, which may carry similar lines of merchandise. Digital channels continue to facilitate
comparison shopping, intensifying competition in the retail market, and marketing digitally is controlled by a few key platforms. If we fail to
adequately anticipate and respond to customer and market dynamics, we may lose market share or our ability to remain competitive, causing
our sales and profitability to suffer. If our loyalty marketing, advertising and promotional campaigns that attract customers through various
programs and media, including social media, database marketing and print, are unsuccessful in influencing consumer behavior, or if our
expenses increase and our competitors are more effective with their programs than we are, our growth and profitability could suffer. If we do
not properly allocate our capital between the store and digital environment, or between the Full-Price and Off-Price channels to
accommodate changes in consumer behavior, or adjust the effectiveness and efficiency of our stores and digital channels, our growth and
profitability could suffer.
Nordstrom, Inc. and subsidiaries 9
Our first large-scale Omni-channel center in Riverside, California will open in late 2019 and will initially support our Full-Price customers in
the West Coast region. Off-Price inventory and fulfillment will be added to this facility in the future. We also plan to open a smaller Local
Omni-channel Hub in Torrance, California in 2019, which will support the greater Los Angeles market as part of our new local market strategy
and will have highly customized inventory that serves the specialized needs of that market.
INVENTORY
We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and
receipts increase prior to our Anniversary Sale, which has historically extended over the last two weeks of July. We also purchase and
receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through December).
At Nordstrom Rack, we also invest in pack and hold inventory, which involves the strategic purchase of merchandise from some of our top
Full-Price brands in advance of the upcoming selling seasons, to take advantage of favorable buying opportunities. This inventory is typically
held for six months on average.
In order to offer merchandise that our customers want, we purchase from a wide variety of high-quality domestic and foreign suppliers. We
also have arrangements with agents and contract manufacturers to produce our private label merchandise. We expect our suppliers to meet
our “Nordstrom Partnership Guidelines,” which address our corporate social responsibility standards for matters such as legal and regulatory
compliance, labor, health and safety and the environment. This is available on our website at Nordstrom.com.
EMPLOYEES
During 2018, we employed approximately 71,000 employees on a full- or part-time basis. Due to the seasonal nature of our business,
employment increased to approximately 76,000 employees in July 2018 and 74,000 in December 2018. All of our employees are non-union.
We believe our relationship with our employees is good.
TRADEMARKS
Our most notable trademarks include Nordstrom, Nordstrom Rack, HauteLook, Trunk Club, Halogen, BP., Caslon, Zella, Leith, 1901,
Treasure & Bond, Tucker+Tate and 14th & Union. Each of our trademarks is renewable indefinitely, provided that it is still used in commerce
at the time of the renewal.
SEC FILINGS
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”).
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file with the SEC.
WEBSITE ACCESS
Our website address is Nordstrom.com. Our annual and quarterly reports on Form 10-K and Form 10-Q (including related filings in
eXtensible Business Reporting Language (“XBRL”) format), current reports on Form 8-K, proxy statements, our executives’ statements of
changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15
(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available for free on or through our website as soon as
reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of
quarterly earnings conference calls and other financial events through our website.
CORPORATE GOVERNANCE
We have a long-standing commitment to upholding a high level of ethical standards. In addition, as the listing standards of the New York
Stock Exchange (“NYSE”) and the rules of the SEC require, we have adopted Codes of Business Conduct and Ethics for our employees,
officers and directors (“Codes of Ethics”) and Corporate Governance Guidelines. Our Codes of Ethics, Corporate Governance Guidelines
and Committee Charters for the Audit and Finance, Compensation, Corporate Governance and Nominating, and Technology Committees are
posted on our website. Any amendments to these documents, or waivers of the requirements they contain, will also be available on our
website.
For printed versions of these items or any other inquiries, please contact:
Nordstrom Investor Relations
1700 Seventh Avenue, Suite 1500
Seattle, Washington 98101
(206) 303-3200
invrelations@nordstrom.com
8
Item 1A. Risk Factors.
Our business faces many risks. We believe the risks described below outline the items of most concern to us. In evaluating Nordstrom and
our business, you should carefully consider the following factors, in addition to the other information in this Annual Report on Form 10-K.
Before you buy our common stock or invest in our debt, you should know that making such an investment involves risks including, but not
limited to, the risks described below. Any one of the following risks could harm our business, financial condition, results of operations, or
reputation, which could cause our stock price to decline or a default on our debt payments, and you may lose all or a part of your investment.
Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business,
financial condition, results of operations or reputation.
RISKS DUE TO STRATEGIC AND OPERATIONAL FACTORS
Our inability to successfully execute our customer strategy or evolve our business model could negatively impact our business
and future profitability and growth.
The retail environment is rapidly evolving with customer shopping preferences continuing to shift to digital channels. Computers and mobile
electronic devices allow customers to browse and transact anywhere and anytime. In this changing landscape, we continue to focus on better
serving our customers through our three strategic pillars: providing a compelling product offering, delivering exceptional services and
experiences, and leveraging the strength of the Nordstrom brand. Our customer strategy focuses on providing a differentiated and seamless
experience in a digital world across all Nordstrom channels, including mobile and social channels. Our “One Nordstrom” model, in which
engagement across our four boxes of Full-Price, Off-Price, Stores and Digital encourages more visits and more spend, allows for our
company as a whole to be greater than the sum of the parts. Our local market strategy is an example of this where we bring all of our assets
together in one market to serve customers when, where and how they want by connecting physical and digital assets.
Our focus on the customer will require us to execute new supply chain capabilities and enhance existing ones, develop applications for
electronic devices, improve customer-facing technology, deliver digitally purchased products timely, enhance inventory management
systems, allow greater and more fluid inventory availability between digital and retail locations through our local market strategy, and create
greater consistency in marketing strategies. In addition, these strategies will require further expansion and reliance on data science and
analytics across all our channels. This business model has a high variable cost structure driven by fulfillment and marketing costs and will
continue to require investments in cross-channel operations and supporting technologies.
With the accelerated pace of change in the retail environment, we may not be able to meet our customers’ changing expectations of how
they shop in stores or through digital experiences. If we do not successfully implement our customer strategy, including our local market
strategy, or expand our digital and supply chain initiatives, or do not seamlessly integrate or maintain them properly, we may fall short of our
customer’s expectations, impacting our brand, reputation, profitability and growth. In addition, if customers shift to digital channels at a
different pace than we anticipate, we may need to quickly modify our initiatives and investments, which may adversely impact our profitability
and harm our competitive position. We also may not gather accurate and relevant data or effectively utilize that data, which may impact our
strategic planning, marketing and loyalty programs and our overall decision making.
Our business could suffer if we do not appropriately assess and react to competitive market forces and changes in customer
behavior.
We compete with other international, national, regional and local retailers, including internet-based businesses, omni-channel department
stores, specialty stores, off-price stores and boutiques, which may carry similar lines of merchandise. Digital channels continue to facilitate
comparison shopping, intensifying competition in the retail market, and marketing digitally is controlled by a few key platforms. If we fail to
adequately anticipate and respond to customer and market dynamics, we may lose market share or our ability to remain competitive, causing
our sales and profitability to suffer. If our loyalty marketing, advertising and promotional campaigns that attract customers through various
programs and media, including social media, database marketing and print, are unsuccessful in influencing consumer behavior, or if our
expenses increase and our competitors are more effective with their programs than we are, our growth and profitability could suffer. If we do
not properly allocate our capital between the store and digital environment, or between the Full-Price and Off-Price channels to
accommodate changes in consumer behavior, or adjust the effectiveness and efficiency of our stores and digital channels, our growth and
profitability could suffer.
Nordstrom, Inc. and subsidiaries 9
Our first large-scale Omni-channel center in Riverside, California will open in late 2019 and will initially support our Full-Price customers in
the West Coast region. Off-Price inventory and fulfillment will be added to this facility in the future. We also plan to open a smaller Local
Omni-channel Hub in Torrance, California in 2019, which will support the greater Los Angeles market as part of our new local market strategy
and will have highly customized inventory that serves the specialized needs of that market.
INVENTORY
We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and
receipts increase prior to our Anniversary Sale, which has historically extended over the last two weeks of July. We also purchase and
receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through December).
At Nordstrom Rack, we also invest in pack and hold inventory, which involves the strategic purchase of merchandise from some of our top
Full-Price brands in advance of the upcoming selling seasons, to take advantage of favorable buying opportunities. This inventory is typically
held for six months on average.
In order to offer merchandise that our customers want, we purchase from a wide variety of high-quality domestic and foreign suppliers. We
also have arrangements with agents and contract manufacturers to produce our private label merchandise. We expect our suppliers to meet
our “Nordstrom Partnership Guidelines,” which address our corporate social responsibility standards for matters such as legal and regulatory
compliance, labor, health and safety and the environment. This is available on our website at Nordstrom.com.
EMPLOYEES
During 2018, we employed approximately 71,000 employees on a full- or part-time basis. Due to the seasonal nature of our business,
employment increased to approximately 76,000 employees in July 2018 and 74,000 in December 2018. All of our employees are non-union.
We believe our relationship with our employees is good.
TRADEMARKS
Our most notable trademarks include Nordstrom, Nordstrom Rack, HauteLook, Trunk Club, Halogen, BP., Caslon, Zella, Leith, 1901,
Treasure & Bond, Tucker+Tate and 14th & Union. Each of our trademarks is renewable indefinitely, provided that it is still used in commerce
at the time of the renewal.
SEC FILINGS
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”).
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file with the SEC.
WEBSITE ACCESS
Our website address is Nordstrom.com. Our annual and quarterly reports on Form 10-K and Form 10-Q (including related filings in
eXtensible Business Reporting Language (“XBRL”) format), current reports on Form 8-K, proxy statements, our executives’ statements of
changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15
(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available for free on or through our website as soon as
reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of
quarterly earnings conference calls and other financial events through our website.
CORPORATE GOVERNANCE
We have a long-standing commitment to upholding a high level of ethical standards. In addition, as the listing standards of the New York
Stock Exchange (“NYSE”) and the rules of the SEC require, we have adopted Codes of Business Conduct and Ethics for our employees,
officers and directors (“Codes of Ethics”) and Corporate Governance Guidelines. Our Codes of Ethics, Corporate Governance Guidelines
and Committee Charters for the Audit and Finance, Compensation, Corporate Governance and Nominating, and Technology Committees are
posted on our website. Any amendments to these documents, or waivers of the requirements they contain, will also be available on our
website.
For printed versions of these items or any other inquiries, please contact:
Nordstrom Investor Relations
1700 Seventh Avenue, Suite 1500
Seattle, Washington 98101
(206) 303-3200
invrelations@nordstrom.com
8
Item 1A. Risk Factors.
Our business faces many risks. We believe the risks described below outline the items of most concern to us. In evaluating Nordstrom and
our business, you should carefully consider the following factors, in addition to the other information in this Annual Report on Form 10-K.
Before you buy our common stock or invest in our debt, you should know that making such an investment involves risks including, but not
limited to, the risks described below. Any one of the following risks could harm our business, financial condition, results of operations, or
reputation, which could cause our stock price to decline or a default on our debt payments, and you may lose all or a part of your investment.
Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business,
financial condition, results of operations or reputation.
RISKS DUE TO STRATEGIC AND OPERATIONAL FACTORS
Our inability to successfully execute our customer strategy or evolve our business model could negatively impact our business
and future profitability and growth.
The retail environment is rapidly evolving with customer shopping preferences continuing to shift to digital channels. Computers and mobile
electronic devices allow customers to browse and transact anywhere and anytime. In this changing landscape, we continue to focus on better
serving our customers through our three strategic pillars: providing a compelling product offering, delivering exceptional services and
experiences, and leveraging the strength of the Nordstrom brand. Our customer strategy focuses on providing a differentiated and seamless
experience in a digital world across all Nordstrom channels, including mobile and social channels. Our “One Nordstrom” model, in which
engagement across our four boxes of Full-Price, Off-Price, Stores and Digital encourages more visits and more spend, allows for our
company as a whole to be greater than the sum of the parts. Our local market strategy is an example of this where we bring all of our assets
together in one market to serve customers when, where and how they want by connecting physical and digital assets.
Our focus on the customer will require us to execute new supply chain capabilities and enhance existing ones, develop applications for
electronic devices, improve customer-facing technology, deliver digitally purchased products timely, enhance inventory management
systems, allow greater and more fluid inventory availability between digital and retail locations through our local market strategy, and create
greater consistency in marketing strategies. In addition, these strategies will require further expansion and reliance on data science and
analytics across all our channels. This business model has a high variable cost structure driven by fulfillment and marketing costs and will
continue to require investments in cross-channel operations and supporting technologies.
With the accelerated pace of change in the retail environment, we may not be able to meet our customers’ changing expectations of how
they shop in stores or through digital experiences. If we do not successfully implement our customer strategy, including our local market
strategy, or expand our digital and supply chain initiatives, or do not seamlessly integrate or maintain them properly, we may fall short of our
customer’s expectations, impacting our brand, reputation, profitability and growth. In addition, if customers shift to digital channels at a
different pace than we anticipate, we may need to quickly modify our initiatives and investments, which may adversely impact our profitability
and harm our competitive position. We also may not gather accurate and relevant data or effectively utilize that data, which may impact our
strategic planning, marketing and loyalty programs and our overall decision making.
Our business could suffer if we do not appropriately assess and react to competitive market forces and changes in customer
behavior.
We compete with other international, national, regional and local retailers, including internet-based businesses, omni-channel department
stores, specialty stores, off-price stores and boutiques, which may carry similar lines of merchandise. Digital channels continue to facilitate
comparison shopping, intensifying competition in the retail market, and marketing digitally is controlled by a few key platforms. If we fail to
adequately anticipate and respond to customer and market dynamics, we may lose market share or our ability to remain competitive, causing
our sales and profitability to suffer. If our loyalty marketing, advertising and promotional campaigns that attract customers through various
programs and media, including social media, database marketing and print, are unsuccessful in influencing consumer behavior, or if our
expenses increase and our competitors are more effective with their programs than we are, our growth and profitability could suffer. If we do
not properly allocate our capital between the store and digital environment, or between the Full-Price and Off-Price channels to
accommodate changes in consumer behavior, or adjust the effectiveness and efficiency of our stores and digital channels, our growth and
profitability could suffer.
Nordstrom, Inc. and subsidiaries 9
Our first large-scale Omni-channel center in Riverside, California will open in late 2019 and will initially support our Full-Price customers in
the West Coast region. Off-Price inventory and fulfillment will be added to this facility in the future. We also plan to open a smaller Local
Omni-channel Hub in Torrance, California in 2019, which will support the greater Los Angeles market as part of our new local market strategy
and will have highly customized inventory that serves the specialized needs of that market.
INVENTORY
We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and
receipts increase prior to our Anniversary Sale, which has historically extended over the last two weeks of July. We also purchase and
receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through December).
At Nordstrom Rack, we also invest in pack and hold inventory, which involves the strategic purchase of merchandise from some of our top
Full-Price brands in advance of the upcoming selling seasons, to take advantage of favorable buying opportunities. This inventory is typically
held for six months on average.
In order to offer merchandise that our customers want, we purchase from a wide variety of high-quality domestic and foreign suppliers. We
also have arrangements with agents and contract manufacturers to produce our private label merchandise. We expect our suppliers to meet
our “Nordstrom Partnership Guidelines,” which address our corporate social responsibility standards for matters such as legal and regulatory
compliance, labor, health and safety and the environment. This is available on our website at Nordstrom.com.
EMPLOYEES
During 2018, we employed approximately 71,000 employees on a full- or part-time basis. Due to the seasonal nature of our business,
employment increased to approximately 76,000 employees in July 2018 and 74,000 in December 2018. All of our employees are non-union.
We believe our relationship with our employees is good.
TRADEMARKS
Our most notable trademarks include Nordstrom, Nordstrom Rack, HauteLook, Trunk Club, Halogen, BP., Caslon, Zella, Leith, 1901,
Treasure & Bond, Tucker+Tate and 14th & Union. Each of our trademarks is renewable indefinitely, provided that it is still used in commerce
at the time of the renewal.
SEC FILINGS
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”).
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file with the SEC.
WEBSITE ACCESS
Our website address is Nordstrom.com. Our annual and quarterly reports on Form 10-K and Form 10-Q (including related filings in
eXtensible Business Reporting Language (“XBRL”) format), current reports on Form 8-K, proxy statements, our executives’ statements of
changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15
(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available for free on or through our website as soon as
reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of
quarterly earnings conference calls and other financial events through our website.
CORPORATE GOVERNANCE
We have a long-standing commitment to upholding a high level of ethical standards. In addition, as the listing standards of the New York
Stock Exchange (“NYSE”) and the rules of the SEC require, we have adopted Codes of Business Conduct and Ethics for our employees,
officers and directors (“Codes of Ethics”) and Corporate Governance Guidelines. Our Codes of Ethics, Corporate Governance Guidelines
and Committee Charters for the Audit and Finance, Compensation, Corporate Governance and Nominating, and Technology Committees are
posted on our website. Any amendments to these documents, or waivers of the requirements they contain, will also be available on our
website.
For printed versions of these items or any other inquiries, please contact:
Nordstrom Investor Relations
1700 Seventh Avenue, Suite 1500
Seattle, Washington 98101
(206) 303-3200
invrelations@nordstrom.com
8
Item 1A. Risk Factors.
Our business faces many risks. We believe the risks described below outline the items of most concern to us. In evaluating Nordstrom and
our business, you should carefully consider the following factors, in addition to the other information in this Annual Report on Form 10-K.
Before you buy our common stock or invest in our debt, you should know that making such an investment involves risks including, but not
limited to, the risks described below. Any one of the following risks could harm our business, financial condition, results of operations, or
reputation, which could cause our stock price to decline or a default on our debt payments, and you may lose all or a part of your investment.
Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business,
financial condition, results of operations or reputation.
RISKS DUE TO STRATEGIC AND OPERATIONAL FACTORS
Our inability to successfully execute our customer strategy or evolve our business model could negatively impact our business
and future profitability and growth.
The retail environment is rapidly evolving with customer shopping preferences continuing to shift to digital channels. Computers and mobile
electronic devices allow customers to browse and transact anywhere and anytime. In this changing landscape, we continue to focus on better
serving our customers through our three strategic pillars: providing a compelling product offering, delivering exceptional services and
experiences, and leveraging the strength of the Nordstrom brand. Our customer strategy focuses on providing a differentiated and seamless
experience in a digital world across all Nordstrom channels, including mobile and social channels. Our “One Nordstrom” model, in which
engagement across our four boxes of Full-Price, Off-Price, Stores and Digital encourages more visits and more spend, allows for our
company as a whole to be greater than the sum of the parts. Our local market strategy is an example of this where we bring all of our assets
together in one market to serve customers when, where and how they want by connecting physical and digital assets.
Our focus on the customer will require us to execute new supply chain capabilities and enhance existing ones, develop applications for
electronic devices, improve customer-facing technology, deliver digitally purchased products timely, enhance inventory management
systems, allow greater and more fluid inventory availability between digital and retail locations through our local market strategy, and create
greater consistency in marketing strategies. In addition, these strategies will require further expansion and reliance on data science and
analytics across all our channels. This business model has a high variable cost structure driven by fulfillment and marketing costs and will
continue to require investments in cross-channel operations and supporting technologies.
With the accelerated pace of change in the retail environment, we may not be able to meet our customers’ changing expectations of how
they shop in stores or through digital experiences. If we do not successfully implement our customer strategy, including our local market
strategy, or expand our digital and supply chain initiatives, or do not seamlessly integrate or maintain them properly, we may fall short of our
customer’s expectations, impacting our brand, reputation, profitability and growth. In addition, if customers shift to digital channels at a
different pace than we anticipate, we may need to quickly modify our initiatives and investments, which may adversely impact our profitability
and harm our competitive position. We also may not gather accurate and relevant data or effectively utilize that data, which may impact our
strategic planning, marketing and loyalty programs and our overall decision making.
Our business could suffer if we do not appropriately assess and react to competitive market forces and changes in customer
behavior.
We compete with other international, national, regional and local retailers, including internet-based businesses, omni-channel department
stores, specialty stores, off-price stores and boutiques, which may carry similar lines of merchandise. Digital channels continue to facilitate
comparison shopping, intensifying competition in the retail market, and marketing digitally is controlled by a few key platforms. If we fail to
adequately anticipate and respond to customer and market dynamics, we may lose market share or our ability to remain competitive, causing
our sales and profitability to suffer. If our loyalty marketing, advertising and promotional campaigns that attract customers through various
programs and media, including social media, database marketing and print, are unsuccessful in influencing consumer behavior, or if our
expenses increase and our competitors are more effective with their programs than we are, our growth and profitability could suffer. If we do
not properly allocate our capital between the store and digital environment, or between the Full-Price and Off-Price channels to
accommodate changes in consumer behavior, or adjust the effectiveness and efficiency of our stores and digital channels, our growth and
profitability could suffer.
Nordstrom, Inc. and subsidiaries 9
Our customer relationships and sales may be negatively impacted if we do not anticipate and respond to consumer preferences
and fashion trends or manage inventory levels appropriately.
Our ability to predict or respond to constantly changing fashion trends, consumer preferences and spending patterns significantly impacts our
sales and operating results. If we do not identify and respond to emerging trends in consumer spending and preferences quickly enough, we
may harm our ability to retain our existing customers or attract new customers. Ensuring we optimize our inventory and improve the planning
and management of inventory through use of data and analytics is critical to serving the customer, driving growth and maximizing profitability.
If we purchase too much inventory, we may be forced to sell our merchandise at lower average margins, which could harm our business.
Conversely, if we fail to purchase enough merchandise, we may lose opportunities for additional sales and potentially harm relationships with
our customers.
The investment in existing and new locations, including our Nordstrom Men’s Store NYC and Nordstrom NYC and Supply Chain
Network facilities, may not achieve our expected returns.
The locations of our existing stores, planned store openings and Supply Chain Network facilities are assessed based upon desirability,
demographics and retail environment. This involves certain risks, including properly balancing our capital investments between new stores,
relocations, remodels, fulfillment capabilities, technology and digital channels, assessing the suitability of locations, especially in new
domestic and international markets, and constructing, furnishing and supplying a store or facility in a timely and cost-effective manner, which
may be affected by the actions of third parties, including but not limited to private entities and local, state or federal regulatory agencies. In
particular, we opened our Nordstrom Men’s Store NYC in April 2018 and plan to open Nordstrom NYC in October 2019.
We open our stores in the Spring and Fall, and a delay in a store opening could negatively impact sales and profitability. Sales at our stores
may not meet projections, particularly in light of the changing trends between digital and brick-and-mortar shopping channels, which could
adversely affect our return on investment. As we enter new domestic and international markets, such as Manhattan and Canada, our efforts
will require additional management attention and resources and may distract us from executing our core operations. If we do not select
effective locations for our Supply Chain Network facilities, we could incur significantly higher costs and shipping times that do not meet
customer expectations, which in turn could have a material adverse effect on our business.
Even if we take appropriate measures to safeguard our information, network and environment from security breaches, our
customers, employees and business could still be exposed to risk.
Nordstrom, our subsidiaries and third-party providers access, collect, store and transmit customers’ and employees’ sensitive, confidential or
personal data or information, consumer preferences and credit card information that is subject to privacy and security laws and regulations,
as well as our financial and strategic data. Security breaches of this information may be the result of intentional or inadvertent activities by
our employees, contractors or by third-party providers that may result in the unauthorized release of customer or employee personal or
confidential information. In addition, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly
demanding, with new and constantly changing requirements imposed by local, state, federal and foreign governments.
Worldwide regulatory authorities are considering and have approved various legislative proposals concerning privacy and data protection,
which continue to evolve and apply to our business. For example, following the European Union’s adoption of the General Data Protection
Regulation, a number of jurisdictions where we do business have enacted or are considering new privacy and data protection laws.
Complying with these changing laws may cause us to incur substantial costs, which could have an adverse effect on our business and
results of operations. Further, failure to comply with existing or new laws may result in significant penalties or orders to stop the alleged
noncompliant activity.
We have taken measures to help prevent a breach of our information and comply with cybersecurity requirements by implementing
safeguards and procedures designed to protect the security, confidentiality and access of such information. In addition, where possible, we
require our third-party providers to implement administrative, physical and technical safeguards and procedures to protect the security,
confidentiality and availability of our information. We have suffered breaches of our cybersecurity in the past and are at risk for such
breaches in the future. Any measures we or our third-party providers have implemented to prevent intentional or inadvertent information
security breaches may not be completely effective and may nevertheless result in the unauthorized release of customer, employee or
Company confidential information. Concerns about our practices with regard to the collection, use, retention, security or disclosure of
personal information or other privacy-related matters, even if unfounded, could damage our reputation and adversely affect our operating
results.
Security breaches and cyber incidents and their remediation, whether at Nordstrom, our third-party providers or other retailers, could expose
us to a risk of loss or misappropriation of personal or confidential information, litigation, investigation, regulatory enforcement action, fines,
information technology system failures or network disruptions, potential liability, reputation damage and loss of customers’, employees’ or
third-party providers’ trust and business, any of which could adversely impact our reputation, competitiveness and financial performance. In
the event of a significant security breach or cyberattack, we maintain insurance that may mitigate damages such as financial losses and
remediation costs. Other impacts include higher insurance deductibles, increased insurance premiums, and increased cyber-protection costs,
which may include the costs associated with making organizational changes, deploying additional personnel and protection technologies,
training employees and engaging third party experts and consultants.
10
Our business may be impacted by information technology system failures or network disruptions.
Our ability to transact with customers and operate our business depends on the efficient operation of various information systems, including
data centers, hardware, software and applications, to manage certain aspects of our Company, including store and online transactions,
logistics and communication, inventory and reporting systems. We seek to build quality systems or select reputable system vendors and we
implement procedures intended to enable us to protect our systems when we modify them. We test our systems to expose and address
vulnerabilities, and we train our employees regarding practices to protect and maintain the safety of our systems.
There are inherent risks associated with modifying or replacing systems, and with new or changed relationships, including accurately
capturing and maintaining data, realizing the expected benefit of the change and managing the potential disruption of the operation of the
systems as the changes are implemented. Potential issues associated with implementing technology initiatives and the time and resources
required to optimize the benefits of new elements of our systems and infrastructure could reduce the efficiency of our operations in the short
term.
If we encounter an interruption or deterioration in critical systems or processes or experience the loss of critical data, which may result from
security or cybersecurity threats or attacks, natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or
war, computer viruses, physical or electronic break-ins or third-party or other disruptions, our business could be harmed or our digital activity
may decrease because it is more difficult to use. Depending on the severity of the failure, our disaster recovery plans may be inadequate or
ineffective. These events could also damage our reputation, result in loss of sales and be expensive to remedy.
Improvements to our merchandise buying and fulfillment processes and systems could adversely affect our business if not
successfully executed.
We are making investments to improve our merchandise planning, procurement, allocation and fulfillment capabilities through changes in
personnel, processes, location logistics and technology over a period of several years. If we encounter challenges associated with change
management, the ability to hire and retain key personnel involved in these efforts, implementation of associated information technology or
adoption of new processes, features or capabilities, our ability to continue to successfully execute our strategy or evolve our strategy with
changes in the retail environment could be adversely affected. As a result, we may not derive the expected benefits to our sales and
profitability, or we may incur increased costs relative to our current expectations.
Our customer, employee and vendor relationships could be negatively affected if we fail to maintain our corporate culture and
reputation.
We have a well-recognized culture and reputation that consumers may associate with a high level of integrity, customer service and quality
merchandise, and it is one of the reasons customers shop with us and employees choose us as a place of employment. Any significant
damage to our reputation, including damages arising from factors outside our control or on social media, could diminish customer trust,
weaken our vendor relationships, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified
employees. Additionally, management may not accurately assess the impact of significant legislative changes, including those that relate to
privacy, employment matters and health care, impacting our relationship with our customers or our workforce and adversely affecting our
sales and operations.
If we do not effectively design and implement our strategic and business planning processes to attract, retain, train and develop
talent and future leaders, our business may suffer.
We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace,
and the talents of our workforce to execute our business strategies and objectives. We have succession plans in place and our Board of
Directors reviews these succession plans. If our succession plans do not adequately cover significant and unanticipated turnover, the loss of
the services of any of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our
business.
Our program agreement with TD could adversely impact our business.
The program agreement with TD was consummated on terms that allow us to maintain customer-facing activities while TD provides
Nordstrom-branded payment methods and payment processing services. If we fail to meet certain service levels, TD has the right to assume
certain individual servicing functions including managing accounts and collection activities. If we lose control of such activities and functions,
if we do not successfully respond to potential risks and appropriately manage potential costs associated with the program agreement with
TD, or if these transactions negatively impact the customer service associated with our cards, resulting in harm to our business reputation
and competitive position, our operations, cash flows and returns to shareholders could be adversely affected. If TD became unwilling or
unable to provide these services or if there are changes to the risk management policies implemented under our program agreement with
TD, our results may be negatively impacted. If we lose control over certain servicing functions and TD is unable to successfully manage
accounts and collection activities, it may heighten the risk of credit losses.
Nordstrom, Inc. and subsidiaries 11
Our customer relationships and sales may be negatively impacted if we do not anticipate and respond to consumer preferences
and fashion trends or manage inventory levels appropriately.
Our ability to predict or respond to constantly changing fashion trends, consumer preferences and spending patterns significantly impacts our
sales and operating results. If we do not identify and respond to emerging trends in consumer spending and preferences quickly enough, we
may harm our ability to retain our existing customers or attract new customers. Ensuring we optimize our inventory and improve the planning
and management of inventory through use of data and analytics is critical to serving the customer, driving growth and maximizing profitability.
If we purchase too much inventory, we may be forced to sell our merchandise at lower average margins, which could harm our business.
Conversely, if we fail to purchase enough merchandise, we may lose opportunities for additional sales and potentially harm relationships with
our customers.
The investment in existing and new locations, including our Nordstrom Men’s Store NYC and Nordstrom NYC and Supply Chain
Network facilities, may not achieve our expected returns.
The locations of our existing stores, planned store openings and Supply Chain Network facilities are assessed based upon desirability,
demographics and retail environment. This involves certain risks, including properly balancing our capital investments between new stores,
relocations, remodels, fulfillment capabilities, technology and digital channels, assessing the suitability of locations, especially in new
domestic and international markets, and constructing, furnishing and supplying a store or facility in a timely and cost-effective manner, which
may be affected by the actions of third parties, including but not limited to private entities and local, state or federal regulatory agencies. In
particular, we opened our Nordstrom Men’s Store NYC in April 2018 and plan to open Nordstrom NYC in October 2019.
We open our stores in the Spring and Fall, and a delay in a store opening could negatively impact sales and profitability. Sales at our stores
may not meet projections, particularly in light of the changing trends between digital and brick-and-mortar shopping channels, which could
adversely affect our return on investment. As we enter new domestic and international markets, such as Manhattan and Canada, our efforts
will require additional management attention and resources and may distract us from executing our core operations. If we do not select
effective locations for our Supply Chain Network facilities, we could incur significantly higher costs and shipping times that do not meet
customer expectations, which in turn could have a material adverse effect on our business.
Even if we take appropriate measures to safeguard our information, network and environment from security breaches, our
customers, employees and business could still be exposed to risk.
Nordstrom, our subsidiaries and third-party providers access, collect, store and transmit customers’ and employees’ sensitive, confidential or
personal data or information, consumer preferences and credit card information that is subject to privacy and security laws and regulations,
as well as our financial and strategic data. Security breaches of this information may be the result of intentional or inadvertent activities by
our employees, contractors or by third-party providers that may result in the unauthorized release of customer or employee personal or
confidential information. In addition, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly
demanding, with new and constantly changing requirements imposed by local, state, federal and foreign governments.
Worldwide regulatory authorities are considering and have approved various legislative proposals concerning privacy and data protection,
which continue to evolve and apply to our business. For example, following the European Union’s adoption of the General Data Protection
Regulation, a number of jurisdictions where we do business have enacted or are considering new privacy and data protection laws.
Complying with these changing laws may cause us to incur substantial costs, which could have an adverse effect on our business and
results of operations. Further, failure to comply with existing or new laws may result in significant penalties or orders to stop the alleged
noncompliant activity.
We have taken measures to help prevent a breach of our information and comply with cybersecurity requirements by implementing
safeguards and procedures designed to protect the security, confidentiality and access of such information. In addition, where possible, we
require our third-party providers to implement administrative, physical and technical safeguards and procedures to protect the security,
confidentiality and availability of our information. We have suffered breaches of our cybersecurity in the past and are at risk for such
breaches in the future. Any measures we or our third-party providers have implemented to prevent intentional or inadvertent information
security breaches may not be completely effective and may nevertheless result in the unauthorized release of customer, employee or
Company confidential information. Concerns about our practices with regard to the collection, use, retention, security or disclosure of
personal information or other privacy-related matters, even if unfounded, could damage our reputation and adversely affect our operating
results.
Security breaches and cyber incidents and their remediation, whether at Nordstrom, our third-party providers or other retailers, could expose
us to a risk of loss or misappropriation of personal or confidential information, litigation, investigation, regulatory enforcement action, fines,
information technology system failures or network disruptions, potential liability, reputation damage and loss of customers’, employees’ or
third-party providers’ trust and business, any of which could adversely impact our reputation, competitiveness and financial performance. In
the event of a significant security breach or cyberattack, we maintain insurance that may mitigate damages such as financial losses and
remediation costs. Other impacts include higher insurance deductibles, increased insurance premiums, and increased cyber-protection costs,
which may include the costs associated with making organizational changes, deploying additional personnel and protection technologies,
training employees and engaging third party experts and consultants.
10
Our business may be impacted by information technology system failures or network disruptions.
Our ability to transact with customers and operate our business depends on the efficient operation of various information systems, including
data centers, hardware, software and applications, to manage certain aspects of our Company, including store and online transactions,
logistics and communication, inventory and reporting systems. We seek to build quality systems or select reputable system vendors and we
implement procedures intended to enable us to protect our systems when we modify them. We test our systems to expose and address
vulnerabilities, and we train our employees regarding practices to protect and maintain the safety of our systems.
There are inherent risks associated with modifying or replacing systems, and with new or changed relationships, including accurately
capturing and maintaining data, realizing the expected benefit of the change and managing the potential disruption of the operation of the
systems as the changes are implemented. Potential issues associated with implementing technology initiatives and the time and resources
required to optimize the benefits of new elements of our systems and infrastructure could reduce the efficiency of our operations in the short
term.
If we encounter an interruption or deterioration in critical systems or processes or experience the loss of critical data, which may result from
security or cybersecurity threats or attacks, natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or
war, computer viruses, physical or electronic break-ins or third-party or other disruptions, our business could be harmed or our digital activity
may decrease because it is more difficult to use. Depending on the severity of the failure, our disaster recovery plans may be inadequate or
ineffective. These events could also damage our reputation, result in loss of sales and be expensive to remedy.
Improvements to our merchandise buying and fulfillment processes and systems could adversely affect our business if not
successfully executed.
We are making investments to improve our merchandise planning, procurement, allocation and fulfillment capabilities through changes in
personnel, processes, location logistics and technology over a period of several years. If we encounter challenges associated with change
management, the ability to hire and retain key personnel involved in these efforts, implementation of associated information technology or
adoption of new processes, features or capabilities, our ability to continue to successfully execute our strategy or evolve our strategy with
changes in the retail environment could be adversely affected. As a result, we may not derive the expected benefits to our sales and
profitability, or we may incur increased costs relative to our current expectations.
Our customer, employee and vendor relationships could be negatively affected if we fail to maintain our corporate culture and
reputation.
We have a well-recognized culture and reputation that consumers may associate with a high level of integrity, customer service and quality
merchandise, and it is one of the reasons customers shop with us and employees choose us as a place of employment. Any significant
damage to our reputation, including damages arising from factors outside our control or on social media, could diminish customer trust,
weaken our vendor relationships, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified
employees. Additionally, management may not accurately assess the impact of significant legislative changes, including those that relate to
privacy, employment matters and health care, impacting our relationship with our customers or our workforce and adversely affecting our
sales and operations.
If we do not effectively design and implement our strategic and business planning processes to attract, retain, train and develop
talent and future leaders, our business may suffer.
We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace,
and the talents of our workforce to execute our business strategies and objectives. We have succession plans in place and our Board of
Directors reviews these succession plans. If our succession plans do not adequately cover significant and unanticipated turnover, the loss of
the services of any of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our
business.
Our program agreement with TD could adversely impact our business.
The program agreement with TD was consummated on terms that allow us to maintain customer-facing activities while TD provides
Nordstrom-branded payment methods and payment processing services. If we fail to meet certain service levels, TD has the right to assume
certain individual servicing functions including managing accounts and collection activities. If we lose control of such activities and functions,
if we do not successfully respond to potential risks and appropriately manage potential costs associated with the program agreement with
TD, or if these transactions negatively impact the customer service associated with our cards, resulting in harm to our business reputation
and competitive position, our operations, cash flows and returns to shareholders could be adversely affected. If TD became unwilling or
unable to provide these services or if there are changes to the risk management policies implemented under our program agreement with
TD, our results may be negatively impacted. If we lose control over certain servicing functions and TD is unable to successfully manage
accounts and collection activities, it may heighten the risk of credit losses.
Nordstrom, Inc. and subsidiaries 11
Our customer relationships and sales may be negatively impacted if we do not anticipate and respond to consumer preferences
and fashion trends or manage inventory levels appropriately.
Our ability to predict or respond to constantly changing fashion trends, consumer preferences and spending patterns significantly impacts our
sales and operating results. If we do not identify and respond to emerging trends in consumer spending and preferences quickly enough, we
may harm our ability to retain our existing customers or attract new customers. Ensuring we optimize our inventory and improve the planning
and management of inventory through use of data and analytics is critical to serving the customer, driving growth and maximizing profitability.
If we purchase too much inventory, we may be forced to sell our merchandise at lower average margins, which could harm our business.
Conversely, if we fail to purchase enough merchandise, we may lose opportunities for additional sales and potentially harm relationships with
our customers.
The investment in existing and new locations, including our Nordstrom Men’s Store NYC and Nordstrom NYC and Supply Chain
Network facilities, may not achieve our expected returns.
The locations of our existing stores, planned store openings and Supply Chain Network facilities are assessed based upon desirability,
demographics and retail environment. This involves certain risks, including properly balancing our capital investments between new stores,
relocations, remodels, fulfillment capabilities, technology and digital channels, assessing the suitability of locations, especially in new
domestic and international markets, and constructing, furnishing and supplying a store or facility in a timely and cost-effective manner, which
may be affected by the actions of third parties, including but not limited to private entities and local, state or federal regulatory agencies. In
particular, we opened our Nordstrom Men’s Store NYC in April 2018 and plan to open Nordstrom NYC in October 2019.
We open our stores in the Spring and Fall, and a delay in a store opening could negatively impact sales and profitability. Sales at our stores
may not meet projections, particularly in light of the changing trends between digital and brick-and-mortar shopping channels, which could
adversely affect our return on investment. As we enter new domestic and international markets, such as Manhattan and Canada, our efforts
will require additional management attention and resources and may distract us from executing our core operations. If we do not select
effective locations for our Supply Chain Network facilities, we could incur significantly higher costs and shipping times that do not meet
customer expectations, which in turn could have a material adverse effect on our business.
Even if we take appropriate measures to safeguard our information, network and environment from security breaches, our
customers, employees and business could still be exposed to risk.
Nordstrom, our subsidiaries and third-party providers access, collect, store and transmit customers’ and employees’ sensitive, confidential or
personal data or information, consumer preferences and credit card information that is subject to privacy and security laws and regulations,
as well as our financial and strategic data. Security breaches of this information may be the result of intentional or inadvertent activities by
our employees, contractors or by third-party providers that may result in the unauthorized release of customer or employee personal or
confidential information. In addition, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly
demanding, with new and constantly changing requirements imposed by local, state, federal and foreign governments.
Worldwide regulatory authorities are considering and have approved various legislative proposals concerning privacy and data protection,
which continue to evolve and apply to our business. For example, following the European Union’s adoption of the General Data Protection
Regulation, a number of jurisdictions where we do business have enacted or are considering new privacy and data protection laws.
Complying with these changing laws may cause us to incur substantial costs, which could have an adverse effect on our business and
results of operations. Further, failure to comply with existing or new laws may result in significant penalties or orders to stop the alleged
noncompliant activity.
We have taken measures to help prevent a breach of our information and comply with cybersecurity requirements by implementing
safeguards and procedures designed to protect the security, confidentiality and access of such information. In addition, where possible, we
require our third-party providers to implement administrative, physical and technical safeguards and procedures to protect the security,
confidentiality and availability of our information. We have suffered breaches of our cybersecurity in the past and are at risk for such
breaches in the future. Any measures we or our third-party providers have implemented to prevent intentional or inadvertent information
security breaches may not be completely effective and may nevertheless result in the unauthorized release of customer, employee or
Company confidential information. Concerns about our practices with regard to the collection, use, retention, security or disclosure of
personal information or other privacy-related matters, even if unfounded, could damage our reputation and adversely affect our operating
results.
Security breaches and cyber incidents and their remediation, whether at Nordstrom, our third-party providers or other retailers, could expose
us to a risk of loss or misappropriation of personal or confidential information, litigation, investigation, regulatory enforcement action, fines,
information technology system failures or network disruptions, potential liability, reputation damage and loss of customers’, employees’ or
third-party providers’ trust and business, any of which could adversely impact our reputation, competitiveness and financial performance. In
the event of a significant security breach or cyberattack, we maintain insurance that may mitigate damages such as financial losses and
remediation costs. Other impacts include higher insurance deductibles, increased insurance premiums, and increased cyber-protection costs,
which may include the costs associated with making organizational changes, deploying additional personnel and protection technologies,
training employees and engaging third party experts and consultants.
10
Our business may be impacted by information technology system failures or network disruptions.
Our ability to transact with customers and operate our business depends on the efficient operation of various information systems, including
data centers, hardware, software and applications, to manage certain aspects of our Company, including store and online transactions,
logistics and communication, inventory and reporting systems. We seek to build quality systems or select reputable system vendors and we
implement procedures intended to enable us to protect our systems when we modify them. We test our systems to expose and address
vulnerabilities, and we train our employees regarding practices to protect and maintain the safety of our systems.
There are inherent risks associated with modifying or replacing systems, and with new or changed relationships, including accurately
capturing and maintaining data, realizing the expected benefit of the change and managing the potential disruption of the operation of the
systems as the changes are implemented. Potential issues associated with implementing technology initiatives and the time and resources
required to optimize the benefits of new elements of our systems and infrastructure could reduce the efficiency of our operations in the short
term.
If we encounter an interruption or deterioration in critical systems or processes or experience the loss of critical data, which may result from
security or cybersecurity threats or attacks, natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or
war, computer viruses, physical or electronic break-ins or third-party or other disruptions, our business could be harmed or our digital activity
may decrease because it is more difficult to use. Depending on the severity of the failure, our disaster recovery plans may be inadequate or
ineffective. These events could also damage our reputation, result in loss of sales and be expensive to remedy.
Improvements to our merchandise buying and fulfillment processes and systems could adversely affect our business if not
successfully executed.
We are making investments to improve our merchandise planning, procurement, allocation and fulfillment capabilities through changes in
personnel, processes, location logistics and technology over a period of several years. If we encounter challenges associated with change
management, the ability to hire and retain key personnel involved in these efforts, implementation of associated information technology or
adoption of new processes, features or capabilities, our ability to continue to successfully execute our strategy or evolve our strategy with
changes in the retail environment could be adversely affected. As a result, we may not derive the expected benefits to our sales and
profitability, or we may incur increased costs relative to our current expectations.
Our customer, employee and vendor relationships could be negatively affected if we fail to maintain our corporate culture and
reputation.
We have a well-recognized culture and reputation that consumers may associate with a high level of integrity, customer service and quality
merchandise, and it is one of the reasons customers shop with us and employees choose us as a place of employment. Any significant
damage to our reputation, including damages arising from factors outside our control or on social media, could diminish customer trust,
weaken our vendor relationships, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified
employees. Additionally, management may not accurately assess the impact of significant legislative changes, including those that relate to
privacy, employment matters and health care, impacting our relationship with our customers or our workforce and adversely affecting our
sales and operations.
If we do not effectively design and implement our strategic and business planning processes to attract, retain, train and develop
talent and future leaders, our business may suffer.
We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace,
and the talents of our workforce to execute our business strategies and objectives. We have succession plans in place and our Board of
Directors reviews these succession plans. If our succession plans do not adequately cover significant and unanticipated turnover, the loss of
the services of any of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our
business.
Our program agreement with TD could adversely impact our business.
The program agreement with TD was consummated on terms that allow us to maintain customer-facing activities while TD provides
Nordstrom-branded payment methods and payment processing services. If we fail to meet certain service levels, TD has the right to assume
certain individual servicing functions including managing accounts and collection activities. If we lose control of such activities and functions,
if we do not successfully respond to potential risks and appropriately manage potential costs associated with the program agreement with
TD, or if these transactions negatively impact the customer service associated with our cards, resulting in harm to our business reputation
and competitive position, our operations, cash flows and returns to shareholders could be adversely affected. If TD became unwilling or
unable to provide these services or if there are changes to the risk management policies implemented under our program agreement with
TD, our results may be negatively impacted. If we lose control over certain servicing functions and TD is unable to successfully manage
accounts and collection activities, it may heighten the risk of credit losses.
Nordstrom, Inc. and subsidiaries 11
Our customer relationships and sales may be negatively impacted if we do not anticipate and respond to consumer preferences
and fashion trends or manage inventory levels appropriately.
Our ability to predict or respond to constantly changing fashion trends, consumer preferences and spending patterns significantly impacts our
sales and operating results. If we do not identify and respond to emerging trends in consumer spending and preferences quickly enough, we
may harm our ability to retain our existing customers or attract new customers. Ensuring we optimize our inventory and improve the planning
and management of inventory through use of data and analytics is critical to serving the customer, driving growth and maximizing profitability.
If we purchase too much inventory, we may be forced to sell our merchandise at lower average margins, which could harm our business.
Conversely, if we fail to purchase enough merchandise, we may lose opportunities for additional sales and potentially harm relationships with
our customers.
The investment in existing and new locations, including our Nordstrom Men’s Store NYC and Nordstrom NYC and Supply Chain
Network facilities, may not achieve our expected returns.
The locations of our existing stores, planned store openings and Supply Chain Network facilities are assessed based upon desirability,
demographics and retail environment. This involves certain risks, including properly balancing our capital investments between new stores,
relocations, remodels, fulfillment capabilities, technology and digital channels, assessing the suitability of locations, especially in new
domestic and international markets, and constructing, furnishing and supplying a store or facility in a timely and cost-effective manner, which
may be affected by the actions of third parties, including but not limited to private entities and local, state or federal regulatory agencies. In
particular, we opened our Nordstrom Men’s Store NYC in April 2018 and plan to open Nordstrom NYC in October 2019.
We open our stores in the Spring and Fall, and a delay in a store opening could negatively impact sales and profitability. Sales at our stores
may not meet projections, particularly in light of the changing trends between digital and brick-and-mortar shopping channels, which could
adversely affect our return on investment. As we enter new domestic and international markets, such as Manhattan and Canada, our efforts
will require additional management attention and resources and may distract us from executing our core operations. If we do not select
effective locations for our Supply Chain Network facilities, we could incur significantly higher costs and shipping times that do not meet
customer expectations, which in turn could have a material adverse effect on our business.
Even if we take appropriate measures to safeguard our information, network and environment from security breaches, our
customers, employees and business could still be exposed to risk.
Nordstrom, our subsidiaries and third-party providers access, collect, store and transmit customers’ and employees’ sensitive, confidential or
personal data or information, consumer preferences and credit card information that is subject to privacy and security laws and regulations,
as well as our financial and strategic data. Security breaches of this information may be the result of intentional or inadvertent activities by
our employees, contractors or by third-party providers that may result in the unauthorized release of customer or employee personal or
confidential information. In addition, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly
demanding, with new and constantly changing requirements imposed by local, state, federal and foreign governments.
Worldwide regulatory authorities are considering and have approved various legislative proposals concerning privacy and data protection,
which continue to evolve and apply to our business. For example, following the European Union’s adoption of the General Data Protection
Regulation, a number of jurisdictions where we do business have enacted or are considering new privacy and data protection laws.
Complying with these changing laws may cause us to incur substantial costs, which could have an adverse effect on our business and
results of operations. Further, failure to comply with existing or new laws may result in significant penalties or orders to stop the alleged
noncompliant activity.
We have taken measures to help prevent a breach of our information and comply with cybersecurity requirements by implementing
safeguards and procedures designed to protect the security, confidentiality and access of such information. In addition, where possible, we
require our third-party providers to implement administrative, physical and technical safeguards and procedures to protect the security,
confidentiality and availability of our information. We have suffered breaches of our cybersecurity in the past and are at risk for such
breaches in the future. Any measures we or our third-party providers have implemented to prevent intentional or inadvertent information
security breaches may not be completely effective and may nevertheless result in the unauthorized release of customer, employee or
Company confidential information. Concerns about our practices with regard to the collection, use, retention, security or disclosure of
personal information or other privacy-related matters, even if unfounded, could damage our reputation and adversely affect our operating
results.
Security breaches and cyber incidents and their remediation, whether at Nordstrom, our third-party providers or other retailers, could expose
us to a risk of loss or misappropriation of personal or confidential information, litigation, investigation, regulatory enforcement action, fines,
information technology system failures or network disruptions, potential liability, reputation damage and loss of customers’, employees’ or
third-party providers’ trust and business, any of which could adversely impact our reputation, competitiveness and financial performance. In
the event of a significant security breach or cyberattack, we maintain insurance that may mitigate damages such as financial losses and
remediation costs. Other impacts include higher insurance deductibles, increased insurance premiums, and increased cyber-protection costs,
which may include the costs associated with making organizational changes, deploying additional personnel and protection technologies,
training employees and engaging third party experts and consultants.
10
Our business may be impacted by information technology system failures or network disruptions.
Our ability to transact with customers and operate our business depends on the efficient operation of various information systems, including
data centers, hardware, software and applications, to manage certain aspects of our Company, including store and online transactions,
logistics and communication, inventory and reporting systems. We seek to build quality systems or select reputable system vendors and we
implement procedures intended to enable us to protect our systems when we modify them. We test our systems to expose and address
vulnerabilities, and we train our employees regarding practices to protect and maintain the safety of our systems.
There are inherent risks associated with modifying or replacing systems, and with new or changed relationships, including accurately
capturing and maintaining data, realizing the expected benefit of the change and managing the potential disruption of the operation of the
systems as the changes are implemented. Potential issues associated with implementing technology initiatives and the time and resources
required to optimize the benefits of new elements of our systems and infrastructure could reduce the efficiency of our operations in the short
term.
If we encounter an interruption or deterioration in critical systems or processes or experience the loss of critical data, which may result from
security or cybersecurity threats or attacks, natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or
war, computer viruses, physical or electronic break-ins or third-party or other disruptions, our business could be harmed or our digital activity
may decrease because it is more difficult to use. Depending on the severity of the failure, our disaster recovery plans may be inadequate or
ineffective. These events could also damage our reputation, result in loss of sales and be expensive to remedy.
Improvements to our merchandise buying and fulfillment processes and systems could adversely affect our business if not
successfully executed.
We are making investments to improve our merchandise planning, procurement, allocation and fulfillment capabilities through changes in
personnel, processes, location logistics and technology over a period of several years. If we encounter challenges associated with change
management, the ability to hire and retain key personnel involved in these efforts, implementation of associated information technology or
adoption of new processes, features or capabilities, our ability to continue to successfully execute our strategy or evolve our strategy with
changes in the retail environment could be adversely affected. As a result, we may not derive the expected benefits to our sales and
profitability, or we may incur increased costs relative to our current expectations.
Our customer, employee and vendor relationships could be negatively affected if we fail to maintain our corporate culture and
reputation.
We have a well-recognized culture and reputation that consumers may associate with a high level of integrity, customer service and quality
merchandise, and it is one of the reasons customers shop with us and employees choose us as a place of employment. Any significant
damage to our reputation, including damages arising from factors outside our control or on social media, could diminish customer trust,
weaken our vendor relationships, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified
employees. Additionally, management may not accurately assess the impact of significant legislative changes, including those that relate to
privacy, employment matters and health care, impacting our relationship with our customers or our workforce and adversely affecting our
sales and operations.
If we do not effectively design and implement our strategic and business planning processes to attract, retain, train and develop
talent and future leaders, our business may suffer.
We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace,
and the talents of our workforce to execute our business strategies and objectives. We have succession plans in place and our Board of
Directors reviews these succession plans. If our succession plans do not adequately cover significant and unanticipated turnover, the loss of
the services of any of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our
business.
Our program agreement with TD could adversely impact our business.
The program agreement with TD was consummated on terms that allow us to maintain customer-facing activities while TD provides
Nordstrom-branded payment methods and payment processing services. If we fail to meet certain service levels, TD has the right to assume
certain individual servicing functions including managing accounts and collection activities. If we lose control of such activities and functions,
if we do not successfully respond to potential risks and appropriately manage potential costs associated with the program agreement with
TD, or if these transactions negatively impact the customer service associated with our cards, resulting in harm to our business reputation
and competitive position, our operations, cash flows and returns to shareholders could be adversely affected. If TD became unwilling or
unable to provide these services or if there are changes to the risk management policies implemented under our program agreement with
TD, our results may be negatively impacted. If we lose control over certain servicing functions and TD is unable to successfully manage
accounts and collection activities, it may heighten the risk of credit losses.
Nordstrom, Inc. and subsidiaries 11
Ownership and leasing real estate exposes us to possible liabilities and losses.
We own or lease the land, buildings and equipment for all of our stores and Supply Chain Network facilities and are therefore subject to all of
the risks associated with owning and leasing real estate. In particular, the value of the assets could decrease, their operating costs could
increase, or a store or facility may not be opened as planned due to changes in the real estate market, demographic trends, site competition,
dependence on third-party performance or overall economic environment. Additionally, we are potentially subject to liability for environmental
conditions, exit costs associated with disposal of a store and commitments to pay base rent for the entire lease term or operate a store for
the duration of an operating covenant.
Investment and partnerships in new business strategies and acquisitions could disrupt our core business.
We have invested in or are pursuing strategic growth opportunities, which may include acquisitions of, or investments in, other businesses,
as well as new technologies or other investments to provide a superior customer shopping experience in our stores and digital channels.
Additionally, our business model will continue to rely more on partnerships with third parties for certain strategic initiatives and technologies. If
these investments, acquisitions or partnerships do not perform as expected or create operational difficulties, we may record impairment
charges. If we do not realize our anticipated return on investments, our profitability and growth could be adversely affected.
If we fail to appropriately manage our capital, we may negatively impact our operations and shareholder return.
We utilize working capital to finance our operations, make capital expenditures and acquisitions, manage our debt levels and return value to
our shareholders through dividends and share repurchases. Changes in the credit and capital markets, including market disruptions, limited
liquidity and interest rate fluctuations, may increase the cost of financing or restrict access to a potential source of liquidity. A deterioration in
our capital structure or the quality and stability of our earnings could result in noncompliance with our debt covenants or a downgrade of our
credit rating, constraining the financing available to our Company. If our access to financing is restricted or our borrowing costs increase, our
operations and financial condition could be adversely impacted. Further, if we do not properly allocate our capital to maximize returns, our
operations, cash flows and returns to shareholders could be adversely affected.
The concentration of stock ownership in a small number of our shareholders could limit our shareholders’ ability to influence
corporate matters.
We have regularly reported in our annual proxy statements the holdings of members of the Nordstrom family, including Bruce A. Nordstrom,
our former Co-President and Chairman of the Board, his sister Anne E. Gittinger and members of the Nordstrom family within our Executive
Team. According to the Schedule 13D/A filed with the SEC on February 4, 2019, these individuals beneficially owned an aggregate of
approximately 31% of our common stock. As a result, either individually or acting together, they may be able to exercise considerable
influence over matters requiring shareholder approval. In addition, as reported in our periodic filings, our Board of Directors has from time to
time authorized share repurchases. While these share repurchases may be offset in part by share issuances under our equity incentive
plans and as consideration for acquisitions, the repurchases may nevertheless have the effect of increasing the overall percentage
ownership held by these shareholders. The corporate law of the State of Washington, where the Company is incorporated, provides that
approval of a merger or similar significant corporate transaction requires the affirmative vote of two-thirds of a company’s outstanding
shares. The beneficial ownership of these shareholders may have the effect of discouraging offers to acquire us, delay or otherwise prevent
a significant corporate transaction because the consummation of any such transaction would likely require the approval of these
shareholders. As a result, the market price of our common stock could be affected.
RISKS DUE TO ECONOMIC AND EXTERNAL MARKET FACTORS
Our revenues and operating results are affected by the seasonal nature of our business and cyclical trends in consumer spending.
Our business, like that of other retailers, is subject to seasonal fluctuations and cyclical trends in consumer spending. Due to our Anniversary
Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third
quarters of the fiscal year. Any factor that negatively impacts these selling seasons could have an adverse effect on our results of operations
for the entire year. To provide shareholders a better understanding of management’s expectations surrounding results, we provide public
guidance on our expected operating and financial results for future periods comprised of forward-looking statements subject to certain risks
and uncertainties.
A downturn in economic conditions and other external market factors could have a significant adverse effect on our business and
stock price.
During economic downturns, fewer customers may shop for the high-quality items in our stores and on our websites, as these products may
be seen as discretionary, and those who do shop may limit the amount of their purchases. This reduced demand may lead to lower sales,
higher markdowns and an overly promotional environment or increased marketing and promotional spending.
Additionally, factors such as results differing from guidance, changes in sales and operating income in the peak seasons, changes in our
market valuations, performance results for the general retail industry, announcements by us or our industry peers or changes in analysts’
recommendations may cause volatility in the price of our common stock and our shareholder returns.
12
Our stores located in shopping centers may be adversely affected by any declines in consumer traffic of shopping centers.
The majority of our stores are located within shopping centers and benefit from the abilities that we and other anchor tenants have to
generate consumer traffic. A substantial decline in shopping center traffic, the development of new shopping centers, the lack of availability of
favorable locations within existing or new shopping centers, the success of individual shopping centers and the success of other anchor
tenants may negatively impact our ability to maintain or grow our sales in existing stores, as well as our ability to open new stores, which
could have an adverse effect on our financial condition or results of operations.
Our business depends on third parties for the production, supply or delivery of goods, and a disruption could result in lost sales or
increased costs.
Timely receipts of quality merchandise from third parties is critical to our business. Our process to identify qualified vendors and access
quality products in an efficient manner on acceptable terms and cost can be complex. Violations of law with respect to quality and safety by
our importers, manufacturers or distributors could result in delays in shipments and receipt of goods or damage our reputation, resulting in
lost sales. These vendors may experience difficulties due to economic, political or environmental conditions or the countries in which
merchandise is manufactured could become subject to new trade restrictions, including increased customs restrictions, tariffs or quotas.
Additionally, changes in tax and trade policies that impact the retail industry, such as increased taxation on imported goods, could have a
material adverse effect on our business, results of operations and liquidity.
The results from our credit card operations could be adversely affected by changes in market conditions or laws.
Revenues earned under our program agreement with TD are indirectly subject to economic and market conditions that are beyond our
control, including, but not limited to, interest rates, consumer credit availability, demand for credit, consumer debt levels, payment patterns,
delinquency rates, employment trends, laws and other factors. Changes in these economic and market conditions could impair our revenues
and profitability.
Our business and operations could be materially and adversely affected by supply chain disruptions, port disruptions, severe
weather patterns, natural disasters, widespread pandemics and other natural or man-made disruptions.
These disruptions could cause, among other things, a decrease in consumer spending that would negatively impact our sales, staffing
shortages in our stores, Supply Chain Network facilities or corporate offices, interruptions in the flow of merchandise to our stores,
disruptions in the operations of our merchandise vendors or property developers, increased costs and a negative impact on our reputation
and long-term growth plans. We have a significant amount of our total sales, stores and square footage in the west coast of the United
States, particularly in California, which increases our exposure to any market-disrupting conditions in this region.
RISKS DUE TO LEGAL AND REGULATORY FACTORS
We are subject to certain laws, litigation, regulatory matters and ethical standards, and compliance or our failure to comply with or
adequately address developments as they arise could adversely affect our reputation and operations.
Our policies, procedures and practices and the technology we implement are designed to comply with applicable federal, state, local and
foreign laws, tariffs, rules and regulations, including those imposed by federal, state and local jurisdictions, the SEC, consumer protection
and other regulatory agencies, the marketplace, and foreign countries, as well as responsible business, social and environmental practices,
all of which may change from time to time. Compliance with laws and regulations and/or significant legislative changes may cause our
business to be adversely impacted, or even limit or restrict the activities of our business. In addition, if we fail to comply with applicable laws
and regulations or implement responsible business, social, environmental and supply chain practices, we could be subject to damage to our
reputation, class action lawsuits, regulatory investigations, legal and settlement costs, charges and payments, civil and criminal liability,
increased cost of regulatory compliance, losing our ability to accept credit and debit card payments from our customers, restatements of our
financial statements, disruption of our business and loss of customers. New and emerging privacy and data protection laws may increase
compliance expenses and limit business opportunities and strategic initiatives, including customer engagement. Any required changes to our
employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and harm to
our business and results of operations. In addition, political and economic factors could lead to unfavorable changes in federal, state and
foreign tax laws, which may affect our tax assets or liabilities and adversely affect our results of operations. We are also regularly involved in
various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our
business and financial condition.
Changes to accounting rules and regulations could affect our financial results or financial condition.
Accounting principles and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of accounting
matters that are relevant to our business, including, but not limited to, revenue recognition, merchandise inventories, leasing, impairment of
long-lived assets and tax matters are highly complex and involve subjective assumptions, estimates and judgments. Changes in these rules
and regulations, changes in our interpretation of the rules or regulations or changes in underlying assumptions, estimates or judgments could
adversely affect our financial performance or financial position.
Nordstrom, Inc. and subsidiaries 13
Ownership and leasing real estate exposes us to possible liabilities and losses.
We own or lease the land, buildings and equipment for all of our stores and Supply Chain Network facilities and are therefore subject to all of
the risks associated with owning and leasing real estate. In particular, the value of the assets could decrease, their operating costs could
increase, or a store or facility may not be opened as planned due to changes in the real estate market, demographic trends, site competition,
dependence on third-party performance or overall economic environment. Additionally, we are potentially subject to liability for environmental
conditions, exit costs associated with disposal of a store and commitments to pay base rent for the entire lease term or operate a store for
the duration of an operating covenant.
Investment and partnerships in new business strategies and acquisitions could disrupt our core business.
We have invested in or are pursuing strategic growth opportunities, which may include acquisitions of, or investments in, other businesses,
as well as new technologies or other investments to provide a superior customer shopping experience in our stores and digital channels.
Additionally, our business model will continue to rely more on partnerships with third parties for certain strategic initiatives and technologies. If
these investments, acquisitions or partnerships do not perform as expected or create operational difficulties, we may record impairment
charges. If we do not realize our anticipated return on investments, our profitability and growth could be adversely affected.
If we fail to appropriately manage our capital, we may negatively impact our operations and shareholder return.
We utilize working capital to finance our operations, make capital expenditures and acquisitions, manage our debt levels and return value to
our shareholders through dividends and share repurchases. Changes in the credit and capital markets, including market disruptions, limited
liquidity and interest rate fluctuations, may increase the cost of financing or restrict access to a potential source of liquidity. A deterioration in
our capital structure or the quality and stability of our earnings could result in noncompliance with our debt covenants or a downgrade of our
credit rating, constraining the financing available to our Company. If our access to financing is restricted or our borrowing costs increase, our
operations and financial condition could be adversely impacted. Further, if we do not properly allocate our capital to maximize returns, our
operations, cash flows and returns to shareholders could be adversely affected.
The concentration of stock ownership in a small number of our shareholders could limit our shareholders’ ability to influence
corporate matters.
We have regularly reported in our annual proxy statements the holdings of members of the Nordstrom family, including Bruce A. Nordstrom,
our former Co-President and Chairman of the Board, his sister Anne E. Gittinger and members of the Nordstrom family within our Executive
Team. According to the Schedule 13D/A filed with the SEC on February 4, 2019, these individuals beneficially owned an aggregate of
approximately 31% of our common stock. As a result, either individually or acting together, they may be able to exercise considerable
influence over matters requiring shareholder approval. In addition, as reported in our periodic filings, our Board of Directors has from time to
time authorized share repurchases. While these share repurchases may be offset in part by share issuances under our equity incentive
plans and as consideration for acquisitions, the repurchases may nevertheless have the effect of increasing the overall percentage
ownership held by these shareholders. The corporate law of the State of Washington, where the Company is incorporated, provides that
approval of a merger or similar significant corporate transaction requires the affirmative vote of two-thirds of a company’s outstanding
shares. The beneficial ownership of these shareholders may have the effect of discouraging offers to acquire us, delay or otherwise prevent
a significant corporate transaction because the consummation of any such transaction would likely require the approval of these
shareholders. As a result, the market price of our common stock could be affected.
RISKS DUE TO ECONOMIC AND EXTERNAL MARKET FACTORS
Our revenues and operating results are affected by the seasonal nature of our business and cyclical trends in consumer spending.
Our business, like that of other retailers, is subject to seasonal fluctuations and cyclical trends in consumer spending. Due to our Anniversary
Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third
quarters of the fiscal year. Any factor that negatively impacts these selling seasons could have an adverse effect on our results of operations
for the entire year. To provide shareholders a better understanding of management’s expectations surrounding results, we provide public
guidance on our expected operating and financial results for future periods comprised of forward-looking statements subject to certain risks
and uncertainties.
A downturn in economic conditions and other external market factors could have a significant adverse effect on our business and
stock price.
During economic downturns, fewer customers may shop for the high-quality items in our stores and on our websites, as these products may
be seen as discretionary, and those who do shop may limit the amount of their purchases. This reduced demand may lead to lower sales,
higher markdowns and an overly promotional environment or increased marketing and promotional spending.
Additionally, factors such as results differing from guidance, changes in sales and operating income in the peak seasons, changes in our
market valuations, performance results for the general retail industry, announcements by us or our industry peers or changes in analysts’
recommendations may cause volatility in the price of our common stock and our shareholder returns.
12
Our stores located in shopping centers may be adversely affected by any declines in consumer traffic of shopping centers.
The majority of our stores are located within shopping centers and benefit from the abilities that we and other anchor tenants have to
generate consumer traffic. A substantial decline in shopping center traffic, the development of new shopping centers, the lack of availability of
favorable locations within existing or new shopping centers, the success of individual shopping centers and the success of other anchor
tenants may negatively impact our ability to maintain or grow our sales in existing stores, as well as our ability to open new stores, which
could have an adverse effect on our financial condition or results of operations.
Our business depends on third parties for the production, supply or delivery of goods, and a disruption could result in lost sales or
increased costs.
Timely receipts of quality merchandise from third parties is critical to our business. Our process to identify qualified vendors and access
quality products in an efficient manner on acceptable terms and cost can be complex. Violations of law with respect to quality and safety by
our importers, manufacturers or distributors could result in delays in shipments and receipt of goods or damage our reputation, resulting in
lost sales. These vendors may experience difficulties due to economic, political or environmental conditions or the countries in which
merchandise is manufactured could become subject to new trade restrictions, including increased customs restrictions, tariffs or quotas.
Additionally, changes in tax and trade policies that impact the retail industry, such as increased taxation on imported goods, could have a
material adverse effect on our business, results of operations and liquidity.
The results from our credit card operations could be adversely affected by changes in market conditions or laws.
Revenues earned under our program agreement with TD are indirectly subject to economic and market conditions that are beyond our
control, including, but not limited to, interest rates, consumer credit availability, demand for credit, consumer debt levels, payment patterns,
delinquency rates, employment trends, laws and other factors. Changes in these economic and market conditions could impair our revenues
and profitability.
Our business and operations could be materially and adversely affected by supply chain disruptions, port disruptions, severe
weather patterns, natural disasters, widespread pandemics and other natural or man-made disruptions.
These disruptions could cause, among other things, a decrease in consumer spending that would negatively impact our sales, staffing
shortages in our stores, Supply Chain Network facilities or corporate offices, interruptions in the flow of merchandise to our stores,
disruptions in the operations of our merchandise vendors or property developers, increased costs and a negative impact on our reputation
and long-term growth plans. We have a significant amount of our total sales, stores and square footage in the west coast of the United
States, particularly in California, which increases our exposure to any market-disrupting conditions in this region.
RISKS DUE TO LEGAL AND REGULATORY FACTORS
We are subject to certain laws, litigation, regulatory matters and ethical standards, and compliance or our failure to comply with or
adequately address developments as they arise could adversely affect our reputation and operations.
Our policies, procedures and practices and the technology we implement are designed to comply with applicable federal, state, local and
foreign laws, tariffs, rules and regulations, including those imposed by federal, state and local jurisdictions, the SEC, consumer protection
and other regulatory agencies, the marketplace, and foreign countries, as well as responsible business, social and environmental practices,
all of which may change from time to time. Compliance with laws and regulations and/or significant legislative changes may cause our
business to be adversely impacted, or even limit or restrict the activities of our business. In addition, if we fail to comply with applicable laws
and regulations or implement responsible business, social, environmental and supply chain practices, we could be subject to damage to our
reputation, class action lawsuits, regulatory investigations, legal and settlement costs, charges and payments, civil and criminal liability,
increased cost of regulatory compliance, losing our ability to accept credit and debit card payments from our customers, restatements of our
financial statements, disruption of our business and loss of customers. New and emerging privacy and data protection laws may increase
compliance expenses and limit business opportunities and strategic initiatives, including customer engagement. Any required changes to our
employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and harm to
our business and results of operations. In addition, political and economic factors could lead to unfavorable changes in federal, state and
foreign tax laws, which may affect our tax assets or liabilities and adversely affect our results of operations. We are also regularly involved in
various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our
business and financial condition.
Changes to accounting rules and regulations could affect our financial results or financial condition.
Accounting principles and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of accounting
matters that are relevant to our business, including, but not limited to, revenue recognition, merchandise inventories, leasing, impairment of
long-lived assets and tax matters are highly complex and involve subjective assumptions, estimates and judgments. Changes in these rules
and regulations, changes in our interpretation of the rules or regulations or changes in underlying assumptions, estimates or judgments could
adversely affect our financial performance or financial position.
Nordstrom, Inc. and subsidiaries 13
Ownership and leasing real estate exposes us to possible liabilities and losses.
We own or lease the land, buildings and equipment for all of our stores and Supply Chain Network facilities and are therefore subject to all of
the risks associated with owning and leasing real estate. In particular, the value of the assets could decrease, their operating costs could
increase, or a store or facility may not be opened as planned due to changes in the real estate market, demographic trends, site competition,
dependence on third-party performance or overall economic environment. Additionally, we are potentially subject to liability for environmental
conditions, exit costs associated with disposal of a store and commitments to pay base rent for the entire lease term or operate a store for
the duration of an operating covenant.
Investment and partnerships in new business strategies and acquisitions could disrupt our core business.
We have invested in or are pursuing strategic growth opportunities, which may include acquisitions of, or investments in, other businesses,
as well as new technologies or other investments to provide a superior customer shopping experience in our stores and digital channels.
Additionally, our business model will continue to rely more on partnerships with third parties for certain strategic initiatives and technologies. If
these investments, acquisitions or partnerships do not perform as expected or create operational difficulties, we may record impairment
charges. If we do not realize our anticipated return on investments, our profitability and growth could be adversely affected.
If we fail to appropriately manage our capital, we may negatively impact our operations and shareholder return.
We utilize working capital to finance our operations, make capital expenditures and acquisitions, manage our debt levels and return value to
our shareholders through dividends and share repurchases. Changes in the credit and capital markets, including market disruptions, limited
liquidity and interest rate fluctuations, may increase the cost of financing or restrict access to a potential source of liquidity. A deterioration in
our capital structure or the quality and stability of our earnings could result in noncompliance with our debt covenants or a downgrade of our
credit rating, constraining the financing available to our Company. If our access to financing is restricted or our borrowing costs increase, our
operations and financial condition could be adversely impacted. Further, if we do not properly allocate our capital to maximize returns, our
operations, cash flows and returns to shareholders could be adversely affected.
The concentration of stock ownership in a small number of our shareholders could limit our shareholders’ ability to influence
corporate matters.
We have regularly reported in our annual proxy statements the holdings of members of the Nordstrom family, including Bruce A. Nordstrom,
our former Co-President and Chairman of the Board, his sister Anne E. Gittinger and members of the Nordstrom family within our Executive
Team. According to the Schedule 13D/A filed with the SEC on February 4, 2019, these individuals beneficially owned an aggregate of
approximately 31% of our common stock. As a result, either individually or acting together, they may be able to exercise considerable
influence over matters requiring shareholder approval. In addition, as reported in our periodic filings, our Board of Directors has from time to
time authorized share repurchases. While these share repurchases may be offset in part by share issuances under our equity incentive
plans and as consideration for acquisitions, the repurchases may nevertheless have the effect of increasing the overall percentage
ownership held by these shareholders. The corporate law of the State of Washington, where the Company is incorporated, provides that
approval of a merger or similar significant corporate transaction requires the affirmative vote of two-thirds of a company’s outstanding
shares. The beneficial ownership of these shareholders may have the effect of discouraging offers to acquire us, delay or otherwise prevent
a significant corporate transaction because the consummation of any such transaction would likely require the approval of these
shareholders. As a result, the market price of our common stock could be affected.
RISKS DUE TO ECONOMIC AND EXTERNAL MARKET FACTORS
Our revenues and operating results are affected by the seasonal nature of our business and cyclical trends in consumer spending.
Our business, like that of other retailers, is subject to seasonal fluctuations and cyclical trends in consumer spending. Due to our Anniversary
Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third
quarters of the fiscal year. Any factor that negatively impacts these selling seasons could have an adverse effect on our results of operations
for the entire year. To provide shareholders a better understanding of management’s expectations surrounding results, we provide public
guidance on our expected operating and financial results for future periods comprised of forward-looking statements subject to certain risks
and uncertainties.
A downturn in economic conditions and other external market factors could have a significant adverse effect on our business and
stock price.
During economic downturns, fewer customers may shop for the high-quality items in our stores and on our websites, as these products may
be seen as discretionary, and those who do shop may limit the amount of their purchases. This reduced demand may lead to lower sales,
higher markdowns and an overly promotional environment or increased marketing and promotional spending.
Additionally, factors such as results differing from guidance, changes in sales and operating income in the peak seasons, changes in our
market valuations, performance results for the general retail industry, announcements by us or our industry peers or changes in analysts’
recommendations may cause volatility in the price of our common stock and our shareholder returns.
12
Our stores located in shopping centers may be adversely affected by any declines in consumer traffic of shopping centers.
The majority of our stores are located within shopping centers and benefit from the abilities that we and other anchor tenants have to
generate consumer traffic. A substantial decline in shopping center traffic, the development of new shopping centers, the lack of availability of
favorable locations within existing or new shopping centers, the success of individual shopping centers and the success of other anchor
tenants may negatively impact our ability to maintain or grow our sales in existing stores, as well as our ability to open new stores, which
could have an adverse effect on our financial condition or results of operations.
Our business depends on third parties for the production, supply or delivery of goods, and a disruption could result in lost sales or
increased costs.
Timely receipts of quality merchandise from third parties is critical to our business. Our process to identify qualified vendors and access
quality products in an efficient manner on acceptable terms and cost can be complex. Violations of law with respect to quality and safety by
our importers, manufacturers or distributors could result in delays in shipments and receipt of goods or damage our reputation, resulting in
lost sales. These vendors may experience difficulties due to economic, political or environmental conditions or the countries in which
merchandise is manufactured could become subject to new trade restrictions, including increased customs restrictions, tariffs or quotas.
Additionally, changes in tax and trade policies that impact the retail industry, such as increased taxation on imported goods, could have a
material adverse effect on our business, results of operations and liquidity.
The results from our credit card operations could be adversely affected by changes in market conditions or laws.
Revenues earned under our program agreement with TD are indirectly subject to economic and market conditions that are beyond our
control, including, but not limited to, interest rates, consumer credit availability, demand for credit, consumer debt levels, payment patterns,
delinquency rates, employment trends, laws and other factors. Changes in these economic and market conditions could impair our revenues
and profitability.
Our business and operations could be materially and adversely affected by supply chain disruptions, port disruptions, severe
weather patterns, natural disasters, widespread pandemics and other natural or man-made disruptions.
These disruptions could cause, among other things, a decrease in consumer spending that would negatively impact our sales, staffing
shortages in our stores, Supply Chain Network facilities or corporate offices, interruptions in the flow of merchandise to our stores,
disruptions in the operations of our merchandise vendors or property developers, increased costs and a negative impact on our reputation
and long-term growth plans. We have a significant amount of our total sales, stores and square footage in the west coast of the United
States, particularly in California, which increases our exposure to any market-disrupting conditions in this region.
RISKS DUE TO LEGAL AND REGULATORY FACTORS
We are subject to certain laws, litigation, regulatory matters and ethical standards, and compliance or our failure to comply with or
adequately address developments as they arise could adversely affect our reputation and operations.
Our policies, procedures and practices and the technology we implement are designed to comply with applicable federal, state, local and
foreign laws, tariffs, rules and regulations, including those imposed by federal, state and local jurisdictions, the SEC, consumer protection
and other regulatory agencies, the marketplace, and foreign countries, as well as responsible business, social and environmental practices,
all of which may change from time to time. Compliance with laws and regulations and/or significant legislative changes may cause our
business to be adversely impacted, or even limit or restrict the activities of our business. In addition, if we fail to comply with applicable laws
and regulations or implement responsible business, social, environmental and supply chain practices, we could be subject to damage to our
reputation, class action lawsuits, regulatory investigations, legal and settlement costs, charges and payments, civil and criminal liability,
increased cost of regulatory compliance, losing our ability to accept credit and debit card payments from our customers, restatements of our
financial statements, disruption of our business and loss of customers. New and emerging privacy and data protection laws may increase
compliance expenses and limit business opportunities and strategic initiatives, including customer engagement. Any required changes to our
employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and harm to
our business and results of operations. In addition, political and economic factors could lead to unfavorable changes in federal, state and
foreign tax laws, which may affect our tax assets or liabilities and adversely affect our results of operations. We are also regularly involved in
various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our
business and financial condition.
Changes to accounting rules and regulations could affect our financial results or financial condition.
Accounting principles and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of accounting
matters that are relevant to our business, including, but not limited to, revenue recognition, merchandise inventories, leasing, impairment of
long-lived assets and tax matters are highly complex and involve subjective assumptions, estimates and judgments. Changes in these rules
and regulations, changes in our interpretation of the rules or regulations or changes in underlying assumptions, estimates or judgments could
adversely affect our financial performance or financial position.
Nordstrom, Inc. and subsidiaries 13
Ownership and leasing real estate exposes us to possible liabilities and losses.
We own or lease the land, buildings and equipment for all of our stores and Supply Chain Network facilities and are therefore subject to all of
the risks associated with owning and leasing real estate. In particular, the value of the assets could decrease, their operating costs could
increase, or a store or facility may not be opened as planned due to changes in the real estate market, demographic trends, site competition,
dependence on third-party performance or overall economic environment. Additionally, we are potentially subject to liability for environmental
conditions, exit costs associated with disposal of a store and commitments to pay base rent for the entire lease term or operate a store for
the duration of an operating covenant.
Investment and partnerships in new business strategies and acquisitions could disrupt our core business.
We have invested in or are pursuing strategic growth opportunities, which may include acquisitions of, or investments in, other businesses,
as well as new technologies or other investments to provide a superior customer shopping experience in our stores and digital channels.
Additionally, our business model will continue to rely more on partnerships with third parties for certain strategic initiatives and technologies. If
these investments, acquisitions or partnerships do not perform as expected or create operational difficulties, we may record impairment
charges. If we do not realize our anticipated return on investments, our profitability and growth could be adversely affected.
If we fail to appropriately manage our capital, we may negatively impact our operations and shareholder return.
We utilize working capital to finance our operations, make capital expenditures and acquisitions, manage our debt levels and return value to
our shareholders through dividends and share repurchases. Changes in the credit and capital markets, including market disruptions, limited
liquidity and interest rate fluctuations, may increase the cost of financing or restrict access to a potential source of liquidity. A deterioration in
our capital structure or the quality and stability of our earnings could result in noncompliance with our debt covenants or a downgrade of our
credit rating, constraining the financing available to our Company. If our access to financing is restricted or our borrowing costs increase, our
operations and financial condition could be adversely impacted. Further, if we do not properly allocate our capital to maximize returns, our
operations, cash flows and returns to shareholders could be adversely affected.
The concentration of stock ownership in a small number of our shareholders could limit our shareholders’ ability to influence
corporate matters.
We have regularly reported in our annual proxy statements the holdings of members of the Nordstrom family, including Bruce A. Nordstrom,
our former Co-President and Chairman of the Board, his sister Anne E. Gittinger and members of the Nordstrom family within our Executive
Team. According to the Schedule 13D/A filed with the SEC on February 4, 2019, these individuals beneficially owned an aggregate of
approximately 31% of our common stock. As a result, either individually or acting together, they may be able to exercise considerable
influence over matters requiring shareholder approval. In addition, as reported in our periodic filings, our Board of Directors has from time to
time authorized share repurchases. While these share repurchases may be offset in part by share issuances under our equity incentive
plans and as consideration for acquisitions, the repurchases may nevertheless have the effect of increasing the overall percentage
ownership held by these shareholders. The corporate law of the State of Washington, where the Company is incorporated, provides that
approval of a merger or similar significant corporate transaction requires the affirmative vote of two-thirds of a company’s outstanding
shares. The beneficial ownership of these shareholders may have the effect of discouraging offers to acquire us, delay or otherwise prevent
a significant corporate transaction because the consummation of any such transaction would likely require the approval of these
shareholders. As a result, the market price of our common stock could be affected.
RISKS DUE TO ECONOMIC AND EXTERNAL MARKET FACTORS
Our revenues and operating results are affected by the seasonal nature of our business and cyclical trends in consumer spending.
Our business, like that of other retailers, is subject to seasonal fluctuations and cyclical trends in consumer spending. Due to our Anniversary
Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third
quarters of the fiscal year. Any factor that negatively impacts these selling seasons could have an adverse effect on our results of operations
for the entire year. To provide shareholders a better understanding of management’s expectations surrounding results, we provide public
guidance on our expected operating and financial results for future periods comprised of forward-looking statements subject to certain risks
and uncertainties.
A downturn in economic conditions and other external market factors could have a significant adverse effect on our business and
stock price.
During economic downturns, fewer customers may shop for the high-quality items in our stores and on our websites, as these products may
be seen as discretionary, and those who do shop may limit the amount of their purchases. This reduced demand may lead to lower sales,
higher markdowns and an overly promotional environment or increased marketing and promotional spending.
Additionally, factors such as results differing from guidance, changes in sales and operating income in the peak seasons, changes in our
market valuations, performance results for the general retail industry, announcements by us or our industry peers or changes in analysts’
recommendations may cause volatility in the price of our common stock and our shareholder returns.
12
Our stores located in shopping centers may be adversely affected by any declines in consumer traffic of shopping centers.
The majority of our stores are located within shopping centers and benefit from the abilities that we and other anchor tenants have to
generate consumer traffic. A substantial decline in shopping center traffic, the development of new shopping centers, the lack of availability of
favorable locations within existing or new shopping centers, the success of individual shopping centers and the success of other anchor
tenants may negatively impact our ability to maintain or grow our sales in existing stores, as well as our ability to open new stores, which
could have an adverse effect on our financial condition or results of operations.
Our business depends on third parties for the production, supply or delivery of goods, and a disruption could result in lost sales or
increased costs.
Timely receipts of quality merchandise from third parties is critical to our business. Our process to identify qualified vendors and access
quality products in an efficient manner on acceptable terms and cost can be complex. Violations of law with respect to quality and safety by
our importers, manufacturers or distributors could result in delays in shipments and receipt of goods or damage our reputation, resulting in
lost sales. These vendors may experience difficulties due to economic, political or environmental conditions or the countries in which
merchandise is manufactured could become subject to new trade restrictions, including increased customs restrictions, tariffs or quotas.
Additionally, changes in tax and trade policies that impact the retail industry, such as increased taxation on imported goods, could have a
material adverse effect on our business, results of operations and liquidity.
The results from our credit card operations could be adversely affected by changes in market conditions or laws.
Revenues earned under our program agreement with TD are indirectly subject to economic and market conditions that are beyond our
control, including, but not limited to, interest rates, consumer credit availability, demand for credit, consumer debt levels, payment patterns,
delinquency rates, employment trends, laws and other factors. Changes in these economic and market conditions could impair our revenues
and profitability.
Our business and operations could be materially and adversely affected by supply chain disruptions, port disruptions, severe
weather patterns, natural disasters, widespread pandemics and other natural or man-made disruptions.
These disruptions could cause, among other things, a decrease in consumer spending that would negatively impact our sales, staffing
shortages in our stores, Supply Chain Network facilities or corporate offices, interruptions in the flow of merchandise to our stores,
disruptions in the operations of our merchandise vendors or property developers, increased costs and a negative impact on our reputation
and long-term growth plans. We have a significant amount of our total sales, stores and square footage in the west coast of the United
States, particularly in California, which increases our exposure to any market-disrupting conditions in this region.
RISKS DUE TO LEGAL AND REGULATORY FACTORS
We are subject to certain laws, litigation, regulatory matters and ethical standards, and compliance or our failure to comply with or
adequately address developments as they arise could adversely affect our reputation and operations.
Our policies, procedures and practices and the technology we implement are designed to comply with applicable federal, state, local and
foreign laws, tariffs, rules and regulations, including those imposed by federal, state and local jurisdictions, the SEC, consumer protection
and other regulatory agencies, the marketplace, and foreign countries, as well as responsible business, social and environmental practices,
all of which may change from time to time. Compliance with laws and regulations and/or significant legislative changes may cause our
business to be adversely impacted, or even limit or restrict the activities of our business. In addition, if we fail to comply with applicable laws
and regulations or implement responsible business, social, environmental and supply chain practices, we could be subject to damage to our
reputation, class action lawsuits, regulatory investigations, legal and settlement costs, charges and payments, civil and criminal liability,
increased cost of regulatory compliance, losing our ability to accept credit and debit card payments from our customers, restatements of our
financial statements, disruption of our business and loss of customers. New and emerging privacy and data protection laws may increase
compliance expenses and limit business opportunities and strategic initiatives, including customer engagement. Any required changes to our
employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and harm to
our business and results of operations. In addition, political and economic factors could lead to unfavorable changes in federal, state and
foreign tax laws, which may affect our tax assets or liabilities and adversely affect our results of operations. We are also regularly involved in
various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our
business and financial condition.
Changes to accounting rules and regulations could affect our financial results or financial condition.
Accounting principles and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of accounting
matters that are relevant to our business, including, but not limited to, revenue recognition, merchandise inventories, leasing, impairment of
long-lived assets and tax matters are highly complex and involve subjective assumptions, estimates and judgments. Changes in these rules
and regulations, changes in our interpretation of the rules or regulations or changes in underlying assumptions, estimates or judgments could
adversely affect our financial performance or financial position.
Nordstrom, Inc. and subsidiaries 13
Item 1B. Unresolved Staff Comments.
None.
14
Item 2. Properties.
The following table summarizes the number of retail stores we own or lease, and the percentage of total store square footage represented by
each listed category as of February 2, 2019:
Number of stores
Full-Price1 Off-Price2
% of total store
square footage
Leased stores on leased land 43 239 44%
Owned stores on leased land 63 — 37%
Owned stores on owned land 32 1 18%
Partly owned and partly leased store 1 — 1%
Total 139 240 100%
1 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local.
2 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
The following table summarizes our store count and square footage activity:
Store count Square footage (000’s)
Fiscal year 2018 2017 2016 2018 2017 2016
Total, beginning of year 366 349 323 30,218 29,792 28,610
Store openings1:
Full-Price2 10 2 5 277 184 629
Off-Price3 6 17 22 170 559 702
Stores closed (3) (2) (1) (280) (317) (149)
Total, end of year 379 366 349 30,385 30,218 29,792
Relocations and other1 1 3 3 (5) 33 (9)
1 Store opening square footage includes adjustments due to store relocations or remodels.
2 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local. Store openings for 2018 consist of one
full-line store, six Canada Rack stores, one Jeffrey boutique and two Nordstrom Locals.
3 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
The following table lists our retail store count and square footage by state/province as of February 2, 2019:
Business Full-Price1 Off-Price2 Total
Count
Square Footage
(000’s) Count
Square Footage
(000’s) Count
Square Footage
(000’s)
U.S.
Alabama — — 1 35 1 35
Alaska 1 97 1 35 2 1
32
Arizona 2 384 9 313 11 697
California 35 5,225 53 1,974 88 7,199
Colorado 3 559 6 213 9 772
Connecticut 1 189 1 36 2 225
Delaware 1 127 1 32 2 159
Florida 9 1,389 16 545 25 1,934
Georgia 3 395 4 153 7 5
48
Hawaii 1 195 2
78
3 273
Idaho — — 1 37 1 37
Illinois 5 973 16 594 21 1,567
Indiana 1 134 2 60 3 194
Iowa — — 1 35 1 35
Kansas 1 219 1 35 2 2
54
Kentucky — — 1 33 1 33
Louisiana — — 3 90 3 90
Maine — — 1 30 1
30
Maryland 4 765 5 186 9 951
Massachusetts 5 604 7 266 12 8
70
Michigan 3 552 5 178 8 730
Minnesota 2 380 5 173 7 553
Missouri 2 342 2 69 4 411
Nevada 1 207 3 101 4 308
New Jersey 5 991 8 284 13 1,275
New Mexico — — 1 34 1 34
New York 5 547 12 433 17 980
North Carolina 2 300 2 74 4 374
Ohio 3 549 6 224 9 773
Oklahoma — — 2 67 2 67
Oregon 3 484 6 218 9 702
Pennsylvania 2 381 7 240 9 621
Puerto Rico 1 143 — — 1 143
Rhode Island — — 1 38 1
38
South Carolina — — 3 101 3 101
Tennessee 1 145 2 69 3 214
Texas 10 1,580 18 613 28 2,193
Utah 2 277 4 126 6 403
Virginia 4 746 7 268 11 1,014
Washington 7 1,392 9 354 16 1,7
46
Washington D.C. 1 8 3 107 4 115
Wisconsin 1 150 2 67 3 217
Canada
Alberta 3 208 — — 3 208
British Columbia 1 231 — — 1 231
Ontario 8 899 — — 8 899
Total 139 21,767 240 8,618 379 30,385
1 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local.
2 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
Nordstrom, Inc. and subsidiaries 15
Item 1B. Unresolved Staff Comments.
None.
14
Item 2. Properties.
The following table summarizes the number of retail stores we own or lease, and the percentage of total store square footage represented by
each listed category as of February 2, 2019:
Number of stores
Full-Price1 Off-Price2
% of total store
square footage
Leased stores on leased land 43 239 44%
Owned stores on leased land 63 — 37%
Owned stores on owned land 32 1 18%
Partly owned and partly leased store 1 — 1%
Total 139 240 100%
1 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local.
2 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
The following table summarizes our store count and square footage activity:
Store count Square footage (000’s)
Fiscal year 2018 2017 2016 2018 2017 2016
Total, beginning of year 366 349 323 30,218 29,792 28,610
Store openings1:
Full-Price2 10 2 5 277 184 629
Off-Price3 6 17 22 170 559 702
Stores closed (3) (2) (1) (280) (317) (149)
Total, end of year 379 366 349 30,385 30,218 29,792
Relocations and other1 1 3 3 (5) 33 (9)
1 Store opening square footage includes adjustments due to store relocations or remodels.
2 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local. Store openings for 2018 consist of one
full-line store, six Canada Rack stores, one Jeffrey boutique and two Nordstrom Locals.
3 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
The following table lists our retail store count and square footage by state/province as of February 2, 2019:
Business Full-Price1 Off-Price2 Total
Count
Square Footage
(000’s) Count
Square Footage
(000’s) Count
Square Footage
(000’s)
U.S.
Alabama — — 1 35 1 35
Alaska 1 97 1 35 2 132
Arizona 2 384 9 313 11 697
California 35 5,225 53 1,974 88 7,199
Colorado 3 559 6 213 9 772
Connecticut 1 189 1 36 2 225
Delaware 1 127 1 32 2 159
Florida 9 1,389 16 545 25 1,934
Georgia 3 395 4 153 7 548
Hawaii 1 195 2 78 3 273
Idaho — — 1 37 1 37
Illinois 5 973 16 594 21 1,567
Indiana 1 134 2 60 3 194
Iowa — — 1 35 1 35
Kansas 1 219 1 35 2 254
Kentucky — — 1 33 1 33
Louisiana — — 3 90 3 90
Maine — — 1 30 1 30
Maryland 4 765 5 186 9 951
Massachusetts 5 604 7 266 12 870
Michigan 3 552 5 178 8 730
Minnesota 2 380 5 173 7 553
Missouri 2 342 2 69 4 411
Nevada 1 207 3 101 4 308
New Jersey 5 991 8 284 13 1,275
New Mexico — — 1 34 1 34
New York 5 547 12 433 17 980
North Carolina 2 300 2 74 4 374
Ohio 3 549 6 224 9 773
Oklahoma — — 2 67 2 67
Oregon 3 484 6 218 9 702
Pennsylvania 2 381 7 240 9 621
Puerto Rico 1 143 — — 1 143
Rhode Island — — 1 38 1 38
South Carolina — — 3 101 3 101
Tennessee 1 145 2 69 3 214
Texas 10 1,580 18 613 28 2,193
Utah 2 277 4 126 6 403
Virginia 4 746 7 268 11 1,014
Washington 7 1,392 9 354 16 1,746
Washington D.C. 1 8 3 107 4 115
Wisconsin 1 150 2 67 3 217
Canada
Alberta 3 208 — — 3 208
British Columbia 1 231 — — 1 231
Ontario 8 899 — — 8 899
Total 139 21,767 240 8,618 379 30,385
1 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local.
2 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
Nordstrom, Inc. and subsidiaries 15
Item 1B. Unresolved Staff Comments.
None.
14
Item 2. Properties.
The following table summarizes the number of retail stores we own or lease, and the percentage of total store square footage represented by
each listed category as of February 2, 2019:
Number of stores
Full-Price1 Off-Price2
% of total store
square footage
Leased stores on leased land 43 239 44%
Owned stores on leased land 63 — 37%
Owned stores on owned land 32 1 18%
Partly owned and partly leased store 1 — 1%
Total 139 240 100%
1 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local.
2 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
The following table summarizes our store count and square footage activity:
Store count Square footage (000’s)
Fiscal year 2018 2017 2016 2018 2017 2016
Total, beginning of year 366 349 323 30,218 29,792 28,610
Store openings1:
Full-Price2 10 2 5 277 184 629
Off-Price3 6 17 22 170 559 702
Stores closed (3) (2) (1) (280) (317) (149)
Total, end of year 379 366 349 30,385 30,218 29,792
Relocations and other1 1 3 3 (5) 33 (9)
1 Store opening square footage includes adjustments due to store relocations or remodels.
2 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local. Store openings for 2018 consist of one
full-line store, six Canada Rack stores, one Jeffrey boutique and two Nordstrom Locals.
3 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
The following table lists our retail store count and square footage by state/province as of February 2, 2019:
Business Full-Price1 Off-Price2 Total
Count
Square Footage
(000’s) Count
Square Footage
(000’s) Count
Square Footage
(000’s)
U.S.
Alabama — — 1 35 1 35
Alaska 1 97 1 35 2 132
Arizona 2 384 9 313 11 697
California 35 5,225 53 1,974 88 7,199
Colorado 3 559 6 213 9 772
Connecticut 1 189 1 36 2 225
Delaware 1 127 1 32 2 159
Florida 9 1,389 16 545 25 1,934
Georgia 3 395 4 153 7 548
Hawaii 1 195 2 78 3 273
Idaho — — 1 37 1 37
Illinois 5 973 16 594 21 1,567
Indiana 1 134 2 60 3 194
Iowa — — 1 35 1 35
Kansas 1 219 1 35 2 254
Kentucky — — 1 33 1 33
Louisiana — — 3 90 3 90
Maine — — 1 30 1 30
Maryland 4 765 5 186 9 951
Massachusetts 5 604 7 266 12 870
Michigan 3 552 5 178 8 730
Minnesota 2 380 5 173 7 553
Missouri 2 342 2 69 4 411
Nevada 1 207 3 101 4 308
New Jersey 5 991 8 284 13 1,275
New Mexico — — 1 34 1 34
New York 5 547 12 433 17 980
North Carolina 2 300 2 74 4 374
Ohio 3 549 6 224 9 773
Oklahoma — — 2 67 2 67
Oregon 3 484 6 218 9 702
Pennsylvania 2 381 7 240 9 621
Puerto Rico 1 143 — — 1 143
Rhode Island — — 1 38 1 38
South Carolina — — 3 101 3 101
Tennessee 1 145 2 69 3 214
Texas 10 1,580 18 613 28 2,193
Utah 2 277 4 126 6 403
Virginia 4 746 7 268 11 1,014
Washington 7 1,392 9 354 16 1,746
Washington D.C. 1 8 3 107 4 115
Wisconsin 1 150 2 67 3 217
Canada
Alberta 3 208 — — 3 208
British Columbia 1 231 — — 1 231
Ontario 8 899 — — 8 899
Total 139 21,767 240 8,618 379 30,385
1 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local.
2 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
Nordstrom, Inc. and subsidiaries 15
Item 1B. Unresolved Staff Comments.
None.
14
Item 2. Properties.
The following table summarizes the number of retail stores we own or lease, and the percentage of total store square footage represented by
each listed category as of February 2, 2019:
Number of stores
Full-Price1 Off-Price2
% of total store
square footage
Leased stores on leased land 43 239 44%
Owned stores on leased land 63 — 37%
Owned stores on owned land 32 1 18%
Partly owned and partly leased store 1 — 1%
Total 139 240 100%
1 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local.
2 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
The following table summarizes our store count and square footage activity:
Store count Square footage (000’s)
Fiscal year 2018 2017 2016 2018 2017 2016
Total, beginning of year 366 349 323 30,218 29,792 28,610
Store openings1:
Full-Price2 10 2 5 277 184 629
Off-Price3 6 17 22 170 559 702
Stores closed (3) (2) (1) (280) (317) (149)
Total, end of year 379 366 349 30,385 30,218 29,792
Relocations and other1 1 3 3 (5) 33 (9)
1 Store opening square footage includes adjustments due to store relocations or remodels.
2 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local. Store openings for 2018 consist of one
full-line store, six Canada Rack stores, one Jeffrey boutique and two Nordstrom Locals.
3 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
The following table lists our retail store count and square footage by state/province as of February 2, 2019:
Business Full-Price1 Off-Price2 Total
Count
Square Footage
(000’s) Count
Square Footage
(000’s) Count
Square Footage
(000’s)
U.S.
Alabama — — 1 35 1 35
Alaska 1 97 1 35 2 132
Arizona 2 384 9 313 11 697
California 35 5,225 53 1,974 88 7,199
Colorado 3 559 6 213 9 772
Connecticut 1 189 1 36 2 225
Delaware 1 127 1 32 2 159
Florida 9 1,389 16 545 25 1,934
Georgia 3 395 4 153 7 548
Hawaii 1 195 2 78 3 273
Idaho — — 1 37 1 37
Illinois 5 973 16 594 21 1,567
Indiana 1 134 2 60 3 194
Iowa — — 1 35 1 35
Kansas 1 219 1 35 2 254
Kentucky — — 1 33 1 33
Louisiana — — 3 90 3 90
Maine — — 1 30 1 30
Maryland 4 765 5 186 9 951
Massachusetts 5 604 7 266 12 870
Michigan 3 552 5 178 8 730
Minnesota 2 380 5 173 7 553
Missouri 2 342 2 69 4 411
Nevada 1 207 3 101 4 308
New Jersey 5 991 8 284 13 1,275
New Mexico — — 1 34 1 34
New York 5 547 12 433 17 980
North Carolina 2 300 2 74 4 374
Ohio 3 549 6 224 9 773
Oklahoma — — 2 67 2 67
Oregon 3 484 6 218 9 702
Pennsylvania 2 381 7 240 9 621
Puerto Rico 1 143 — — 1 143
Rhode Island — — 1 38 1 38
South Carolina — — 3 101 3 101
Tennessee 1 145 2 69 3 214
Texas 10 1,580 18 613 28 2,193
Utah 2 277 4 126 6 403
Virginia 4 746 7 268 11 1,014
Washington 7 1,392 9 354 16 1,746
Washington D.C. 1 8 3 107 4 115
Wisconsin 1 150 2 67 3 217
Canada
Alberta 3 208 — — 3 208
British Columbia 1 231 — — 1 231
Ontario 8 899 — — 8 899
Total 139 21,767 240 8,618 379 30,385
1 Full-Price includes U.S. & Canada full-line stores, Canada Rack stores, Trunk Club clubhouses, Jeffrey boutiques and Nordstrom Local.
2 Off-Price includes U.S. Rack stores and Last Chance clearance stores.
Nordstrom, Inc. and subsidiaries 15
Our headquarters are located in Seattle, Washington, where our offices consist of both leased and owned space. We also have:
• six owned distribution centers (Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro, Maryland and
Gainesville, Florida),
• two owned fulfillment centers (Cedar Rapids, Iowa and Elizabethtown, Pennsylvania),
• one leased fulfillment center (San Bernardino, California),
• four leased office facilities (Chicago, Illinois; Centennial, Colorado; Los Angeles, California and New York City, New York) and
In 2019, we will be opening:
• one leased Omni-channel center (Riverside, California) and
• one leased Local Omni-channel Hub (Torrance, California)
• two full-line stores in the U.S.
• five Nordstrom Rack stores in the U.S.
16
Item 3. Legal Proceedings.
We are subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits alleging
violations of state and/or federal wage and hour and other employment laws, privacy and other consumer-based claims. Some of these
lawsuits include certified classes of litigants, or purport or may be determined to be class or collective actions and seek substantial damages
or injunctive relief, or both, and some may remain unresolved for several years. We believe the recorded accruals in our Consolidated
Financial Statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any
currently identified claim, proceeding or litigation, either alone or in the aggregate, will have a material impact on our results of operations,
financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future.
Item 4. Mine Safety Disclosures.
None.
PART II
Nordstrom, Inc. and subsidiaries 17
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
MARKET AND SHAREHOLDER INFORMATION
Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of
holders of common stock as of March 11, 2019 was 129,000, based upon the number of registered and beneficial shareholders and the
number of employee shareholders in the Nordstrom 401(k) Plan. On this date, we had 155,002,755 shares of common stock outstanding.
For cash dividends declared and paid per share for each fiscal quarter in 2018 and 2017, refer to Note 17: Selected Quarterly Data in Item 8.
SHARE REPURCHASES
(Dollar and share amounts in millions, except per share amounts)
The following is a summary of our fourth quarter share repurchases:
Total Number
of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares that May
Yet Be Purchased Under
the Plans or Programs
November 20
18
(November 4, 2018 to December 1, 2018) 2.0 $52.78 2.0 $1,3
36
December 2018
(December 2, 2018 to January 5, 2019) 4.3 $47.15 4.3 $1,133
January 2019
(January 6, 2019 to February 2, 2019) 5.1 $46.82 5.1 $893
Total 11.4 $47.97 11.4
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. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic
conditions and applicable SEC rules.
Our headquarters are located in Seattle, Washington, where our offices consist of both leased and owned space. We also have:
• six owned distribution centers (Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro, Maryland and
Gainesville, Florida),
• two owned fulfillment centers (Cedar Rapids, Iowa and Elizabethtown, Pennsylvania),
• one leased fulfillment center (San Bernardino, California),
• four leased office facilities (Chicago, Illinois; Centennial, Colorado; Los Angeles, California and New York City, New York) and
In 2019, we will be opening:
• one leased Omni-channel center (Riverside, California) and
• one leased Local Omni-channel Hub (Torrance, California)
• two full-line stores in the U.S.
• five Nordstrom Rack stores in the U.S.
16
Item 3. Legal Proceedings.
We are subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits alleging
violations of state and/or federal wage and hour and other employment laws, privacy and other consumer-based claims. Some of these
lawsuits include certified classes of litigants, or purport or may be determined to be class or collective actions and seek substantial damages
or injunctive relief, or both, and some may remain unresolved for several years. We believe the recorded accruals in our Consolidated
Financial Statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any
currently identified claim, proceeding or litigation, either alone or in the aggregate, will have a material impact on our results of operations,
financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future.
Item 4. Mine Safety Disclosures.
None.
PART II
Nordstrom, Inc. and subsidiaries 17
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
MARKET AND SHAREHOLDER INFORMATION
Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of
holders of common stock as of March 11, 2019 was 129,000, based upon the number of registered and beneficial shareholders and the
number of employee shareholders in the Nordstrom 401(k) Plan. On this date, we had 155,002,755 shares of common stock outstanding.
For cash dividends declared and paid per share for each fiscal quarter in 2018 and 2017, refer to Note 17: Selected Quarterly Data in Item 8.
SHARE REPURCHASES
(Dollar and share amounts in millions, except per share amounts)
The following is a summary of our fourth quarter share repurchases:
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares that May
Yet Be Purchased Under
the Plans or Programs
November 2018
(November 4, 2018 to December 1, 2018) 2.0 $52.78 2.0 $1,336
December 2018
(December 2, 2018 to January 5, 2019) 4.3 $47.15 4.3 $1,133
January 2019
(January 6, 2019 to February 2, 2019) 5.1 $46.82 5.1 $893
Total 11.4 $47.97 11.4
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. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic
conditions and applicable SEC rules.
Our headquarters are located in Seattle, Washington, where our offices consist of both leased and owned space. We also have:
• six owned distribution centers (Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro, Maryland and
Gainesville, Florida),
• two owned fulfillment centers (Cedar Rapids, Iowa and Elizabethtown, Pennsylvania),
• one leased fulfillment center (San Bernardino, California),
• four leased office facilities (Chicago, Illinois; Centennial, Colorado; Los Angeles, California and New York City, New York) and
In 2019, we will be opening:
• one leased Omni-channel center (Riverside, California) and
• one leased Local Omni-channel Hub (Torrance, California)
• two full-line stores in the U.S.
• five Nordstrom Rack stores in the U.S.
16
Item 3. Legal Proceedings.
We are subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits alleging
violations of state and/or federal wage and hour and other employment laws, privacy and other consumer-based claims. Some of these
lawsuits include certified classes of litigants, or purport or may be determined to be class or collective actions and seek substantial damages
or injunctive relief, or both, and some may remain unresolved for several years. We believe the recorded accruals in our Consolidated
Financial Statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any
currently identified claim, proceeding or litigation, either alone or in the aggregate, will have a material impact on our results of operations,
financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future.
Item 4. Mine Safety Disclosures.
None.
PART II
Nordstrom, Inc. and subsidiaries 17
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
MARKET AND SHAREHOLDER INFORMATION
Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of
holders of common stock as of March 11, 2019 was 129,000, based upon the number of registered and beneficial shareholders and the
number of employee shareholders in the Nordstrom 401(k) Plan. On this date, we had 155,002,755 shares of common stock outstanding.
For cash dividends declared and paid per share for each fiscal quarter in 2018 and 2017, refer to Note 17: Selected Quarterly Data in Item 8.
SHARE REPURCHASES
(Dollar and share amounts in millions, except per share amounts)
The following is a summary of our fourth quarter share repurchases:
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares that May
Yet Be Purchased Under
the Plans or Programs
November 2018
(November 4, 2018 to December 1, 2018) 2.0 $52.78 2.0 $1,336
December 2018
(December 2, 2018 to January 5, 2019) 4.3 $47.15 4.3 $1,133
January 2019
(January 6, 2019 to February 2, 2019) 5.1 $46.82 5.1 $893
Total 11.4 $47.97 11.4
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. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic
conditions and applicable SEC rules.
Our headquarters are located in Seattle, Washington, where our offices consist of both leased and owned space. We also have:
• six owned distribution centers (Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro, Maryland and
Gainesville, Florida),
• two owned fulfillment centers (Cedar Rapids, Iowa and Elizabethtown, Pennsylvania),
• one leased fulfillment center (San Bernardino, California),
• four leased office facilities (Chicago, Illinois; Centennial, Colorado; Los Angeles, California and New York City, New York) and
In 2019, we will be opening:
• one leased Omni-channel center (Riverside, California) and
• one leased Local Omni-channel Hub (Torrance, California)
• two full-line stores in the U.S.
• five Nordstrom Rack stores in the U.S.
16
Item 3. Legal Proceedings.
We are subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits alleging
violations of state and/or federal wage and hour and other employment laws, privacy and other consumer-based claims. Some of these
lawsuits include certified classes of litigants, or purport or may be determined to be class or collective actions and seek substantial damages
or injunctive relief, or both, and some may remain unresolved for several years. We believe the recorded accruals in our Consolidated
Financial Statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any
currently identified claim, proceeding or litigation, either alone or in the aggregate, will have a material impact on our results of operations,
financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future.
Item 4. Mine Safety Disclosures.
None.
PART II
Nordstrom, Inc. and subsidiaries 17
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
MARKET AND SHAREHOLDER INFORMATION
Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of
holders of common stock as of March 11, 2019 was 129,000, based upon the number of registered and beneficial shareholders and the
number of employee shareholders in the Nordstrom 401(k) Plan. On this date, we had 155,002,755 shares of common stock outstanding.
For cash dividends declared and paid per share for each fiscal quarter in 2018 and 2017, refer to Note 17: Selected Quarterly Data in Item 8.
SHARE REPURCHASES
(Dollar and share amounts in millions, except per share amounts)
The following is a summary of our fourth quarter share repurchases:
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares that May
Yet Be Purchased Under
the Plans or Programs
November 2018
(November 4, 2018 to December 1, 2018) 2.0 $52.78 2.0 $1,336
December 2018
(December 2, 2018 to January 5, 2019) 4.3 $47.15 4.3 $1,133
January 2019
(January 6, 2019 to February 2, 2019) 5.1 $46.82 5.1 $893
Total 11.4 $47.97 11.4
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. The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic
conditions and applicable SEC rules.
STOCK PRICE PERFORMANCE
The following graph compares the cumulative total return of Nordstrom common stock, Standard & Poor’s Retail Index (“S&P Retail”) and
Standard & Poor’s 500 Index (“S&P 500”) for each of the last five fiscal years, ending February 2, 2019. The Retail Index is composed of 27
retail companies, including Nordstrom, representing an industry group of the S&P 500. The following graph assumes an initial investment of
$100 each in Nordstrom common stock, S&P Retail and the S&P 500 on February 1, 2014 and assumes reinvestment of dividends.
Nordstrom Common Stock S&P Retail S&P 500
PERFORMANCE GRAPH
3
50
300
250
200
150
100
50
0
Do
lla
rs
2/1/14 1/31/15 1/30/16 1/28/17 2/3/18 2/2/19
Year Ended
End of fiscal year 2013 2014 2015 2016 2017 2018
Nordstrom common stock 100 136 96 87 100 97
S&P Retail 100 123 143 169 239 253
S&P 500 100 117 115 139 171 171
18
Item 6. Selected Financial Data.
(Dollars in millions except per square foot and per share amounts)
The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with
Item 1A: Risk Factors, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8: Financial
Statements and Supplementary Data of this Annual Report on Form 10-K.
Fiscal year 2018 2017 2016 2015 2014
Earnings Results
Net sales $15,480 $15,137 $14,498 $14,095 $13,110
Credit card revenues, net1 380 341 259 342 396
Gross profit 5,325 5,247 5,058 4,927 4,704
Selling, general and administrative (“SG&A”) expenses2 (4,868) (4,662) (4,315) (4,168) (3,777)
Earnings before interest and income taxes (“EBIT”) 837 926 805 1,101 1,323
Net earnings 564 437 354 600 720
Balance Sheet and Cash Flow Data
Cash and cash equivalents $957 $1,181 $1,007 $595 $827
Merchandise inventories 1,978 2,027 1,896 1,945 1,733
Land, property and equipment, net 3,921 3,939 3,897 3,735 3,3
40
Total assets1 7,886 8,115 7,858 7,698 9,245
Total long-term debt1 2,685 2,737 2,774 2,805 3,131
Net cash provided by operating activities1 1,296 1,400 1,658 2,470 1,243
Capital expenditures 654 731 846 1,082 861
Performance Metrics
Net sales increase 2.3% 4.4% 2.9% 7.5% 7.8%
Comparable sales increase (decrease)3 1.7% 0.8% (0.4%) 2.7% 4.0%
Digital sales as % of net sales4 30.0% 27.0% 24.0% 21.0% 18.0%
Gross profit % of net sales 34.4% 34.7% 34.9% 35.0% 35.9%
SG&A % of net sales2 31.5% 30.8% 29.8% 29.6% 28.8%
EBIT % of net sales2 5.4% 6.1% 5.6% 7.8% 10.1%
Capital expenditures % of net sales 4.2% 4.8% 5.8% 7.7% 6.6%
Return on assets 6.8% 5.4% 4.5% 6.6% 8.1%
Adjusted return on invested capital (“Adjusted ROIC”)5 12.0% 9.7% 8.4% 10.7% 12.6%
Inventory turnover rate 4.70 4.67 4.53 4.54 4.67
Per Share Information
Earnings per diluted share2,6 $3.32 $2.59 $2.02 $3.15 $3.72
Dividends declared per share1 1.48 1.48 1.48 6.33 1.32
1 Amounts were impacted by the October 1, 2015, credit card receivable transaction. As a result of the transaction, the dividends paid in 2015 included a special cash dividend
of $4.85 per share. For further information regarding these impacts, see Note 3: Credit Card Receivable Transaction and Note 12: Shareholders’ Equity in Item 8.
2 Results for 2018 include the Estimated Non-recurring Charge of $72, or $0.28 per diluted share, see Note 1: Nature of Operations and Summary of Significant Accounting
Policies in Item 8.
3 The 53rd week is not included in comparable sales calculations. For the definition of comparable sales, see Results of Operations in Item 7: Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
4 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store, Reserve Online, Try in Store (Store
Reserve) and Style Board, a digital selling tool.
5 See Adjusted ROIC (non-GAAP financial measure) in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional
information and reconciliation to the most directly comparable GAAP financial measure.
6 Earnings per diluted share included the impact of the Trunk Club goodwill impairment charge of $1.12 per share in 2016.
Nordstrom, Inc. and subsidiaries 19
STOCK PRICE PERFORMANCE
The following graph compares the cumulative total return of Nordstrom common stock, Standard & Poor’s Retail Index (“S&P Retail”) and
Standard & Poor’s 500 Index (“S&P 500”) for each of the last five fiscal years, ending February 2, 2019. The Retail Index is composed of 27
retail companies, including Nordstrom, representing an industry group of the S&P 500. The following graph assumes an initial investment of
$100 each in Nordstrom common stock, S&P Retail and the S&P 500 on February 1, 2014 and assumes reinvestment of dividends.
Nordstrom Common Stock S&P Retail S&P 500
PERFORMANCE GRAPH
350
300
250
200
150
100
50
0
Do
lla
rs
2/1/14 1/31/15 1/30/16 1/28/17 2/3/18 2/2/19
Year Ended
End of fiscal year 2013 2014 2015 2016 2017 2018
Nordstrom common stock 100 136 96 87 100 97
S&P Retail 100 123 143 169 239 253
S&P 500 100 117 115 139 171 171
18
Item 6. Selected Financial Data.
(Dollars in millions except per square foot and per share amounts)
The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with
Item 1A: Risk Factors, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8: Financial
Statements and Supplementary Data of this Annual Report on Form 10-K.
Fiscal year 2018 2017 2016 2015 2014
Earnings Results
Net sales $15,480 $15,137 $14,498 $14,095 $13,110
Credit card revenues, net1 380 341 259 342 396
Gross profit 5,325 5,247 5,058 4,927 4,704
Selling, general and administrative (“SG&A”) expenses2 (4,868) (4,662) (4,315) (4,168) (3,777)
Earnings before interest and income taxes (“EBIT”) 837 926 805 1,101 1,323
Net earnings 564 437 354 600 720
Balance Sheet and Cash Flow Data
Cash and cash equivalents $957 $1,181 $1,007 $595 $827
Merchandise inventories 1,978 2,027 1,896 1,945 1,733
Land, property and equipment, net 3,921 3,939 3,897 3,735 3,340
Total assets1 7,886 8,115 7,858 7,698 9,245
Total long-term debt1 2,685 2,737 2,774 2,805 3,131
Net cash provided by operating activities1 1,296 1,400 1,658 2,470 1,243
Capital expenditures 654 731 846 1,082 861
Performance Metrics
Net sales increase 2.3% 4.4% 2.9% 7.5% 7.8%
Comparable sales increase (decrease)3 1.7% 0.8% (0.4%) 2.7% 4.0%
Digital sales as % of net sales4 30.0% 27.0% 24.0% 21.0% 18.0%
Gross profit % of net sales 34.4% 34.7% 34.9% 35.0% 35.9%
SG&A % of net sales2 31.5% 30.8% 29.8% 29.6% 28.8%
EBIT % of net sales2 5.4% 6.1% 5.6% 7.8% 10.1%
Capital expenditures % of net sales 4.2% 4.8% 5.8% 7.7% 6.6%
Return on assets 6.8% 5.4% 4.5% 6.6% 8.1%
Adjusted return on invested capital (“Adjusted ROIC”)5 12.0% 9.7% 8.4% 10.7% 12.6%
Inventory turnover rate 4.70 4.67 4.53 4.54 4.67
Per Share Information
Earnings per diluted share2,6 $3.32 $2.59 $2.02 $3.15 $3.72
Dividends declared per share1 1.48 1.48 1.48 6.33 1.32
1 Amounts were impacted by the October 1, 2015, credit card receivable transaction. As a result of the transaction, the dividends paid in 2015 included a special cash dividend
of $4.85 per share. For further information regarding these impacts, see Note 3: Credit Card Receivable Transaction and Note 12: Shareholders’ Equity in Item 8.
2 Results for 2018 include the Estimated Non-recurring Charge of $72, or $0.28 per diluted share, see Note 1: Nature of Operations and Summary of Significant Accounting
Policies in Item 8.
3 The 53rd week is not included in comparable sales calculations. For the definition of comparable sales, see Results of Operations in Item 7: Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
4 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store, Reserve Online, Try in Store (Store
Reserve) and Style Board, a digital selling tool.
5 See Adjusted ROIC (non-GAAP financial measure) in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional
information and reconciliation to the most directly comparable GAAP financial measure.
6 Earnings per diluted share included the impact of the Trunk Club goodwill impairment charge of $1.12 per share in 2016.
Nordstrom, Inc. and subsidiaries 19
STOCK PRICE PERFORMANCE
The following graph compares the cumulative total return of Nordstrom common stock, Standard & Poor’s Retail Index (“S&P Retail”) and
Standard & Poor’s 500 Index (“S&P 500”) for each of the last five fiscal years, ending February 2, 2019. The Retail Index is composed of 27
retail companies, including Nordstrom, representing an industry group of the S&P 500. The following graph assumes an initial investment of
$100 each in Nordstrom common stock, S&P Retail and the S&P 500 on February 1, 2014 and assumes reinvestment of dividends.
Nordstrom Common Stock S&P Retail S&P 500
PERFORMANCE GRAPH
350
300
250
200
150
100
50
0
Do
lla
rs
2/1/14 1/31/15 1/30/16 1/28/17 2/3/18 2/2/19
Year Ended
End of fiscal year 2013 2014 2015 2016 2017 2018
Nordstrom common stock 100 136 96 87 100 97
S&P Retail 100 123 143 169 239 253
S&P 500 100 117 115 139 171 171
18
Item 6. Selected Financial Data.
(Dollars in millions except per square foot and per share amounts)
The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with
Item 1A: Risk Factors, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8: Financial
Statements and Supplementary Data of this Annual Report on Form 10-K.
Fiscal year 2018 2017 2016 2015 2014
Earnings Results
Net sales $15,480 $15,137 $14,498 $14,095 $13,110
Credit card revenues, net1 380 341 259 342 396
Gross profit 5,325 5,247 5,058 4,927 4,704
Selling, general and administrative (“SG&A”) expenses2 (4,868) (4,662) (4,315) (4,168) (3,777)
Earnings before interest and income taxes (“EBIT”) 837 926 805 1,101 1,323
Net earnings 564 437 354 600 720
Balance Sheet and Cash Flow Data
Cash and cash equivalents $957 $1,181 $1,007 $595 $827
Merchandise inventories 1,978 2,027 1,896 1,945 1,733
Land, property and equipment, net 3,921 3,939 3,897 3,735 3,340
Total assets1 7,886 8,115 7,858 7,698 9,245
Total long-term debt1 2,685 2,737 2,774 2,805 3,131
Net cash provided by operating activities1 1,296 1,400 1,658 2,470 1,243
Capital expenditures 654 731 846 1,082 861
Performance Metrics
Net sales increase 2.3% 4.4% 2.9% 7.5% 7.8%
Comparable sales increase (decrease)3 1.7% 0.8% (0.4%) 2.7% 4.0%
Digital sales as % of net sales4 30.0% 27.0% 24.0% 21.0% 18.0%
Gross profit % of net sales 34.4% 34.7% 34.9% 35.0% 35.9%
SG&A % of net sales2 31.5% 30.8% 29.8% 29.6% 28.8%
EBIT % of net sales2 5.4% 6.1% 5.6% 7.8% 10.1%
Capital expenditures % of net sales 4.2% 4.8% 5.8% 7.7% 6.6%
Return on assets 6.8% 5.4% 4.5% 6.6% 8.1%
Adjusted return on invested capital (“Adjusted ROIC”)5 12.0% 9.7% 8.4% 10.7% 12.6%
Inventory turnover rate 4.70 4.67 4.53 4.54 4.67
Per Share Information
Earnings per diluted share2,6 $3.32 $2.59 $2.02 $3.15 $3.72
Dividends declared per share1 1.48 1.48 1.48 6.33 1.32
1 Amounts were impacted by the October 1, 2015, credit card receivable transaction. As a result of the transaction, the dividends paid in 2015 included a special cash dividend
of $4.85 per share. For further information regarding these impacts, see Note 3: Credit Card Receivable Transaction and Note 12: Shareholders’ Equity in Item 8.
2 Results for 2018 include the Estimated Non-recurring Charge of $72, or $0.28 per diluted share, see Note 1: Nature of Operations and Summary of Significant Accounting
Policies in Item 8.
3 The 53rd week is not included in comparable sales calculations. For the definition of comparable sales, see Results of Operations in Item 7: Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
4 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store, Reserve Online, Try in Store (Store
Reserve) and Style Board, a digital selling tool.
5 See Adjusted ROIC (non-GAAP financial measure) in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional
information and reconciliation to the most directly comparable GAAP financial measure.
6 Earnings per diluted share included the impact of the Trunk Club goodwill impairment charge of $1.12 per share in 2016.
Nordstrom, Inc. and subsidiaries 19
STOCK PRICE PERFORMANCE
The following graph compares the cumulative total return of Nordstrom common stock, Standard & Poor’s Retail Index (“S&P Retail”) and
Standard & Poor’s 500 Index (“S&P 500”) for each of the last five fiscal years, ending February 2, 2019. The Retail Index is composed of 27
retail companies, including Nordstrom, representing an industry group of the S&P 500. The following graph assumes an initial investment of
$100 each in Nordstrom common stock, S&P Retail and the S&P 500 on February 1, 2014 and assumes reinvestment of dividends.
Nordstrom Common Stock S&P Retail S&P 500
PERFORMANCE GRAPH
350
300
250
200
150
100
50
0
Do
lla
rs
2/1/14 1/31/15 1/30/16 1/28/17 2/3/18 2/2/19
Year Ended
End of fiscal year 2013 2014 2015 2016 2017 2018
Nordstrom common stock 100 136 96 87 100 97
S&P Retail 100 123 143 169 239 253
S&P 500 100 117 115 139 171 171
18
Item 6. Selected Financial Data.
(Dollars in millions except per square foot and per share amounts)
The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with
Item 1A: Risk Factors, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8: Financial
Statements and Supplementary Data of this Annual Report on Form 10-K.
Fiscal year 2018 2017 2016 2015 2014
Earnings Results
Net sales $15,480 $15,137 $14,498 $14,095 $13,110
Credit card revenues, net1 380 341 259 342 396
Gross profit 5,325 5,247 5,058 4,927 4,704
Selling, general and administrative (“SG&A”) expenses2 (4,868) (4,662) (4,315) (4,168) (3,777)
Earnings before interest and income taxes (“EBIT”) 837 926 805 1,101 1,323
Net earnings 564 437 354 600 720
Balance Sheet and Cash Flow Data
Cash and cash equivalents $957 $1,181 $1,007 $595 $827
Merchandise inventories 1,978 2,027 1,896 1,945 1,733
Land, property and equipment, net 3,921 3,939 3,897 3,735 3,340
Total assets1 7,886 8,115 7,858 7,698 9,245
Total long-term debt1 2,685 2,737 2,774 2,805 3,131
Net cash provided by operating activities1 1,296 1,400 1,658 2,470 1,243
Capital expenditures 654 731 846 1,082 861
Performance Metrics
Net sales increase 2.3% 4.4% 2.9% 7.5% 7.8%
Comparable sales increase (decrease)3 1.7% 0.8% (0.4%) 2.7% 4.0%
Digital sales as % of net sales4 30.0% 27.0% 24.0% 21.0% 18.0%
Gross profit % of net sales 34.4% 34.7% 34.9% 35.0% 35.9%
SG&A % of net sales2 31.5% 30.8% 29.8% 29.6% 28.8%
EBIT % of net sales2 5.4% 6.1% 5.6% 7.8% 10.1%
Capital expenditures % of net sales 4.2% 4.8% 5.8% 7.7% 6.6%
Return on assets 6.8% 5.4% 4.5% 6.6% 8.1%
Adjusted return on invested capital (“Adjusted ROIC”)5 12.0% 9.7% 8.4% 10.7% 12.6%
Inventory turnover rate 4.70 4.67 4.53 4.54 4.67
Per Share Information
Earnings per diluted share2,6 $3.32 $2.59 $2.02 $3.15 $3.72
Dividends declared per share1 1.48 1.48 1.48 6.33 1.32
1 Amounts were impacted by the October 1, 2015, credit card receivable transaction. As a result of the transaction, the dividends paid in 2015 included a special cash dividend
of $4.85 per share. For further information regarding these impacts, see Note 3: Credit Card Receivable Transaction and Note 12: Shareholders’ Equity in Item 8.
2 Results for 2018 include the Estimated Non-recurring Charge of $72, or $0.28 per diluted share, see Note 1: Nature of Operations and Summary of Significant Accounting
Policies in Item 8.
3 The 53rd week is not included in comparable sales calculations. For the definition of comparable sales, see Results of Operations in Item 7: Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
4 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store, Reserve Online, Try in Store (Store
Reserve) and Style Board, a digital selling tool.
5 See Adjusted ROIC (non-GAAP financial measure) in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional
information and reconciliation to the most directly comparable GAAP financial measure.
6 Earnings per diluted share included the impact of the Trunk Club goodwill impairment charge of $1.12 per share in 2016.
Nordstrom, Inc. and subsidiaries 19
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, Item 6: Selected Financial Data, our Consolidated Financial Statements and related Notes
thereto, as well as other cautionary statements and risks described elsewhere in this Annual Report on Form 10-K, before deciding to
purchase, hold or sell shares of our common stock.
OVERVIEW
Nordstrom is a leading fashion retailer offering an extensive selection of high-quality brand-name and private label apparel, shoes, cosmetics
and accessories for women, men, young adults and children. We serve customers through two businesses — Full-Price and Off-Price. With
customers increasingly engaging with Nordstrom in multiple ways, we focus on providing a seamless experience across stores and online.
Our operations currently consist of our Nordstrom U.S. and Canada full-line stores, U.S. and Canada Nordstrom Rack stores, Jeffrey
boutiques, Last Chance clearance stores, Trunk Club clubhouses and Nordstrom Local. Additionally, customers are served online through
Nordstrom.com, Nordstromrack.com, HauteLook and TrunkClub.com.
Our unique business model is a key point of difference in serving customers in multiple ways — through stores, online, Full-Price and Off-
Price — with meaningful synergies across Nordstrom. We are focused on leveraging our digital and physical assets to provide customers
with a best-in-class experience.
In 2018, net earnings were $564, or $3.32 per diluted share, which included a $0.05 favorable income tax benefit related to prior periods and
an estimated non-recurring credit-related charge of $0.28 (see Note 1: Nature of Operations and Summary of Significant Accounting
Policies). Our net sales grew 2.3%, or approximately 3.8% excluding approximately $220 related to the 53rd week in 2017. We maintained a
strong financial position, generating annual operating cash flow of more than $1 billion for the 10th consecutive year and returning nearly $1
billion to shareholders in 2018.
In 2018, we achieved the following milestones in executing our customer strategy through our three strategic pillars: providing a compelling
product offering, delivering exceptional services and experiences and leveraging the strength of the Nordstrom brand:
• We continue to see positive customer trends. We had over 35 million customers, an increase of 6% from last year. One-third of our
customers shopped across our multiple channels, resulting in incremental customer spend.
• Our early investments to build a robust digital business gives us a competitive advantage. Digital sales increased 16% and made up
30% of net sales. Additionally, Nordstrom.com has achieved scale, with the profitability of Full-Price digital sales at parity with store
sales.
• Generational investments continued to scale, contributing approximately $2 billion in sales and improvement in profitability.
Nordstromrack.com/HauteLook became our fastest business to reach $1 billion in sales. Trunk Club delivered sales growth of 35%. We
opened our Men’s Store in New York City and furthered our expansion into Canada with the introduction of six Nordstrom Rack stores.
In 2019, we have two key priorities to drive sales and market share gains. The first key priority is our local market strategy, which launched in
2018 and drove outsized market share gains in Los Angeles. We are focused on scaling in this top market by giving customers greater
access to merchandise selection and faster delivery. In addition, we are implementing aspects of our local market strategy in other markets.
We will further leverage inventory through our supply chain investments. This includes an Omni-channel Hub in the Los Angeles area to
accelerate inventory efficiencies, as well as a one-million square foot Omni-channel center in Riverside, California that will enable faster
delivery to the West Coast, which represents 40% of our customer base, at a lower cost to us. While we’re launching this local market
strategy in Los Angeles first, we anticipate expanding it to our top markets in the future. We expect to expand our presence in New York City
with the planned opening of our Nordstrom NYC women’s store in October. We expect that our NYC flagship, coupled with our digital
presence, will contribute a meaningful sales lift in that market.
Our second key priority to drive sales and market share gains is our loyalty program. In 2018, our loyalty customers grew 16% to 11 million
and contributed 56% of our sales. In October 2018, we launched our enhanced program, The Nordy Club. Cardmembers now earn three
points for every dollar spent, up from two points. In addition, we added experiential elements, such as exclusive access to services and
experiences. Going forward, we plan to pursue additional opportunities to further personalize the customer experience and drive increased
spend.
We remain focused on driving higher shareholder returns through three key deliverables: growing market share, improving profitability and
shareholder returns and continuing our disciplined capital allocation approach. We are well-positioned to execute against our long-term plans
and deliver a differentiated customer experience.
20
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our
channels. We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores
and online, in both our Full-Price and Off-Price businesses. While our customers may engage with us through multiple channels, we know
they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. We have
one reportable segment in 2018, Retail, and analyze our results on a total Company basis.
Similar to other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of 2017 (the
“53rd week”). References to 2018 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. However, the 53rd week is not included in the comparable sales calculations.
We may not calculate certain metrics used to evaluate our business in a consistent manner among industry peers. Provided below are
definitions of metrics we present within our analysis:
• Comparable Sales – sales from stores that have been open at least one full year at the beginning of the year. In 2019, we expect net
sales growth to approximate comparable sales. As a result, we will only report net sales growth
• Comparable sales include digital sales and actual returns. Our estimate for sales return allowance is not included in the
comparable sales calculations.
• Due to the 53rd week in 2017, our 2018 comparable sales are reported on a like-for-like basis with no impact from calendar
shifts or the new Revenue Standard (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in
Item 8).
• Digital Sales – online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store,
Reserve Online, Try in Store (Store Reserve) and Style Board, a digital selling tool
• Gross Profit – net sales less cost of sales and related buying and occupancy costs
• Inventory Turnover Rate – trailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter
average inventory
Net Sales
During the first quarter of 2018, we adopted the new Revenue Standard using the modified retrospective adoption method (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not adjusted. Also beginning in 2018, we aligned our sales presentation
with how we view the results of our operations internally and how our customers shop with us, by our Full-Price and Off-Price businesses. In
2018, we allocated our sales return allowance and loyalty related adjustments to Full-Price and Off-Price. For 2017 and 2016, Other primarily
included unallocated sales return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales.
• Full-Price – Nordstrom U.S. full-line stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local
• Off-Price – Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores
The following table summarizes net sales and comparable sales by business:
Fiscal year 2018 2017 2016
Net sales by business:
Full-Price 10,299 10,452 10,259
Off-Price 5,181 4,956 4,509
Other — (271) (270)
Total net sales $15,480 $15,137 $14,498
Net sales increase 2.3% 4.4% 2.9%
Comparable sales increase (decrease) by business:
Full-Price 0.9% 0.1% (2.2%)
Off-Price 3.5% 2.5% 4.5%
Total Company 1.7% 0.8% (0.4%)
Digital sales as % of total net sales 30% 27% 24%
Nordstrom, Inc. and subsidiaries 21
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, Item 6: Selected Financial Data, our Consolidated Financial Statements and related Notes
thereto, as well as other cautionary statements and risks described elsewhere in this Annual Report on Form 10-K, before deciding to
purchase, hold or sell shares of our common stock.
OVERVIEW
Nordstrom is a leading fashion retailer offering an extensive selection of high-quality brand-name and private label apparel, shoes, cosmetics
and accessories for women, men, young adults and children. We serve customers through two businesses — Full-Price and Off-Price. With
customers increasingly engaging with Nordstrom in multiple ways, we focus on providing a seamless experience across stores and online.
Our operations currently consist of our Nordstrom U.S. and Canada full-line stores, U.S. and Canada Nordstrom Rack stores, Jeffrey
boutiques, Last Chance clearance stores, Trunk Club clubhouses and Nordstrom Local. Additionally, customers are served online through
Nordstrom.com, Nordstromrack.com, HauteLook and TrunkClub.com.
Our unique business model is a key point of difference in serving customers in multiple ways — through stores, online, Full-Price and Off-
Price — with meaningful synergies across Nordstrom. We are focused on leveraging our digital and physical assets to provide customers
with a best-in-class experience.
In 2018, net earnings were $564, or $3.32 per diluted share, which included a $0.05 favorable income tax benefit related to prior periods and
an estimated non-recurring credit-related charge of $0.28 (see Note 1: Nature of Operations and Summary of Significant Accounting
Policies). Our net sales grew 2.3%, or approximately 3.8% excluding approximately $220 related to the 53rd week in 2017. We maintained a
strong financial position, generating annual operating cash flow of more than $1 billion for the 10th consecutive year and returning nearly $1
billion to shareholders in 2018.
In 2018, we achieved the following milestones in executing our customer strategy through our three strategic pillars: providing a compelling
product offering, delivering exceptional services and experiences and leveraging the strength of the Nordstrom brand:
• We continue to see positive customer trends. We had over 35 million customers, an increase of 6% from last year. One-third of our
customers shopped across our multiple channels, resulting in incremental customer spend.
• Our early investments to build a robust digital business gives us a competitive advantage. Digital sales increased 16% and made up
30% of net sales. Additionally, Nordstrom.com has achieved scale, with the profitability of Full-Price digital sales at parity with store
sales.
• Generational investments continued to scale, contributing approximately $2 billion in sales and improvement in profitability.
Nordstromrack.com/HauteLook became our fastest business to reach $1 billion in sales. Trunk Club delivered sales growth of 35%. We
opened our Men’s Store in New York City and furthered our expansion into Canada with the introduction of six Nordstrom Rack stores.
In 2019, we have two key priorities to drive sales and market share gains. The first key priority is our local market strategy, which launched in
2018 and drove outsized market share gains in Los Angeles. We are focused on scaling in this top market by giving customers greater
access to merchandise selection and faster delivery. In addition, we are implementing aspects of our local market strategy in other markets.
We will further leverage inventory through our supply chain investments. This includes an Omni-channel Hub in the Los Angeles area to
accelerate inventory efficiencies, as well as a one-million square foot Omni-channel center in Riverside, California that will enable faster
delivery to the West Coast, which represents 40% of our customer base, at a lower cost to us. While we’re launching this local market
strategy in Los Angeles first, we anticipate expanding it to our top markets in the future. We expect to expand our presence in New York City
with the planned opening of our Nordstrom NYC women’s store in October. We expect that our NYC flagship, coupled with our digital
presence, will contribute a meaningful sales lift in that market.
Our second key priority to drive sales and market share gains is our loyalty program. In 2018, our loyalty customers grew 16% to 11 million
and contributed 56% of our sales. In October 2018, we launched our enhanced program, The Nordy Club. Cardmembers now earn three
points for every dollar spent, up from two points. In addition, we added experiential elements, such as exclusive access to services and
experiences. Going forward, we plan to pursue additional opportunities to further personalize the customer experience and drive increased
spend.
We remain focused on driving higher shareholder returns through three key deliverables: growing market share, improving profitability and
shareholder returns and continuing our disciplined capital allocation approach. We are well-positioned to execute against our long-term plans
and deliver a differentiated customer experience.
20
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our
channels. We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores
and online, in both our Full-Price and Off-Price businesses. While our customers may engage with us through multiple channels, we know
they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. We have
one reportable segment in 2018, Retail, and analyze our results on a total Company basis.
Similar to other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of 2017 (the
“53rd week”). References to 2018 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. However, the 53rd week is not included in the comparable sales calculations.
We may not calculate certain metrics used to evaluate our business in a consistent manner among industry peers. Provided below are
definitions of metrics we present within our analysis:
• Comparable Sales – sales from stores that have been open at least one full year at the beginning of the year. In 2019, we expect net
sales growth to approximate comparable sales. As a result, we will only report net sales growth
• Comparable sales include digital sales and actual returns. Our estimate for sales return allowance is not included in the
comparable sales calculations.
• Due to the 53rd week in 2017, our 2018 comparable sales are reported on a like-for-like basis with no impact from calendar
shifts or the new Revenue Standard (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in
Item 8).
• Digital Sales – online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store,
Reserve Online, Try in Store (Store Reserve) and Style Board, a digital selling tool
• Gross Profit – net sales less cost of sales and related buying and occupancy costs
• Inventory Turnover Rate – trailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter
average inventory
Net Sales
During the first quarter of 2018, we adopted the new Revenue Standard using the modified retrospective adoption method (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not adjusted. Also beginning in 2018, we aligned our sales presentation
with how we view the results of our operations internally and how our customers shop with us, by our Full-Price and Off-Price businesses. In
2018, we allocated our sales return allowance and loyalty related adjustments to Full-Price and Off-Price. For 2017 and 2016, Other primarily
included unallocated sales return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales.
• Full-Price – Nordstrom U.S. full-line stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local
• Off-Price – Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores
The following table summarizes net sales and comparable sales by business:
Fiscal year 2018 2017 2016
Net sales by business:
Full-Price 10,299 10,452 10,259
Off-Price 5,181 4,956 4,509
Other — (271) (270)
Total net sales $15,480 $15,137 $14,498
Net sales increase 2.3% 4.4% 2.9%
Comparable sales increase (decrease) by business:
Full-Price 0.9% 0.1% (2.2%)
Off-Price 3.5% 2.5% 4.5%
Total Company 1.7% 0.8% (0.4%)
Digital sales as % of total net sales 30% 27% 24%
Nordstrom, Inc. and subsidiaries 21
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, Item 6: Selected Financial Data, our Consolidated Financial Statements and related Notes
thereto, as well as other cautionary statements and risks described elsewhere in this Annual Report on Form 10-K, before deciding to
purchase, hold or sell shares of our common stock.
OVERVIEW
Nordstrom is a leading fashion retailer offering an extensive selection of high-quality brand-name and private label apparel, shoes, cosmetics
and accessories for women, men, young adults and children. We serve customers through two businesses — Full-Price and Off-Price. With
customers increasingly engaging with Nordstrom in multiple ways, we focus on providing a seamless experience across stores and online.
Our operations currently consist of our Nordstrom U.S. and Canada full-line stores, U.S. and Canada Nordstrom Rack stores, Jeffrey
boutiques, Last Chance clearance stores, Trunk Club clubhouses and Nordstrom Local. Additionally, customers are served online through
Nordstrom.com, Nordstromrack.com, HauteLook and TrunkClub.com.
Our unique business model is a key point of difference in serving customers in multiple ways — through stores, online, Full-Price and Off-
Price — with meaningful synergies across Nordstrom. We are focused on leveraging our digital and physical assets to provide customers
with a best-in-class experience.
In 2018, net earnings were $564, or $3.32 per diluted share, which included a $0.05 favorable income tax benefit related to prior periods and
an estimated non-recurring credit-related charge of $0.28 (see Note 1: Nature of Operations and Summary of Significant Accounting
Policies). Our net sales grew 2.3%, or approximately 3.8% excluding approximately $220 related to the 53rd week in 2017. We maintained a
strong financial position, generating annual operating cash flow of more than $1 billion for the 10th consecutive year and returning nearly $1
billion to shareholders in 2018.
In 2018, we achieved the following milestones in executing our customer strategy through our three strategic pillars: providing a compelling
product offering, delivering exceptional services and experiences and leveraging the strength of the Nordstrom brand:
• We continue to see positive customer trends. We had over 35 million customers, an increase of 6% from last year. One-third of our
customers shopped across our multiple channels, resulting in incremental customer spend.
• Our early investments to build a robust digital business gives us a competitive advantage. Digital sales increased 16% and made up
30% of net sales. Additionally, Nordstrom.com has achieved scale, with the profitability of Full-Price digital sales at parity with store
sales.
• Generational investments continued to scale, contributing approximately $2 billion in sales and improvement in profitability.
Nordstromrack.com/HauteLook became our fastest business to reach $1 billion in sales. Trunk Club delivered sales growth of 35%. We
opened our Men’s Store in New York City and furthered our expansion into Canada with the introduction of six Nordstrom Rack stores.
In 2019, we have two key priorities to drive sales and market share gains. The first key priority is our local market strategy, which launched in
2018 and drove outsized market share gains in Los Angeles. We are focused on scaling in this top market by giving customers greater
access to merchandise selection and faster delivery. In addition, we are implementing aspects of our local market strategy in other markets.
We will further leverage inventory through our supply chain investments. This includes an Omni-channel Hub in the Los Angeles area to
accelerate inventory efficiencies, as well as a one-million square foot Omni-channel center in Riverside, California that will enable faster
delivery to the West Coast, which represents 40% of our customer base, at a lower cost to us. While we’re launching this local market
strategy in Los Angeles first, we anticipate expanding it to our top markets in the future. We expect to expand our presence in New York City
with the planned opening of our Nordstrom NYC women’s store in October. We expect that our NYC flagship, coupled with our digital
presence, will contribute a meaningful sales lift in that market.
Our second key priority to drive sales and market share gains is our loyalty program. In 2018, our loyalty customers grew 16% to 11 million
and contributed 56% of our sales. In October 2018, we launched our enhanced program, The Nordy Club. Cardmembers now earn three
points for every dollar spent, up from two points. In addition, we added experiential elements, such as exclusive access to services and
experiences. Going forward, we plan to pursue additional opportunities to further personalize the customer experience and drive increased
spend.
We remain focused on driving higher shareholder returns through three key deliverables: growing market share, improving profitability and
shareholder returns and continuing our disciplined capital allocation approach. We are well-positioned to execute against our long-term plans
and deliver a differentiated customer experience.
20
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our
channels. We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores
and online, in both our Full-Price and Off-Price businesses. While our customers may engage with us through multiple channels, we know
they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. We have
one reportable segment in 2018, Retail, and analyze our results on a total Company basis.
Similar to other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of 2017 (the
“53rd week”). References to 2018 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. However, the 53rd week is not included in the comparable sales calculations.
We may not calculate certain metrics used to evaluate our business in a consistent manner among industry peers. Provided below are
definitions of metrics we present within our analysis:
• Comparable Sales – sales from stores that have been open at least one full year at the beginning of the year. In 2019, we expect net
sales growth to approximate comparable sales. As a result, we will only report net sales growth
• Comparable sales include digital sales and actual returns. Our estimate for sales return allowance is not included in the
comparable sales calculations.
• Due to the 53rd week in 2017, our 2018 comparable sales are reported on a like-for-like basis with no impact from calendar
shifts or the new Revenue Standard (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in
Item 8).
• Digital Sales – online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store,
Reserve Online, Try in Store (Store Reserve) and Style Board, a digital selling tool
• Gross Profit – net sales less cost of sales and related buying and occupancy costs
• Inventory Turnover Rate – trailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter
average inventory
Net Sales
During the first quarter of 2018, we adopted the new Revenue Standard using the modified retrospective adoption method (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not adjusted. Also beginning in 2018, we aligned our sales presentation
with how we view the results of our operations internally and how our customers shop with us, by our Full-Price and Off-Price businesses. In
2018, we allocated our sales return allowance and loyalty related adjustments to Full-Price and Off-Price. For 2017 and 2016, Other primarily
included unallocated sales return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales.
• Full-Price – Nordstrom U.S. full-line stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local
• Off-Price – Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores
The following table summarizes net sales and comparable sales by business:
Fiscal year 2018 2017 2016
Net sales by business:
Full-Price 10,299 10,452 10,259
Off-Price 5,181 4,956 4,509
Other — (271) (270)
Total net sales $15,480 $15,137 $14,498
Net sales increase 2.3% 4.4% 2.9%
Comparable sales increase (decrease) by business:
Full-Price 0.9% 0.1% (2.2%)
Off-Price 3.5% 2.5% 4.5%
Total Company 1.7% 0.8% (0.4%)
Digital sales as % of total net sales 30% 27% 24%
Nordstrom, Inc. and subsidiaries 21
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, Item 6: Selected Financial Data, our Consolidated Financial Statements and related Notes
thereto, as well as other cautionary statements and risks described elsewhere in this Annual Report on Form 10-K, before deciding to
purchase, hold or sell shares of our common stock.
OVERVIEW
Nordstrom is a leading fashion retailer offering an extensive selection of high-quality brand-name and private label apparel, shoes, cosmetics
and accessories for women, men, young adults and children. We serve customers through two businesses — Full-Price and Off-Price. With
customers increasingly engaging with Nordstrom in multiple ways, we focus on providing a seamless experience across stores and online.
Our operations currently consist of our Nordstrom U.S. and Canada full-line stores, U.S. and Canada Nordstrom Rack stores, Jeffrey
boutiques, Last Chance clearance stores, Trunk Club clubhouses and Nordstrom Local. Additionally, customers are served online through
Nordstrom.com, Nordstromrack.com, HauteLook and TrunkClub.com.
Our unique business model is a key point of difference in serving customers in multiple ways — through stores, online, Full-Price and Off-
Price — with meaningful synergies across Nordstrom. We are focused on leveraging our digital and physical assets to provide customers
with a best-in-class experience.
In 2018, net earnings were $564, or $3.32 per diluted share, which included a $0.05 favorable income tax benefit related to prior periods and
an estimated non-recurring credit-related charge of $0.28 (see Note 1: Nature of Operations and Summary of Significant Accounting
Policies). Our net sales grew 2.3%, or approximately 3.8% excluding approximately $220 related to the 53rd week in 2017. We maintained a
strong financial position, generating annual operating cash flow of more than $1 billion for the 10th consecutive year and returning nearly $1
billion to shareholders in 2018.
In 2018, we achieved the following milestones in executing our customer strategy through our three strategic pillars: providing a compelling
product offering, delivering exceptional services and experiences and leveraging the strength of the Nordstrom brand:
• We continue to see positive customer trends. We had over 35 million customers, an increase of 6% from last year. One-third of our
customers shopped across our multiple channels, resulting in incremental customer spend.
• Our early investments to build a robust digital business gives us a competitive advantage. Digital sales increased 16% and made up
30% of net sales. Additionally, Nordstrom.com has achieved scale, with the profitability of Full-Price digital sales at parity with store
sales.
• Generational investments continued to scale, contributing approximately $2 billion in sales and improvement in profitability.
Nordstromrack.com/HauteLook became our fastest business to reach $1 billion in sales. Trunk Club delivered sales growth of 35%. We
opened our Men’s Store in New York City and furthered our expansion into Canada with the introduction of six Nordstrom Rack stores.
In 2019, we have two key priorities to drive sales and market share gains. The first key priority is our local market strategy, which launched in
2018 and drove outsized market share gains in Los Angeles. We are focused on scaling in this top market by giving customers greater
access to merchandise selection and faster delivery. In addition, we are implementing aspects of our local market strategy in other markets.
We will further leverage inventory through our supply chain investments. This includes an Omni-channel Hub in the Los Angeles area to
accelerate inventory efficiencies, as well as a one-million square foot Omni-channel center in Riverside, California that will enable faster
delivery to the West Coast, which represents 40% of our customer base, at a lower cost to us. While we’re launching this local market
strategy in Los Angeles first, we anticipate expanding it to our top markets in the future. We expect to expand our presence in New York City
with the planned opening of our Nordstrom NYC women’s store in October. We expect that our NYC flagship, coupled with our digital
presence, will contribute a meaningful sales lift in that market.
Our second key priority to drive sales and market share gains is our loyalty program. In 2018, our loyalty customers grew 16% to 11 million
and contributed 56% of our sales. In October 2018, we launched our enhanced program, The Nordy Club. Cardmembers now earn three
points for every dollar spent, up from two points. In addition, we added experiential elements, such as exclusive access to services and
experiences. Going forward, we plan to pursue additional opportunities to further personalize the customer experience and drive increased
spend.
We remain focused on driving higher shareholder returns through three key deliverables: growing market share, improving profitability and
shareholder returns and continuing our disciplined capital allocation approach. We are well-positioned to execute against our long-term plans
and deliver a differentiated customer experience.
20
RESULTS OF OPERATIONS
In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our
channels. We invested early in our omni-channel capabilities, integrating our operations, merchandising and technology across our stores
and online, in both our Full-Price and Off-Price businesses. While our customers may engage with us through multiple channels, we know
they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. We have
one reportable segment in 2018, Retail, and analyze our results on a total Company basis.
Similar to other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of 2017 (the
“53rd week”). References to 2018 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. However, the 53rd week is not included in the comparable sales calculations.
We may not calculate certain metrics used to evaluate our business in a consistent manner among industry peers. Provided below are
definitions of metrics we present within our analysis:
• Comparable Sales – sales from stores that have been open at least one full year at the beginning of the year. In 2019, we expect net
sales growth to approximate comparable sales. As a result, we will only report net sales growth
• Comparable sales include digital sales and actual returns. Our estimate for sales return allowance is not included in the
comparable sales calculations.
• Due to the 53rd week in 2017, our 2018 comparable sales are reported on a like-for-like basis with no impact from calendar
shifts or the new Revenue Standard (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in
Item 8).
• Digital Sales – online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store,
Reserve Online, Try in Store (Store Reserve) and Style Board, a digital selling tool
• Gross Profit – net sales less cost of sales and related buying and occupancy costs
• Inventory Turnover Rate – trailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter
average inventory
Net Sales
During the first quarter of 2018, we adopted the new Revenue Standard using the modified retrospective adoption method (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not adjusted. Also beginning in 2018, we aligned our sales presentation
with how we view the results of our operations internally and how our customers shop with us, by our Full-Price and Off-Price businesses. In
2018, we allocated our sales return allowance and loyalty related adjustments to Full-Price and Off-Price. For 2017 and 2016, Other primarily
included unallocated sales return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales.
• Full-Price – Nordstrom U.S. full-line stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local
• Off-Price – Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores
The following table summarizes net sales and comparable sales by business:
Fiscal year 2018 2017 2016
Net sales by business:
Full-Price 10,299 10,452 10,259
Off-Price 5,181 4,956 4,509
Other — (271) (270)
Total net sales $15,480 $15,137 $14,498
Net sales increase 2.3% 4.4% 2.9%
Comparable sales increase (decrease) by business:
Full-Price 0.9% 0.1% (2.2%)
Off-Price 3.5% 2.5% 4.5%
Total Company 1.7% 0.8% (0.4%)
Digital sales as % of total net sales 30% 27% 24%
Nordstrom, Inc. and subsidiaries 21
Net Sales (2018 vs. 2017)
In 2018, total Company net sales increased 2.3%, compared with 2017. This included a decrease of approximately 150 basis points due to
the 53rd week, which contributed approximately $220 in additional net sales in 2017. Digital sales increased 16% compared with 2017.
During the year, we opened our Nordstrom Men’s Store NYC, six Nordstrom Rack stores in Canada and six in the U.S., one Jeffrey boutique
and two Nordstrom Locals. We closed two full-line stores and one Trunk Club clubhouse.
Full-Price net sales decreased 1.5%, compared with 2017. This included a decrease of approximately 300 basis points primarily due to
loyalty related adjustments and the 53rd week. Full-Price sales reflected an increase in the average selling price per item sold, partially offset
by a decrease in the number of items sold. Kids’ was the top-performing merchandise category.
Off-Price net sales increased 4.5%, compared with 2017. This included a decrease of approximately 250 basis points primarily due to the
53rd week and loyalty related adjustments. Off-Price sales reflected an increase in the number of items sold, partially offset by a decrease in
the average selling price per item sold. The top-performing merchandise category was Shoes.
Net Sales (2017 vs. 2016)
In 2017, total Company net sales increased 4.4%, compared with 2016. Digital sales increased 16% compared with 2016. During the year,
we opened two full-line stores, including one in Canada, and 17 Nordstrom Rack stores. The 53rd week contributed approximately $220 in
additional net sales.
Full-Price net sales increased 1.9% compared with 2016. Full-Price sales reflected an increase in the average selling price per item sold and
an increase in the number of items sold. Kids’ was the top-performing merchandise category.
Off-Price net sales increased 9.9% compared with 2016. Off-Price sales reflected an increase in the number of items sold, partially offset by
a decrease in average selling price per item sold. Beauty was the top-performing merchandise category.
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 whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. In 2017 and 2016, we
also recorded asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the initial
transaction to sell our U.S. Visa and private label credit card portfolio to TD.
Upon adoption of the new Revenue Standard in 2018, the remaining unamortized balances of the investment in contract asset and deferred
revenue associated with the sale of the credit card receivables were eliminated as part of a cumulative-effect adjustment, reducing the
opening balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded
in credit card revenues, net (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Credit Card Revenues, Net (2018 vs. 2017)
Credit Card Revenues, net increased $39 in 2018 reflecting our strategic partnership with TD to responsibly grow our receivables and
associated revenues as well as efforts to drive new account growth. The 53rd week contributed $10 in additional revenue in 2017.
Credit Card Revenues, Net (2017 vs. 2016)
Credit Card Revenues, net increased $82 in 2017 due to the growth of our program and associated revenues as well as a reduction in
amortization expense related to the sale of the credit card portfolio. The 53rd week contributed $10 in additional revenue in 2017.
22
Gross Profit
The following table summarizes gross profit:
Fiscal year 2018 2017 2016
Gross profit $5,325 $5,247 $5,058
Gross profit as a % of net sales 34.4% 34.7% 34.9%
Inventory turnover rate 4.70 4.67 4.53
Gross Profit (2018 vs. 2017)
Our gross profit rate decreased 26 basis points in 2018 when compared with 2017, largely due to higher Full-Price markdowns in the fourth
quarter of 2018. Overall, continued focus on inventory execution led to improvements in inventory turnover rate in 2018.
Gross Profit (2017 vs. 2016)
Our gross profit rate decreased 23 basis points in 2017 when compared with 2016, primarily due to higher planned occupancy expenses
related to new store growth for Nordstrom Rack and Canada. Continued focus on inventory execution led to improvements in inventory
turnover rate in 2017.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses are summarized in the following table:
Fiscal year 2018 2017 2016
Selling, general and administrative expenses $4,868 $4,662 $4,315
Selling, general and administrative expenses as a % of net sales 31.5% 30.8% 29.8%
Selling, General and Administrative Expenses (2018 vs. 2017)
Our SG&A rate increased 65 basis points and increased $206 in 2018 compared with 2017. The basis point increase was primarily due to the
Estimated Non-recurring Charge of $72 in 2018 (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
The dollar increase was primarily due to planned increases in supply chain and marketing costs and the Estimated Non-recurring Charge.
Selling, General and Administrative Expenses (2017 vs. 2016)
Our SG&A rate increased 104 basis points and increased $347 in 2017 compared with 2016 primarily due to planned technology and
performance related expenses.
Goodwill Impairment
We recognized a goodwill impairment charge of $197 in 2016 related to Trunk Club (see Note 9: Fair Value Measurements in Item 8).
Earnings Before Interest and Income Taxes
Earnings before interest and income taxes (“EBIT”) are summarized in the following table:
Fiscal year 2018 2017 2016
Earnings before interest and income taxes $837 $926 $805
Earnings before interest and income taxes as a % of net sales 5.4% 6.1% 5.6%
Earnings Before Interest and Income Taxes (2018 vs. 2017)
EBIT decreased $89 and 71 basis points in 2018 compared with 2017 primarily due to the Estimated Non-recurring Charge of $72 (see Note
1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Earnings Before Interest and Income Taxes (2017 vs. 2016)
EBIT increased $121 and 56 basis points in 2017 compared with 2016 primarily due to a goodwill impairment charge of $197 in 2016 related
to Trunk Club.
Nordstrom, Inc. and subsidiaries 23
Interest Expense, Net
Interest expense, net is summarized in the following table:
Fiscal year 2018 2017 2016
Interest on long-term debt and short-term borrowings $146 $168 $147
Less:
Interest income (15) (5) (1)
Capitalized interest (27) (27) (25)
Interest expense, net $104 $136 $121
Interest Expense, Net (2018 vs. 2017)
Interest expense, net decreased $32 in 2018 compared with 2017 primarily due to a net interest expense charge of $18 related to the $650
debt refinancing completed in the first quarter of 2017 (see Note 8: Debt and Credit Facilities in Item 8) and an increase in interest income
resulting from higher average cash balances and short-term interest rates.
Interest Expense, Net (2017 vs. 2016)
Interest expense, net increased $15 in 2017 compared with 2016 primarily due to a net interest expense charge of $18 related to the $650
debt refinancing completed in the first quarter of 2017.
Net Sales (2018 vs. 2017)
In 2018, total Company net sales increased 2.3%, compared with 2017. This included a decrease of approximately 150 basis points due to
the 53rd week, which contributed approximately $220 in additional net sales in 2017. Digital sales increased 16% compared with 2017.
During the year, we opened our Nordstrom Men’s Store NYC, six Nordstrom Rack stores in Canada and six in the U.S., one Jeffrey boutique
and two Nordstrom Locals. We closed two full-line stores and one Trunk Club clubhouse.
Full-Price net sales decreased 1.5%, compared with 2017. This included a decrease of approximately 300 basis points primarily due to
loyalty related adjustments and the 53rd week. Full-Price sales reflected an increase in the average selling price per item sold, partially offset
by a decrease in the number of items sold. Kids’ was the top-performing merchandise category.
Off-Price net sales increased 4.5%, compared with 2017. This included a decrease of approximately 250 basis points primarily due to the
53rd week and loyalty related adjustments. Off-Price sales reflected an increase in the number of items sold, partially offset by a decrease in
the average selling price per item sold. The top-performing merchandise category was Shoes.
Net Sales (2017 vs. 2016)
In 2017, total Company net sales increased 4.4%, compared with 2016. Digital sales increased 16% compared with 2016. During the year,
we opened two full-line stores, including one in Canada, and 17 Nordstrom Rack stores. The 53rd week contributed approximately $220 in
additional net sales.
Full-Price net sales increased 1.9% compared with 2016. Full-Price sales reflected an increase in the average selling price per item sold and
an increase in the number of items sold. Kids’ was the top-performing merchandise category.
Off-Price net sales increased 9.9% compared with 2016. Off-Price sales reflected an increase in the number of items sold, partially offset by
a decrease in average selling price per item sold. Beauty was the top-performing merchandise category.
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 whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. In 2017 and 2016, we
also recorded asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the initial
transaction to sell our U.S. Visa and private label credit card portfolio to TD.
Upon adoption of the new Revenue Standard in 2018, the remaining unamortized balances of the investment in contract asset and deferred
revenue associated with the sale of the credit card receivables were eliminated as part of a cumulative-effect adjustment, reducing the
opening balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded
in credit card revenues, net (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Credit Card Revenues, Net (2018 vs. 2017)
Credit Card Revenues, net increased $39 in 2018 reflecting our strategic partnership with TD to responsibly grow our receivables and
associated revenues as well as efforts to drive new account growth. The 53rd week contributed $10 in additional revenue in 2017.
Credit Card Revenues, Net (2017 vs. 2016)
Credit Card Revenues, net increased $82 in 2017 due to the growth of our program and associated revenues as well as a reduction in
amortization expense related to the sale of the credit card portfolio. The 53rd week contributed $10 in additional revenue in 2017.
22
Gross Profit
The following table summarizes gross profit:
Fiscal year 2018 2017 2016
Gross profit $5,325 $5,247 $5,058
Gross profit as a % of net sales 34.4% 34.7% 34.9%
Inventory turnover rate 4.70 4.67 4.53
Gross Profit (2018 vs. 2017)
Our gross profit rate decreased 26 basis points in 2018 when compared with 2017, largely due to higher Full-Price markdowns in the fourth
quarter of 2018. Overall, continued focus on inventory execution led to improvements in inventory turnover rate in 2018.
Gross Profit (2017 vs. 2016)
Our gross profit rate decreased 23 basis points in 2017 when compared with 2016, primarily due to higher planned occupancy expenses
related to new store growth for Nordstrom Rack and Canada. Continued focus on inventory execution led to improvements in inventory
turnover rate in 2017.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses are summarized in the following table:
Fiscal year 2018 2017 2016
Selling, general and administrative expenses $4,868 $4,662 $4,315
Selling, general and administrative expenses as a % of net sales 31.5% 30.8% 29.8%
Selling, General and Administrative Expenses (2018 vs. 2017)
Our SG&A rate increased 65 basis points and increased $206 in 2018 compared with 2017. The basis point increase was primarily due to the
Estimated Non-recurring Charge of $72 in 2018 (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
The dollar increase was primarily due to planned increases in supply chain and marketing costs and the Estimated Non-recurring Charge.
Selling, General and Administrative Expenses (2017 vs. 2016)
Our SG&A rate increased 104 basis points and increased $347 in 2017 compared with 2016 primarily due to planned technology and
performance related expenses.
Goodwill Impairment
We recognized a goodwill impairment charge of $197 in 2016 related to Trunk Club (see Note 9: Fair Value Measurements in Item 8).
Earnings Before Interest and Income Taxes
Earnings before interest and income taxes (“EBIT”) are summarized in the following table:
Fiscal year 2018 2017 2016
Earnings before interest and income taxes $837 $926 $805
Earnings before interest and income taxes as a % of net sales 5.4% 6.1% 5.6%
Earnings Before Interest and Income Taxes (2018 vs. 2017)
EBIT decreased $89 and 71 basis points in 2018 compared with 2017 primarily due to the Estimated Non-recurring Charge of $72 (see Note
1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Earnings Before Interest and Income Taxes (2017 vs. 2016)
EBIT increased $121 and 56 basis points in 2017 compared with 2016 primarily due to a goodwill impairment charge of $197 in 2016 related
to Trunk Club.
Nordstrom, Inc. and subsidiaries 23
Interest Expense, Net
Interest expense, net is summarized in the following table:
Fiscal year 2018 2017 2016
Interest on long-term debt and short-term borrowings $146 $168 $147
Less:
Interest income (15) (5) (1)
Capitalized interest (27) (27) (25)
Interest expense, net $104 $136 $121
Interest Expense, Net (2018 vs. 2017)
Interest expense, net decreased $32 in 2018 compared with 2017 primarily due to a net interest expense charge of $18 related to the $650
debt refinancing completed in the first quarter of 2017 (see Note 8: Debt and Credit Facilities in Item 8) and an increase in interest income
resulting from higher average cash balances and short-term interest rates.
Interest Expense, Net (2017 vs. 2016)
Interest expense, net increased $15 in 2017 compared with 2016 primarily due to a net interest expense charge of $18 related to the $650
debt refinancing completed in the first quarter of 2017.
Net Sales (2018 vs. 2017)
In 2018, total Company net sales increased 2.3%, compared with 2017. This included a decrease of approximately 150 basis points due to
the 53rd week, which contributed approximately $220 in additional net sales in 2017. Digital sales increased 16% compared with 2017.
During the year, we opened our Nordstrom Men’s Store NYC, six Nordstrom Rack stores in Canada and six in the U.S., one Jeffrey boutique
and two Nordstrom Locals. We closed two full-line stores and one Trunk Club clubhouse.
Full-Price net sales decreased 1.5%, compared with 2017. This included a decrease of approximately 300 basis points primarily due to
loyalty related adjustments and the 53rd week. Full-Price sales reflected an increase in the average selling price per item sold, partially offset
by a decrease in the number of items sold. Kids’ was the top-performing merchandise category.
Off-Price net sales increased 4.5%, compared with 2017. This included a decrease of approximately 250 basis points primarily due to the
53rd week and loyalty related adjustments. Off-Price sales reflected an increase in the number of items sold, partially offset by a decrease in
the average selling price per item sold. The top-performing merchandise category was Shoes.
Net Sales (2017 vs. 2016)
In 2017, total Company net sales increased 4.4%, compared with 2016. Digital sales increased 16% compared with 2016. During the year,
we opened two full-line stores, including one in Canada, and 17 Nordstrom Rack stores. The 53rd week contributed approximately $220 in
additional net sales.
Full-Price net sales increased 1.9% compared with 2016. Full-Price sales reflected an increase in the average selling price per item sold and
an increase in the number of items sold. Kids’ was the top-performing merchandise category.
Off-Price net sales increased 9.9% compared with 2016. Off-Price sales reflected an increase in the number of items sold, partially offset by
a decrease in average selling price per item sold. Beauty was the top-performing merchandise category.
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 whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. In 2017 and 2016, we
also recorded asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the initial
transaction to sell our U.S. Visa and private label credit card portfolio to TD.
Upon adoption of the new Revenue Standard in 2018, the remaining unamortized balances of the investment in contract asset and deferred
revenue associated with the sale of the credit card receivables were eliminated as part of a cumulative-effect adjustment, reducing the
opening balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded
in credit card revenues, net (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Credit Card Revenues, Net (2018 vs. 2017)
Credit Card Revenues, net increased $39 in 2018 reflecting our strategic partnership with TD to responsibly grow our receivables and
associated revenues as well as efforts to drive new account growth. The 53rd week contributed $10 in additional revenue in 2017.
Credit Card Revenues, Net (2017 vs. 2016)
Credit Card Revenues, net increased $82 in 2017 due to the growth of our program and associated revenues as well as a reduction in
amortization expense related to the sale of the credit card portfolio. The 53rd week contributed $10 in additional revenue in 2017.
22
Gross Profit
The following table summarizes gross profit:
Fiscal year 2018 2017 2016
Gross profit $5,325 $5,247 $5,058
Gross profit as a % of net sales 34.4% 34.7% 34.9%
Inventory turnover rate 4.70 4.67 4.53
Gross Profit (2018 vs. 2017)
Our gross profit rate decreased 26 basis points in 2018 when compared with 2017, largely due to higher Full-Price markdowns in the fourth
quarter of 2018. Overall, continued focus on inventory execution led to improvements in inventory turnover rate in 2018.
Gross Profit (2017 vs. 2016)
Our gross profit rate decreased 23 basis points in 2017 when compared with 2016, primarily due to higher planned occupancy expenses
related to new store growth for Nordstrom Rack and Canada. Continued focus on inventory execution led to improvements in inventory
turnover rate in 2017.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses are summarized in the following table:
Fiscal year 2018 2017 2016
Selling, general and administrative expenses $4,868 $4,662 $4,315
Selling, general and administrative expenses as a % of net sales 31.5% 30.8% 29.8%
Selling, General and Administrative Expenses (2018 vs. 2017)
Our SG&A rate increased 65 basis points and increased $206 in 2018 compared with 2017. The basis point increase was primarily due to the
Estimated Non-recurring Charge of $72 in 2018 (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
The dollar increase was primarily due to planned increases in supply chain and marketing costs and the Estimated Non-recurring Charge.
Selling, General and Administrative Expenses (2017 vs. 2016)
Our SG&A rate increased 104 basis points and increased $347 in 2017 compared with 2016 primarily due to planned technology and
performance related expenses.
Goodwill Impairment
We recognized a goodwill impairment charge of $197 in 2016 related to Trunk Club (see Note 9: Fair Value Measurements in Item 8).
Earnings Before Interest and Income Taxes
Earnings before interest and income taxes (“EBIT”) are summarized in the following table:
Fiscal year 2018 2017 2016
Earnings before interest and income taxes $837 $926 $805
Earnings before interest and income taxes as a % of net sales 5.4% 6.1% 5.6%
Earnings Before Interest and Income Taxes (2018 vs. 2017)
EBIT decreased $89 and 71 basis points in 2018 compared with 2017 primarily due to the Estimated Non-recurring Charge of $72 (see Note
1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Earnings Before Interest and Income Taxes (2017 vs. 2016)
EBIT increased $121 and 56 basis points in 2017 compared with 2016 primarily due to a goodwill impairment charge of $197 in 2016 related
to Trunk Club.
Nordstrom, Inc. and subsidiaries 23
Interest Expense, Net
Interest expense, net is summarized in the following table:
Fiscal year 2018 2017 2016
Interest on long-term debt and short-term borrowings $146 $168 $147
Less:
Interest income (15) (5) (1)
Capitalized interest (27) (27) (25)
Interest expense, net $104 $136 $121
Interest Expense, Net (2018 vs. 2017)
Interest expense, net decreased $32 in 2018 compared with 2017 primarily due to a net interest expense charge of $18 related to the $650
debt refinancing completed in the first quarter of 2017 (see Note 8: Debt and Credit Facilities in Item 8) and an increase in interest income
resulting from higher average cash balances and short-term interest rates.
Interest Expense, Net (2017 vs. 2016)
Interest expense, net increased $15 in 2017 compared with 2016 primarily due to a net interest expense charge of $18 related to the $650
debt refinancing completed in the first quarter of 2017.
Net Sales (2018 vs. 2017)
In 2018, total Company net sales increased 2.3%, compared with 2017. This included a decrease of approximately 150 basis points due to
the 53rd week, which contributed approximately $220 in additional net sales in 2017. Digital sales increased 16% compared with 2017.
During the year, we opened our Nordstrom Men’s Store NYC, six Nordstrom Rack stores in Canada and six in the U.S., one Jeffrey boutique
and two Nordstrom Locals. We closed two full-line stores and one Trunk Club clubhouse.
Full-Price net sales decreased 1.5%, compared with 2017. This included a decrease of approximately 300 basis points primarily due to
loyalty related adjustments and the 53rd week. Full-Price sales reflected an increase in the average selling price per item sold, partially offset
by a decrease in the number of items sold. Kids’ was the top-performing merchandise category.
Off-Price net sales increased 4.5%, compared with 2017. This included a decrease of approximately 250 basis points primarily due to the
53rd week and loyalty related adjustments. Off-Price sales reflected an increase in the number of items sold, partially offset by a decrease in
the average selling price per item sold. The top-performing merchandise category was Shoes.
Net Sales (2017 vs. 2016)
In 2017, total Company net sales increased 4.4%, compared with 2016. Digital sales increased 16% compared with 2016. During the year,
we opened two full-line stores, including one in Canada, and 17 Nordstrom Rack stores. The 53rd week contributed approximately $220 in
additional net sales.
Full-Price net sales increased 1.9% compared with 2016. Full-Price sales reflected an increase in the average selling price per item sold and
an increase in the number of items sold. Kids’ was the top-performing merchandise category.
Off-Price net sales increased 9.9% compared with 2016. Off-Price sales reflected an increase in the number of items sold, partially offset by
a decrease in average selling price per item sold. Beauty was the top-performing merchandise category.
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 whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. In 2017 and 2016, we
also recorded asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the initial
transaction to sell our U.S. Visa and private label credit card portfolio to TD.
Upon adoption of the new Revenue Standard in 2018, the remaining unamortized balances of the investment in contract asset and deferred
revenue associated with the sale of the credit card receivables were eliminated as part of a cumulative-effect adjustment, reducing the
opening balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded
in credit card revenues, net (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Credit Card Revenues, Net (2018 vs. 2017)
Credit Card Revenues, net increased $39 in 2018 reflecting our strategic partnership with TD to responsibly grow our receivables and
associated revenues as well as efforts to drive new account growth. The 53rd week contributed $10 in additional revenue in 2017.
Credit Card Revenues, Net (2017 vs. 2016)
Credit Card Revenues, net increased $82 in 2017 due to the growth of our program and associated revenues as well as a reduction in
amortization expense related to the sale of the credit card portfolio. The 53rd week contributed $10 in additional revenue in 2017.
22
Gross Profit
The following table summarizes gross profit:
Fiscal year 2018 2017 2016
Gross profit $5,325 $5,247 $5,058
Gross profit as a % of net sales 34.4% 34.7% 34.9%
Inventory turnover rate 4.70 4.67 4.53
Gross Profit (2018 vs. 2017)
Our gross profit rate decreased 26 basis points in 2018 when compared with 2017, largely due to higher Full-Price markdowns in the fourth
quarter of 2018. Overall, continued focus on inventory execution led to improvements in inventory turnover rate in 2018.
Gross Profit (2017 vs. 2016)
Our gross profit rate decreased 23 basis points in 2017 when compared with 2016, primarily due to higher planned occupancy expenses
related to new store growth for Nordstrom Rack and Canada. Continued focus on inventory execution led to improvements in inventory
turnover rate in 2017.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses are summarized in the following table:
Fiscal year 2018 2017 2016
Selling, general and administrative expenses $4,868 $4,662 $4,315
Selling, general and administrative expenses as a % of net sales 31.5% 30.8% 29.8%
Selling, General and Administrative Expenses (2018 vs. 2017)
Our SG&A rate increased 65 basis points and increased $206 in 2018 compared with 2017. The basis point increase was primarily due to the
Estimated Non-recurring Charge of $72 in 2018 (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
The dollar increase was primarily due to planned increases in supply chain and marketing costs and the Estimated Non-recurring Charge.
Selling, General and Administrative Expenses (2017 vs. 2016)
Our SG&A rate increased 104 basis points and increased $347 in 2017 compared with 2016 primarily due to planned technology and
performance related expenses.
Goodwill Impairment
We recognized a goodwill impairment charge of $197 in 2016 related to Trunk Club (see Note 9: Fair Value Measurements in Item 8).
Earnings Before Interest and Income Taxes
Earnings before interest and income taxes (“EBIT”) are summarized in the following table:
Fiscal year 2018 2017 2016
Earnings before interest and income taxes $837 $926 $805
Earnings before interest and income taxes as a % of net sales 5.4% 6.1% 5.6%
Earnings Before Interest and Income Taxes (2018 vs. 2017)
EBIT decreased $89 and 71 basis points in 2018 compared with 2017 primarily due to the Estimated Non-recurring Charge of $72 (see Note
1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Earnings Before Interest and Income Taxes (2017 vs. 2016)
EBIT increased $121 and 56 basis points in 2017 compared with 2016 primarily due to a goodwill impairment charge of $197 in 2016 related
to Trunk Club.
Nordstrom, Inc. and subsidiaries 23
Interest Expense, Net
Interest expense, net is summarized in the following table:
Fiscal year 2018 2017 2016
Interest on long-term debt and short-term borrowings $146 $168 $147
Less:
Interest income (15) (5) (1)
Capitalized interest (27) (27) (25)
Interest expense, net $104 $136 $121
Interest Expense, Net (2018 vs. 2017)
Interest expense, net decreased $32 in 2018 compared with 2017 primarily due to a net interest expense charge of $18 related to the $650
debt refinancing completed in the first quarter of 2017 (see Note 8: Debt and Credit Facilities in Item 8) and an increase in interest income
resulting from higher average cash balances and short-term interest rates.
Interest Expense, Net (2017 vs. 2016)
Interest expense, net increased $15 in 2017 compared with 2016 primarily due to a net interest expense charge of $18 related to the $650
debt refinancing completed in the first quarter of 2017.
Income Tax Expense
Income tax expense is summarized in the following table:
Fiscal year 2018 2017 2016
Income tax expense $169 $353 $330
Effective tax rate 23.1% 44.7% 48.2%
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among numerous other provisions, the Tax Act significantly
revised the U.S. federal corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact
and provisionally recorded this estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax
Act, resulting in no material changes to previously recorded provisional amounts.
The following table illustrates the components of our effective tax rate:
Fiscal year 2018 2017 2016
Statutory rate1 21.0% 33.7% 35.0%
Tax Act impact (0.1%) 6.1% —
Goodwill impairment — — 10.1%
State and local income taxes, net of federal income taxes 5.8% 4.5% 5.1%
Federal credits (1.5%) (0.7%) (0.6%)
Valuation allowance release (1.2%) — —
Other, net (0.9%) 1.1% (1.4%)
Effective tax rate 23.1% 44.7% 48.2%
1 The statutory rate in 2018 and 2017 is reduced due to the Tax Act.
Income Tax Expense (2018 vs. 2017)
The decrease in the effective tax rate for 2018 compared with 2017 was primarily due to the lower statutory tax rate enacted under the Tax
Act, the benefit of certain current year foreign losses and the release of a foreign valuation allowance (see Note 14: Income Taxes in Item 8).
Income Tax Expense (2017 vs. 2016)
The decrease in the effective tax rate for 2017 compared with 2016 was primarily due to the non-deductible goodwill impairment charge of
$197 related to Trunk Club in the third quarter of 2016 (see Note 9: Fair Value Measurements in Item 8). Excluding the impact of the Trunk
Club goodwill impairment, our effective tax rate for 2017 would have increased approximately 700 basis points compared with 2016 primarily
as a result of the Tax Act. Net earnings in 2017 included $42 related to the Tax Act, which includes a provisional, one-time tax charge of $51
related to the revaluation of net deferred tax assets, partially offset by cash savings from a lower federal tax rate.
24
Earnings Per Share
Earnings per share (“EPS”) is as follows:
Fiscal year 2018 2017 2016
Basic $3.37 $2.62 $2.05
Diluted $3.32 $2.59 $2.02
Earnings Per Share (2018 vs. 2017)
The increase in diluted EPS of $0.73 was primarily due to a lower tax rate, partially offset by the Estimated Non-recurring Charge of $0.
28
(see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Earnings Per Share (2017 vs. 2016)
For 2017, diluted EPS of $2.59 included impacts associated with the Tax Act consisting of a $0.25 per share reduction related to our income
tax provision and a $0.06 per share decrease for a one-time investment in our employees. The impact of the Trunk Club goodwill impairment
charge of $197 in 2016 was approximately $1.12 per share. Excluding the impact of these items, diluted EPS decreased in 2017 compared
with 2016 due to planned increases in supply chain and technology costs associated with our growth initiatives, partially offset by an increase
in net sales.
Nordstrom, Inc. and subsidiaries 25
Fiscal Year 2019 Outlook
We are committed to achieving long-term financial targets, which support three strategic objectives in driving shareholder returns: continuing
market share gains, improving profitability and returns, and maintaining disciplined capital allocation. Our expectations for fiscal 2019 are as
follows:
Net sales growth 1 percent to 2 percent
Credit card revenues, net Mid to high single-digit growth
EBIT $915 to $970 million
EBIT margin 5.9 percent to 6.1 percent
Earnings per diluted share (excluding the impact of any potential future share
repurchase) $3.65 to $3.90
Our guidance also incorporates the following assumptions:
• We measure our performance through market share, customers and net sales metrics. As comparable sales growth is expected to
approximate net sales growth in 2019, we will only report net sales growth.
• The effective tax rate is expected to be approximately 26%.
• Estimated outstanding shares are expected to be approximately 162, which excludes the impact of any potential future share
repurchases.
Income Tax Expense
Income tax expense is summarized in the following table:
Fiscal year 2018 2017 2016
Income tax expense $169 $353 $330
Effective tax rate 23.1% 44.7% 48.2%
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among numerous other provisions, the Tax Act significantly
revised the U.S. federal corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact
and provisionally recorded this estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax
Act, resulting in no material changes to previously recorded provisional amounts.
The following table illustrates the components of our effective tax rate:
Fiscal year 2018 2017 2016
Statutory rate1 21.0% 33.7% 35.0%
Tax Act impact (0.1%) 6.1% —
Goodwill impairment — — 10.1%
State and local income taxes, net of federal income taxes 5.8% 4.5% 5.1%
Federal credits (1.5%) (0.7%) (0.6%)
Valuation allowance release (1.2%) — —
Other, net (0.9%) 1.1% (1.4%)
Effective tax rate 23.1% 44.7% 48.2%
1 The statutory rate in 2018 and 2017 is reduced due to the Tax Act.
Income Tax Expense (2018 vs. 2017)
The decrease in the effective tax rate for 2018 compared with 2017 was primarily due to the lower statutory tax rate enacted under the Tax
Act, the benefit of certain current year foreign losses and the release of a foreign valuation allowance (see Note 14: Income Taxes in Item 8).
Income Tax Expense (2017 vs. 2016)
The decrease in the effective tax rate for 2017 compared with 2016 was primarily due to the non-deductible goodwill impairment charge of
$197 related to Trunk Club in the third quarter of 2016 (see Note 9: Fair Value Measurements in Item 8). Excluding the impact of the Trunk
Club goodwill impairment, our effective tax rate for 2017 would have increased approximately 700 basis points compared with 2016 primarily
as a result of the Tax Act. Net earnings in 2017 included $42 related to the Tax Act, which includes a provisional, one-time tax charge of $51
related to the revaluation of net deferred tax assets, partially offset by cash savings from a lower federal tax rate.
24
Earnings Per Share
Earnings per share (“EPS”) is as follows:
Fiscal year 2018 2017 2016
Basic $3.37 $2.62 $2.05
Diluted $3.32 $2.59 $2.02
Earnings Per Share (2018 vs. 2017)
The increase in diluted EPS of $0.73 was primarily due to a lower tax rate, partially offset by the Estimated Non-recurring Charge of $0.28
(see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Earnings Per Share (2017 vs. 2016)
For 2017, diluted EPS of $2.59 included impacts associated with the Tax Act consisting of a $0.25 per share reduction related to our income
tax provision and a $0.06 per share decrease for a one-time investment in our employees. The impact of the Trunk Club goodwill impairment
charge of $197 in 2016 was approximately $1.12 per share. Excluding the impact of these items, diluted EPS decreased in 2017 compared
with 2016 due to planned increases in supply chain and technology costs associated with our growth initiatives, partially offset by an increase
in net sales.
Nordstrom, Inc. and subsidiaries 25
Fiscal Year 2019 Outlook
We are committed to achieving long-term financial targets, which support three strategic objectives in driving shareholder returns: continuing
market share gains, improving profitability and returns, and maintaining disciplined capital allocation. Our expectations for fiscal 2019 are as
follows:
Net sales growth 1 percent to 2 percent
Credit card revenues, net Mid to high single-digit growth
EBIT $915 to $970 million
EBIT margin 5.9 percent to 6.1 percent
Earnings per diluted share (excluding the impact of any potential future share
repurchase) $3.65 to $3.90
Our guidance also incorporates the following assumptions:
• We measure our performance through market share, customers and net sales metrics. As comparable sales growth is expected to
approximate net sales growth in 2019, we will only report net sales growth.
• The effective tax rate is expected to be approximately 26%.
• Estimated outstanding shares are expected to be approximately 162, which excludes the impact of any potential future share
repurchases.
Income Tax Expense
Income tax expense is summarized in the following table:
Fiscal year 2018 2017 2016
Income tax expense $169 $353 $330
Effective tax rate 23.1% 44.7% 48.2%
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among numerous other provisions, the Tax Act significantly
revised the U.S. federal corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact
and provisionally recorded this estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax
Act, resulting in no material changes to previously recorded provisional amounts.
The following table illustrates the components of our effective tax rate:
Fiscal year 2018 2017 2016
Statutory rate1 21.0% 33.7% 35.0%
Tax Act impact (0.1%) 6.1% —
Goodwill impairment — — 10.1%
State and local income taxes, net of federal income taxes 5.8% 4.5% 5.1%
Federal credits (1.5%) (0.7%) (0.6%)
Valuation allowance release (1.2%) — —
Other, net (0.9%) 1.1% (1.4%)
Effective tax rate 23.1% 44.7% 48.2%
1 The statutory rate in 2018 and 2017 is reduced due to the Tax Act.
Income Tax Expense (2018 vs. 2017)
The decrease in the effective tax rate for 2018 compared with 2017 was primarily due to the lower statutory tax rate enacted under the Tax
Act, the benefit of certain current year foreign losses and the release of a foreign valuation allowance (see Note 14: Income Taxes in Item 8).
Income Tax Expense (2017 vs. 2016)
The decrease in the effective tax rate for 2017 compared with 2016 was primarily due to the non-deductible goodwill impairment charge of
$197 related to Trunk Club in the third quarter of 2016 (see Note 9: Fair Value Measurements in Item 8). Excluding the impact of the Trunk
Club goodwill impairment, our effective tax rate for 2017 would have increased approximately 700 basis points compared with 2016 primarily
as a result of the Tax Act. Net earnings in 2017 included $42 related to the Tax Act, which includes a provisional, one-time tax charge of $51
related to the revaluation of net deferred tax assets, partially offset by cash savings from a lower federal tax rate.
24
Earnings Per Share
Earnings per share (“EPS”) is as follows:
Fiscal year 2018 2017 2016
Basic $3.37 $2.62 $2.05
Diluted $3.32 $2.59 $2.02
Earnings Per Share (2018 vs. 2017)
The increase in diluted EPS of $0.73 was primarily due to a lower tax rate, partially offset by the Estimated Non-recurring Charge of $0.28
(see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Earnings Per Share (2017 vs. 2016)
For 2017, diluted EPS of $2.59 included impacts associated with the Tax Act consisting of a $0.25 per share reduction related to our income
tax provision and a $0.06 per share decrease for a one-time investment in our employees. The impact of the Trunk Club goodwill impairment
charge of $197 in 2016 was approximately $1.12 per share. Excluding the impact of these items, diluted EPS decreased in 2017 compared
with 2016 due to planned increases in supply chain and technology costs associated with our growth initiatives, partially offset by an increase
in net sales.
Nordstrom, Inc. and subsidiaries 25
Fiscal Year 2019 Outlook
We are committed to achieving long-term financial targets, which support three strategic objectives in driving shareholder returns: continuing
market share gains, improving profitability and returns, and maintaining disciplined capital allocation. Our expectations for fiscal 2019 are as
follows:
Net sales growth 1 percent to 2 percent
Credit card revenues, net Mid to high single-digit growth
EBIT $915 to $970 million
EBIT margin 5.9 percent to 6.1 percent
Earnings per diluted share (excluding the impact of any potential future share
repurchase) $3.65 to $3.90
Our guidance also incorporates the following assumptions:
• We measure our performance through market share, customers and net sales metrics. As comparable sales growth is expected to
approximate net sales growth in 2019, we will only report net sales growth.
• The effective tax rate is expected to be approximately 26%.
• Estimated outstanding shares are expected to be approximately 162, which excludes the impact of any potential future share
repurchases.
Income Tax Expense
Income tax expense is summarized in the following table:
Fiscal year 2018 2017 2016
Income tax expense $169 $353 $330
Effective tax rate 23.1% 44.7% 48.2%
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among numerous other provisions, the Tax Act significantly
revised the U.S. federal corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact
and provisionally recorded this estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax
Act, resulting in no material changes to previously recorded provisional amounts.
The following table illustrates the components of our effective tax rate:
Fiscal year 2018 2017 2016
Statutory rate1 21.0% 33.7% 35.0%
Tax Act impact (0.1%) 6.1% —
Goodwill impairment — — 10.1%
State and local income taxes, net of federal income taxes 5.8% 4.5% 5.1%
Federal credits (1.5%) (0.7%) (0.6%)
Valuation allowance release (1.2%) — —
Other, net (0.9%) 1.1% (1.4%)
Effective tax rate 23.1% 44.7% 48.2%
1 The statutory rate in 2018 and 2017 is reduced due to the Tax Act.
Income Tax Expense (2018 vs. 2017)
The decrease in the effective tax rate for 2018 compared with 2017 was primarily due to the lower statutory tax rate enacted under the Tax
Act, the benefit of certain current year foreign losses and the release of a foreign valuation allowance (see Note 14: Income Taxes in Item 8).
Income Tax Expense (2017 vs. 2016)
The decrease in the effective tax rate for 2017 compared with 2016 was primarily due to the non-deductible goodwill impairment charge of
$197 related to Trunk Club in the third quarter of 2016 (see Note 9: Fair Value Measurements in Item 8). Excluding the impact of the Trunk
Club goodwill impairment, our effective tax rate for 2017 would have increased approximately 700 basis points compared with 2016 primarily
as a result of the Tax Act. Net earnings in 2017 included $42 related to the Tax Act, which includes a provisional, one-time tax charge of $51
related to the revaluation of net deferred tax assets, partially offset by cash savings from a lower federal tax rate.
24
Earnings Per Share
Earnings per share (“EPS”) is as follows:
Fiscal year 2018 2017 2016
Basic $3.37 $2.62 $2.05
Diluted $3.32 $2.59 $2.02
Earnings Per Share (2018 vs. 2017)
The increase in diluted EPS of $0.73 was primarily due to a lower tax rate, partially offset by the Estimated Non-recurring Charge of $0.28
(see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Earnings Per Share (2017 vs. 2016)
For 2017, diluted EPS of $2.59 included impacts associated with the Tax Act consisting of a $0.25 per share reduction related to our income
tax provision and a $0.06 per share decrease for a one-time investment in our employees. The impact of the Trunk Club goodwill impairment
charge of $197 in 2016 was approximately $1.12 per share. Excluding the impact of these items, diluted EPS decreased in 2017 compared
with 2016 due to planned increases in supply chain and technology costs associated with our growth initiatives, partially offset by an increase
in net sales.
Nordstrom, Inc. and subsidiaries 25
Fiscal Year 2019 Outlook
We are committed to achieving long-term financial targets, which support three strategic objectives in driving shareholder returns: continuing
market share gains, improving profitability and returns, and maintaining disciplined capital allocation. Our expectations for fiscal 2019 are as
follows:
Net sales growth 1 percent to 2 percent
Credit card revenues, net Mid to high single-digit growth
EBIT $915 to $970 million
EBIT margin 5.9 percent to 6.1 percent
Earnings per diluted share (excluding the impact of any potential future share
repurchase) $3.65 to $3.90
Our guidance also incorporates the following assumptions:
• We measure our performance through market share, customers and net sales metrics. As comparable sales growth is expected to
approximate net sales growth in 2019, we will only report net sales growth.
• The effective tax rate is expected to be approximately 26%.
• Estimated outstanding shares are expected to be approximately 162, which excludes the impact of any potential future share
repurchases.
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. Adjusted ROIC adjusts our operating leases as if they met the criteria for capital leases or we
had purchased the properties. This provides additional supplemental information that reflects the investment in our off-balance sheet
operating leases, controls for differences in capital structure between us and our competitors and provides investors and credit agencies with
another way to comparably evaluate the efficiency and effectiveness of our capital investments over time. In addition, we incorporate
Adjusted ROIC into our executive incentive measures and it is an important indicator of shareholders’ return over the long term.
We define Adjusted ROIC as our adjusted net operating profit after tax divided by our average invested capital using the trailing 12-month
average. Adjusted ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be
considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in
accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore
may not be comparable to those used by other companies. Estimated depreciation on capitalized operating leases and average estimated
asset base of capitalized operating leases are not calculated in accordance with, or an alternative for, GAAP and should not be considered in
isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP which is most directly
comparable to Adjusted ROIC is return on assets. The following is a reconciliation of the components of Adjusted ROIC and return on assets:
12 Fiscal Months Ended
February 2, 2019 February 3, 2018 January 28, 2017 January 30, 2016 January 31, 2015
Net earnings $564 $437 $354 $600 $720
Add: income tax expense 169 353 330 376 465
Add: interest expense 119 141 122 125 139
Earnings before interest and income
tax expense 852 931 806 1,101 1,324
Add: rent expense 251 250 202 176 137
Less: estimated depreciation on
capitalized operating leases1 (134) (133) (108) (94) (74)
Adjusted net operating profit 969 1,048 900 1,183 1,387
Less: estimated income tax expense (223) (468) (416) (456) (544)
Adjusted net operating profit after
tax $746 $580 $484 $727 $843
Average total assets $8,282 $8,055 $7,917 $9,076 $8,8
60
Less: average non-interest-bearing
current liabilities2 (3,479) (3,261) (3,012) (2,993) (2,730)
Less: average deferred property
incentives and deferred rent
liability2 (616) (644) (644) (548) (502)
Add: average estimated asset base
of capitalized operating leases1 2,018 1,805 1,512 1,236 1,058
Average invested capital $6,205 $5,955 $5,773 $6,771 $6,686
Return on assets3 6.8% 5.4% 4.5% 6.6% 8.1%
Adjusted ROIC3 12.0% 9.7% 8.4% 10.7% 12.6%
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. The asset base is calculated 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. We do not expect the adoption of the new Lease Standard to have a material impact on our Adjusted ROIC (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8).
2 Balances associated with our deferred rent liability have been classified as long-term liabilities as of January 28, 2017.
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with the Tax Act and a $72 unfavorable impact related to the
Estimated Non-recurring Charge (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results for the 12 fiscal months ended
February 3, 2018 include a $42 unfavorable impact related to the Tax Act. Results for the 12 fiscal months ended January 28, 2017 include a $197 unfavorable impact of the
Trunk Club non-cash goodwill impairment charge in the third quarter of 2016.
26
LIQUIDITY AND CAPITAL RESOURCES
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. We believe that our operating cash flows, available credit facility and potential future borrowings 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. We believe that as of
February 2, 2019, our existing cash and cash equivalents on-hand of $957, available credit facility of $800 and potential future operating
cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives.
The following is a summary of our cash flows by activity:
Fiscal year 2018 2017 2016
Net cash provided by operating activities $1,296 $1,400 $1,658
Net cash used in investing activities (653) (684) (791)
Net cash used in financing activities (867) (542) (455)
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), 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.
Net cash provided by operating activities decreased by $104 between 2018 and 2017 primarily due to the timing of payroll and increased
incentive compensation payouts, which included $16 for our one-time investment in employees in response to the Tax Act, paid in 2018. Net
cash provided by operating activities decreased by $258 between 2017 and 2016 primarily due to the timing of tax refunds and payments.
Investing Activities
Our investing cash inflows are generally from proceeds from sales of property and equipment. Our investing cash outflows include payments
for capital expenditures, including stores, supply chain improvements and technology costs. In addition, other investing includes payments for
investments in other companies, as well as proceeds from distributions or sales of these investments.
Net cash used in investing activities decreased by $31 between 2018 and 2017 and $107 between 2017 and 2016 primarily due to
decreases in capital expenditures, partially offset by the acquisitions of two retail technology companies in 2018, which were classified in
other investing activities, net (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Capital Expenditures
Our capital expenditures, net are summarized as follows:
Fiscal year 2018 2017 2016
Capital expenditures $654 $731 $846
Less: deferred property incentives1 (53) (64) (65)
Capital expenditures, net $601 $667 $781
Capital expenditures % of net sales 4.2% 4.8% 5.8%
Capital expenditures, net category allocation:
Technology 30% 28% 26%
Supply chain 18% 4% 4%
Generational investments2 30% 24% 32%
New stores, relocations, remodels and other 22% 44% 38%
Total 100% 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 as an offset to our capital expenditures.
2 Generational investments include Nordstromrack.com/HauteLook, Canada, Trunk Club and Nordstrom NYC.
Nordstrom, Inc. and subsidiaries 27
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. Adjusted ROIC adjusts our operating leases as if they met the criteria for capital leases or we
had purchased the properties. This provides additional supplemental information that reflects the investment in our off-balance sheet
operating leases, controls for differences in capital structure between us and our competitors and provides investors and credit agencies with
another way to comparably evaluate the efficiency and effectiveness of our capital investments over time. In addition, we incorporate
Adjusted ROIC into our executive incentive measures and it is an important indicator of shareholders’ return over the long term.
We define Adjusted ROIC as our adjusted net operating profit after tax divided by our average invested capital using the trailing 12-month
average. Adjusted ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be
considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in
accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore
may not be comparable to those used by other companies. Estimated depreciation on capitalized operating leases and average estimated
asset base of capitalized operating leases are not calculated in accordance with, or an alternative for, GAAP and should not be considered in
isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP which is most directly
comparable to Adjusted ROIC is return on assets. The following is a reconciliation of the components of Adjusted ROIC and return on assets:
12 Fiscal Months Ended
February 2, 2019 February 3, 2018 January 28, 2017 January 30, 2016 January 31, 2015
Net earnings $564 $437 $354 $600 $720
Add: income tax expense 169 353 330 376 465
Add: interest expense 119 141 122 125 139
Earnings before interest and income
tax expense 852 931 806 1,101 1,324
Add: rent expense 251 250 202 176 137
Less: estimated depreciation on
capitalized operating leases1 (134) (133) (108) (94) (74)
Adjusted net operating profit 969 1,048 900 1,183 1,387
Less: estimated income tax expense (223) (468) (416) (456) (544)
Adjusted net operating profit after
tax $746 $580 $484 $727 $843
Average total assets $8,282 $8,055 $7,917 $9,076 $8,860
Less: average non-interest-bearing
current liabilities2 (3,479) (3,261) (3,012) (2,993) (2,730)
Less: average deferred property
incentives and deferred rent
liability2 (616) (644) (644) (548) (502)
Add: average estimated asset base
of capitalized operating leases1 2,018 1,805 1,512 1,236 1,058
Average invested capital $6,205 $5,955 $5,773 $6,771 $6,686
Return on assets3 6.8% 5.4% 4.5% 6.6% 8.1%
Adjusted ROIC3 12.0% 9.7% 8.4% 10.7% 12.6%
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. The asset base is calculated 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. We do not expect the adoption of the new Lease Standard to have a material impact on our Adjusted ROIC (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8).
2 Balances associated with our deferred rent liability have been classified as long-term liabilities as of January 28, 2017.
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with the Tax Act and a $72 unfavorable impact related to the
Estimated Non-recurring Charge (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results for the 12 fiscal months ended
February 3, 2018 include a $42 unfavorable impact related to the Tax Act. Results for the 12 fiscal months ended January 28, 2017 include a $197 unfavorable impact of the
Trunk Club non-cash goodwill impairment charge in the third quarter of 2016.
26
LIQUIDITY AND CAPITAL RESOURCES
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. We believe that our operating cash flows, available credit facility and potential future borrowings 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. We believe that as of
February 2, 2019, our existing cash and cash equivalents on-hand of $957, available credit facility of $800 and potential future operating
cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives.
The following is a summary of our cash flows by activity:
Fiscal year 2018 2017 2016
Net cash provided by operating activities $1,296 $1,400 $1,658
Net cash used in investing activities (653) (684) (791)
Net cash used in financing activities (867) (542) (455)
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), 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.
Net cash provided by operating activities decreased by $104 between 2018 and 2017 primarily due to the timing of payroll and increased
incentive compensation payouts, which included $16 for our one-time investment in employees in response to the Tax Act, paid in 2018. Net
cash provided by operating activities decreased by $258 between 2017 and 2016 primarily due to the timing of tax refunds and payments.
Investing Activities
Our investing cash inflows are generally from proceeds from sales of property and equipment. Our investing cash outflows include payments
for capital expenditures, including stores, supply chain improvements and technology costs. In addition, other investing includes payments for
investments in other companies, as well as proceeds from distributions or sales of these investments.
Net cash used in investing activities decreased by $31 between 2018 and 2017 and $107 between 2017 and 2016 primarily due to
decreases in capital expenditures, partially offset by the acquisitions of two retail technology companies in 2018, which were classified in
other investing activities, net (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Capital Expenditures
Our capital expenditures, net are summarized as follows:
Fiscal year 2018 2017 2016
Capital expenditures $654 $731 $846
Less: deferred property incentives1 (53) (64) (65)
Capital expenditures, net $601 $667 $781
Capital expenditures % of net sales 4.2% 4.8% 5.8%
Capital expenditures, net category allocation:
Technology 30% 28% 26%
Supply chain 18% 4% 4%
Generational investments2 30% 24% 32%
New stores, relocations, remodels and other 22% 44% 38%
Total 100% 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 as an offset to our capital expenditures.
2 Generational investments include Nordstromrack.com/HauteLook, Canada, Trunk Club and Nordstrom NYC.
Nordstrom, Inc. and subsidiaries 27
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. Adjusted ROIC adjusts our operating leases as if they met the criteria for capital leases or we
had purchased the properties. This provides additional supplemental information that reflects the investment in our off-balance sheet
operating leases, controls for differences in capital structure between us and our competitors and provides investors and credit agencies with
another way to comparably evaluate the efficiency and effectiveness of our capital investments over time. In addition, we incorporate
Adjusted ROIC into our executive incentive measures and it is an important indicator of shareholders’ return over the long term.
We define Adjusted ROIC as our adjusted net operating profit after tax divided by our average invested capital using the trailing 12-month
average. Adjusted ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be
considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in
accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore
may not be comparable to those used by other companies. Estimated depreciation on capitalized operating leases and average estimated
asset base of capitalized operating leases are not calculated in accordance with, or an alternative for, GAAP and should not be considered in
isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP which is most directly
comparable to Adjusted ROIC is return on assets. The following is a reconciliation of the components of Adjusted ROIC and return on assets:
12 Fiscal Months Ended
February 2, 2019 February 3, 2018 January 28, 2017 January 30, 2016 January 31, 2015
Net earnings $564 $437 $354 $600 $720
Add: income tax expense 169 353 330 376 465
Add: interest expense 119 141 122 125 139
Earnings before interest and income
tax expense 852 931 806 1,101 1,324
Add: rent expense 251 250 202 176 137
Less: estimated depreciation on
capitalized operating leases1 (134) (133) (108) (94) (74)
Adjusted net operating profit 969 1,048 900 1,183 1,387
Less: estimated income tax expense (223) (468) (416) (456) (544)
Adjusted net operating profit after
tax $746 $580 $484 $727 $843
Average total assets $8,282 $8,055 $7,917 $9,076 $8,860
Less: average non-interest-bearing
current liabilities2 (3,479) (3,261) (3,012) (2,993) (2,730)
Less: average deferred property
incentives and deferred rent
liability2 (616) (644) (644) (548) (502)
Add: average estimated asset base
of capitalized operating leases1 2,018 1,805 1,512 1,236 1,058
Average invested capital $6,205 $5,955 $5,773 $6,771 $6,686
Return on assets3 6.8% 5.4% 4.5% 6.6% 8.1%
Adjusted ROIC3 12.0% 9.7% 8.4% 10.7% 12.6%
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. The asset base is calculated 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. We do not expect the adoption of the new Lease Standard to have a material impact on our Adjusted ROIC (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8).
2 Balances associated with our deferred rent liability have been classified as long-term liabilities as of January 28, 2017.
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with the Tax Act and a $72 unfavorable impact related to the
Estimated Non-recurring Charge (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results for the 12 fiscal months ended
February 3, 2018 include a $42 unfavorable impact related to the Tax Act. Results for the 12 fiscal months ended January 28, 2017 include a $197 unfavorable impact of the
Trunk Club non-cash goodwill impairment charge in the third quarter of 2016.
26
LIQUIDITY AND CAPITAL RESOURCES
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. We believe that our operating cash flows, available credit facility and potential future borrowings 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. We believe that as of
February 2, 2019, our existing cash and cash equivalents on-hand of $957, available credit facility of $800 and potential future operating
cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives.
The following is a summary of our cash flows by activity:
Fiscal year 2018 2017 2016
Net cash provided by operating activities $1,296 $1,400 $1,658
Net cash used in investing activities (653) (684) (791)
Net cash used in financing activities (867) (542) (455)
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), 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.
Net cash provided by operating activities decreased by $104 between 2018 and 2017 primarily due to the timing of payroll and increased
incentive compensation payouts, which included $16 for our one-time investment in employees in response to the Tax Act, paid in 2018. Net
cash provided by operating activities decreased by $258 between 2017 and 2016 primarily due to the timing of tax refunds and payments.
Investing Activities
Our investing cash inflows are generally from proceeds from sales of property and equipment. Our investing cash outflows include payments
for capital expenditures, including stores, supply chain improvements and technology costs. In addition, other investing includes payments for
investments in other companies, as well as proceeds from distributions or sales of these investments.
Net cash used in investing activities decreased by $31 between 2018 and 2017 and $107 between 2017 and 2016 primarily due to
decreases in capital expenditures, partially offset by the acquisitions of two retail technology companies in 2018, which were classified in
other investing activities, net (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Capital Expenditures
Our capital expenditures, net are summarized as follows:
Fiscal year 2018 2017 2016
Capital expenditures $654 $731 $846
Less: deferred property incentives1 (53) (64) (65)
Capital expenditures, net $601 $667 $781
Capital expenditures % of net sales 4.2% 4.8% 5.8%
Capital expenditures, net category allocation:
Technology 30% 28% 26%
Supply chain 18% 4% 4%
Generational investments2 30% 24% 32%
New stores, relocations, remodels and other 22% 44% 38%
Total 100% 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 as an offset to our capital expenditures.
2 Generational investments include Nordstromrack.com/HauteLook, Canada, Trunk Club and Nordstrom NYC.
Nordstrom, Inc. and subsidiaries 27
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. Adjusted ROIC adjusts our operating leases as if they met the criteria for capital leases or we
had purchased the properties. This provides additional supplemental information that reflects the investment in our off-balance sheet
operating leases, controls for differences in capital structure between us and our competitors and provides investors and credit agencies with
another way to comparably evaluate the efficiency and effectiveness of our capital investments over time. In addition, we incorporate
Adjusted ROIC into our executive incentive measures and it is an important indicator of shareholders’ return over the long term.
We define Adjusted ROIC as our adjusted net operating profit after tax divided by our average invested capital using the trailing 12-month
average. Adjusted ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be
considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in
accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore
may not be comparable to those used by other companies. Estimated depreciation on capitalized operating leases and average estimated
asset base of capitalized operating leases are not calculated in accordance with, or an alternative for, GAAP and should not be considered in
isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP which is most directly
comparable to Adjusted ROIC is return on assets. The following is a reconciliation of the components of Adjusted ROIC and return on assets:
12 Fiscal Months Ended
February 2, 2019 February 3, 2018 January 28, 2017 January 30, 2016 January 31, 2015
Net earnings $564 $437 $354 $600 $720
Add: income tax expense 169 353 330 376 465
Add: interest expense 119 141 122 125 139
Earnings before interest and income
tax expense 852 931 806 1,101 1,324
Add: rent expense 251 250 202 176 137
Less: estimated depreciation on
capitalized operating leases1 (134) (133) (108) (94) (74)
Adjusted net operating profit 969 1,048 900 1,183 1,387
Less: estimated income tax expense (223) (468) (416) (456) (544)
Adjusted net operating profit after
tax $746 $580 $484 $727 $843
Average total assets $8,282 $8,055 $7,917 $9,076 $8,860
Less: average non-interest-bearing
current liabilities2 (3,479) (3,261) (3,012) (2,993) (2,730)
Less: average deferred property
incentives and deferred rent
liability2 (616) (644) (644) (548) (502)
Add: average estimated asset base
of capitalized operating leases1 2,018 1,805 1,512 1,236 1,058
Average invested capital $6,205 $5,955 $5,773 $6,771 $6,686
Return on assets3 6.8% 5.4% 4.5% 6.6% 8.1%
Adjusted ROIC3 12.0% 9.7% 8.4% 10.7% 12.6%
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. The asset base is calculated 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. We do not expect the adoption of the new Lease Standard to have a material impact on our Adjusted ROIC (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8).
2 Balances associated with our deferred rent liability have been classified as long-term liabilities as of January 28, 2017.
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with the Tax Act and a $72 unfavorable impact related to the
Estimated Non-recurring Charge (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results for the 12 fiscal months ended
February 3, 2018 include a $42 unfavorable impact related to the Tax Act. Results for the 12 fiscal months ended January 28, 2017 include a $197 unfavorable impact of the
Trunk Club non-cash goodwill impairment charge in the third quarter of 2016.
26
LIQUIDITY AND CAPITAL RESOURCES
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. We believe that our operating cash flows, available credit facility and potential future borrowings 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. We believe that as of
February 2, 2019, our existing cash and cash equivalents on-hand of $957, available credit facility of $800 and potential future operating
cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives.
The following is a summary of our cash flows by activity:
Fiscal year 2018 2017 2016
Net cash provided by operating activities $1,296 $1,400 $1,658
Net cash used in investing activities (653) (684) (791)
Net cash used in financing activities (867) (542) (455)
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), 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.
Net cash provided by operating activities decreased by $104 between 2018 and 2017 primarily due to the timing of payroll and increased
incentive compensation payouts, which included $16 for our one-time investment in employees in response to the Tax Act, paid in 2018. Net
cash provided by operating activities decreased by $258 between 2017 and 2016 primarily due to the timing of tax refunds and payments.
Investing Activities
Our investing cash inflows are generally from proceeds from sales of property and equipment. Our investing cash outflows include payments
for capital expenditures, including stores, supply chain improvements and technology costs. In addition, other investing includes payments for
investments in other companies, as well as proceeds from distributions or sales of these investments.
Net cash used in investing activities decreased by $31 between 2018 and 2017 and $107 between 2017 and 2016 primarily due to
decreases in capital expenditures, partially offset by the acquisitions of two retail technology companies in 2018, which were classified in
other investing activities, net (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8).
Capital Expenditures
Our capital expenditures, net are summarized as follows:
Fiscal year 2018 2017 2016
Capital expenditures $654 $731 $846
Less: deferred property incentives1 (53) (64) (65)
Capital expenditures, net $601 $667 $781
Capital expenditures % of net sales 4.2% 4.8% 5.8%
Capital expenditures, net category allocation:
Technology 30% 28% 26%
Supply chain 18% 4% 4%
Generational investments2 30% 24% 32%
New stores, relocations, remodels and other 22% 44% 38%
Total 100% 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 as an offset to our capital expenditures.
2 Generational investments include Nordstromrack.com/HauteLook, Canada, Trunk Club and Nordstrom NYC.
Nordstrom, Inc. and subsidiaries 27
Capital expenditures, net decreased $66 in 2018 compared with 2017 primarily due to fewer new Nordstrom Rack store openings and U.S.
full-line relocations, partially offset by increased supply chain investments. Capital expenditures, net decreased $114 in 2017 compared with
2016 primarily due to fewer Canada full-line store openings.
Our capital expenditures, net were $3,726, or 5% of net sales, over the last five years. We estimate our spending as a percent of sales in
2019 to increase to 6%, as we shifted approximately $100 in projects from 2018, and will consist primarily of investments in our Supply Chain
Network and Nordstrom NYC. As we near the end of our generational investments cycle, we expect capital expenditure levels to moderate in
2020.
Financing Activities
The majority of our financing activities include common stock repurchases, long-term debt proceeds or payments and dividend payments.
Net cash used in financing activities increased $325 between 2018 and 2017 primarily due to increased share repurchase activity, partially
offset by increased proceeds from stock option exercises, driven by a higher stock price. Net cash used in financing activities increased $87
between 2017 and 2016 primarily due to a decrease in cash book overdrafts as a result of payment timing differences.
Share Repurchases
In February 2017, our Board of Directors authorized a new program to repurchase up to $500 of our outstanding common stock, through
August 31, 2018. There was $319 of unused capacity upon this program’s expiration. 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.
Under the February 2017 program until it expired and then under the August 2018 program, we repurchased 14.3 shares of our common
stock for an aggregate purchase price of $702 during 2018. We had $893 remaining in share repurchase capacity as of February 2, 2019.
The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and
applicable SEC rules.
Borrowing Activity
During 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300 aggregate principal
amount of 5.00% senior unsecured notes due January 2044. 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 $650 senior
unsecured notes that were due January 2018 (see Note 8: Debt and Credit Facilities in Item 8).
Additionally, in 2018, we fully repaid $47 outstanding on our wholly owned subsidiary Puerto Rico’s unsecured borrowing facility (see Note 8:
Debt and Credit Facilities in Item 8).
Dividends
In 2018, we paid dividends of $250, or $1.48 per share, compared with $247, or $1.48 per share, in 2017 and $256, or $1.48 per share, in
2016. 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. Our dividend payout ratio target range is 30% to 40% of the prior year’s net earnings.
In February 2019, subsequent to year end, we declared a quarterly dividend of $0.37 per share, which will be paid on March 26, 2019 to
holders of record as of March 11, 2019.
28
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, provides investors with a
meaningful analysis of our ability to generate cash from our business.
Beginning in the first quarter of fiscal 2018, we no longer adjust free cash flow for cash dividends paid. We believe this presentation is more
reflective of our operating performance and more consistent with the way we manage our business, how our peers calculate free cash flows
and prevailing industry practice. Prior period Free Cash Flow financial measures have been recast to conform with current period
presentation.
Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for,
operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial
measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial
measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The
following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
Fiscal year 2018 2017 2016
Net cash provided by operating activities $1,296 $1,400 $1,658
Less: capital expenditures (654) (731) (846)
Add: proceeds from sale of credit card receivables originated at third parties — 16 —
(Less) Add: change in cash book overdrafts — (55) 4
Free Cash Flow $642 $630 $816
Nordstrom, Inc. and subsidiaries 29
Adjusted EBITDA (Non-GAAP financial measure)
Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) is our key financial metric to reflect our view of
cash flow from net earnings. Adjusted EBITDA excludes significant items which are non-operating in nature in order to evaluate our core
operating performance against prior periods. The financial measure calculated under GAAP which is most directly comparable to Adjusted
EBITDA is net earnings.
Adjusted EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for
net earnings, overall change in cash or liquidity of the business as a whole. Our method of determining non-GAAP financial measures may
differ from other companies’ methods and therefore may not be comparable to those used by other companies. The following is a
reconciliation of net earnings to Adjusted EBITDA:
Fiscal year 2018 2017 2016
Net earnings $564 $437 $354
Add: income tax expense 169 353 330
Add: interest expense, net 104 136 121
Earnings before interest and income taxes 837 926 805
Add: depreciation and amortization expenses 669 666 645
Less: amortization of deferred property incentives (79) (79) (80)
Adjusted EBITDA $1,427 $1,513 $1,370
Capital expenditures, net decreased $66 in 2018 compared with 2017 primarily due to fewer new Nordstrom Rack store openings and U.S.
full-line relocations, partially offset by increased supply chain investments. Capital expenditures, net decreased $114 in 2017 compared with
2016 primarily due to fewer Canada full-line store openings.
Our capital expenditures, net were $3,726, or 5% of net sales, over the last five years. We estimate our spending as a percent of sales in
2019 to increase to 6%, as we shifted approximately $100 in projects from 2018, and will consist primarily of investments in our Supply Chain
Network and Nordstrom NYC. As we near the end of our generational investments cycle, we expect capital expenditure levels to moderate in
2020.
Financing Activities
The majority of our financing activities include common stock repurchases, long-term debt proceeds or payments and dividend payments.
Net cash used in financing activities increased $325 between 2018 and 2017 primarily due to increased share repurchase activity, partially
offset by increased proceeds from stock option exercises, driven by a higher stock price. Net cash used in financing activities increased $87
between 2017 and 2016 primarily due to a decrease in cash book overdrafts as a result of payment timing differences.
Share Repurchases
In February 2017, our Board of Directors authorized a new program to repurchase up to $500 of our outstanding common stock, through
August 31, 2018. There was $319 of unused capacity upon this program’s expiration. 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.
Under the February 2017 program until it expired and then under the August 2018 program, we repurchased 14.3 shares of our common
stock for an aggregate purchase price of $702 during 2018. We had $893 remaining in share repurchase capacity as of February 2, 2019.
The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and
applicable SEC rules.
Borrowing Activity
During 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300 aggregate principal
amount of 5.00% senior unsecured notes due January 2044. 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 $650 senior
unsecured notes that were due January 2018 (see Note 8: Debt and Credit Facilities in Item 8).
Additionally, in 2018, we fully repaid $47 outstanding on our wholly owned subsidiary Puerto Rico’s unsecured borrowing facility (see Note 8:
Debt and Credit Facilities in Item 8).
Dividends
In 2018, we paid dividends of $250, or $1.48 per share, compared with $247, or $1.48 per share, in 2017 and $256, or $1.48 per share, in
2016. 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. Our dividend payout ratio target range is 30% to 40% of the prior year’s net earnings.
In February 2019, subsequent to year end, we declared a quarterly dividend of $0.37 per share, which will be paid on March 26, 2019 to
holders of record as of March 11, 2019.
28
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, provides investors with a
meaningful analysis of our ability to generate cash from our business.
Beginning in the first quarter of fiscal 2018, we no longer adjust free cash flow for cash dividends paid. We believe this presentation is more
reflective of our operating performance and more consistent with the way we manage our business, how our peers calculate free cash flows
and prevailing industry practice. Prior period Free Cash Flow financial measures have been recast to conform with current period
presentation.
Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for,
operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial
measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial
measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The
following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
Fiscal year 2018 2017 2016
Net cash provided by operating activities $1,296 $1,400 $1,658
Less: capital expenditures (654) (731) (846)
Add: proceeds from sale of credit card receivables originated at third parties — 16 —
(Less) Add: change in cash book overdrafts — (55) 4
Free Cash Flow $642 $630 $816
Nordstrom, Inc. and subsidiaries 29
Adjusted EBITDA (Non-GAAP financial measure)
Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) is our key financial metric to reflect our view of
cash flow from net earnings. Adjusted EBITDA excludes significant items which are non-operating in nature in order to evaluate our core
operating performance against prior periods. The financial measure calculated under GAAP which is most directly comparable to Adjusted
EBITDA is net earnings.
Adjusted EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for
net earnings, overall change in cash or liquidity of the business as a whole. Our method of determining non-GAAP financial measures may
differ from other companies’ methods and therefore may not be comparable to those used by other companies. The following is a
reconciliation of net earnings to Adjusted EBITDA:
Fiscal year 2018 2017 2016
Net earnings $564 $437 $354
Add: income tax expense 169 353 330
Add: interest expense, net 104 136 121
Earnings before interest and income taxes 837 926 805
Add: depreciation and amortization expenses 669 666 645
Less: amortization of deferred property incentives (79) (79) (80)
Adjusted EBITDA $1,427 $1,513 $1,370
Capital expenditures, net decreased $66 in 2018 compared with 2017 primarily due to fewer new Nordstrom Rack store openings and U.S.
full-line relocations, partially offset by increased supply chain investments. Capital expenditures, net decreased $114 in 2017 compared with
2016 primarily due to fewer Canada full-line store openings.
Our capital expenditures, net were $3,726, or 5% of net sales, over the last five years. We estimate our spending as a percent of sales in
2019 to increase to 6%, as we shifted approximately $100 in projects from 2018, and will consist primarily of investments in our Supply Chain
Network and Nordstrom NYC. As we near the end of our generational investments cycle, we expect capital expenditure levels to moderate in
2020.
Financing Activities
The majority of our financing activities include common stock repurchases, long-term debt proceeds or payments and dividend payments.
Net cash used in financing activities increased $325 between 2018 and 2017 primarily due to increased share repurchase activity, partially
offset by increased proceeds from stock option exercises, driven by a higher stock price. Net cash used in financing activities increased $87
between 2017 and 2016 primarily due to a decrease in cash book overdrafts as a result of payment timing differences.
Share Repurchases
In February 2017, our Board of Directors authorized a new program to repurchase up to $500 of our outstanding common stock, through
August 31, 2018. There was $319 of unused capacity upon this program’s expiration. 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.
Under the February 2017 program until it expired and then under the August 2018 program, we repurchased 14.3 shares of our common
stock for an aggregate purchase price of $702 during 2018. We had $893 remaining in share repurchase capacity as of February 2, 2019.
The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and
applicable SEC rules.
Borrowing Activity
During 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300 aggregate principal
amount of 5.00% senior unsecured notes due January 2044. 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 $650 senior
unsecured notes that were due January 2018 (see Note 8: Debt and Credit Facilities in Item 8).
Additionally, in 2018, we fully repaid $47 outstanding on our wholly owned subsidiary Puerto Rico’s unsecured borrowing facility (see Note 8:
Debt and Credit Facilities in Item 8).
Dividends
In 2018, we paid dividends of $250, or $1.48 per share, compared with $247, or $1.48 per share, in 2017 and $256, or $1.48 per share, in
2016. 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. Our dividend payout ratio target range is 30% to 40% of the prior year’s net earnings.
In February 2019, subsequent to year end, we declared a quarterly dividend of $0.37 per share, which will be paid on March 26, 2019 to
holders of record as of March 11, 2019.
28
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, provides investors with a
meaningful analysis of our ability to generate cash from our business.
Beginning in the first quarter of fiscal 2018, we no longer adjust free cash flow for cash dividends paid. We believe this presentation is more
reflective of our operating performance and more consistent with the way we manage our business, how our peers calculate free cash flows
and prevailing industry practice. Prior period Free Cash Flow financial measures have been recast to conform with current period
presentation.
Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for,
operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial
measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial
measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The
following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
Fiscal year 2018 2017 2016
Net cash provided by operating activities $1,296 $1,400 $1,658
Less: capital expenditures (654) (731) (846)
Add: proceeds from sale of credit card receivables originated at third parties — 16 —
(Less) Add: change in cash book overdrafts — (55) 4
Free Cash Flow $642 $630 $816
Nordstrom, Inc. and subsidiaries 29
Adjusted EBITDA (Non-GAAP financial measure)
Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) is our key financial metric to reflect our view of
cash flow from net earnings. Adjusted EBITDA excludes significant items which are non-operating in nature in order to evaluate our core
operating performance against prior periods. The financial measure calculated under GAAP which is most directly comparable to Adjusted
EBITDA is net earnings.
Adjusted EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for
net earnings, overall change in cash or liquidity of the business as a whole. Our method of determining non-GAAP financial measures may
differ from other companies’ methods and therefore may not be comparable to those used by other companies. The following is a
reconciliation of net earnings to Adjusted EBITDA:
Fiscal year 2018 2017 2016
Net earnings $564 $437 $354
Add: income tax expense 169 353 330
Add: interest expense, net 104 136 121
Earnings before interest and income taxes 837 926 805
Add: depreciation and amortization expenses 669 666 645
Less: amortization of deferred property incentives (79) (79) (80)
Adjusted EBITDA $1,427 $1,513 $1,370
Capital expenditures, net decreased $66 in 2018 compared with 2017 primarily due to fewer new Nordstrom Rack store openings and U.S.
full-line relocations, partially offset by increased supply chain investments. Capital expenditures, net decreased $114 in 2017 compared with
2016 primarily due to fewer Canada full-line store openings.
Our capital expenditures, net were $3,726, or 5% of net sales, over the last five years. We estimate our spending as a percent of sales in
2019 to increase to 6%, as we shifted approximately $100 in projects from 2018, and will consist primarily of investments in our Supply Chain
Network and Nordstrom NYC. As we near the end of our generational investments cycle, we expect capital expenditure levels to moderate in
2020.
Financing Activities
The majority of our financing activities include common stock repurchases, long-term debt proceeds or payments and dividend payments.
Net cash used in financing activities increased $325 between 2018 and 2017 primarily due to increased share repurchase activity, partially
offset by increased proceeds from stock option exercises, driven by a higher stock price. Net cash used in financing activities increased $87
between 2017 and 2016 primarily due to a decrease in cash book overdrafts as a result of payment timing differences.
Share Repurchases
In February 2017, our Board of Directors authorized a new program to repurchase up to $500 of our outstanding common stock, through
August 31, 2018. There was $319 of unused capacity upon this program’s expiration. 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.
Under the February 2017 program until it expired and then under the August 2018 program, we repurchased 14.3 shares of our common
stock for an aggregate purchase price of $702 during 2018. We had $893 remaining in share repurchase capacity as of February 2, 2019.
The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and
applicable SEC rules.
Borrowing Activity
During 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300 aggregate principal
amount of 5.00% senior unsecured notes due January 2044. 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 $650 senior
unsecured notes that were due January 2018 (see Note 8: Debt and Credit Facilities in Item 8).
Additionally, in 2018, we fully repaid $47 outstanding on our wholly owned subsidiary Puerto Rico’s unsecured borrowing facility (see Note 8:
Debt and Credit Facilities in Item 8).
Dividends
In 2018, we paid dividends of $250, or $1.48 per share, compared with $247, or $1.48 per share, in 2017 and $256, or $1.48 per share, in
2016. 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. Our dividend payout ratio target range is 30% to 40% of the prior year’s net earnings.
In February 2019, subsequent to year end, we declared a quarterly dividend of $0.37 per share, which will be paid on March 26, 2019 to
holders of record as of March 11, 2019.
28
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, provides investors with a
meaningful analysis of our ability to generate cash from our business.
Beginning in the first quarter of fiscal 2018, we no longer adjust free cash flow for cash dividends paid. We believe this presentation is more
reflective of our operating performance and more consistent with the way we manage our business, how our peers calculate free cash flows
and prevailing industry practice. Prior period Free Cash Flow financial measures have been recast to conform with current period
presentation.
Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for,
operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial
measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial
measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The
following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
Fiscal year 2018 2017 2016
Net cash provided by operating activities $1,296 $1,400 $1,658
Less: capital expenditures (654) (731) (846)
Add: proceeds from sale of credit card receivables originated at third parties — 16 —
(Less) Add: change in cash book overdrafts — (55) 4
Free Cash Flow $642 $630 $816
Nordstrom, Inc. and subsidiaries 29
Adjusted EBITDA (Non-GAAP financial measure)
Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) is our key financial metric to reflect our view of
cash flow from net earnings. Adjusted EBITDA excludes significant items which are non-operating in nature in order to evaluate our core
operating performance against prior periods. The financial measure calculated under GAAP which is most directly comparable to Adjusted
EBITDA is net earnings.
Adjusted EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for
net earnings, overall change in cash or liquidity of the business as a whole. Our method of determining non-GAAP financial measures may
differ from other companies’ methods and therefore may not be comparable to those used by other companies. The following is a
reconciliation of net earnings to Adjusted EBITDA:
Fiscal year 2018 2017 2016
Net earnings $564 $437 $354
Add: income tax expense 169 353 330
Add: interest expense, net 104 136 121
Earnings before interest and income taxes 837 926 805
Add: depreciation and amortization expenses 669 666 645
Less: amortization of deferred property incentives (79) (79) (80)
Adjusted EBITDA $1,427 $1,513 $1,370
Credit Capacity and Commitments
As of February 2, 2019, we had total short-term borrowing capacity of $800. In September 2018, we renewed our existing $800 senior
unsecured revolving credit facility (“revolver”), extending the expiration from April 2020 to September 2023. Our revolver contains customary
representations, warranties, covenants and terms, which are substantially similar to our 2015 revolver. Under the terms of our revolver, we
pay 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
revolving commitment by up to $200, to a total of $1,000, and two options to extend the revolving commitment by one year.
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 February 2, 2019, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our
revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market.
Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused
commitment. In 2018, we fully repaid $47 outstanding on this facility, which was included in the current portion of long-term debt. This facility
expired in the fourth quarter of 2018.
We maintain trade and standby letters of credit to facilitate our international payments. As of February 2, 2019, 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.
Plans for our Nordstrom NYC store, which we currently expect to open in October 2019, ultimately include owning a condominium interest in
a mixed-use tower and leasing certain nearby properties. As of February 2, 2019, we had approximately $302 of fee interest in land, which is
expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments
based on the developer meeting pre-established construction and development milestones. In the event that this project is not completed, the
opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our
investment.
Impact of Credit Ratings
Under the terms of our revolver, any borrowings we may enter into will accrue interest for Euro-Dollar Rate Loans at a floating base rate tied
to LIBOR, for Canadian Dealer Offer Rate Loans at a floating rate tied to CDOR, and for Base Rate Loans at the highest of: (i) the Euro-
Dollar rate plus 100 basis points, (ii) the federal funds rate plus 50 basis points and (iii) the prime rate.
The rate depends upon the type of borrowing incurred, plus in each case an applicable margin. This applicable margin varies depending
upon the credit ratings assigned to our long-term unsecured debt. At the time of this report, our long-term unsecured debt ratings, outlook
and resulting applicable margin were as follows:
Credit Ratings Outlook
Moody’s Baa1 Stable
Standard & Poor’s BBB+ Stable
Base Interest Rate Applicable Margin
Euro-Dollar Rate Loan LIBOR 1.03%
Canadian Dealer Offer Rate Loan CDOR 1.03%
Base Rate Loan various 0.03%
Should the ratings assigned to our long-term unsecured debt improve, the applicable margin associated with any such borrowings may
decrease, resulting in a lower borrowing cost under this facility. Should the ratings assigned to our long-term unsecured debt worsen, the
applicable margin associated with our borrowings may increase, resulting in a higher borrowing cost under this facility.
Debt Covenants
The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) leverage ratio of no more than four times. As of February 2, 2019, we were in compliance with this covenant.
30
Adjusted Debt to EBITDAR (Non-GAAP financial measure)
Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our
goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our
debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have
a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of no more than four times.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a
substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of
determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by
other companies. Estimated capitalized operating lease liability is not calculated in accordance with, or an alternative for, GAAP and should
not be considered in isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP
which is most directly comparable to Adjusted 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:
20181 20171
Debt $2,685 $2,737
Add: estimated capitalized operating lease liability2 2,009 2,001
Adjusted Debt $4,694 $4,738
Net earnings 564 437
Add: income tax expense 169 353
Add: interest expense, net 104 136
Earnings before interest and income taxes 837 926
Add: depreciation and amortization expenses 669 666
Add: rent expense, net 251 250
Add: non-cash acquisition-related charges — 1
Adjusted EBITDAR $1,757 $1,843
Debt to Net Earnings3 4.8 6.3
Adjusted Debt to EBITDAR3 2.7 2.6
1 The components of Adjusted Debt are as of February 2, 2019 and February 3, 2018, while the components of Adjusted EBITDAR are for the 12 months ended February 2,
2019 and February 3, 2018.
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. We do not expect the adoption of the new Lease Standard to have a material impact on our Adjusted Debt to EBITDAR (see Note 1: Nature of
Operations and Summary of Significant Accounting Policies in Item 8).
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with the Tax Act and a $72 unfavorable impact related to the
Estimated Non-recurring Charge (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results for the 12 fiscal months ended
February 3, 2018 include a $42 unfavorable impact related to the Tax Act.
Nordstrom, Inc. and subsidiaries 31
Credit Capacity and Commitments
As of February 2, 2019, we had total short-term borrowing capacity of $800. In September 2018, we renewed our existing $800 senior
unsecured revolving credit facility (“revolver”), extending the expiration from April 2020 to September 2023. Our revolver contains customary
representations, warranties, covenants and terms, which are substantially similar to our 2015 revolver. Under the terms of our revolver, we
pay 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
revolving commitment by up to $200, to a total of $1,000, and two options to extend the revolving commitment by one year.
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 February 2, 2019, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our
revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market.
Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused
commitment. In 2018, we fully repaid $47 outstanding on this facility, which was included in the current portion of long-term debt. This facility
expired in the fourth quarter of 2018.
We maintain trade and standby letters of credit to facilitate our international payments. As of February 2, 2019, 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.
Plans for our Nordstrom NYC store, which we currently expect to open in October 2019, ultimately include owning a condominium interest in
a mixed-use tower and leasing certain nearby properties. As of February 2, 2019, we had approximately $302 of fee interest in land, which is
expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments
based on the developer meeting pre-established construction and development milestones. In the event that this project is not completed, the
opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our
investment.
Impact of Credit Ratings
Under the terms of our revolver, any borrowings we may enter into will accrue interest for Euro-Dollar Rate Loans at a floating base rate tied
to LIBOR, for Canadian Dealer Offer Rate Loans at a floating rate tied to CDOR, and for Base Rate Loans at the highest of: (i) the Euro-
Dollar rate plus 100 basis points, (ii) the federal funds rate plus 50 basis points and (iii) the prime rate.
The rate depends upon the type of borrowing incurred, plus in each case an applicable margin. This applicable margin varies depending
upon the credit ratings assigned to our long-term unsecured debt. At the time of this report, our long-term unsecured debt ratings, outlook
and resulting applicable margin were as follows:
Credit Ratings Outlook
Moody’s Baa1 Stable
Standard & Poor’s BBB+ Stable
Base Interest Rate Applicable Margin
Euro-Dollar Rate Loan LIBOR 1.03%
Canadian Dealer Offer Rate Loan CDOR 1.03%
Base Rate Loan various 0.03%
Should the ratings assigned to our long-term unsecured debt improve, the applicable margin associated with any such borrowings may
decrease, resulting in a lower borrowing cost under this facility. Should the ratings assigned to our long-term unsecured debt worsen, the
applicable margin associated with our borrowings may increase, resulting in a higher borrowing cost under this facility.
Debt Covenants
The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) leverage ratio of no more than four times. As of February 2, 2019, we were in compliance with this covenant.
30
Adjusted Debt to EBITDAR (Non-GAAP financial measure)
Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our
goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our
debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have
a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of no more than four times.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a
substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of
determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by
other companies. Estimated capitalized operating lease liability is not calculated in accordance with, or an alternative for, GAAP and should
not be considered in isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP
which is most directly comparable to Adjusted 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:
20181 20171
Debt $2,685 $2,737
Add: estimated capitalized operating lease liability2 2,009 2,001
Adjusted Debt $4,694 $4,738
Net earnings 564 437
Add: income tax expense 169 353
Add: interest expense, net 104 136
Earnings before interest and income taxes 837 926
Add: depreciation and amortization expenses 669 666
Add: rent expense, net 251 250
Add: non-cash acquisition-related charges — 1
Adjusted EBITDAR $1,757 $1,843
Debt to Net Earnings3 4.8 6.3
Adjusted Debt to EBITDAR3 2.7 2.6
1 The components of Adjusted Debt are as of February 2, 2019 and February 3, 2018, while the components of Adjusted EBITDAR are for the 12 months ended February 2,
2019 and February 3, 2018.
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. We do not expect the adoption of the new Lease Standard to have a material impact on our Adjusted Debt to EBITDAR (see Note 1: Nature of
Operations and Summary of Significant Accounting Policies in Item 8).
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with the Tax Act and a $72 unfavorable impact related to the
Estimated Non-recurring Charge (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results for the 12 fiscal months ended
February 3, 2018 include a $42 unfavorable impact related to the Tax Act.
Nordstrom, Inc. and subsidiaries 31
Credit Capacity and Commitments
As of February 2, 2019, we had total short-term borrowing capacity of $800. In September 2018, we renewed our existing $800 senior
unsecured revolving credit facility (“revolver”), extending the expiration from April 2020 to September 2023. Our revolver contains customary
representations, warranties, covenants and terms, which are substantially similar to our 2015 revolver. Under the terms of our revolver, we
pay 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
revolving commitment by up to $200, to a total of $1,000, and two options to extend the revolving commitment by one year.
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 February 2, 2019, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our
revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market.
Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused
commitment. In 2018, we fully repaid $47 outstanding on this facility, which was included in the current portion of long-term debt. This facility
expired in the fourth quarter of 2018.
We maintain trade and standby letters of credit to facilitate our international payments. As of February 2, 2019, 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.
Plans for our Nordstrom NYC store, which we currently expect to open in October 2019, ultimately include owning a condominium interest in
a mixed-use tower and leasing certain nearby properties. As of February 2, 2019, we had approximately $302 of fee interest in land, which is
expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments
based on the developer meeting pre-established construction and development milestones. In the event that this project is not completed, the
opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our
investment.
Impact of Credit Ratings
Under the terms of our revolver, any borrowings we may enter into will accrue interest for Euro-Dollar Rate Loans at a floating base rate tied
to LIBOR, for Canadian Dealer Offer Rate Loans at a floating rate tied to CDOR, and for Base Rate Loans at the highest of: (i) the Euro-
Dollar rate plus 100 basis points, (ii) the federal funds rate plus 50 basis points and (iii) the prime rate.
The rate depends upon the type of borrowing incurred, plus in each case an applicable margin. This applicable margin varies depending
upon the credit ratings assigned to our long-term unsecured debt. At the time of this report, our long-term unsecured debt ratings, outlook
and resulting applicable margin were as follows:
Credit Ratings Outlook
Moody’s Baa1 Stable
Standard & Poor’s BBB+ Stable
Base Interest Rate Applicable Margin
Euro-Dollar Rate Loan LIBOR 1.03%
Canadian Dealer Offer Rate Loan CDOR 1.03%
Base Rate Loan various 0.03%
Should the ratings assigned to our long-term unsecured debt improve, the applicable margin associated with any such borrowings may
decrease, resulting in a lower borrowing cost under this facility. Should the ratings assigned to our long-term unsecured debt worsen, the
applicable margin associated with our borrowings may increase, resulting in a higher borrowing cost under this facility.
Debt Covenants
The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) leverage ratio of no more than four times. As of February 2, 2019, we were in compliance with this covenant.
30
Adjusted Debt to EBITDAR (Non-GAAP financial measure)
Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our
goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our
debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have
a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of no more than four times.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a
substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of
determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by
other companies. Estimated capitalized operating lease liability is not calculated in accordance with, or an alternative for, GAAP and should
not be considered in isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP
which is most directly comparable to Adjusted 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:
20181 20171
Debt $2,685 $2,737
Add: estimated capitalized operating lease liability2 2,009 2,001
Adjusted Debt $4,694 $4,738
Net earnings 564 437
Add: income tax expense 169 353
Add: interest expense, net 104 136
Earnings before interest and income taxes 837 926
Add: depreciation and amortization expenses 669 666
Add: rent expense, net 251 250
Add: non-cash acquisition-related charges — 1
Adjusted EBITDAR $1,757 $1,843
Debt to Net Earnings3 4.8 6.3
Adjusted Debt to EBITDAR3 2.7 2.6
1 The components of Adjusted Debt are as of February 2, 2019 and February 3, 2018, while the components of Adjusted EBITDAR are for the 12 months ended February 2,
2019 and February 3, 2018.
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. We do not expect the adoption of the new Lease Standard to have a material impact on our Adjusted Debt to EBITDAR (see Note 1: Nature of
Operations and Summary of Significant Accounting Policies in Item 8).
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with the Tax Act and a $72 unfavorable impact related to the
Estimated Non-recurring Charge (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results for the 12 fiscal months ended
February 3, 2018 include a $42 unfavorable impact related to the Tax Act.
Nordstrom, Inc. and subsidiaries 31
Credit Capacity and Commitments
As of February 2, 2019, we had total short-term borrowing capacity of $800. In September 2018, we renewed our existing $800 senior
unsecured revolving credit facility (“revolver”), extending the expiration from April 2020 to September 2023. Our revolver contains customary
representations, warranties, covenants and terms, which are substantially similar to our 2015 revolver. Under the terms of our revolver, we
pay 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
revolving commitment by up to $200, to a total of $1,000, and two options to extend the revolving commitment by one year.
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 February 2, 2019, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our
revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market.
Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused
commitment. In 2018, we fully repaid $47 outstanding on this facility, which was included in the current portion of long-term debt. This facility
expired in the fourth quarter of 2018.
We maintain trade and standby letters of credit to facilitate our international payments. As of February 2, 2019, 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.
Plans for our Nordstrom NYC store, which we currently expect to open in October 2019, ultimately include owning a condominium interest in
a mixed-use tower and leasing certain nearby properties. As of February 2, 2019, we had approximately $302 of fee interest in land, which is
expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments
based on the developer meeting pre-established construction and development milestones. In the event that this project is not completed, the
opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our
investment.
Impact of Credit Ratings
Under the terms of our revolver, any borrowings we may enter into will accrue interest for Euro-Dollar Rate Loans at a floating base rate tied
to LIBOR, for Canadian Dealer Offer Rate Loans at a floating rate tied to CDOR, and for Base Rate Loans at the highest of: (i) the Euro-
Dollar rate plus 100 basis points, (ii) the federal funds rate plus 50 basis points and (iii) the prime rate.
The rate depends upon the type of borrowing incurred, plus in each case an applicable margin. This applicable margin varies depending
upon the credit ratings assigned to our long-term unsecured debt. At the time of this report, our long-term unsecured debt ratings, outlook
and resulting applicable margin were as follows:
Credit Ratings Outlook
Moody’s Baa1 Stable
Standard & Poor’s BBB+ Stable
Base Interest Rate Applicable Margin
Euro-Dollar Rate Loan LIBOR 1.03%
Canadian Dealer Offer Rate Loan CDOR 1.03%
Base Rate Loan various 0.03%
Should the ratings assigned to our long-term unsecured debt improve, the applicable margin associated with any such borrowings may
decrease, resulting in a lower borrowing cost under this facility. Should the ratings assigned to our long-term unsecured debt worsen, the
applicable margin associated with our borrowings may increase, resulting in a higher borrowing cost under this facility.
Debt Covenants
The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) leverage ratio of no more than four times. As of February 2, 2019, we were in compliance with this covenant.
30
Adjusted Debt to EBITDAR (Non-GAAP financial measure)
Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our
goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our
debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have
a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of no more than four times.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a
substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of
determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by
other companies. Estimated capitalized operating lease liability is not calculated in accordance with, or an alternative for, GAAP and should
not be considered in isolation or as a substitution of our results as reported under GAAP. The financial measure calculated under GAAP
which is most directly comparable to Adjusted 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:
20181 20171
Debt $2,685 $2,737
Add: estimated capitalized operating lease liability2 2,009 2,001
Adjusted Debt $4,694 $4,738
Net earnings 564 437
Add: income tax expense 169 353
Add: interest expense, net 104 136
Earnings before interest and income taxes 837 926
Add: depreciation and amortization expenses 669 666
Add: rent expense, net 251 250
Add: non-cash acquisition-related charges — 1
Adjusted EBITDAR $1,757 $1,843
Debt to Net Earnings3 4.8 6.3
Adjusted Debt to EBITDAR3 2.7 2.6
1 The components of Adjusted Debt are as of February 2, 2019 and February 3, 2018, while the components of Adjusted EBITDAR are for the 12 months ended February 2,
2019 and February 3, 2018.
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. We do not expect the adoption of the new Lease Standard to have a material impact on our Adjusted Debt to EBITDAR (see Note 1: Nature of
Operations and Summary of Significant Accounting Policies in Item 8).
3 Results for the 12 fiscal months ended February 2, 2019 include lower income tax expense primarily associated with the Tax Act and a $72 unfavorable impact related to the
Estimated Non-recurring Charge (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results for the 12 fiscal months ended
February 3, 2018 include a $42 unfavorable impact related to the Tax Act.
Nordstrom, Inc. and subsidiaries 31
Contractual Obligations
The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of February 2, 2019.
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 $4,596 $147 $1,243 $188 $3,018
Operating leases 2,609 322 607 520 1,160
Purchase obligations 1,865 1,733 123 9 —
Other long-term liabilities 363 59 60 43 201
Total $9,433 $2,261 $2,033 $760 $4,379
Included in the required debt repayments disclosed above are estimated total interest payments of $1,822 as of February 2, 2019, payable
over the remaining life of the debt.
The operating lease obligations in the table above do not include payments for operating expenses that are required by most of our lease
agreements. Such expenses, which include common area charges, real estate taxes and other executory costs, totaled $138 in 2018, $121
in 2017 and $112 in 2016. In addition, some of our leases require additional rental payments based on a percentage of our sales, referred to
as “percentage rent.” Percentage rent, which is also excluded from the obligations in the table above, was $9 in 2018, $11 in 2017 and $12 in
2016.
Purchase obligations primarily consist of inventory purchase orders and capital expenditure commitments. Capital expenditure commitments
include Nordstrom NYC.
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 deferred property incentives and deferred revenue, were excluded from the table above. Also excluded from the table above are
unrecognized tax benefits of $33, as we are unable to reasonably estimate the timing of future cash payments, if any, for these liabilities.
Off-Balance Sheet Arrangements
Pursuant to the program agreement with TD, we offer and administer a loyalty program and perform other account servicing functions (see
Note 3: Credit Card Receivable Transaction in Item 8). Credit card receivables serviced under this contract are $3,651 as of February 2,
2019.
Other than items noted in the paragraph above, in addition to operating leases entered into in the normal course of business and the
development of our Nordstrom Men’s Store NYC and Nordstrom NYC, we had no material off-balance sheet arrangements during 2018.
32
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and
other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. 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 &
Finance Committee of our Board of Directors, and the Audit & Finance Committee has reviewed our disclosures that follow.
Revenue Recognition
During the first quarter of 2018, we adopted the new Revenue Standard using the modified retrospective adoption method (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not adjusted.
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 (“shipped revenues”), 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 Full-Price stores are expensed at the point of sale and both are
recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the
customer and we recorded an estimated in-transit allowance for orders shipped prior to a period’s end, but not yet received by the customer.
We reduce sales and cost of sales by an estimate of customer merchandise returns, which is calculated based on historical 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 Sheet. Due to the seasonality of our business, these balances typically increase with higher sales occurring in the last month of a
period, such as the Anniversary Sale typically at the end of the second quarter, and decrease in the following period. Prior to 2018, the
estimated cost of merchandise returned was netted with our sales return allowance in other current liabilities.
Although we believe we have sufficient current and historical knowledge to record reasonable estimates of sales returns, actual returns could
differ from recorded amounts. In the past three years, there were no significant changes in customer return behavior and we have made no
material changes to our estimates included in the calculations of our sales return allowance. A 10% change in the sales return allowance net
of the estimated returns asset would have had a $15 impact on our net earnings for the year ended February 2, 2019.
As our customers earn points and Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-
alone selling price of points, Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when
the Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the
Consolidated Balance Sheet. We record breakage revenue of unused points and unredeemed Notes based on expected customer
redemption. We estimate, based on historical usage, that 6% of Notes will be unredeemed and recognized as revenue. Other benefits of the
loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a
material right of the program.
Merchandise Inventories
Merchandise inventories are generally 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. Inherent in the retail inventory method are certain management judgments that may affect the
ending inventory valuation as well as gross profit.
We take physical inventory counts and adjust our records accordingly. Following each physical inventory cycle, we adjust shrink to actual
results and an estimate is recorded for shrink 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 long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses.
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash
flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk
Club are identified at their respective reporting unit levels.
Our estimates are subject to uncertainties and may be impacted by various external factors such as economic conditions and market
competition. While we believe the inputs and assumptions utilized in our analyses of future cash flows are reasonable, events or
circumstances may change, which could cause us to revise these estimates.
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. Our
unrecognized tax benefit was $30 as of February 2, 2019, and $31 as of February 3, 2018. Interest and penalties related to income tax
matters are classified as a component of income tax expense.
Nordstrom, Inc. and subsidiaries 33
Contractual Obligations
The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of February 2, 2019.
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 $4,596 $147 $1,243 $188 $3,018
Operating leases 2,609 322 607 520 1,160
Purchase obligations 1,865 1,733 123 9 —
Other long-term liabilities 363 59 60 43 201
Total $9,433 $2,261 $2,033 $760 $4,379
Included in the required debt repayments disclosed above are estimated total interest payments of $1,822 as of February 2, 2019, payable
over the remaining life of the debt.
The operating lease obligations in the table above do not include payments for operating expenses that are required by most of our lease
agreements. Such expenses, which include common area charges, real estate taxes and other executory costs, totaled $138 in 2018, $121
in 2017 and $112 in 2016. In addition, some of our leases require additional rental payments based on a percentage of our sales, referred to
as “percentage rent.” Percentage rent, which is also excluded from the obligations in the table above, was $9 in 2018, $11 in 2017 and $12 in
2016.
Purchase obligations primarily consist of inventory purchase orders and capital expenditure commitments. Capital expenditure commitments
include Nordstrom NYC.
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 deferred property incentives and deferred revenue, were excluded from the table above. Also excluded from the table above are
unrecognized tax benefits of $33, as we are unable to reasonably estimate the timing of future cash payments, if any, for these liabilities.
Off-Balance Sheet Arrangements
Pursuant to the program agreement with TD, we offer and administer a loyalty program and perform other account servicing functions (see
Note 3: Credit Card Receivable Transaction in Item 8). Credit card receivables serviced under this contract are $3,651 as of February 2,
2019.
Other than items noted in the paragraph above, in addition to operating leases entered into in the normal course of business and the
development of our Nordstrom Men’s Store NYC and Nordstrom NYC, we had no material off-balance sheet arrangements during 2018.
32
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and
other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. 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 &
Finance Committee of our Board of Directors, and the Audit & Finance Committee has reviewed our disclosures that follow.
Revenue Recognition
During the first quarter of 2018, we adopted the new Revenue Standard using the modified retrospective adoption method (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not adjusted.
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 (“shipped revenues”), 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 Full-Price stores are expensed at the point of sale and both are
recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the
customer and we recorded an estimated in-transit allowance for orders shipped prior to a period’s end, but not yet received by the customer.
We reduce sales and cost of sales by an estimate of customer merchandise returns, which is calculated based on historical 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 Sheet. Due to the seasonality of our business, these balances typically increase with higher sales occurring in the last month of a
period, such as the Anniversary Sale typically at the end of the second quarter, and decrease in the following period. Prior to 2018, the
estimated cost of merchandise returned was netted with our sales return allowance in other current liabilities.
Although we believe we have sufficient current and historical knowledge to record reasonable estimates of sales returns, actual returns could
differ from recorded amounts. In the past three years, there were no significant changes in customer return behavior and we have made no
material changes to our estimates included in the calculations of our sales return allowance. A 10% change in the sales return allowance net
of the estimated returns asset would have had a $15 impact on our net earnings for the year ended February 2, 2019.
As our customers earn points and Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-
alone selling price of points, Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when
the Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the
Consolidated Balance Sheet. We record breakage revenue of unused points and unredeemed Notes based on expected customer
redemption. We estimate, based on historical usage, that 6% of Notes will be unredeemed and recognized as revenue. Other benefits of the
loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a
material right of the program.
Merchandise Inventories
Merchandise inventories are generally 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. Inherent in the retail inventory method are certain management judgments that may affect the
ending inventory valuation as well as gross profit.
We take physical inventory counts and adjust our records accordingly. Following each physical inventory cycle, we adjust shrink to actual
results and an estimate is recorded for shrink 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 long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses.
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash
flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk
Club are identified at their respective reporting unit levels.
Our estimates are subject to uncertainties and may be impacted by various external factors such as economic conditions and market
competition. While we believe the inputs and assumptions utilized in our analyses of future cash flows are reasonable, events or
circumstances may change, which could cause us to revise these estimates.
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. Our
unrecognized tax benefit was $30 as of February 2, 2019, and $31 as of February 3, 2018. Interest and penalties related to income tax
matters are classified as a component of income tax expense.
Nordstrom, Inc. and subsidiaries 33
Contractual Obligations
The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of February 2, 2019.
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 $4,596 $147 $1,243 $188 $3,018
Operating leases 2,609 322 607 520 1,160
Purchase obligations 1,865 1,733 123 9 —
Other long-term liabilities 363 59 60 43 201
Total $9,433 $2,261 $2,033 $760 $4,379
Included in the required debt repayments disclosed above are estimated total interest payments of $1,822 as of February 2, 2019, payable
over the remaining life of the debt.
The operating lease obligations in the table above do not include payments for operating expenses that are required by most of our lease
agreements. Such expenses, which include common area charges, real estate taxes and other executory costs, totaled $138 in 2018, $121
in 2017 and $112 in 2016. In addition, some of our leases require additional rental payments based on a percentage of our sales, referred to
as “percentage rent.” Percentage rent, which is also excluded from the obligations in the table above, was $9 in 2018, $11 in 2017 and $12 in
2016.
Purchase obligations primarily consist of inventory purchase orders and capital expenditure commitments. Capital expenditure commitments
include Nordstrom NYC.
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 deferred property incentives and deferred revenue, were excluded from the table above. Also excluded from the table above are
unrecognized tax benefits of $33, as we are unable to reasonably estimate the timing of future cash payments, if any, for these liabilities.
Off-Balance Sheet Arrangements
Pursuant to the program agreement with TD, we offer and administer a loyalty program and perform other account servicing functions (see
Note 3: Credit Card Receivable Transaction in Item 8). Credit card receivables serviced under this contract are $3,651 as of February 2,
2019.
Other than items noted in the paragraph above, in addition to operating leases entered into in the normal course of business and the
development of our Nordstrom Men’s Store NYC and Nordstrom NYC, we had no material off-balance sheet arrangements during 2018.
32
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and
other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. 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 &
Finance Committee of our Board of Directors, and the Audit & Finance Committee has reviewed our disclosures that follow.
Revenue Recognition
During the first quarter of 2018, we adopted the new Revenue Standard using the modified retrospective adoption method (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not adjusted.
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 (“shipped revenues”), 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 Full-Price stores are expensed at the point of sale and both are
recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the
customer and we recorded an estimated in-transit allowance for orders shipped prior to a period’s end, but not yet received by the customer.
We reduce sales and cost of sales by an estimate of customer merchandise returns, which is calculated based on historical 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 Sheet. Due to the seasonality of our business, these balances typically increase with higher sales occurring in the last month of a
period, such as the Anniversary Sale typically at the end of the second quarter, and decrease in the following period. Prior to 2018, the
estimated cost of merchandise returned was netted with our sales return allowance in other current liabilities.
Although we believe we have sufficient current and historical knowledge to record reasonable estimates of sales returns, actual returns could
differ from recorded amounts. In the past three years, there were no significant changes in customer return behavior and we have made no
material changes to our estimates included in the calculations of our sales return allowance. A 10% change in the sales return allowance net
of the estimated returns asset would have had a $15 impact on our net earnings for the year ended February 2, 2019.
As our customers earn points and Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-
alone selling price of points, Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when
the Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the
Consolidated Balance Sheet. We record breakage revenue of unused points and unredeemed Notes based on expected customer
redemption. We estimate, based on historical usage, that 6% of Notes will be unredeemed and recognized as revenue. Other benefits of the
loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a
material right of the program.
Merchandise Inventories
Merchandise inventories are generally 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. Inherent in the retail inventory method are certain management judgments that may affect the
ending inventory valuation as well as gross profit.
We take physical inventory counts and adjust our records accordingly. Following each physical inventory cycle, we adjust shrink to actual
results and an estimate is recorded for shrink 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 long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses.
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash
flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk
Club are identified at their respective reporting unit levels.
Our estimates are subject to uncertainties and may be impacted by various external factors such as economic conditions and market
competition. While we believe the inputs and assumptions utilized in our analyses of future cash flows are reasonable, events or
circumstances may change, which could cause us to revise these estimates.
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. Our
unrecognized tax benefit was $30 as of February 2, 2019, and $31 as of February 3, 2018. Interest and penalties related to income tax
matters are classified as a component of income tax expense.
Nordstrom, Inc. and subsidiaries 33
Contractual Obligations
The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of February 2, 2019.
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 $4,596 $147 $1,243 $188 $3,018
Operating leases 2,609 322 607 520 1,160
Purchase obligations 1,865 1,733 123 9 —
Other long-term liabilities 363 59 60 43 201
Total $9,433 $2,261 $2,033 $760 $4,379
Included in the required debt repayments disclosed above are estimated total interest payments of $1,822 as of February 2, 2019, payable
over the remaining life of the debt.
The operating lease obligations in the table above do not include payments for operating expenses that are required by most of our lease
agreements. Such expenses, which include common area charges, real estate taxes and other executory costs, totaled $138 in 2018, $121
in 2017 and $112 in 2016. In addition, some of our leases require additional rental payments based on a percentage of our sales, referred to
as “percentage rent.” Percentage rent, which is also excluded from the obligations in the table above, was $9 in 2018, $11 in 2017 and $12 in
2016.
Purchase obligations primarily consist of inventory purchase orders and capital expenditure commitments. Capital expenditure commitments
include Nordstrom NYC.
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 deferred property incentives and deferred revenue, were excluded from the table above. Also excluded from the table above are
unrecognized tax benefits of $33, as we are unable to reasonably estimate the timing of future cash payments, if any, for these liabilities.
Off-Balance Sheet Arrangements
Pursuant to the program agreement with TD, we offer and administer a loyalty program and perform other account servicing functions (see
Note 3: Credit Card Receivable Transaction in Item 8). Credit card receivables serviced under this contract are $3,651 as of February 2,
2019.
Other than items noted in the paragraph above, in addition to operating leases entered into in the normal course of business and the
development of our Nordstrom Men’s Store NYC and Nordstrom NYC, we had no material off-balance sheet arrangements during 2018.
32
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and
other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. 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 &
Finance Committee of our Board of Directors, and the Audit & Finance Committee has reviewed our disclosures that follow.
Revenue Recognition
During the first quarter of 2018, we adopted the new Revenue Standard using the modified retrospective adoption method (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies in Item 8). Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not adjusted.
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 (“shipped revenues”), 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 Full-Price stores are expensed at the point of sale and both are
recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the
customer and we recorded an estimated in-transit allowance for orders shipped prior to a period’s end, but not yet received by the customer.
We reduce sales and cost of sales by an estimate of customer merchandise returns, which is calculated based on historical 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 Sheet. Due to the seasonality of our business, these balances typically increase with higher sales occurring in the last month of a
period, such as the Anniversary Sale typically at the end of the second quarter, and decrease in the following period. Prior to 2018, the
estimated cost of merchandise returned was netted with our sales return allowance in other current liabilities.
Although we believe we have sufficient current and historical knowledge to record reasonable estimates of sales returns, actual returns could
differ from recorded amounts. In the past three years, there were no significant changes in customer return behavior and we have made no
material changes to our estimates included in the calculations of our sales return allowance. A 10% change in the sales return allowance net
of the estimated returns asset would have had a $15 impact on our net earnings for the year ended February 2, 2019.
As our customers earn points and Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-
alone selling price of points, Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when
the Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the
Consolidated Balance Sheet. We record breakage revenue of unused points and unredeemed Notes based on expected customer
redemption. We estimate, based on historical usage, that 6% of Notes will be unredeemed and recognized as revenue. Other benefits of the
loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a
material right of the program.
Merchandise Inventories
Merchandise inventories are generally 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. Inherent in the retail inventory method are certain management judgments that may affect the
ending inventory valuation as well as gross profit.
We take physical inventory counts and adjust our records accordingly. Following each physical inventory cycle, we adjust shrink to actual
results and an estimate is recorded for shrink 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 long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses.
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash
flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk
Club are identified at their respective reporting unit levels.
Our estimates are subject to uncertainties and may be impacted by various external factors such as economic conditions and market
competition. While we believe the inputs and assumptions utilized in our analyses of future cash flows are reasonable, events or
circumstances may change, which could cause us to revise these estimates.
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. Our
unrecognized tax benefit was $30 as of February 2, 2019, and $31 as of February 3, 2018. Interest and penalties related to income tax
matters are classified as a component of income tax expense.
Nordstrom, Inc. and subsidiaries 33
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. Such adjustments did not
materially impact our effective income tax rate in 2018, 2017 or 2016.
In December 2017, the Tax Act was signed into law. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax Accounting
Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact and provisionally recorded this estimate in
our 2017 results. As of February 2, 2019, we have completed our accounting for the impacts of the Tax Act, resulting in no material changes
to previously recorded provisional amounts (see Note 14: Income Taxes in Item 8).
34
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 $2,685, 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, our $500 term loan will mature in
2020, 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 February 2, 2019, the fair value of our long-term debt was $2,692 (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 February 2, 2019, we had cash and cash equivalents of $957 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. operation periodically enters 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 February 2, 2019, our outstanding forward contracts did not have a material impact on our
Consolidated Financial Statements.
We have six full-line stores and six Nordstrom Rack stores in Canada. The functional currency of our Canadian operation 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 a weighted-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 Item 8. Our Canadian operation enters 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 operation can be impacted by foreign currency fluctuations.
In addition, our U.S. operation incurs certain expenditures denominated in Canadian Dollars and our Canadian operation incurs 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 in Item 8. As of February 2, 2019, activities associated
with foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements.
Item 8: Financial Statements and Supplementary Data.
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 February 2, 2019
and February 3, 2018, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows
for each of the three years in the period ended February 2, 2019, 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 February 2, 2019
and February 3, 2018, and the results of its operations and its cash flows for each of the three years in the period ended February 2, 2019, 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 February 2, 2019, 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 18, 2019,
expressed an unqualified opinion on the Company’s internal control over financial reporting.
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.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 18, 2019
We have served as the Company’s auditor since 1970
Nordstrom, Inc. and subsidiaries 35
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. Such adjustments did not
materially impact our effective income tax rate in 2018, 2017 or 2016.
In December 2017, the Tax Act was signed into law. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax Accounting
Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact and provisionally recorded this estimate in
our 2017 results. As of February 2, 2019, we have completed our accounting for the impacts of the Tax Act, resulting in no material changes
to previously recorded provisional amounts (see Note 14: Income Taxes in Item 8).
34
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 $2,685, 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, our $500 term loan will mature in
2020, 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 February 2, 2019, the fair value of our long-term debt was $2,692 (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 February 2, 2019, we had cash and cash equivalents of $957 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. operation periodically enters 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 February 2, 2019, our outstanding forward contracts did not have a material impact on our
Consolidated Financial Statements.
We have six full-line stores and six Nordstrom Rack stores in Canada. The functional currency of our Canadian operation 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 a weighted-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 Item 8. Our Canadian operation enters 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 operation can be impacted by foreign currency fluctuations.
In addition, our U.S. operation incurs certain expenditures denominated in Canadian Dollars and our Canadian operation incurs 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 in Item 8. As of February 2, 2019, activities associated
with foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements.
Item 8: Financial Statements and Supplementary Data.
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 February 2, 2019
and February 3, 2018, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows
for each of the three years in the period ended February 2, 2019, 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 February 2, 2019
and February 3, 2018, and the results of its operations and its cash flows for each of the three years in the period ended February 2, 2019, 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 February 2, 2019, 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 18, 2019,
expressed an unqualified opinion on the Company’s internal control over financial reporting.
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.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 18, 2019
We have served as the Company’s auditor since 1970
Nordstrom, Inc. and subsidiaries 35
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. Such adjustments did not
materially impact our effective income tax rate in 2018, 2017 or 2016.
In December 2017, the Tax Act was signed into law. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax Accounting
Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact and provisionally recorded this estimate in
our 2017 results. As of February 2, 2019, we have completed our accounting for the impacts of the Tax Act, resulting in no material changes
to previously recorded provisional amounts (see Note 14: Income Taxes in Item 8).
34
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 $2,685, 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, our $500 term loan will mature in
2020, 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 February 2, 2019, the fair value of our long-term debt was $2,692 (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 February 2, 2019, we had cash and cash equivalents of $957 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. operation periodically enters 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 February 2, 2019, our outstanding forward contracts did not have a material impact on our
Consolidated Financial Statements.
We have six full-line stores and six Nordstrom Rack stores in Canada. The functional currency of our Canadian operation 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 a weighted-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 Item 8. Our Canadian operation enters 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 operation can be impacted by foreign currency fluctuations.
In addition, our U.S. operation incurs certain expenditures denominated in Canadian Dollars and our Canadian operation incurs 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 in Item 8. As of February 2, 2019, activities associated
with foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements.
Item 8: Financial Statements and Supplementary Data.
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 February 2, 2019
and February 3, 2018, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows
for each of the three years in the period ended February 2, 2019, 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 February 2, 2019
and February 3, 2018, and the results of its operations and its cash flows for each of the three years in the period ended February 2, 2019, 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 February 2, 2019, 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 18, 2019,
expressed an unqualified opinion on the Company’s internal control over financial reporting.
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.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 18, 2019
We have served as the Company’s auditor since 1970
Nordstrom, Inc. and subsidiaries 35
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. Such adjustments did not
materially impact our effective income tax rate in 2018, 2017 or 2016.
In December 2017, the Tax Act was signed into law. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax Accounting
Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact and provisionally recorded this estimate in
our 2017 results. As of February 2, 2019, we have completed our accounting for the impacts of the Tax Act, resulting in no material changes
to previously recorded provisional amounts (see Note 14: Income Taxes in Item 8).
34
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 $2,685, 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, our $500 term loan will mature in
2020, 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 February 2, 2019, the fair value of our long-term debt was $2,692 (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 February 2, 2019, we had cash and cash equivalents of $957 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. operation periodically enters 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 February 2, 2019, our outstanding forward contracts did not have a material impact on our
Consolidated Financial Statements.
We have six full-line stores and six Nordstrom Rack stores in Canada. The functional currency of our Canadian operation 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 a weighted-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 Item 8. Our Canadian operation enters 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 operation can be impacted by foreign currency fluctuations.
In addition, our U.S. operation incurs certain expenditures denominated in Canadian Dollars and our Canadian operation incurs 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 in Item 8. As of February 2, 2019, activities associated
with foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements.
Item 8: Financial Statements and Supplementary Data.
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 February 2, 2019
and February 3, 2018, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows
for each of the three years in the period ended February 2, 2019, 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 February 2, 2019
and February 3, 2018, and the results of its operations and its cash flows for each of the three years in the period ended February 2, 2019, 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 February 2, 2019, 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 18, 2019,
expressed an unqualified opinion on the Company’s internal control over financial reporting.
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.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 18, 2019
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 2018 2017 2016
Net sales $15,480 $15,137 $14,498
Credit card revenues, net 380 341 259
Total revenues 15,860 15,478 14,757
Cost of sales and related buying and occupancy costs (10,155) (9,890) (9,440)
Selling, general and administrative expenses (4,868) (4,662) (4,315)
Goodwill impairment — — (197)
Earnings before interest and income taxes 837 926 805
Interest expense, net (104) (136) (121)
Earnings before income taxes 733 790 684
Income tax expense (169) (353) (330)
Net earnings $564 $437 $354
Earnings per share:
Basic $3.37 $2.62 $2.05
Diluted $3.32 $2.59 $2.02
Weighted-average shares outstanding:
Basic 167.3 166.8 173.2
Diluted 170.0 168.9 175.6
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
36
Nordstrom, Inc.
Consolidated Statements of Comprehensive Earnings
(In millions)
Fiscal year 2018 2017 2016
Net earnings $564 $437 $354
Postretirement plan adjustments, net of tax of ($5), $2 and ($1) 14 (6) 1
Foreign currency translation adjustment (17) 20 14
Comprehensive net earnings $561 $451 $369
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc.
Consolidated Balance Sheets
(In millions)
February 2, 2019 February 3, 2018
Assets
Current assets:
Cash and cash equivalents $957 $1,181
Accounts receivable, net 148 145
Merchandise inventories 1,978 2,027
Prepaid expenses and other 291 150
Total current assets 3,374 3,503
Land, property and equipment, net 3,921 3,939
Goodwill 249 238
Other assets 342 435
Total assets $7,886 $8,115
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $1,469 $1,409
Accrued salaries, wages and related benefits 580 5
78
Other current liabilities 1,324 1,246
Current portion of long-term debt 8
56
Total current liabilities 3,381 3,289
Long-term debt, net 2,677 2,681
Deferred property incentives, net 457 495
Other liabilities 498 673
Commitments and contingencies (Note 11)
Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 157.6 and 167.0 shares issued and
outstanding 3,048 2,816
Accumulated deficit (2,138) (1,810)
Accumulated other comprehensive loss (37) (29)
Total shareholders’ equity 873 977
Total liabilities and shareholders’ equity $7,886 $8,115
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 Earnings
(In millions except per share amounts)
Fiscal year 2018 2017 2016
Net sales $15,480 $15,137 $14,498
Credit card revenues, net 380 341 259
Total revenues 15,860 15,478 14,757
Cost of sales and related buying and occupancy costs (10,155) (9,890) (9,440)
Selling, general and administrative expenses (4,868) (4,662) (4,315)
Goodwill impairment — — (197)
Earnings before interest and income taxes 837 926 805
Interest expense, net (104) (136) (121)
Earnings before income taxes 733 790 684
Income tax expense (169) (353) (330)
Net earnings $564 $437 $354
Earnings per share:
Basic $3.37 $2.62 $2.05
Diluted $3.32 $2.59 $2.02
Weighted-average shares outstanding:
Basic 167.3 166.8 173.2
Diluted 170.0 168.9 175.6
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
36
Nordstrom, Inc.
Consolidated Statements of Comprehensive Earnings
(In millions)
Fiscal year 2018 2017 2016
Net earnings $564 $437 $354
Postretirement plan adjustments, net of tax of ($5), $2 and ($1) 14 (6) 1
Foreign currency translation adjustment (17) 20 14
Comprehensive net earnings $561 $451 $369
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc.
Consolidated Balance Sheets
(In millions)
February 2, 2019 February 3, 2018
Assets
Current assets:
Cash and cash equivalents $957 $1,181
Accounts receivable, net 148 145
Merchandise inventories 1,978 2,027
Prepaid expenses and other 291 150
Total current assets 3,374 3,503
Land, property and equipment, net 3,921 3,939
Goodwill 249 238
Other assets 342 435
Total assets $7,886 $8,115
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $1,469 $1,409
Accrued salaries, wages and related benefits 580 578
Other current liabilities 1,324 1,246
Current portion of long-term debt 8 56
Total current liabilities 3,381 3,289
Long-term debt, net 2,677 2,681
Deferred property incentives, net 457 495
Other liabilities 498 673
Commitments and contingencies (Note 11)
Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 157.6 and 167.0 shares issued and
outstanding 3,048 2,816
Accumulated deficit (2,138) (1,810)
Accumulated other comprehensive loss (37) (29)
Total shareholders’ equity 873 977
Total liabilities and shareholders’ equity $7,886 $8,115
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 Earnings
(In millions except per share amounts)
Fiscal year 2018 2017 2016
Net sales $15,480 $15,137 $14,498
Credit card revenues, net 380 341 259
Total revenues 15,860 15,478 14,757
Cost of sales and related buying and occupancy costs (10,155) (9,890) (9,440)
Selling, general and administrative expenses (4,868) (4,662) (4,315)
Goodwill impairment — — (197)
Earnings before interest and income taxes 837 926 805
Interest expense, net (104) (136) (121)
Earnings before income taxes 733 790 684
Income tax expense (169) (353) (330)
Net earnings $564 $437 $354
Earnings per share:
Basic $3.37 $2.62 $2.05
Diluted $3.32 $2.59 $2.02
Weighted-average shares outstanding:
Basic 167.3 166.8 173.2
Diluted 170.0 168.9 175.6
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
36
Nordstrom, Inc.
Consolidated Statements of Comprehensive Earnings
(In millions)
Fiscal year 2018 2017 2016
Net earnings $564 $437 $354
Postretirement plan adjustments, net of tax of ($5), $2 and ($1) 14 (6) 1
Foreign currency translation adjustment (17) 20 14
Comprehensive net earnings $561 $451 $369
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc.
Consolidated Balance Sheets
(In millions)
February 2, 2019 February 3, 2018
Assets
Current assets:
Cash and cash equivalents $957 $1,181
Accounts receivable, net 148 145
Merchandise inventories 1,978 2,027
Prepaid expenses and other 291 150
Total current assets 3,374 3,503
Land, property and equipment, net 3,921 3,939
Goodwill 249 238
Other assets 342 435
Total assets $7,886 $8,115
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $1,469 $1,409
Accrued salaries, wages and related benefits 580 578
Other current liabilities 1,324 1,246
Current portion of long-term debt 8 56
Total current liabilities 3,381 3,289
Long-term debt, net 2,677 2,681
Deferred property incentives, net 457 495
Other liabilities 498 673
Commitments and contingencies (Note 11)
Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 157.6 and 167.0 shares issued and
outstanding 3,048 2,816
Accumulated deficit (2,138) (1,810)
Accumulated other comprehensive loss (37) (29)
Total shareholders’ equity 873 977
Total liabilities and shareholders’ equity $7,886 $8,115
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 Earnings
(In millions except per share amounts)
Fiscal year 2018 2017 2016
Net sales $15,480 $15,137 $14,498
Credit card revenues, net 380 341 259
Total revenues 15,860 15,478 14,757
Cost of sales and related buying and occupancy costs (10,155) (9,890) (9,440)
Selling, general and administrative expenses (4,868) (4,662) (4,315)
Goodwill impairment — — (197)
Earnings before interest and income taxes 837 926 805
Interest expense, net (104) (136) (121)
Earnings before income taxes 733 790 684
Income tax expense (169) (353) (330)
Net earnings $564 $437 $354
Earnings per share:
Basic $3.37 $2.62 $2.05
Diluted $3.32 $2.59 $2.02
Weighted-average shares outstanding:
Basic 167.3 166.8 173.2
Diluted 170.0 168.9 175.6
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
36
Nordstrom, Inc.
Consolidated Statements of Comprehensive Earnings
(In millions)
Fiscal year 2018 2017 2016
Net earnings $564 $437 $354
Postretirement plan adjustments, net of tax of ($5), $2 and ($1) 14 (6) 1
Foreign currency translation adjustment (17) 20 14
Comprehensive net earnings $561 $451 $369
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc.
Consolidated Balance Sheets
(In millions)
February 2, 2019 February 3, 2018
Assets
Current assets:
Cash and cash equivalents $957 $1,181
Accounts receivable, net 148 145
Merchandise inventories 1,978 2,027
Prepaid expenses and other 291 150
Total current assets 3,374 3,503
Land, property and equipment, net 3,921 3,939
Goodwill 249 238
Other assets 342 435
Total assets $7,886 $8,115
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $1,469 $1,409
Accrued salaries, wages and related benefits 580 578
Other current liabilities 1,324 1,246
Current portion of long-term debt 8 56
Total current liabilities 3,381 3,289
Long-term debt, net 2,677 2,681
Deferred property incentives, net 457 495
Other liabilities 498 673
Commitments and contingencies (Note 11)
Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 157.6 and 167.0 shares issued and
outstanding 3,048 2,816
Accumulated deficit (2,138) (1,810)
Accumulated other comprehensive loss (37) (29)
Total shareholders’ equity 873 977
Total liabilities and shareholders’ equity $7,886 $8,115
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)
Accumulated
Other
Common Stock Accumulated Comprehensive
Shares Amount Deficit Loss Total
Balance at January 30, 2016 173.5 $2,539 ($1,610) ($58) $871
Net earnings — — 354 — 354
Other comprehensive earnings — — — 15 15
Dividends ($1.48 per share) — — (256) — (256)
Issuance of common stock under stock compensation plans 2.1 83 — — 83
Stock-based compensation 0.3 85 — — 85
Repurchase of common stock (5.9) — (282) — (282)
Balance at January 28, 2017 170.0 2,707 (1,794) (43) 870
Net earnings — — 437 — 437
Other comprehensive earnings — — — 14 14
Dividends ($1.48 per share) — — (247) — (247)
Issuance of common stock under stock compensation plans 1.1 39 — — 39
Stock-based compensation 0.5 70 — — 70
Repurchase of common stock (4.6) — (206) — (206)
Balance at February 3, 2018 167.0 2,816 (1,810) (29) 977
Cumulative effect of adopted accounting standards — — 60 (5) 55
Net earnings — — 564 — 5
64
Other comprehensive loss — — — (3) (3)
Dividends ($1.48 per share) — — (250) — (250)
Issuance of common stock under stock compensation plans 4.0 163 — — 163
Stock-based compensation 0.9 69 — — 69
Repurchase of common stock (14.3) — (702) — (702)
Balance at February 2, 2019 157.6 $3,048 ($2,138) ($37) $873
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
38
Nordstrom, Inc.
Consolidated Statements of Cash Flows
(In millions)
Fiscal year 2018 2017 2016
Operating Activities
Net earnings $564 $437 $354
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expenses 669 666 645
Goodwill impairment — — 197
Amortization of deferred property incentives and other, net (75) (82) (76)
Deferred income taxes, net (34) 11 (15)
Stock-based compensation expense 90 77 91
Change in operating assets and liabilities:
Accounts receivable (4) 1 (3)
Proceeds from sale of credit card receivables originated at Nordstrom — 39 —
Merchandise inventories 15 (62) 31
Prepaid expenses and other assets (8) (21) 100
Accounts payable 12 77 16
Accrued salaries, wages and related benefits 1 121 38
Other current liabilities 15 48 181
Deferred property incentives 53 64 65
Other liabilities (2) 24 34
Net cash provided by operating activities 1,296 1,400 1,658
Investing Activities
Capital expenditures (654) (731) (846)
Proceeds from sale of credit card receivables originated at third parties — 16 —
Other, net 1 31 55
Net cash used in investing activities (653) (684) (791)
Financing Activities
Proceeds from long-term borrowings, net of discounts — 635 —
Principal payments on long-term borrowings (56) (661) (10)
(Decrease) increase in cash book overdrafts — (55) 4
Cash dividends paid (250) (247) (256)
Payments for repurchase of common stock (678) (211) (277)
Proceeds from issuances under stock compensation plans 163 39 83
Tax withholding on share-based awards (20) (7) (5)
Other, net (26) (35) 6
Net cash used in financing activities (867) (542) (455)
Net (decrease) increase in cash and cash equivalents (224) 174 412
Cash and cash equivalents at beginning of year 1,181 1,007 595
Cash and cash equivalents at end of year $957 $1,181 $1,007
Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes, net of refunds $280 $363 $112
Interest, net of capitalized interest 118 143 134
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 39
Nordstrom, Inc.
Consolidated Statements of Shareholders’ Equity
(In millions except per share amounts)
Accumulated
Other
Common Stock Accumulated Comprehensive
Shares Amount Deficit Loss Total
Balance at January 30, 2016 173.5 $2,539 ($1,610) ($58) $871
Net earnings — — 354 — 354
Other comprehensive earnings — — — 15 15
Dividends ($1.48 per share) — — (256) — (256)
Issuance of common stock under stock compensation plans 2.1 83 — — 83
Stock-based compensation 0.3 85 — — 85
Repurchase of common stock (5.9) — (282) — (282)
Balance at January 28, 2017 170.0 2,707 (1,794) (43) 870
Net earnings — — 437 — 437
Other comprehensive earnings — — — 14 14
Dividends ($1.48 per share) — — (247) — (247)
Issuance of common stock under stock compensation plans 1.1 39 — — 39
Stock-based compensation 0.5 70 — — 70
Repurchase of common stock (4.6) — (206) — (206)
Balance at February 3, 2018 167.0 2,816 (1,810) (29) 977
Cumulative effect of adopted accounting standards — — 60 (5) 55
Net earnings — — 564 — 564
Other comprehensive loss — — — (3) (3)
Dividends ($1.48 per share) — — (250) — (250)
Issuance of common stock under stock compensation plans 4.0 163 — — 163
Stock-based compensation 0.9 69 — — 69
Repurchase of common stock (14.3) — (702) — (702)
Balance at February 2, 2019 157.6 $3,048 ($2,138) ($37) $873
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
38
Nordstrom, Inc.
Consolidated Statements of Cash Flows
(In millions)
Fiscal year 2018 2017 2016
Operating Activities
Net earnings $564 $437 $354
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expenses 669 666 645
Goodwill impairment — — 197
Amortization of deferred property incentives and other, net (75) (82) (76)
Deferred income taxes, net (34) 11 (15)
Stock-based compensation expense 90 77 91
Change in operating assets and liabilities:
Accounts receivable (4) 1 (3)
Proceeds from sale of credit card receivables originated at Nordstrom — 39 —
Merchandise inventories 15 (62) 31
Prepaid expenses and other assets (8) (21) 100
Accounts payable 12 77 16
Accrued salaries, wages and related benefits 1 121 38
Other current liabilities 15 48 181
Deferred property incentives 53 64 65
Other liabilities (2) 24 34
Net cash provided by operating activities 1,296 1,400 1,658
Investing Activities
Capital expenditures (654) (731) (846)
Proceeds from sale of credit card receivables originated at third parties — 16 —
Other, net 1 31 55
Net cash used in investing activities (653) (684) (791)
Financing Activities
Proceeds from long-term borrowings, net of discounts — 635 —
Principal payments on long-term borrowings (56) (661) (10)
(Decrease) increase in cash book overdrafts — (55) 4
Cash dividends paid (250) (247) (256)
Payments for repurchase of common stock (678) (211) (277)
Proceeds from issuances under stock compensation plans 163 39 83
Tax withholding on share-based awards (20) (7) (5)
Other, net (26) (35) 6
Net cash used in financing activities (867) (542) (455)
Net (decrease) increase in cash and cash equivalents (224) 174 412
Cash and cash equivalents at beginning of year 1,181 1,007 595
Cash and cash equivalents at end of year $957 $1,181 $1,007
Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes, net of refunds $280 $363 $112
Interest, net of capitalized interest 118 143 134
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 39
Nordstrom, Inc.
Consolidated Statements of Shareholders’ Equity
(In millions except per share amounts)
Accumulated
Other
Common Stock Accumulated Comprehensive
Shares Amount Deficit Loss Total
Balance at January 30, 2016 173.5 $2,539 ($1,610) ($58) $871
Net earnings — — 354 — 354
Other comprehensive earnings — — — 15 15
Dividends ($1.48 per share) — — (256) — (256)
Issuance of common stock under stock compensation plans 2.1 83 — — 83
Stock-based compensation 0.3 85 — — 85
Repurchase of common stock (5.9) — (282) — (282)
Balance at January 28, 2017 170.0 2,707 (1,794) (43) 870
Net earnings — — 437 — 437
Other comprehensive earnings — — — 14 14
Dividends ($1.48 per share) — — (247) — (247)
Issuance of common stock under stock compensation plans 1.1 39 — — 39
Stock-based compensation 0.5 70 — — 70
Repurchase of common stock (4.6) — (206) — (206)
Balance at February 3, 2018 167.0 2,816 (1,810) (29) 977
Cumulative effect of adopted accounting standards — — 60 (5) 55
Net earnings — — 564 — 564
Other comprehensive loss — — — (3) (3)
Dividends ($1.48 per share) — — (250) — (250)
Issuance of common stock under stock compensation plans 4.0 163 — — 163
Stock-based compensation 0.9 69 — — 69
Repurchase of common stock (14.3) — (702) — (702)
Balance at February 2, 2019 157.6 $3,048 ($2,138) ($37) $873
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
38
Nordstrom, Inc.
Consolidated Statements of Cash Flows
(In millions)
Fiscal year 2018 2017 2016
Operating Activities
Net earnings $564 $437 $354
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expenses 669 666 645
Goodwill impairment — — 197
Amortization of deferred property incentives and other, net (75) (82) (76)
Deferred income taxes, net (34) 11 (15)
Stock-based compensation expense 90 77 91
Change in operating assets and liabilities:
Accounts receivable (4) 1 (3)
Proceeds from sale of credit card receivables originated at Nordstrom — 39 —
Merchandise inventories 15 (62) 31
Prepaid expenses and other assets (8) (21) 100
Accounts payable 12 77 16
Accrued salaries, wages and related benefits 1 121 38
Other current liabilities 15 48 181
Deferred property incentives 53 64 65
Other liabilities (2) 24 34
Net cash provided by operating activities 1,296 1,400 1,658
Investing Activities
Capital expenditures (654) (731) (846)
Proceeds from sale of credit card receivables originated at third parties — 16 —
Other, net 1 31 55
Net cash used in investing activities (653) (684) (791)
Financing Activities
Proceeds from long-term borrowings, net of discounts — 635 —
Principal payments on long-term borrowings (56) (661) (10)
(Decrease) increase in cash book overdrafts — (55) 4
Cash dividends paid (250) (247) (256)
Payments for repurchase of common stock (678) (211) (277)
Proceeds from issuances under stock compensation plans 163 39 83
Tax withholding on share-based awards (20) (7) (5)
Other, net (26) (35) 6
Net cash used in financing activities (867) (542) (455)
Net (decrease) increase in cash and cash equivalents (224) 174 412
Cash and cash equivalents at beginning of year 1,181 1,007 595
Cash and cash equivalents at end of year $957 $1,181 $1,007
Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes, net of refunds $280 $363 $112
Interest, net of capitalized interest 118 143 134
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 39
Nordstrom, Inc.
Consolidated Statements of Shareholders’ Equity
(In millions except per share amounts)
Accumulated
Other
Common Stock Accumulated Comprehensive
Shares Amount Deficit Loss Total
Balance at January 30, 2016 173.5 $2,539 ($1,610) ($58) $871
Net earnings — — 354 — 354
Other comprehensive earnings — — — 15 15
Dividends ($1.48 per share) — — (256) — (256)
Issuance of common stock under stock compensation plans 2.1 83 — — 83
Stock-based compensation 0.3 85 — — 85
Repurchase of common stock (5.9) — (282) — (282)
Balance at January 28, 2017 170.0 2,707 (1,794) (43) 870
Net earnings — — 437 — 437
Other comprehensive earnings — — — 14 14
Dividends ($1.48 per share) — — (247) — (247)
Issuance of common stock under stock compensation plans 1.1 39 — — 39
Stock-based compensation 0.5 70 — — 70
Repurchase of common stock (4.6) — (206) — (206)
Balance at February 3, 2018 167.0 2,816 (1,810) (29) 977
Cumulative effect of adopted accounting standards — — 60 (5) 55
Net earnings — — 564 — 564
Other comprehensive loss — — — (3) (3)
Dividends ($1.48 per share) — — (250) — (250)
Issuance of common stock under stock compensation plans 4.0 163 — — 163
Stock-based compensation 0.9 69 — — 69
Repurchase of common stock (14.3) — (702) — (702)
Balance at February 2, 2019 157.6 $3,048 ($2,138) ($37) $873
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
38
Nordstrom, Inc.
Consolidated Statements of Cash Flows
(In millions)
Fiscal year 2018 2017 2016
Operating Activities
Net earnings $564 $437 $354
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expenses 669 666 645
Goodwill impairment — — 197
Amortization of deferred property incentives and other, net (75) (82) (76)
Deferred income taxes, net (34) 11 (15)
Stock-based compensation expense 90 77 91
Change in operating assets and liabilities:
Accounts receivable (4) 1 (3)
Proceeds from sale of credit card receivables originated at Nordstrom — 39 —
Merchandise inventories 15 (62) 31
Prepaid expenses and other assets (8) (21) 100
Accounts payable 12 77 16
Accrued salaries, wages and related benefits 1 121 38
Other current liabilities 15 48 181
Deferred property incentives 53 64 65
Other liabilities (2) 24 34
Net cash provided by operating activities 1,296 1,400 1,658
Investing Activities
Capital expenditures (654) (731) (846)
Proceeds from sale of credit card receivables originated at third parties — 16 —
Other, net 1 31 55
Net cash used in investing activities (653) (684) (791)
Financing Activities
Proceeds from long-term borrowings, net of discounts — 635 —
Principal payments on long-term borrowings (56) (661) (10)
(Decrease) increase in cash book overdrafts — (55) 4
Cash dividends paid (250) (247) (256)
Payments for repurchase of common stock (678) (211) (277)
Proceeds from issuances under stock compensation plans 163 39 83
Tax withholding on share-based awards (20) (7) (5)
Other, net (26) (35) 6
Net cash used in financing activities (867) (542) (455)
Net (decrease) increase in cash and cash equivalents (224) 174 412
Cash and cash equivalents at beginning of year 1,181 1,007 595
Cash and cash equivalents at end of year $957 $1,181 $1,007
Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes, net of refunds $280 $363 $112
Interest, net of capitalized interest 118 143 134
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 39
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Founded in 1901 as a retail shoe business in Seattle, Washington, Nordstrom, Inc. is now a leading fashion retailer that offers customers an
extensive selection of high-quality fashion brands focused on apparel, shoes, cosmetics and accessories 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 through multiple retail channels, including 115 Nordstrom U.S. full-line
stores and Nordstrom.com, six Canada full-line stores, 244 U.S. and Canadian Nordstrom Rack stores, Nordstromrack.com/HauteLook, three
Jeffrey boutiques, two Last Chance clearance stores, six Trunk Club clubhouses and TrunkClub.com, and three Nordstrom Locals. Our stores
are located in 40 states in the U.S., three provinces in Canada and Puerto Rico.
Fiscal Year
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2018 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 accounting principles generally accepted in the U.S. requires management to make
estimates 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.
Revenue
During the first quarter of fiscal 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers, and all related amendments (“Revenue Standard”), using the modified retrospective adoption method. Results for reporting
periods beginning in the first quarter of 2018 are presented under the new Revenue Standard while prior period amounts are not adjusted
and continue to be reported in accordance with our historic accounting under Accounting Standards Codification 605 — Revenue
Recognition. Upon adoption, 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 (“shipped revenues”), 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 Full-Price stores are expensed at the point of sale and both are
recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the
customer and we recorded an estimated in-transit allowance for orders shipped prior to a period’s end, but not yet received by the customer.
We reduce sales and cost of sales by an estimate of customer merchandise returns, which is calculated based on historical 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 Sheet. Due to the seasonality of our business, these balances typically increase with higher sales occurring in the last month of a
period, such as the Anniversary Sale typically at the end of the second quarter, and decrease in the following period. Prior to 2018, the
estimated cost of merchandise returned was netted with our sales return allowance in other current liabilities.
Loyalty Program
We evolved our customer loyalty program with the launch of The Nordy Club in October 2018, which incorporates a traditional point system
and the favorite benefits of our previous program, 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 (“Notes”), which can be redeemed for goods or
services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardmembers
can also earn rewards at Trunk Club. The Nordy Club member benefits will vary based on the level of customer spend, and include Bonus
Points days and shopping and fashion events.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
40
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, Nordstrom to You (an in-home stylist) and incremental accumulation of points toward
Notes.
As our customers earn points and Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-
alone selling price of points, Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when
the Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the
Consolidated Balance Sheet. We record breakage revenue of unused points and unredeemed Notes based on expected customer
redemption. We estimate, based on historical usage, that 6% of Notes will be unredeemed and recognized as revenue. Other benefits of the
loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a
material right of the program.
As of February 2, 2019, our outstanding performance obligation for The Nordy Club, which consists primarily of unredeemed points and
Notes at retail value under the new Revenue Standard was $159. Almost all Notes are redeemed within approximately six months of
issuance. Prior to 2018, we estimated the net cost of Notes to be issued and redeemed and recorded this cost as rewards points were
accumulated. This cost, as well as reimbursed alterations, was recorded in cost of sales as we provided customers with products and
services for these rewards. Our outstanding loyalty program liabilities as of February 3, 2018 were $69, recorded at cost before adoption of
the new Revenue Standard.
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. We completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD in
2015, and in November 2017, we sold the remaining balances to TD, which consisted of employee credit card receivables for the U.S. Visa
and Nordstrom private label credit cards (see Note 3: Credit Card Receivable Transaction). Credit card revenues, net include our portion of
the ongoing credit card revenue, net of credit losses, pursuant to our program agreement with TD. In 2017 and 2016, we also recorded asset
amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the initial transaction to sell our
U.S. Visa and private label credit card portfolio to TD.
Upon adoption of the new Revenue Standard, the remaining unamortized balances of the investment in contract asset and deferred revenue
associated with the sale of the credit card receivables were eliminated as part of a cumulative-effect adjustment, reducing the opening
balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded in credit
card revenues, net. Prior to 2018, the investment in contract asset was classified in prepaid expenses and other and other assets, while the
deferred revenue was classified in other current liabilities and other liabilities on the Consolidated Balance Sheet.
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 Sheet as customers can redeem gift cards at any time.
As of February 2, 2019, our outstanding performance obligation for unredeemed gift cards was $389. 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 2% will be unredeemed and recognized as revenue. Breakage income was $14 in 2018. Prior to 2018, gift
card breakage was recorded in selling, general and administrative expenses and was estimated based on when redemption was considered
remote. Breakage income was $16 and $12 in 2017 and 2016. Outstanding gift card liabilities was $425 as of February 3, 2018.
Cost of Sales
Cost of sales primarily includes the purchase cost 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.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 41
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, Nordstrom to You (an in-home stylist) and incremental accumulation of points toward
Notes.
As our customers earn points and Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-
alone selling price of points, Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when
the Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the
Consolidated Balance Sheet. We record breakage revenue of unused points and unredeemed Notes based on expected customer
redemption. We estimate, based on historical usage, that 6% of Notes will be unredeemed and recognized as revenue. Other benefits of the
loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a
material right of the program.
As of February 2, 2019, our outstanding performance obligation for The Nordy Club, which consists primarily of unredeemed points and
Notes at retail value under the new Revenue Standard was $159. Almost all Notes are redeemed within approximately six months of
issuance. Prior to 2018, we estimated the net cost of Notes to be issued and redeemed and recorded this cost as rewards points were
accumulated. This cost, as well as reimbursed alterations, was recorded in cost of sales as we provided customers with products and
services for these rewards. Our outstanding loyalty program liabilities as of February 3, 2018 were $69, recorded at cost before adoption of
the new Revenue Standard.
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. We completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD in
2015, and in November 2017, we sold the remaining balances to TD, which consisted of employee credit card receivables for the U.S. Visa
and Nordstrom private label credit cards (see Note 3: Credit Card Receivable Transaction). Credit card revenues, net include our portion of
the ongoing credit card revenue, net of credit losses, pursuant to our program agreement with TD. In 2017 and 2016, we also recorded asset
amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the initial transaction to sell our
U.S. Visa and private label credit card portfolio to TD.
Upon adoption of the new Revenue Standard, the remaining unamortized balances of the investment in contract asset and deferred revenue
associated with the sale of the credit card receivables were eliminated as part of a cumulative-effect adjustment, reducing the opening
balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded in credit
card revenues, net. Prior to 2018, the investment in contract asset was classified in prepaid expenses and other and other assets, while the
deferred revenue was classified in other current liabilities and other liabilities on the Consolidated Balance Sheet.
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 Sheet as customers can redeem gift cards at any time.
As of February 2, 2019, our outstanding performance obligation for unredeemed gift cards was $389. 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 2% will be unredeemed and recognized as revenue. Breakage income was $14 in 2018. Prior to 2018, gift
card breakage was recorded in selling, general and administrative expenses and was estimated based on when redemption was considered
remote. Breakage income was $16 and $12 in 2017 and 2016. Outstanding gift card liabilities was $425 as of February 3, 2018.
Cost of Sales
Cost of sales primarily includes the purchase cost 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.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 41
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Founded in 1901 as a retail shoe business in Seattle, Washington, Nordstrom, Inc. is now a leading fashion retailer that offers customers an
extensive selection of high-quality fashion brands focused on apparel, shoes, cosmetics and accessories 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 through multiple retail channels, including 115 Nordstrom U.S. full-line
stores and Nordstrom.com, six Canada full-line stores, 244 U.S. and Canadian Nordstrom Rack stores, Nordstromrack.com/HauteLook, three
Jeffrey boutiques, two Last Chance clearance stores, six Trunk Club clubhouses and TrunkClub.com, and three Nordstrom Locals. Our stores
are located in 40 states in the U.S., three provinces in Canada and Puerto Rico.
Fiscal Year
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2018 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 accounting principles generally accepted in the U.S. requires management to make
estimates 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.
Revenue
During the first quarter of fiscal 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers, and all related amendments (“Revenue Standard”), using the modified retrospective adoption method. Results for reporting
periods beginning in the first quarter of 2018 are presented under the new Revenue Standard while prior period amounts are not adjusted
and continue to be reported in accordance with our historic accounting under Accounting Standards Codification 605 — Revenue
Recognition. Upon adoption, 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 (“shipped revenues”), 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 Full-Price stores are expensed at the point of sale and both are
recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the
customer and we recorded an estimated in-transit allowance for orders shipped prior to a period’s end, but not yet received by the customer.
We reduce sales and cost of sales by an estimate of customer merchandise returns, which is calculated based on historical 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 Sheet. Due to the seasonality of our business, these balances typically increase with higher sales occurring in the last month of a
period, such as the Anniversary Sale typically at the end of the second quarter, and decrease in the following period. Prior to 2018, the
estimated cost of merchandise returned was netted with our sales return allowance in other current liabilities.
Loyalty Program
We evolved our customer loyalty program with the launch of The Nordy Club in October 2018, which incorporates a traditional point system
and the favorite benefits of our previous program, 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 (“Notes”), which can be redeemed for goods or
services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardmembers
can also earn rewards at Trunk Club. The Nordy Club member benefits will vary based on the level of customer spend, and include Bonus
Points days and shopping and fashion events.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
40
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Founded in 1901 as a retail shoe business in Seattle, Washington, Nordstrom, Inc. is now a leading fashion retailer that offers customers an
extensive selection of high-quality fashion brands focused on apparel, shoes, cosmetics and accessories 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 through multiple retail channels, including 115 Nordstrom U.S. full-line
stores and Nordstrom.com, six Canada full-line stores, 244 U.S. and Canadian Nordstrom Rack stores, Nordstromrack.com/HauteLook, three
Jeffrey boutiques, two Last Chance clearance stores, six Trunk Club clubhouses and TrunkClub.com, and three Nordstrom Locals. Our stores
are located in 40 states in the U.S., three provinces in Canada and Puerto Rico.
Fiscal Year
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2018 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 accounting principles generally accepted in the U.S. requires management to make
estimates 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.
Revenue
During the first quarter of fiscal 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers, and all related amendments (“Revenue Standard”), using the modified retrospective adoption method. Results for reporting
periods beginning in the first quarter of 2018 are presented under the new Revenue Standard while prior period amounts are not adjusted
and continue to be reported in accordance with our historic accounting under Accounting Standards Codification 605 — Revenue
Recognition. Upon adoption, 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 (“shipped revenues”), 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 Full-Price stores are expensed at the point of sale and both are
recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the
customer and we recorded an estimated in-transit allowance for orders shipped prior to a period’s end, but not yet received by the customer.
We reduce sales and cost of sales by an estimate of customer merchandise returns, which is calculated based on historical 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 Sheet. Due to the seasonality of our business, these balances typically increase with higher sales occurring in the last month of a
period, such as the Anniversary Sale typically at the end of the second quarter, and decrease in the following period. Prior to 2018, the
estimated cost of merchandise returned was netted with our sales return allowance in other current liabilities.
Loyalty Program
We evolved our customer loyalty program with the launch of The Nordy Club in October 2018, which incorporates a traditional point system
and the favorite benefits of our previous program, 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 (“Notes”), which can be redeemed for goods or
services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardmembers
can also earn rewards at Trunk Club. The Nordy Club member benefits will vary based on the level of customer spend, and include Bonus
Points days and shopping and fashion events.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
40
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, Nordstrom to You (an in-home stylist) and incremental accumulation of points toward
Notes.
As our customers earn points and Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-
alone selling price of points, Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when
the Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the
Consolidated Balance Sheet. We record breakage revenue of unused points and unredeemed Notes based on expected customer
redemption. We estimate, based on historical usage, that 6% of Notes will be unredeemed and recognized as revenue. Other benefits of the
loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a
material right of the program.
As of February 2, 2019, our outstanding performance obligation for The Nordy Club, which consists primarily of unredeemed points and
Notes at retail value under the new Revenue Standard was $159. Almost all Notes are redeemed within approximately six months of
issuance. Prior to 2018, we estimated the net cost of Notes to be issued and redeemed and recorded this cost as rewards points were
accumulated. This cost, as well as reimbursed alterations, was recorded in cost of sales as we provided customers with products and
services for these rewards. Our outstanding loyalty program liabilities as of February 3, 2018 were $69, recorded at cost before adoption of
the new Revenue Standard.
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. We completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD in
2015, and in November 2017, we sold the remaining balances to TD, which consisted of employee credit card receivables for the U.S. Visa
and Nordstrom private label credit cards (see Note 3: Credit Card Receivable Transaction). Credit card revenues, net include our portion of
the ongoing credit card revenue, net of credit losses, pursuant to our program agreement with TD. In 2017 and 2016, we also recorded asset
amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the initial transaction to sell our
U.S. Visa and private label credit card portfolio to TD.
Upon adoption of the new Revenue Standard, the remaining unamortized balances of the investment in contract asset and deferred revenue
associated with the sale of the credit card receivables were eliminated as part of a cumulative-effect adjustment, reducing the opening
balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded in credit
card revenues, net. Prior to 2018, the investment in contract asset was classified in prepaid expenses and other and other assets, while the
deferred revenue was classified in other current liabilities and other liabilities on the Consolidated Balance Sheet.
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 Sheet as customers can redeem gift cards at any time.
As of February 2, 2019, our outstanding performance obligation for unredeemed gift cards was $389. 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 2% will be unredeemed and recognized as revenue. Breakage income was $14 in 2018. Prior to 2018, gift
card breakage was recorded in selling, general and administrative expenses and was estimated based on when redemption was considered
remote. Breakage income was $16 and $12 in 2017 and 2016. Outstanding gift card liabilities was $425 as of February 3, 2018.
Cost of Sales
Cost of sales primarily includes the purchase cost 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.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 41
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, Nordstrom to You (an in-home stylist) and incremental accumulation of points toward
Notes.
As our customers earn points and Notes in The Nordy Club, a portion of underlying sales revenue is deferred based on an estimated stand-
alone selling price of points, Notes and other loyalty benefits, such as alterations. We recognize the revenue and related cost of sale when
the Notes are ultimately redeemed and reduce our contract liability. We include the deferred revenue in other current liabilities on the
Consolidated Balance Sheet. We record breakage revenue of unused points and unredeemed Notes based on expected customer
redemption. We estimate, based on historical usage, that 6% of Notes will be unredeemed and recognized as revenue. Other benefits of the
loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses as these are not a
material right of the program.
As of February 2, 2019, our outstanding performance obligation for The Nordy Club, which consists primarily of unredeemed points and
Notes at retail value under the new Revenue Standard was $159. Almost all Notes are redeemed within approximately six months of
issuance. Prior to 2018, we estimated the net cost of Notes to be issued and redeemed and recorded this cost as rewards points were
accumulated. This cost, as well as reimbursed alterations, was recorded in cost of sales as we provided customers with products and
services for these rewards. Our outstanding loyalty program liabilities as of February 3, 2018 were $69, recorded at cost before adoption of
the new Revenue Standard.
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. We completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD in
2015, and in November 2017, we sold the remaining balances to TD, which consisted of employee credit card receivables for the U.S. Visa
and Nordstrom private label credit cards (see Note 3: Credit Card Receivable Transaction). Credit card revenues, net include our portion of
the ongoing credit card revenue, net of credit losses, pursuant to our program agreement with TD. In 2017 and 2016, we also recorded asset
amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the initial transaction to sell our
U.S. Visa and private label credit card portfolio to TD.
Upon adoption of the new Revenue Standard, the remaining unamortized balances of the investment in contract asset and deferred revenue
associated with the sale of the credit card receivables were eliminated as part of a cumulative-effect adjustment, reducing the opening
balance of accumulated deficit for 2018. As a result, the asset amortization and deferred revenue recognition are no longer recorded in credit
card revenues, net. Prior to 2018, the investment in contract asset was classified in prepaid expenses and other and other assets, while the
deferred revenue was classified in other current liabilities and other liabilities on the Consolidated Balance Sheet.
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 Sheet as customers can redeem gift cards at any time.
As of February 2, 2019, our outstanding performance obligation for unredeemed gift cards was $389. 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 2% will be unredeemed and recognized as revenue. Breakage income was $14 in 2018. Prior to 2018, gift
card breakage was recorded in selling, general and administrative expenses and was estimated based on when redemption was considered
remote. Breakage income was $16 and $12 in 2017 and 2016. Outstanding gift card liabilities was $425 as of February 3, 2018.
Cost of Sales
Cost of sales primarily includes the purchase cost 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.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 41
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Founded in 1901 as a retail shoe business in Seattle, Washington, Nordstrom, Inc. is now a leading fashion retailer that offers customers an
extensive selection of high-quality fashion brands focused on apparel, shoes, cosmetics and accessories 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 through multiple retail channels, including 115 Nordstrom U.S. full-line
stores and Nordstrom.com, six Canada full-line stores, 244 U.S. and Canadian Nordstrom Rack stores, Nordstromrack.com/HauteLook, three
Jeffrey boutiques, two Last Chance clearance stores, six Trunk Club clubhouses and TrunkClub.com, and three Nordstrom Locals. Our stores
are located in 40 states in the U.S., three provinces in Canada and Puerto Rico.
Fiscal Year
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2018 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 accounting principles generally accepted in the U.S. requires management to make
estimates 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.
Revenue
During the first quarter of fiscal 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers, and all related amendments (“Revenue Standard”), using the modified retrospective adoption method. Results for reporting
periods beginning in the first quarter of 2018 are presented under the new Revenue Standard while prior period amounts are not adjusted
and continue to be reported in accordance with our historic accounting under Accounting Standards Codification 605 — Revenue
Recognition. Upon adoption, 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 (“shipped revenues”), 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 Full-Price stores are expensed at the point of sale and both are
recorded in selling, general and administrative expenses. Prior to 2018, shipped revenues were recognized upon estimated receipt by the
customer and we recorded an estimated in-transit allowance for orders shipped prior to a period’s end, but not yet received by the customer.
We reduce sales and cost of sales by an estimate of customer merchandise returns, which is calculated based on historical 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 Sheet. Due to the seasonality of our business, these balances typically increase with higher sales occurring in the last month of a
period, such as the Anniversary Sale typically at the end of the second quarter, and decrease in the following period. Prior to 2018, the
estimated cost of merchandise returned was netted with our sales return allowance in other current liabilities.
Loyalty Program
We evolved our customer loyalty program with the launch of The Nordy Club in October 2018, which incorporates a traditional point system
and the favorite benefits of our previous program, 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 (“Notes”), which can be redeemed for goods or
services offered at Nordstrom full-line stores, Nordstrom.com, Nordstrom Rack and Nordstromrack.com/HauteLook. Nordstrom cardmembers
can also earn rewards at Trunk Club. The Nordy Club member benefits will vary based on the level of customer spend, and include Bonus
Points days and shopping and fashion events.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
40
Rent
We recognize minimum rent expense, net of developer reimbursements, on a straight-line basis over the minimum lease term from the time
that we control the leased property. For scheduled rent escalation clauses during the lease terms, we record minimum rent expense on a
straight-line basis over the terms of the leases, with the adjustments accrued as current and noncurrent deferred rent and included in other
current liabilities and other liabilities on our Consolidated Balance Sheet. Contingent rental payments, typically based on a percentage of
sales, are recognized in rent expense when payment of the contingent rent is probable.
We receive incentives from developers to construct stores in certain developments. At the end of 2018 and 2017, liabilities of $452 and $485
were recorded within deferred property incentives, net on the Consolidated Balance Sheets and were recognized as a reduction of rent
expense on a straight-line basis over the lease terms.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefit costs, marketing, supply chain and technology.
Estimated Non-recurring Charge
We recognized an estimated non-recurring credit-related charge (“Estimated Non-recurring Charge”) of $72, or $49 net of tax, during the third
quarter of 2018, resulting from some delinquent Nordstrom credit card accounts being charged higher interest in error. We estimate that less
than 4% of Nordstrom cardmembers will receive a cash refund or credit to outstanding balances, with most receiving less than one hundred
dollars.
We have taken action, including the appropriate steps to address this issue and recorded an estimated charge representing our costs through
2018, which are comprised primarily of amounts we intend to refund to impacted cardmembers. The Estimated Non-recurring Charge
increased our selling, general and administrative expenses on our Consolidated Statement of Earnings and other current liabilities on our
Consolidated Balance Sheet. Of the $72 Estimated Non-recurring Charge, approximately $16 is a prior period misstatement recognized in the
third quarter of 2018. As this out of period adjustment is not material to previously reported amounts in any prior periods, we recorded it all in
the third quarter of 2018 instead of revising prior periods presented.
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 $246, $261 and $241 in 2018,
2017 and 2016 were included in selling, general and administrative expenses.
Vendor Allowances
We receive allowances from merchandise vendors for cosmetic expenses, purchase price adjustments, cooperative advertising programs
and various other expenses. Allowances for cosmetic expenses are recorded in selling, general and administrative expenses as a reduction
of the related costs when incurred. 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 cooperative advertising programs and other expenses
are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Vendor allowances earned
are as follows:
Fiscal year 2018 2017 2016
Cosmetic expenses $149 $159 $166
Purchase price adjustments 180 184 179
Cooperative advertising 115 107 114
Other 6 7 6
Total vendor allowances $450 $457 $465
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 $589, $523 and $453 in 2018, 2017 and 2016 were included in selling, general and administrative expenses.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
42
Stock-Based Compensation
We grant stock-based awards under our 2010 Equity Incentive Plan (“2010 Plan”) and 2002 Nonemployee Director Stock Incentive Plan
(“2002 Plan”), and employees may purchase our stock at a discount under our Employee Stock Purchase Plan (“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. The total compensation expense is reduced by actual forfeitures as they occur over the vesting period of the awards.
We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. The fair value of restricted stock is
determined based on the number of shares 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. Performance share units granted are classified as equity and the fair value is determined
using the Monte-Carlo valuation model.
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 selling, general and administrative
expenses, 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.
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among numerous other provisions, the Tax Act significantly
revised the U.S. federal corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact
and provisionally recorded this estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax
Act, resulting in no material changes to previously recorded provisional amounts.
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 2018 and 2017, checks not yet presented for payment drawn in excess of our bank deposit balances
were $102 and $101 and included within accounts payable on our Consolidated Balance Sheets.
Accounts Receivable
Accounts receivable, net includes receivables from non-Nordstrom-branded credit and debit cards.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 43
Rent
We recognize minimum rent expense, net of developer reimbursements, on a straight-line basis over the minimum lease term from the time
that we control the leased property. For scheduled rent escalation clauses during the lease terms, we record minimum rent expense on a
straight-line basis over the terms of the leases, with the adjustments accrued as current and noncurrent deferred rent and included in other
current liabilities and other liabilities on our Consolidated Balance Sheet. Contingent rental payments, typically based on a percentage of
sales, are recognized in rent expense when payment of the contingent rent is probable.
We receive incentives from developers to construct stores in certain developments. At the end of 2018 and 2017, liabilities of $452 and $485
were recorded within deferred property incentives, net on the Consolidated Balance Sheets and were recognized as a reduction of rent
expense on a straight-line basis over the lease terms.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefit costs, marketing, supply chain and technology.
Estimated Non-recurring Charge
We recognized an estimated non-recurring credit-related charge (“Estimated Non-recurring Charge”) of $72, or $49 net of tax, during the third
quarter of 2018, resulting from some delinquent Nordstrom credit card accounts being charged higher interest in error. We estimate that less
than 4% of Nordstrom cardmembers will receive a cash refund or credit to outstanding balances, with most receiving less than one hundred
dollars.
We have taken action, including the appropriate steps to address this issue and recorded an estimated charge representing our costs through
2018, which are comprised primarily of amounts we intend to refund to impacted cardmembers. The Estimated Non-recurring Charge
increased our selling, general and administrative expenses on our Consolidated Statement of Earnings and other current liabilities on our
Consolidated Balance Sheet. Of the $72 Estimated Non-recurring Charge, approximately $16 is a prior period misstatement recognized in the
third quarter of 2018. As this out of period adjustment is not material to previously reported amounts in any prior periods, we recorded it all in
the third quarter of 2018 instead of revising prior periods presented.
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 $246, $261 and $241 in 2018,
2017 and 2016 were included in selling, general and administrative expenses.
Vendor Allowances
We receive allowances from merchandise vendors for cosmetic expenses, purchase price adjustments, cooperative advertising programs
and various other expenses. Allowances for cosmetic expenses are recorded in selling, general and administrative expenses as a reduction
of the related costs when incurred. 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 cooperative advertising programs and other expenses
are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Vendor allowances earned
are as follows:
Fiscal year 2018 2017 2016
Cosmetic expenses $149 $159 $166
Purchase price adjustments 180 184 179
Cooperative advertising 115 107 114
Other 6 7 6
Total vendor allowances $450 $457 $465
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 $589, $523 and $453 in 2018, 2017 and 2016 were included in selling, general and administrative expenses.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
42
Stock-Based Compensation
We grant stock-based awards under our 2010 Equity Incentive Plan (“2010 Plan”) and 2002 Nonemployee Director Stock Incentive Plan
(“2002 Plan”), and employees may purchase our stock at a discount under our Employee Stock Purchase Plan (“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. The total compensation expense is reduced by actual forfeitures as they occur over the vesting period of the awards.
We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. The fair value of restricted stock is
determined based on the number of shares 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. Performance share units granted are classified as equity and the fair value is determined
using the Monte-Carlo valuation model.
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 selling, general and administrative
expenses, 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.
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among numerous other provisions, the Tax Act significantly
revised the U.S. federal corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact
and provisionally recorded this estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax
Act, resulting in no material changes to previously recorded provisional amounts.
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 2018 and 2017, checks not yet presented for payment drawn in excess of our bank deposit balances
were $102 and $101 and included within accounts payable on our Consolidated Balance Sheets.
Accounts Receivable
Accounts receivable, net includes receivables from non-Nordstrom-branded credit and debit cards.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 43
Rent
We recognize minimum rent expense, net of developer reimbursements, on a straight-line basis over the minimum lease term from the time
that we control the leased property. For scheduled rent escalation clauses during the lease terms, we record minimum rent expense on a
straight-line basis over the terms of the leases, with the adjustments accrued as current and noncurrent deferred rent and included in other
current liabilities and other liabilities on our Consolidated Balance Sheet. Contingent rental payments, typically based on a percentage of
sales, are recognized in rent expense when payment of the contingent rent is probable.
We receive incentives from developers to construct stores in certain developments. At the end of 2018 and 2017, liabilities of $452 and $485
were recorded within deferred property incentives, net on the Consolidated Balance Sheets and were recognized as a reduction of rent
expense on a straight-line basis over the lease terms.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefit costs, marketing, supply chain and technology.
Estimated Non-recurring Charge
We recognized an estimated non-recurring credit-related charge (“Estimated Non-recurring Charge”) of $72, or $49 net of tax, during the third
quarter of 2018, resulting from some delinquent Nordstrom credit card accounts being charged higher interest in error. We estimate that less
than 4% of Nordstrom cardmembers will receive a cash refund or credit to outstanding balances, with most receiving less than one hundred
dollars.
We have taken action, including the appropriate steps to address this issue and recorded an estimated charge representing our costs through
2018, which are comprised primarily of amounts we intend to refund to impacted cardmembers. The Estimated Non-recurring Charge
increased our selling, general and administrative expenses on our Consolidated Statement of Earnings and other current liabilities on our
Consolidated Balance Sheet. Of the $72 Estimated Non-recurring Charge, approximately $16 is a prior period misstatement recognized in the
third quarter of 2018. As this out of period adjustment is not material to previously reported amounts in any prior periods, we recorded it all in
the third quarter of 2018 instead of revising prior periods presented.
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 $246, $261 and $241 in 2018,
2017 and 2016 were included in selling, general and administrative expenses.
Vendor Allowances
We receive allowances from merchandise vendors for cosmetic expenses, purchase price adjustments, cooperative advertising programs
and various other expenses. Allowances for cosmetic expenses are recorded in selling, general and administrative expenses as a reduction
of the related costs when incurred. 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 cooperative advertising programs and other expenses
are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Vendor allowances earned
are as follows:
Fiscal year 2018 2017 2016
Cosmetic expenses $149 $159 $166
Purchase price adjustments 180 184 179
Cooperative advertising 115 107 114
Other 6 7 6
Total vendor allowances $450 $457 $465
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 $589, $523 and $453 in 2018, 2017 and 2016 were included in selling, general and administrative expenses.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
42
Stock-Based Compensation
We grant stock-based awards under our 2010 Equity Incentive Plan (“2010 Plan”) and 2002 Nonemployee Director Stock Incentive Plan
(“2002 Plan”), and employees may purchase our stock at a discount under our Employee Stock Purchase Plan (“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. The total compensation expense is reduced by actual forfeitures as they occur over the vesting period of the awards.
We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. The fair value of restricted stock is
determined based on the number of shares 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. Performance share units granted are classified as equity and the fair value is determined
using the Monte-Carlo valuation model.
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 selling, general and administrative
expenses, 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.
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among numerous other provisions, the Tax Act significantly
revised the U.S. federal corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact
and provisionally recorded this estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax
Act, resulting in no material changes to previously recorded provisional amounts.
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 2018 and 2017, checks not yet presented for payment drawn in excess of our bank deposit balances
were $102 and $101 and included within accounts payable on our Consolidated Balance Sheets.
Accounts Receivable
Accounts receivable, net includes receivables from non-Nordstrom-branded credit and debit cards.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 43
Rent
We recognize minimum rent expense, net of developer reimbursements, on a straight-line basis over the minimum lease term from the time
that we control the leased property. For scheduled rent escalation clauses during the lease terms, we record minimum rent expense on a
straight-line basis over the terms of the leases, with the adjustments accrued as current and noncurrent deferred rent and included in other
current liabilities and other liabilities on our Consolidated Balance Sheet. Contingent rental payments, typically based on a percentage of
sales, are recognized in rent expense when payment of the contingent rent is probable.
We receive incentives from developers to construct stores in certain developments. At the end of 2018 and 2017, liabilities of $452 and $485
were recorded within deferred property incentives, net on the Consolidated Balance Sheets and were recognized as a reduction of rent
expense on a straight-line basis over the lease terms.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefit costs, marketing, supply chain and technology.
Estimated Non-recurring Charge
We recognized an estimated non-recurring credit-related charge (“Estimated Non-recurring Charge”) of $72, or $49 net of tax, during the third
quarter of 2018, resulting from some delinquent Nordstrom credit card accounts being charged higher interest in error. We estimate that less
than 4% of Nordstrom cardmembers will receive a cash refund or credit to outstanding balances, with most receiving less than one hundred
dollars.
We have taken action, including the appropriate steps to address this issue and recorded an estimated charge representing our costs through
2018, which are comprised primarily of amounts we intend to refund to impacted cardmembers. The Estimated Non-recurring Charge
increased our selling, general and administrative expenses on our Consolidated Statement of Earnings and other current liabilities on our
Consolidated Balance Sheet. Of the $72 Estimated Non-recurring Charge, approximately $16 is a prior period misstatement recognized in the
third quarter of 2018. As this out of period adjustment is not material to previously reported amounts in any prior periods, we recorded it all in
the third quarter of 2018 instead of revising prior periods presented.
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 $246, $261 and $241 in 2018,
2017 and 2016 were included in selling, general and administrative expenses.
Vendor Allowances
We receive allowances from merchandise vendors for cosmetic expenses, purchase price adjustments, cooperative advertising programs
and various other expenses. Allowances for cosmetic expenses are recorded in selling, general and administrative expenses as a reduction
of the related costs when incurred. 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 cooperative advertising programs and other expenses
are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Vendor allowances earned
are as follows:
Fiscal year 2018 2017 2016
Cosmetic expenses $149 $159 $166
Purchase price adjustments 180 184 179
Cooperative advertising 115 107 114
Other 6 7 6
Total vendor allowances $450 $457 $465
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 $589, $523 and $453 in 2018, 2017 and 2016 were included in selling, general and administrative expenses.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
42
Stock-Based Compensation
We grant stock-based awards under our 2010 Equity Incentive Plan (“2010 Plan”) and 2002 Nonemployee Director Stock Incentive Plan
(“2002 Plan”), and employees may purchase our stock at a discount under our Employee Stock Purchase Plan (“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. The total compensation expense is reduced by actual forfeitures as they occur over the vesting period of the awards.
We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. The fair value of restricted stock is
determined based on the number of shares 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. Performance share units granted are classified as equity and the fair value is determined
using the Monte-Carlo valuation model.
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 selling, general and administrative
expenses, 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.
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among numerous other provisions, the Tax Act significantly
revised the U.S. federal corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact
and provisionally recorded this estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax
Act, resulting in no material changes to previously recorded provisional amounts.
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 2018 and 2017, checks not yet presented for payment drawn in excess of our bank deposit balances
were $102 and $101 and included within accounts payable on our Consolidated Balance Sheets.
Accounts Receivable
Accounts receivable, net includes receivables from non-Nordstrom-branded credit and debit cards.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 43
Merchandise Inventories
Merchandise inventories are generally 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 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 shrink to actual
results and an estimate is recorded for shrink 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.
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 3 – 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. These contributions offset the related capital
expenditures.
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 or when circumstances indicate that the carrying value may exceed the fair value. We perform
this evaluation at the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two-
step fair value test. The first step compares 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, then a second step is performed to quantify the amount of the impairment.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
44
The following summarizes our goodwill activity for the past three fiscal years:
Trunk Club HauteLook Other1 Total
Balance at January 30, 2016 $261 $121 $53 $435
Impairment (197) — — (197)
Balance at January 28, 2017 64 121 53 238
Additions — — — —
Balance at February 3, 2018 64 121 53 238
Additions — — 11 11
Balance at February 2, 2019 $64 $121 $64 $249
1 Other includes goodwill for Nordstrom.com, Jeffrey and two retail technology companies.
We continue to make investments in evolving the customer experience, with a strong emphasis on integrating technology across our
business. To support these efforts, we acquired two retail technology companies during 2018 and recorded $11 of goodwill from these
acquisitions. We have allocated this goodwill to our Full-Price business as the investments will primarily benefit our Nordstrom full-line stores
and Nordstrom.com.
The goodwill impairment charge of $197 for the year ended January 28, 2017 related to Trunk Club resulted from changes to the long-term
operating plan that reflected lower expectations for growth and profitability than previous expectations (see Note 9: Fair Value
Measurements).
Long-Lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses.
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash
flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk
Club are identified at their respective reporting unit levels.
We did not record any material impairment losses for long-lived tangible or amortizable intangible assets in 2018, 2017 or 2016.
Amortization expense for acquired intangibles was $11, $11 and $14 in 2018, 2017 and 2016. Future amortization expense of acquired
intangible assets as of February 2, 2019, is expected to be $12 in 2019, $12 in 2020 and $4 in 2021.
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
We have six full-line stores in Canada and six Nordstrom Rack stores in Canada. The functional currency of our Canadian operation 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 a weighted-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. operation incurs certain expenditures denominated in Canadian Dollars and our Canadian operation incurs 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. As of February 2, 2019, activities associated with foreign
currency exchange risk have not had a material impact on our Consolidated Financial Statements.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 45
Merchandise Inventories
Merchandise inventories are generally 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 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 shrink to actual
results and an estimate is recorded for shrink 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.
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 3 – 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. These contributions offset the related capital
expenditures.
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 or when circumstances indicate that the carrying value may exceed the fair value. We perform
this evaluation at the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two-
step fair value test. The first step compares 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, then a second step is performed to quantify the amount of the impairment.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
44
The following summarizes our goodwill activity for the past three fiscal years:
Trunk Club HauteLook Other1 Total
Balance at January 30, 2016 $261 $121 $53 $435
Impairment (197) — — (197)
Balance at January 28, 2017 64 121 53 238
Additions — — — —
Balance at February 3, 2018 64 121 53 238
Additions — — 11 11
Balance at February 2, 2019 $64 $121 $64 $249
1 Other includes goodwill for Nordstrom.com, Jeffrey and two retail technology companies.
We continue to make investments in evolving the customer experience, with a strong emphasis on integrating technology across our
business. To support these efforts, we acquired two retail technology companies during 2018 and recorded $11 of goodwill from these
acquisitions. We have allocated this goodwill to our Full-Price business as the investments will primarily benefit our Nordstrom full-line stores
and Nordstrom.com.
The goodwill impairment charge of $197 for the year ended January 28, 2017 related to Trunk Club resulted from changes to the long-term
operating plan that reflected lower expectations for growth and profitability than previous expectations (see Note 9: Fair Value
Measurements).
Long-Lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses.
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash
flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk
Club are identified at their respective reporting unit levels.
We did not record any material impairment losses for long-lived tangible or amortizable intangible assets in 2018, 2017 or 2016.
Amortization expense for acquired intangibles was $11, $11 and $14 in 2018, 2017 and 2016. Future amortization expense of acquired
intangible assets as of February 2, 2019, is expected to be $12 in 2019, $12 in 2020 and $4 in 2021.
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
We have six full-line stores in Canada and six Nordstrom Rack stores in Canada. The functional currency of our Canadian operation 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 a weighted-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. operation incurs certain expenditures denominated in Canadian Dollars and our Canadian operation incurs 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. As of February 2, 2019, activities associated with foreign
currency exchange risk have not had a material impact on our Consolidated Financial Statements.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 45
Merchandise Inventories
Merchandise inventories are generally 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 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 shrink to actual
results and an estimate is recorded for shrink 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.
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 3 – 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. These contributions offset the related capital
expenditures.
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 or when circumstances indicate that the carrying value may exceed the fair value. We perform
this evaluation at the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two-
step fair value test. The first step compares 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, then a second step is performed to quantify the amount of the impairment.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
44
The following summarizes our goodwill activity for the past three fiscal years:
Trunk Club HauteLook Other1 Total
Balance at January 30, 2016 $261 $121 $53 $435
Impairment (197) — — (197)
Balance at January 28, 2017 64 121 53 238
Additions — — — —
Balance at February 3, 2018 64 121 53 238
Additions — — 11 11
Balance at February 2, 2019 $64 $121 $64 $249
1 Other includes goodwill for Nordstrom.com, Jeffrey and two retail technology companies.
We continue to make investments in evolving the customer experience, with a strong emphasis on integrating technology across our
business. To support these efforts, we acquired two retail technology companies during 2018 and recorded $11 of goodwill from these
acquisitions. We have allocated this goodwill to our Full-Price business as the investments will primarily benefit our Nordstrom full-line stores
and Nordstrom.com.
The goodwill impairment charge of $197 for the year ended January 28, 2017 related to Trunk Club resulted from changes to the long-term
operating plan that reflected lower expectations for growth and profitability than previous expectations (see Note 9: Fair Value
Measurements).
Long-Lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses.
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash
flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk
Club are identified at their respective reporting unit levels.
We did not record any material impairment losses for long-lived tangible or amortizable intangible assets in 2018, 2017 or 2016.
Amortization expense for acquired intangibles was $11, $11 and $14 in 2018, 2017 and 2016. Future amortization expense of acquired
intangible assets as of February 2, 2019, is expected to be $12 in 2019, $12 in 2020 and $4 in 2021.
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
We have six full-line stores in Canada and six Nordstrom Rack stores in Canada. The functional currency of our Canadian operation 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 a weighted-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. operation incurs certain expenditures denominated in Canadian Dollars and our Canadian operation incurs 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. As of February 2, 2019, activities associated with foreign
currency exchange risk have not had a material impact on our Consolidated Financial Statements.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 45
Merchandise Inventories
Merchandise inventories are generally 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 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 shrink to actual
results and an estimate is recorded for shrink 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.
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 3 – 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. These contributions offset the related capital
expenditures.
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 or when circumstances indicate that the carrying value may exceed the fair value. We perform
this evaluation at the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two-
step fair value test. The first step compares 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, then a second step is performed to quantify the amount of the impairment.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
44
The following summarizes our goodwill activity for the past three fiscal years:
Trunk Club HauteLook Other1 Total
Balance at January 30, 2016 $261 $121 $53 $435
Impairment (197) — — (197)
Balance at January 28, 2017 64 121 53 238
Additions — — — —
Balance at February 3, 2018 64 121 53 238
Additions — — 11 11
Balance at February 2, 2019 $64 $121 $64 $249
1 Other includes goodwill for Nordstrom.com, Jeffrey and two retail technology companies.
We continue to make investments in evolving the customer experience, with a strong emphasis on integrating technology across our
business. To support these efforts, we acquired two retail technology companies during 2018 and recorded $11 of goodwill from these
acquisitions. We have allocated this goodwill to our Full-Price business as the investments will primarily benefit our Nordstrom full-line stores
and Nordstrom.com.
The goodwill impairment charge of $197 for the year ended January 28, 2017 related to Trunk Club resulted from changes to the long-term
operating plan that reflected lower expectations for growth and profitability than previous expectations (see Note 9: Fair Value
Measurements).
Long-Lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses.
Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash
flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk
Club are identified at their respective reporting unit levels.
We did not record any material impairment losses for long-lived tangible or amortizable intangible assets in 2018, 2017 or 2016.
Amortization expense for acquired intangibles was $11, $11 and $14 in 2018, 2017 and 2016. Future amortization expense of acquired
intangible assets as of February 2, 2019, is expected to be $12 in 2019, $12 in 2020 and $4 in 2021.
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
We have six full-line stores in Canada and six Nordstrom Rack stores in Canada. The functional currency of our Canadian operation 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 a weighted-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. operation incurs certain expenditures denominated in Canadian Dollars and our Canadian operation incurs 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. As of February 2, 2019, activities associated with foreign
currency exchange risk have not had a material impact on our Consolidated Financial Statements.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 45
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, which was subsequently amended
in July 2018 by ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted
Improvements (“ASU 2018-11”) (“Lease Standard”). This ASU increases transparency and comparability by recognizing a lessee’s rights and
obligations resulting from leases by recording them on the balance sheet as right-of-use assets and lease liabilities. The new standard
requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not
the lease is effectively a financed purchase by the lessee. This classification dictates whether lease expense is to be recognized based on an
effective interest method or on a straight-line basis over the term of the lease. Additional qualitative and quantitative disclosures will be
required to give financial statement users information on the amount, timing and judgments related to a reporting entity’s cash flows arising
from leases.
We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease
identification, lease classification and initial direct costs. In addition, we elected the hindsight practical expedient approach to determine the
lease term for existing leases. The guidance also provides practical expedients for an entity’s ongoing accounting. We elected the short-term
lease recognition exemption for all leases that qualify. This allows us to not record leases with an initial term of 12 months or less on the
balance sheet but continue to expense on a straight-line basis over the lease term.
On February 3, 2019, we adopted this ASU using the transition method provided in ASU 2018-11, which allows for the application of the
guidance at the beginning of the period in which it is adopted by recognizing a cumulative-effect adjustment to the opening balance of
retained earnings. In our ongoing evaluation of these ASU’s, we expect the impact of adoption will result in the following:
• Recognition of additional net assets and liabilities of approximately $1,500 to $2,000 as of February 3, 2019.
• We do not expect the provisions of this ASU to have a material impact on our Consolidated Statement of Earnings, Consolidated
Statement of Cash Flows or Consolidated Statement of Shareholders’ Equity.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment, which
simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test. Under this new guidance, if the
carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that
excess, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years and
interim periods within those years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests. We do not expect adoption of this guidance to be material to our Consolidated Financial Statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement — Reporting Comprehensive Income: Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive Income. This new guidance allows a reclassification from accumulated other
comprehensive loss to accumulated deficit for certain tax effects resulting from the Tax Act, which could not be recorded under prior
guidance. We elected to early adopt this standard in the first quarter of 2018 and reclassified $5 of tax impacts resulting from the change in
the federal corporate tax rate, decreasing the beginning accumulated deficit for the year ended February 2, 2019.
In August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-10532, Disclosure
Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.
In addition, the amendments expanded the disclosure requirements on the Consolidated Statements of Shareholders’ Equity for interim
financial statements. Under the amendments, a summary of changes in each caption of shareholders’ equity presented in the Consolidated
Balance Sheets must be provided in a note or separate statement. The Consolidated Statements of Shareholders’ Equity should present a
reconciliation of the beginning balance to the ending balance of each period for which the Consolidated Statement of Comprehensive
Earnings is required to be filed. This final rule was effective for us in the fourth quarter of 2018. With respect to the Consolidated Statements
of Shareholders’ Equity, the SEC provided relief on the effective date until the first quarter of 2019. The adoption of this final rule will not have
a material effect on our Consolidated Financial Statements.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
46
NOTE 2: REVENUE
During the first quarter of fiscal 2018, we adopted the Revenue Standard using the modified retrospective adoption method. Results
beginning in the first quarter of 2018 are presented under the new Revenue Standard, while prior period amounts are not adjusted. The
impact of adopting the new Revenue Standard was not material to our Consolidated Statement of Earnings for the year ended February 2,
2019. The impact of adoption on our Consolidated Balance Sheet as of February 2, 2019 was as follows:
February 2, 2019
As Reported
Revenue Standard
Adjustment
Excluding Impact of
Revenue Standard
Assets
Merchandise inventories $1,978 $40 $2,018
Prepaid expenses and other 291 (128) 163
Other assets 342 75 417
Liabilities and Shareholders’ Equity
Other current liabilities 1,324 (53) 1,271
Other liabilities 498 99 597
Accumulated deficit (2,138) (59) (2,197)
Contract Liabilities
Under the new Revenue Standard, contract liabilities represent our obligation to transfer goods or services to customers and include deferred
revenue for The Nordy Club (including points and Notes) and gift cards. Our contract liabilities are classified as current on the Consolidated
Balance Sheet and are as follows:
Contract Liabilities
Opening balance as of February 4, 2018 $498
Ending balance as of February 2, 2019 548
The amount of revenue recognized from our beginning contract liability balance was $307 for the year ended February 2, 2019.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
Fiscal year 2018 2017 2016
Net sales by business1,2:
Full-Price 10,299 10,452 10,259
Off-Price 5,181 4,956 4,509
Other — (271) (270)
Total net sales $15,480 $15,137 $14,498
Digital sales as % of net sales3 30% 27% 24%
1 We present our sales in the way that management views our results internally, including presenting 2018 under the new Revenue Standard while prior period amounts are not
adjusted and allocating our sales return allowance and loyalty related adjustments to Full-Price and Off-Price. For 2017 and 2016, Other primarily included unallocated sales
return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales. If we applied the sales return allowance allocation and the loyalty
related adjustments to 2017 and 2016, Full-Price net sales would decrease $211 and $214, Off-Price net sales would decrease $60 and $56 and Other net sales would
increase $271 and $270.
2 For definitions of Full-Price and Off-Price, see Note 16: Segment Reporting.
3 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store, Reserve Online, Try in Store (Store
Reserve) and Style Board, a digital selling tool.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 47
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, which was subsequently amended
in July 2018 by ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted
Improvements (“ASU 2018-11”) (“Lease Standard”). This ASU increases transparency and comparability by recognizing a lessee’s rights and
obligations resulting from leases by recording them on the balance sheet as right-of-use assets and lease liabilities. The new standard
requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not
the lease is effectively a financed purchase by the lessee. This classification dictates whether lease expense is to be recognized based on an
effective interest method or on a straight-line basis over the term of the lease. Additional qualitative and quantitative disclosures will be
required to give financial statement users information on the amount, timing and judgments related to a reporting entity’s cash flows arising
from leases.
We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease
identification, lease classification and initial direct costs. In addition, we elected the hindsight practical expedient approach to determine the
lease term for existing leases. The guidance also provides practical expedients for an entity’s ongoing accounting. We elected the short-term
lease recognition exemption for all leases that qualify. This allows us to not record leases with an initial term of 12 months or less on the
balance sheet but continue to expense on a straight-line basis over the lease term.
On February 3, 2019, we adopted this ASU using the transition method provided in ASU 2018-11, which allows for the application of the
guidance at the beginning of the period in which it is adopted by recognizing a cumulative-effect adjustment to the opening balance of
retained earnings. In our ongoing evaluation of these ASU’s, we expect the impact of adoption will result in the following:
• Recognition of additional net assets and liabilities of approximately $1,500 to $2,000 as of February 3, 2019.
• We do not expect the provisions of this ASU to have a material impact on our Consolidated Statement of Earnings, Consolidated
Statement of Cash Flows or Consolidated Statement of Shareholders’ Equity.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment, which
simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test. Under this new guidance, if the
carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that
excess, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years and
interim periods within those years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests. We do not expect adoption of this guidance to be material to our Consolidated Financial Statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement — Reporting Comprehensive Income: Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive Income. This new guidance allows a reclassification from accumulated other
comprehensive loss to accumulated deficit for certain tax effects resulting from the Tax Act, which could not be recorded under prior
guidance. We elected to early adopt this standard in the first quarter of 2018 and reclassified $5 of tax impacts resulting from the change in
the federal corporate tax rate, decreasing the beginning accumulated deficit for the year ended February 2, 2019.
In August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-10532, Disclosure
Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.
In addition, the amendments expanded the disclosure requirements on the Consolidated Statements of Shareholders’ Equity for interim
financial statements. Under the amendments, a summary of changes in each caption of shareholders’ equity presented in the Consolidated
Balance Sheets must be provided in a note or separate statement. The Consolidated Statements of Shareholders’ Equity should present a
reconciliation of the beginning balance to the ending balance of each period for which the Consolidated Statement of Comprehensive
Earnings is required to be filed. This final rule was effective for us in the fourth quarter of 2018. With respect to the Consolidated Statements
of Shareholders’ Equity, the SEC provided relief on the effective date until the first quarter of 2019. The adoption of this final rule will not have
a material effect on our Consolidated Financial Statements.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
46
NOTE 2: REVENUE
During the first quarter of fiscal 2018, we adopted the Revenue Standard using the modified retrospective adoption method. Results
beginning in the first quarter of 2018 are presented under the new Revenue Standard, while prior period amounts are not adjusted. The
impact of adopting the new Revenue Standard was not material to our Consolidated Statement of Earnings for the year ended February 2,
2019. The impact of adoption on our Consolidated Balance Sheet as of February 2, 2019 was as follows:
February 2, 2019
As Reported
Revenue Standard
Adjustment
Excluding Impact of
Revenue Standard
Assets
Merchandise inventories $1,978 $40 $2,018
Prepaid expenses and other 291 (128) 163
Other assets 342 75 417
Liabilities and Shareholders’ Equity
Other current liabilities 1,324 (53) 1,271
Other liabilities 498 99 597
Accumulated deficit (2,138) (59) (2,197)
Contract Liabilities
Under the new Revenue Standard, contract liabilities represent our obligation to transfer goods or services to customers and include deferred
revenue for The Nordy Club (including points and Notes) and gift cards. Our contract liabilities are classified as current on the Consolidated
Balance Sheet and are as follows:
Contract Liabilities
Opening balance as of February 4, 2018 $498
Ending balance as of February 2, 2019 548
The amount of revenue recognized from our beginning contract liability balance was $307 for the year ended February 2, 2019.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
Fiscal year 2018 2017 2016
Net sales by business1,2:
Full-Price 10,299 10,452 10,259
Off-Price 5,181 4,956 4,509
Other — (271) (270)
Total net sales $15,480 $15,137 $14,498
Digital sales as % of net sales3 30% 27% 24%
1 We present our sales in the way that management views our results internally, including presenting 2018 under the new Revenue Standard while prior period amounts are not
adjusted and allocating our sales return allowance and loyalty related adjustments to Full-Price and Off-Price. For 2017 and 2016, Other primarily included unallocated sales
return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales. If we applied the sales return allowance allocation and the loyalty
related adjustments to 2017 and 2016, Full-Price net sales would decrease $211 and $214, Off-Price net sales would decrease $60 and $56 and Other net sales would
increase $271 and $270.
2 For definitions of Full-Price and Off-Price, see Note 16: Segment Reporting.
3 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store, Reserve Online, Try in Store (Store
Reserve) and Style Board, a digital selling tool.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 47
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, which was subsequently amended
in July 2018 by ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted
Improvements (“ASU 2018-11”) (“Lease Standard”). This ASU increases transparency and comparability by recognizing a lessee’s rights and
obligations resulting from leases by recording them on the balance sheet as right-of-use assets and lease liabilities. The new standard
requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not
the lease is effectively a financed purchase by the lessee. This classification dictates whether lease expense is to be recognized based on an
effective interest method or on a straight-line basis over the term of the lease. Additional qualitative and quantitative disclosures will be
required to give financial statement users information on the amount, timing and judgments related to a reporting entity’s cash flows arising
from leases.
We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease
identification, lease classification and initial direct costs. In addition, we elected the hindsight practical expedient approach to determine the
lease term for existing leases. The guidance also provides practical expedients for an entity’s ongoing accounting. We elected the short-term
lease recognition exemption for all leases that qualify. This allows us to not record leases with an initial term of 12 months or less on the
balance sheet but continue to expense on a straight-line basis over the lease term.
On February 3, 2019, we adopted this ASU using the transition method provided in ASU 2018-11, which allows for the application of the
guidance at the beginning of the period in which it is adopted by recognizing a cumulative-effect adjustment to the opening balance of
retained earnings. In our ongoing evaluation of these ASU’s, we expect the impact of adoption will result in the following:
• Recognition of additional net assets and liabilities of approximately $1,500 to $2,000 as of February 3, 2019.
• We do not expect the provisions of this ASU to have a material impact on our Consolidated Statement of Earnings, Consolidated
Statement of Cash Flows or Consolidated Statement of Shareholders’ Equity.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment, which
simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test. Under this new guidance, if the
carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that
excess, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years and
interim periods within those years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests. We do not expect adoption of this guidance to be material to our Consolidated Financial Statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement — Reporting Comprehensive Income: Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive Income. This new guidance allows a reclassification from accumulated other
comprehensive loss to accumulated deficit for certain tax effects resulting from the Tax Act, which could not be recorded under prior
guidance. We elected to early adopt this standard in the first quarter of 2018 and reclassified $5 of tax impacts resulting from the change in
the federal corporate tax rate, decreasing the beginning accumulated deficit for the year ended February 2, 2019.
In August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-10532, Disclosure
Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.
In addition, the amendments expanded the disclosure requirements on the Consolidated Statements of Shareholders’ Equity for interim
financial statements. Under the amendments, a summary of changes in each caption of shareholders’ equity presented in the Consolidated
Balance Sheets must be provided in a note or separate statement. The Consolidated Statements of Shareholders’ Equity should present a
reconciliation of the beginning balance to the ending balance of each period for which the Consolidated Statement of Comprehensive
Earnings is required to be filed. This final rule was effective for us in the fourth quarter of 2018. With respect to the Consolidated Statements
of Shareholders’ Equity, the SEC provided relief on the effective date until the first quarter of 2019. The adoption of this final rule will not have
a material effect on our Consolidated Financial Statements.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
46
NOTE 2: REVENUE
During the first quarter of fiscal 2018, we adopted the Revenue Standard using the modified retrospective adoption method. Results
beginning in the first quarter of 2018 are presented under the new Revenue Standard, while prior period amounts are not adjusted. The
impact of adopting the new Revenue Standard was not material to our Consolidated Statement of Earnings for the year ended February 2,
2019. The impact of adoption on our Consolidated Balance Sheet as of February 2, 2019 was as follows:
February 2, 2019
As Reported
Revenue Standard
Adjustment
Excluding Impact of
Revenue Standard
Assets
Merchandise inventories $1,978 $40 $2,018
Prepaid expenses and other 291 (128) 163
Other assets 342 75 417
Liabilities and Shareholders’ Equity
Other current liabilities 1,324 (53) 1,271
Other liabilities 498 99 597
Accumulated deficit (2,138) (59) (2,197)
Contract Liabilities
Under the new Revenue Standard, contract liabilities represent our obligation to transfer goods or services to customers and include deferred
revenue for The Nordy Club (including points and Notes) and gift cards. Our contract liabilities are classified as current on the Consolidated
Balance Sheet and are as follows:
Contract Liabilities
Opening balance as of February 4, 2018 $498
Ending balance as of February 2, 2019 548
The amount of revenue recognized from our beginning contract liability balance was $307 for the year ended February 2, 2019.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
Fiscal year 2018 2017 2016
Net sales by business1,2:
Full-Price 10,299 10,452 10,259
Off-Price 5,181 4,956 4,509
Other — (271) (270)
Total net sales $15,480 $15,137 $14,498
Digital sales as % of net sales3 30% 27% 24%
1 We present our sales in the way that management views our results internally, including presenting 2018 under the new Revenue Standard while prior period amounts are not
adjusted and allocating our sales return allowance and loyalty related adjustments to Full-Price and Off-Price. For 2017 and 2016, Other primarily included unallocated sales
return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales. If we applied the sales return allowance allocation and the loyalty
related adjustments to 2017 and 2016, Full-Price net sales would decrease $211 and $214, Off-Price net sales would decrease $60 and $56 and Other net sales would
increase $271 and $270.
2 For definitions of Full-Price and Off-Price, see Note 16: Segment Reporting.
3 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store, Reserve Online, Try in Store (Store
Reserve) and Style Board, a digital selling tool.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 47
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, which was subsequently amended
in July 2018 by ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted
Improvements (“ASU 2018-11”) (“Lease Standard”). This ASU increases transparency and comparability by recognizing a lessee’s rights and
obligations resulting from leases by recording them on the balance sheet as right-of-use assets and lease liabilities. The new standard
requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not
the lease is effectively a financed purchase by the lessee. This classification dictates whether lease expense is to be recognized based on an
effective interest method or on a straight-line basis over the term of the lease. Additional qualitative and quantitative disclosures will be
required to give financial statement users information on the amount, timing and judgments related to a reporting entity’s cash flows arising
from leases.
We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease
identification, lease classification and initial direct costs. In addition, we elected the hindsight practical expedient approach to determine the
lease term for existing leases. The guidance also provides practical expedients for an entity’s ongoing accounting. We elected the short-term
lease recognition exemption for all leases that qualify. This allows us to not record leases with an initial term of 12 months or less on the
balance sheet but continue to expense on a straight-line basis over the lease term.
On February 3, 2019, we adopted this ASU using the transition method provided in ASU 2018-11, which allows for the application of the
guidance at the beginning of the period in which it is adopted by recognizing a cumulative-effect adjustment to the opening balance of
retained earnings. In our ongoing evaluation of these ASU’s, we expect the impact of adoption will result in the following:
• Recognition of additional net assets and liabilities of approximately $1,500 to $2,000 as of February 3, 2019.
• We do not expect the provisions of this ASU to have a material impact on our Consolidated Statement of Earnings, Consolidated
Statement of Cash Flows or Consolidated Statement of Shareholders’ Equity.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment, which
simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test. Under this new guidance, if the
carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that
excess, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years and
interim periods within those years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests. We do not expect adoption of this guidance to be material to our Consolidated Financial Statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement — Reporting Comprehensive Income: Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive Income. This new guidance allows a reclassification from accumulated other
comprehensive loss to accumulated deficit for certain tax effects resulting from the Tax Act, which could not be recorded under prior
guidance. We elected to early adopt this standard in the first quarter of 2018 and reclassified $5 of tax impacts resulting from the change in
the federal corporate tax rate, decreasing the beginning accumulated deficit for the year ended February 2, 2019.
In August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-10532, Disclosure
Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.
In addition, the amendments expanded the disclosure requirements on the Consolidated Statements of Shareholders’ Equity for interim
financial statements. Under the amendments, a summary of changes in each caption of shareholders’ equity presented in the Consolidated
Balance Sheets must be provided in a note or separate statement. The Consolidated Statements of Shareholders’ Equity should present a
reconciliation of the beginning balance to the ending balance of each period for which the Consolidated Statement of Comprehensive
Earnings is required to be filed. This final rule was effective for us in the fourth quarter of 2018. With respect to the Consolidated Statements
of Shareholders’ Equity, the SEC provided relief on the effective date until the first quarter of 2019. The adoption of this final rule will not have
a material effect on our Consolidated Financial Statements.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
46
NOTE 2: REVENUE
During the first quarter of fiscal 2018, we adopted the Revenue Standard using the modified retrospective adoption method. Results
beginning in the first quarter of 2018 are presented under the new Revenue Standard, while prior period amounts are not adjusted. The
impact of adopting the new Revenue Standard was not material to our Consolidated Statement of Earnings for the year ended February 2,
2019. The impact of adoption on our Consolidated Balance Sheet as of February 2, 2019 was as follows:
February 2, 2019
As Reported
Revenue Standard
Adjustment
Excluding Impact of
Revenue Standard
Assets
Merchandise inventories $1,978 $40 $2,018
Prepaid expenses and other 291 (128) 163
Other assets 342 75 417
Liabilities and Shareholders’ Equity
Other current liabilities 1,324 (53) 1,271
Other liabilities 498 99 597
Accumulated deficit (2,138) (59) (2,197)
Contract Liabilities
Under the new Revenue Standard, contract liabilities represent our obligation to transfer goods or services to customers and include deferred
revenue for The Nordy Club (including points and Notes) and gift cards. Our contract liabilities are classified as current on the Consolidated
Balance Sheet and are as follows:
Contract Liabilities
Opening balance as of February 4, 2018 $498
Ending balance as of February 2, 2019 548
The amount of revenue recognized from our beginning contract liability balance was $307 for the year ended February 2, 2019.
Disaggregation of Revenue
The following table summarizes our disaggregated net sales:
Fiscal year 2018 2017 2016
Net sales by business1,2:
Full-Price 10,299 10,452 10,259
Off-Price 5,181 4,956 4,509
Other — (271) (270)
Total net sales $15,480 $15,137 $14,498
Digital sales as % of net sales3 30% 27% 24%
1 We present our sales in the way that management views our results internally, including presenting 2018 under the new Revenue Standard while prior period amounts are not
adjusted and allocating our sales return allowance and loyalty related adjustments to Full-Price and Off-Price. For 2017 and 2016, Other primarily included unallocated sales
return, in-transit and loyalty related adjustments necessary to reconcile sales by business to total net sales. If we applied the sales return allowance allocation and the loyalty
related adjustments to 2017 and 2016, Full-Price net sales would decrease $211 and $214, Off-Price net sales would decrease $60 and $56 and Other net sales would
increase $271 and $270.
2 For definitions of Full-Price and Off-Price, see Note 16: Segment Reporting.
3 Digital sales are online sales and digitally assisted store sales which include Buy Online, Pick Up in Store (“BOPUS”), Ship to Store, Reserve Online, Try in Store (Store
Reserve) and Style Board, a digital selling tool.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 47
The following table summarizes the percent of net sales by merchandise category:
Fiscal year 2018 2017 2016
Women’s Apparel 32% 32% 32%
Shoes 24% 23% 23%
Men’s Apparel 16% 16% 17%
Women’s Accessories 11% 11% 11%
Beauty 11% 11% 11%
Kids’ Apparel 4% 4% 3%
Other 2% 3% 3%
Total net sales 100% 100% 100%
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
48
NOTE 3: CREDIT CARD RECEIVABLE TRANSACTION
In October 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. In November
2017, we sold the remaining balances, which consisted of employee credit card receivables for the U.S. Visa and Nordstrom private label
credit cards to TD, for an amount equal to the gross value of the outstanding receivables. Additionally, we entered into an amended long-term
program agreement whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. At close of
the November 2017 transaction, we received $55 in cash consideration reflecting the par value of the employee receivables sold.
Pursuant to the agreement, we are obligated to offer and administer a loyalty program and perform other account servicing functions. In
return, we receive a portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card
receivables.
In October 2015, we recorded certain assets and liabilities associated with the arrangement. The beneficial interest asset is amortized over
approximately four years based primarily on the payment rate of the associated receivables. We record this asset amortization in credit card
revenues, net in our Consolidated Statements of Earnings. The deferred revenue and investment in contract asset were being recognized/
amortized over seven years on a straight-line basis, following the delivery of the contract obligations and expected life of the agreement.
Upon adoption of the new Revenue Standard, the remaining unamortized balances of the deferred revenue and investment in contract asset
were eliminated as a part of a cumulative effect adjustment (see Note 1: Nature of Operations and Summary of Significant Accounting
Policies).
Cash Flows Presentation
Nordstrom private label credit and debit cards can be used at a majority of our U.S. retail businesses, while Nordstrom Visa credit cards also
may be used for purchases outside of Nordstrom. Prior to the completion of the credit card receivable transactions in October 2015 and
November 2017, cash flows from the use of both the private label and Nordstrom Visa credit cards for sales originating at our stores and our
digital channels were treated as an operating activity within the Consolidated Statements of Cash Flows, as they related to sales at
Nordstrom. Additionally, cash flows arising from the use of Nordstrom Visa credit cards outside of our stores were treated as an investing
activity within the Consolidated Statements of Cash Flows, as they represented loans made to our customers for purchases at third parties.
NOTE 4: LAND, PROPERTY AND EQUIPMENT
Land, property and equipment consist of the following:
February 2, 2019 February 3, 2018
Land and land improvements $111 $111
Buildings and building improvements 1,240 1,246
Leasehold improvements 3,152 3,099
Store fixtures and equipment 3,832 3,724
Capitalized software 1,492 1,280
Construction in progress 741 584
Land, property and equipment 10,568 10,044
Less: accumulated depreciation and amortization (6,647) (6,105)
Land, property and equipment, net $3,921 $3,939
The total cost of property and equipment held under capital lease obligations was $26 at the end of 2018 and 2017, with related accumulated
amortization of $26 and $25 in 2018 and 2017. Depreciation and amortization expense was $661, $655 and $631 in 2018, 2017 and 2016.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 49
NOTE 5: SELF-INSURANCE
Our self-insurance reserves are summarized as follows:
February 2, 2019 February 3, 2018
Workers’ compensation $77 $71
Employee health and welfare 25 26
Other liability 15 18
Total self-insurance reserve $117 $115
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, with a
policy limit up to $151, have a retention per claim of $3 or less.
NOTE 6: 401(K) PLAN
We provide a 401(k) plan for our employees that allows for employee elective contributions and discretionary Company contributions.
Employee elective contributions are funded through voluntary payroll deductions. Our discretionary Company contribution is funded in an
amount determined by our Board of Directors each year. Total expenses related to Company contributions of $102, $110 and $92 in 2018,
2017 and 2016 were included in both buying and occupancy costs and selling, general and administrative expenses on our Consolidated
Statements of Earnings. The $110 in 2017 included $94 of matching contributions and $16 for a one-time discretionary profit-sharing
contribution.
NOTE 4: LAND, PROPERTY AND EQUIPMENT
Land, property and equipment consist of the following:
February 2, 2019 February 3, 2018
Land and land improvements $111 $111
Buildings and building improvements 1,240 1,246
Leasehold improvements 3,152 3,099
Store fixtures and equipment 3,832 3,724
Capitalized software 1,492 1,280
Construction in progress 741 584
Land, property and equipment 10,568 10,044
Less: accumulated depreciation and amortization (6,647) (6,105)
Land, property and equipment, net $3,921 $3,939
The total cost of property and equipment held under capital lease obligations was $26 at the end of 2018 and 2017, with related accumulated
amortization of $26 and $25 in 2018 and 2017. Depreciation and amortization expense was $661, $655 and $631 in 2018, 2017 and 2016.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 49
NOTE 5: SELF-INSURANCE
Our self-insurance reserves are summarized as follows:
February 2, 2019 February 3, 2018
Workers’ compensation $77 $71
Employee health and welfare 25 26
Other liability 15 18
Total self-insurance reserve $117 $115
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, with a
policy limit up to $151, have a retention per claim of $3 or less.
NOTE 6: 401(K) PLAN
We provide a 401(k) plan for our employees that allows for employee elective contributions and discretionary Company contributions.
Employee elective contributions are funded through voluntary payroll deductions. Our discretionary Company contribution is funded in an
amount determined by our Board of Directors each year. Total expenses related to Company contributions of $102, $110 and $92 in 2018,
2017 and 2016 were included in both buying and occupancy costs and selling, general and administrative expenses on our Consolidated
Statements of Earnings. The $110 in 2017 included $94 of matching contributions and $16 for a one-time discretionary profit-sharing
contribution.
The following table summarizes the percent of net sales by merchandise category:
Fiscal year 2018 2017 2016
Women’s Apparel 32% 32% 32%
Shoes 24% 23% 23%
Men’s Apparel 16% 16% 17%
Women’s Accessories 11% 11% 11%
Beauty 11% 11% 11%
Kids’ Apparel 4% 4% 3%
Other 2% 3% 3%
Total net sales 100% 100% 100%
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
48
NOTE 3: CREDIT CARD RECEIVABLE TRANSACTION
In October 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. In November
2017, we sold the remaining balances, which consisted of employee credit card receivables for the U.S. Visa and Nordstrom private label
credit cards to TD, for an amount equal to the gross value of the outstanding receivables. Additionally, we entered into an amended long-term
program agreement whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. At close of
the November 2017 transaction, we received $55 in cash consideration reflecting the par value of the employee receivables sold.
Pursuant to the agreement, we are obligated to offer and administer a loyalty program and perform other account servicing functions. In
return, we receive a portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card
receivables.
In October 2015, we recorded certain assets and liabilities associated with the arrangement. The beneficial interest asset is amortized over
approximately four years based primarily on the payment rate of the associated receivables. We record this asset amortization in credit card
revenues, net in our Consolidated Statements of Earnings. The deferred revenue and investment in contract asset were being recognized/
amortized over seven years on a straight-line basis, following the delivery of the contract obligations and expected life of the agreement.
Upon adoption of the new Revenue Standard, the remaining unamortized balances of the deferred revenue and investment in contract asset
were eliminated as a part of a cumulative effect adjustment (see Note 1: Nature of Operations and Summary of Significant Accounting
Policies).
Cash Flows Presentation
Nordstrom private label credit and debit cards can be used at a majority of our U.S. retail businesses, while Nordstrom Visa credit cards also
may be used for purchases outside of Nordstrom. Prior to the completion of the credit card receivable transactions in October 2015 and
November 2017, cash flows from the use of both the private label and Nordstrom Visa credit cards for sales originating at our stores and our
digital channels were treated as an operating activity within the Consolidated Statements of Cash Flows, as they related to sales at
Nordstrom. Additionally, cash flows arising from the use of Nordstrom Visa credit cards outside of our stores were treated as an investing
activity within the Consolidated Statements of Cash Flows, as they represented loans made to our customers for purchases at third parties.
The following table summarizes the percent of net sales by merchandise category:
Fiscal year 2018 2017 2016
Women’s Apparel 32% 32% 32%
Shoes 24% 23% 23%
Men’s Apparel 16% 16% 17%
Women’s Accessories 11% 11% 11%
Beauty 11% 11% 11%
Kids’ Apparel 4% 4% 3%
Other 2% 3% 3%
Total net sales 100% 100% 100%
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
48
NOTE 3: CREDIT CARD RECEIVABLE TRANSACTION
In October 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. In November
2017, we sold the remaining balances, which consisted of employee credit card receivables for the U.S. Visa and Nordstrom private label
credit cards to TD, for an amount equal to the gross value of the outstanding receivables. Additionally, we entered into an amended long-term
program agreement whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. At close of
the November 2017 transaction, we received $55 in cash consideration reflecting the par value of the employee receivables sold.
Pursuant to the agreement, we are obligated to offer and administer a loyalty program and perform other account servicing functions. In
return, we receive a portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card
receivables.
In October 2015, we recorded certain assets and liabilities associated with the arrangement. The beneficial interest asset is amortized over
approximately four years based primarily on the payment rate of the associated receivables. We record this asset amortization in credit card
revenues, net in our Consolidated Statements of Earnings. The deferred revenue and investment in contract asset were being recognized/
amortized over seven years on a straight-line basis, following the delivery of the contract obligations and expected life of the agreement.
Upon adoption of the new Revenue Standard, the remaining unamortized balances of the deferred revenue and investment in contract asset
were eliminated as a part of a cumulative effect adjustment (see Note 1: Nature of Operations and Summary of Significant Accounting
Policies).
Cash Flows Presentation
Nordstrom private label credit and debit cards can be used at a majority of our U.S. retail businesses, while Nordstrom Visa credit cards also
may be used for purchases outside of Nordstrom. Prior to the completion of the credit card receivable transactions in October 2015 and
November 2017, cash flows from the use of both the private label and Nordstrom Visa credit cards for sales originating at our stores and our
digital channels were treated as an operating activity within the Consolidated Statements of Cash Flows, as they related to sales at
Nordstrom. Additionally, cash flows arising from the use of Nordstrom Visa credit cards outside of our stores were treated as an investing
activity within the Consolidated Statements of Cash Flows, as they represented loans made to our customers for purchases at third parties.
NOTE 4: LAND, PROPERTY AND EQUIPMENT
Land, property and equipment consist of the following:
February 2, 2019 February 3, 2018
Land and land improvements $111 $111
Buildings and building improvements 1,240 1,246
Leasehold improvements 3,152 3,099
Store fixtures and equipment 3,832 3,724
Capitalized software 1,492 1,280
Construction in progress 741 584
Land, property and equipment 10,568 10,044
Less: accumulated depreciation and amortization (6,647) (6,105)
Land, property and equipment, net $3,921 $3,939
The total cost of property and equipment held under capital lease obligations was $26 at the end of 2018 and 2017, with related accumulated
amortization of $26 and $25 in 2018 and 2017. Depreciation and amortization expense was $661, $655 and $631 in 2018, 2017 and 2016.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 49
NOTE 5: SELF-INSURANCE
Our self-insurance reserves are summarized as follows:
February 2, 2019 February 3, 2018
Workers’ compensation $77 $71
Employee health and welfare 25 26
Other liability 15 18
Total self-insurance reserve $117 $115
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, with a
policy limit up to $151, have a retention per claim of $3 or less.
NOTE 6: 401(K) PLAN
We provide a 401(k) plan for our employees that allows for employee elective contributions and discretionary Company contributions.
Employee elective contributions are funded through voluntary payroll deductions. Our discretionary Company contribution is funded in an
amount determined by our Board of Directors each year. Total expenses related to Company contributions of $102, $110 and $92 in 2018,
2017 and 2016 were included in both buying and occupancy costs and selling, general and administrative expenses on our Consolidated
Statements of Earnings. The $110 in 2017 included $94 of matching contributions and $16 for a one-time discretionary profit-sharing
contribution.
NOTE 4: LAND, PROPERTY AND EQUIPMENT
Land, property and equipment consist of the following:
February 2, 2019 February 3, 2018
Land and land improvements $111 $111
Buildings and building improvements 1,240 1,246
Leasehold improvements 3,152 3,099
Store fixtures and equipment 3,832 3,724
Capitalized software 1,492 1,280
Construction in progress 741 584
Land, property and equipment 10,568 10,044
Less: accumulated depreciation and amortization (6,647) (6,105)
Land, property and equipment, net $3,921 $3,939
The total cost of property and equipment held under capital lease obligations was $26 at the end of 2018 and 2017, with related accumulated
amortization of $26 and $25 in 2018 and 2017. Depreciation and amortization expense was $661, $655 and $631 in 2018, 2017 and 2016.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 49
NOTE 5: SELF-INSURANCE
Our self-insurance reserves are summarized as follows:
February 2, 2019 February 3, 2018
Workers’ compensation $77 $71
Employee health and welfare 25 26
Other liability 15 18
Total self-insurance reserve $117 $115
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, with a
policy limit up to $151, have a retention per claim of $3 or less.
NOTE 6: 401(K) PLAN
We provide a 401(k) plan for our employees that allows for employee elective contributions and discretionary Company contributions.
Employee elective contributions are funded through voluntary payroll deductions. Our discretionary Company contribution is funded in an
amount determined by our Board of Directors each year. Total expenses related to Company contributions of $102, $110 and $92 in 2018,
2017 and 2016 were included in both buying and occupancy costs and selling, general and administrative expenses on our Consolidated
Statements of Earnings. The $110 in 2017 included $94 of matching contributions and $16 for a one-time discretionary profit-sharing
contribution.
The following table summarizes the percent of net sales by merchandise category:
Fiscal year 2018 2017 2016
Women’s Apparel 32% 32% 32%
Shoes 24% 23% 23%
Men’s Apparel 16% 16% 17%
Women’s Accessories 11% 11% 11%
Beauty 11% 11% 11%
Kids’ Apparel 4% 4% 3%
Other 2% 3% 3%
Total net sales 100% 100% 100%
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
48
NOTE 3: CREDIT CARD RECEIVABLE TRANSACTION
In October 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. In November
2017, we sold the remaining balances, which consisted of employee credit card receivables for the U.S. Visa and Nordstrom private label
credit cards to TD, for an amount equal to the gross value of the outstanding receivables. Additionally, we entered into an amended long-term
program agreement whereby TD is the exclusive issuer of our consumer credit cards and we perform account servicing functions. At close of
the November 2017 transaction, we received $55 in cash consideration reflecting the par value of the employee receivables sold.
Pursuant to the agreement, we are obligated to offer and administer a loyalty program and perform other account servicing functions. In
return, we receive a portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card
receivables.
In October 2015, we recorded certain assets and liabilities associated with the arrangement. The beneficial interest asset is amortized over
approximately four years based primarily on the payment rate of the associated receivables. We record this asset amortization in credit card
revenues, net in our Consolidated Statements of Earnings. The deferred revenue and investment in contract asset were being recognized/
amortized over seven years on a straight-line basis, following the delivery of the contract obligations and expected life of the agreement.
Upon adoption of the new Revenue Standard, the remaining unamortized balances of the deferred revenue and investment in contract asset
were eliminated as a part of a cumulative effect adjustment (see Note 1: Nature of Operations and Summary of Significant Accounting
Policies).
Cash Flows Presentation
Nordstrom private label credit and debit cards can be used at a majority of our U.S. retail businesses, while Nordstrom Visa credit cards also
may be used for purchases outside of Nordstrom. Prior to the completion of the credit card receivable transactions in October 2015 and
November 2017, cash flows from the use of both the private label and Nordstrom Visa credit cards for sales originating at our stores and our
digital channels were treated as an operating activity within the Consolidated Statements of Cash Flows, as they related to sales at
Nordstrom. Additionally, cash flows arising from the use of Nordstrom Visa credit cards outside of our stores were treated as an investing
activity within the Consolidated Statements of Cash Flows, as they represented loans made to our customers for purchases at third parties.
NOTE 7: POSTRETIREMENT BENEFITS
During the fourth quarter of fiscal 2018, we early adopted ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans
— General: Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU removes disclosures that
are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements.
We have an unfunded defined benefit Supplemental Executive Retirement Plan (“SERP”), which provides retirement benefits to certain
officers and select employees. The SERP has different benefit levels depending on the participant’s role in the Company. At the end of 2018,
we had 57 participants in the plan, including 13 officers and select employees eligible for SERP benefits, 42 retirees and two 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:
February 2, 2019 February 3, 2018
Change in benefit obligation:
Benefit obligation at beginning of year $200 $188
Participant service cost 2 3
Interest cost 7 7
Benefits paid (9) (8)
Actuarial (gain) loss (10) 10
Benefit obligation at end of year 190 200
Change in plan assets:
Fair value of plan assets at beginning of year — —
Employer contribution 9 8
Benefits paid (9) (8)
Fair value of plan assets at end of year — —
Underfunded status at end of year ($190) ($200)
The accumulated benefit obligation, which is the present value of benefits, assuming no future compensation changes, was $188 and $197 at
the end of 2018 and 2017.
Amounts recognized as liabilities in the Consolidated Balance Sheets consist of the following:
February 2, 2019 February 3, 2018
Accrued salaries, wages and related benefits $10 $9
Other liabilities (noncurrent) 180 191
Net amount recognized $190 $200
Components of SERP Expense
The components of SERP expense recognized in the Consolidated Statements of Earnings are as follows:
Fiscal year 2018 2017 2016
Participant service cost $2 $3 $3
Interest cost 7 7 7
Amortization of net loss and other 5 3 3
Total SERP expense $14 $13 $13
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
50
Amounts not yet reflected in SERP expense and included in accumulated other comprehensive loss (pre-tax) consist of the following:
February 2, 2019 February 3, 2018
Accumulated loss ($30) ($46)
Prior service credit 1 2
Total accumulated other comprehensive loss ($29) ($44)
Assumptions
Weighted-average assumptions used to determine our benefit obligation and SERP expense are as follows:
Fiscal year 2018 2017 2016
Assumptions used to determine benefit obligation:
Discount rate 4.27% 3.95% 4.31%
Rate of compensation increase 2.50% 3.00% 3.00%
Assumptions used to determine SERP expense:
Discount rate 3.95% 4.31% 4.55%
Rate of compensation increase 3.00% 3.00% 3.00%
Future Benefit Payments and Contributions
As of February 2, 2019, 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
2019 $10
2020 11
2021 11
2022 11
2023 12
2024 – 2028 61
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 51
NOTE 7: POSTRETIREMENT BENEFITS
During the fourth quarter of fiscal 2018, we early adopted ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans
— General: Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU removes disclosures that
are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements.
We have an unfunded defined benefit Supplemental Executive Retirement Plan (“SERP”), which provides retirement benefits to certain
officers and select employees. The SERP has different benefit levels depending on the participant’s role in the Company. At the end of 2018,
we had 57 participants in the plan, including 13 officers and select employees eligible for SERP benefits, 42 retirees and two 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:
February 2, 2019 February 3, 2018
Change in benefit obligation:
Benefit obligation at beginning of year $200 $188
Participant service cost 2 3
Interest cost 7 7
Benefits paid (9) (8)
Actuarial (gain) loss (10) 10
Benefit obligation at end of year 190 200
Change in plan assets:
Fair value of plan assets at beginning of year — —
Employer contribution 9 8
Benefits paid (9) (8)
Fair value of plan assets at end of year — —
Underfunded status at end of year ($190) ($200)
The accumulated benefit obligation, which is the present value of benefits, assuming no future compensation changes, was $188 and $197 at
the end of 2018 and 2017.
Amounts recognized as liabilities in the Consolidated Balance Sheets consist of the following:
February 2, 2019 February 3, 2018
Accrued salaries, wages and related benefits $10 $9
Other liabilities (noncurrent) 180 191
Net amount recognized $190 $200
Components of SERP Expense
The components of SERP expense recognized in the Consolidated Statements of Earnings are as follows:
Fiscal year 2018 2017 2016
Participant service cost $2 $3 $3
Interest cost 7 7 7
Amortization of net loss and other 5 3 3
Total SERP expense $14 $13 $13
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
50
Amounts not yet reflected in SERP expense and included in accumulated other comprehensive loss (pre-tax) consist of the following:
February 2, 2019 February 3, 2018
Accumulated loss ($30) ($46)
Prior service credit 1 2
Total accumulated other comprehensive loss ($29) ($44)
Assumptions
Weighted-average assumptions used to determine our benefit obligation and SERP expense are as follows:
Fiscal year 2018 2017 2016
Assumptions used to determine benefit obligation:
Discount rate 4.27% 3.95% 4.31%
Rate of compensation increase 2.50% 3.00% 3.00%
Assumptions used to determine SERP expense:
Discount rate 3.95% 4.31% 4.55%
Rate of compensation increase 3.00% 3.00% 3.00%
Future Benefit Payments and Contributions
As of February 2, 2019, 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
2019 $10
2020 11
2021 11
2022 11
2023 12
2024 – 2028 61
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 51
NOTE 7: POSTRETIREMENT BENEFITS
During the fourth quarter of fiscal 2018, we early adopted ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans
— General: Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU removes disclosures that
are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements.
We have an unfunded defined benefit Supplemental Executive Retirement Plan (“SERP”), which provides retirement benefits to certain
officers and select employees. The SERP has different benefit levels depending on the participant’s role in the Company. At the end of 2018,
we had 57 participants in the plan, including 13 officers and select employees eligible for SERP benefits, 42 retirees and two 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:
February 2, 2019 February 3, 2018
Change in benefit obligation:
Benefit obligation at beginning of year $200 $188
Participant service cost 2 3
Interest cost 7 7
Benefits paid (9) (8)
Actuarial (gain) loss (10) 10
Benefit obligation at end of year 190 200
Change in plan assets:
Fair value of plan assets at beginning of year — —
Employer contribution 9 8
Benefits paid (9) (8)
Fair value of plan assets at end of year — —
Underfunded status at end of year ($190) ($200)
The accumulated benefit obligation, which is the present value of benefits, assuming no future compensation changes, was $188 and $197 at
the end of 2018 and 2017.
Amounts recognized as liabilities in the Consolidated Balance Sheets consist of the following:
February 2, 2019 February 3, 2018
Accrued salaries, wages and related benefits $10 $9
Other liabilities (noncurrent) 180 191
Net amount recognized $190 $200
Components of SERP Expense
The components of SERP expense recognized in the Consolidated Statements of Earnings are as follows:
Fiscal year 2018 2017 2016
Participant service cost $2 $3 $3
Interest cost 7 7 7
Amortization of net loss and other 5 3 3
Total SERP expense $14 $13 $13
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
50
Amounts not yet reflected in SERP expense and included in accumulated other comprehensive loss (pre-tax) consist of the following:
February 2, 2019 February 3, 2018
Accumulated loss ($30) ($46)
Prior service credit 1 2
Total accumulated other comprehensive loss ($29) ($44)
Assumptions
Weighted-average assumptions used to determine our benefit obligation and SERP expense are as follows:
Fiscal year 2018 2017 2016
Assumptions used to determine benefit obligation:
Discount rate 4.27% 3.95% 4.31%
Rate of compensation increase 2.50% 3.00% 3.00%
Assumptions used to determine SERP expense:
Discount rate 3.95% 4.31% 4.55%
Rate of compensation increase 3.00% 3.00% 3.00%
Future Benefit Payments and Contributions
As of February 2, 2019, 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
2019 $10
2020 11
2021 11
2022 11
2023 12
2024 – 2028 61
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 51
NOTE 7: POSTRETIREMENT BENEFITS
During the fourth quarter of fiscal 2018, we early adopted ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans
— General: Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU removes disclosures that
are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements.
We have an unfunded defined benefit Supplemental Executive Retirement Plan (“SERP”), which provides retirement benefits to certain
officers and select employees. The SERP has different benefit levels depending on the participant’s role in the Company. At the end of 2018,
we had 57 participants in the plan, including 13 officers and select employees eligible for SERP benefits, 42 retirees and two 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:
February 2, 2019 February 3, 2018
Change in benefit obligation:
Benefit obligation at beginning of year $200 $188
Participant service cost 2 3
Interest cost 7 7
Benefits paid (9) (8)
Actuarial (gain) loss (10) 10
Benefit obligation at end of year 190 200
Change in plan assets:
Fair value of plan assets at beginning of year — —
Employer contribution 9 8
Benefits paid (9) (8)
Fair value of plan assets at end of year — —
Underfunded status at end of year ($190) ($200)
The accumulated benefit obligation, which is the present value of benefits, assuming no future compensation changes, was $188 and $197 at
the end of 2018 and 2017.
Amounts recognized as liabilities in the Consolidated Balance Sheets consist of the following:
February 2, 2019 February 3, 2018
Accrued salaries, wages and related benefits $10 $9
Other liabilities (noncurrent) 180 191
Net amount recognized $190 $200
Components of SERP Expense
The components of SERP expense recognized in the Consolidated Statements of Earnings are as follows:
Fiscal year 2018 2017 2016
Participant service cost $2 $3 $3
Interest cost 7 7 7
Amortization of net loss and other 5 3 3
Total SERP expense $14 $13 $13
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
50
Amounts not yet reflected in SERP expense and included in accumulated other comprehensive loss (pre-tax) consist of the following:
February 2, 2019 February 3, 2018
Accumulated loss ($30) ($46)
Prior service credit 1 2
Total accumulated other comprehensive loss ($29) ($44)
Assumptions
Weighted-average assumptions used to determine our benefit obligation and SERP expense are as follows:
Fiscal year 2018 2017 2016
Assumptions used to determine benefit obligation:
Discount rate 4.27% 3.95% 4.31%
Rate of compensation increase 2.50% 3.00% 3.00%
Assumptions used to determine SERP expense:
Discount rate 3.95% 4.31% 4.55%
Rate of compensation increase 3.00% 3.00% 3.00%
Future Benefit Payments and Contributions
As of February 2, 2019, 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
2019 $10
2020 11
2021 11
2022 11
2023 12
2024 – 2028 61
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 51
NOTE 8: DEBT AND CREDIT FACILITIES
Debt
A summary of our long-term debt, including capital leases, is as follows:
February 2, 2019 February 3, 2018
Secured
Mortgage payable, 7.68%, due April 2020 $10 $17
Other — 1
Total secured debt 10 18
Unsecured
Net of unamortized discount:
Senior notes, 4.75%, due May 2020 500 500
Senior notes, 4.00%, due October 2021 500 500
Senior notes, 4.00%, due March 2027 349 349
Senior debentures, 6.95%, due March 2028 300 300
Senior notes, 7.00%, due January 2038 146 146
Senior notes, 5.00%, due January 2044 895 892
Other1 (15) 32
Total unsecured debt 2,675 2,719
Total long-term debt 2,685 2,737
Less: current portion (8) (56)
Total due beyond one year $2,677 $2,681
1 Other unsecured debt includes deferred bond issue costs as of February 2, 2019. As of February 3, 2018, Other included our Puerto Rico unsecured borrowing facility partially
offset by deferred bond issue costs.
Our mortgage payable is secured by an office building that had a net book value of $53 at the end of 2018.
Required principal payments on long-term debt, excluding capital lease obligations, are as follows:
Fiscal year
2019 $8
2020 502
2021 500
2022 —
2023 —
Thereafter 1,764
During the first quarter of 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300
aggregate principal amount of 5.00% senior unsecured notes due January 2044. With the proceeds of these new notes, we retired our $650
senior unsecured notes that were due January 2018. We incurred $18 of net interest expense related to the refinancing, which included the
write-off of unamortized balances associated with the debt discount, issue costs and fair value hedge adjustment resulting from the sale of
our interest rate swap agreements in 2012. It also included a one-time payment of $24 to 2018 Senior Note holders under a make-whole
provision, which represents the net present value of the expected coupon payments had the notes been outstanding through the original
maturity date.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
52
Interest Expense
The components of interest expense, net are as follows:
Fiscal year 2018 2017 2016
Interest on long-term debt and short-term borrowings $146 $168 $147
Less:
Interest income (15) (5) (1)
Capitalized interest (27) (27) (25)
Interest expense, net $104 $136 $121
Credit Facilities
As of February 2, 2019, we had total short-term borrowing capacity of $800. In September 2018, we renewed our existing $800 senior
unsecured revolving credit facility (“revolver”), extending the expiration from April 2020 to September 2023. Our revolver contains customary
representations, warranties, covenants and terms, which are substantially similar to our 2015 revolver. Under the terms of our revolver, we
pay 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
revolving commitment by up to $200, to a total of $1,000, and two options to extend the revolving commitment by one year.
The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) leverage ratio of no more than four times. As of February 2, 2019 and February 3, 2018, we were in compliance with this
covenant.
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 February 2, 2019 and February 3, 2018, we had no issuances outstanding under our commercial paper program and no borrowings
outstanding under our revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market.
Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused
commitment. In 2018, we fully repaid $47 outstanding on this facility, which was included in the current portion of long-term debt. This facility
expired in the fourth quarter of 2018.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 53
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 Not Measured at Fair Value
Financial instruments not measured at fair 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, and long-term debt.
We estimate the fair value of long-term debt using quoted market prices of the same or similar issues and, as such, this is considered a Level
2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current
maturities:
February 2, 2019 February 3, 2018
Carrying value of long-term debt $2,685 $2,737
Fair value of long-term debt 2,692 2,827
NOTE 8: DEBT AND CREDIT FACILITIES
Debt
A summary of our long-term debt, including capital leases, is as follows:
February 2, 2019 February 3, 2018
Secured
Mortgage payable, 7.68%, due April 2020 $10 $17
Other — 1
Total secured debt 10 18
Unsecured
Net of unamortized discount:
Senior notes, 4.75%, due May 2020 500 500
Senior notes, 4.00%, due October 2021 500 500
Senior notes, 4.00%, due March 2027 349 349
Senior debentures, 6.95%, due March 2028 300 300
Senior notes, 7.00%, due January 2038 146 146
Senior notes, 5.00%, due January 2044 895 892
Other1 (15) 32
Total unsecured debt 2,675 2,719
Total long-term debt 2,685 2,737
Less: current portion (8) (56)
Total due beyond one year $2,677 $2,681
1 Other unsecured debt includes deferred bond issue costs as of February 2, 2019. As of February 3, 2018, Other included our Puerto Rico unsecured borrowing facility partially
offset by deferred bond issue costs.
Our mortgage payable is secured by an office building that had a net book value of $53 at the end of 2018.
Required principal payments on long-term debt, excluding capital lease obligations, are as follows:
Fiscal year
2019 $8
2020 502
2021 500
2022 —
2023 —
Thereafter 1,764
During the first quarter of 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300
aggregate principal amount of 5.00% senior unsecured notes due January 2044. With the proceeds of these new notes, we retired our $650
senior unsecured notes that were due January 2018. We incurred $18 of net interest expense related to the refinancing, which included the
write-off of unamortized balances associated with the debt discount, issue costs and fair value hedge adjustment resulting from the sale of
our interest rate swap agreements in 2012. It also included a one-time payment of $24 to 2018 Senior Note holders under a make-whole
provision, which represents the net present value of the expected coupon payments had the notes been outstanding through the original
maturity date.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
52
Interest Expense
The components of interest expense, net are as follows:
Fiscal year 2018 2017 2016
Interest on long-term debt and short-term borrowings $146 $168 $147
Less:
Interest income (15) (5) (1)
Capitalized interest (27) (27) (25)
Interest expense, net $104 $136 $121
Credit Facilities
As of February 2, 2019, we had total short-term borrowing capacity of $800. In September 2018, we renewed our existing $800 senior
unsecured revolving credit facility (“revolver”), extending the expiration from April 2020 to September 2023. Our revolver contains customary
representations, warranties, covenants and terms, which are substantially similar to our 2015 revolver. Under the terms of our revolver, we
pay 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
revolving commitment by up to $200, to a total of $1,000, and two options to extend the revolving commitment by one year.
The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) leverage ratio of no more than four times. As of February 2, 2019 and February 3, 2018, we were in compliance with this
covenant.
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 February 2, 2019 and February 3, 2018, we had no issuances outstanding under our commercial paper program and no borrowings
outstanding under our revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market.
Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused
commitment. In 2018, we fully repaid $47 outstanding on this facility, which was included in the current portion of long-term debt. This facility
expired in the fourth quarter of 2018.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 53
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 Not Measured at Fair Value
Financial instruments not measured at fair 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, and long-term debt.
We estimate the fair value of long-term debt using quoted market prices of the same or similar issues and, as such, this is considered a Level
2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current
maturities:
February 2, 2019 February 3, 2018
Carrying value of long-term debt $2,685 $2,737
Fair value of long-term debt 2,692 2,827
NOTE 8: DEBT AND CREDIT FACILITIES
Debt
A summary of our long-term debt, including capital leases, is as follows:
February 2, 2019 February 3, 2018
Secured
Mortgage payable, 7.68%, due April 2020 $10 $17
Other — 1
Total secured debt 10 18
Unsecured
Net of unamortized discount:
Senior notes, 4.75%, due May 2020 500 500
Senior notes, 4.00%, due October 2021 500 500
Senior notes, 4.00%, due March 2027 349 349
Senior debentures, 6.95%, due March 2028 300 300
Senior notes, 7.00%, due January 2038 146 146
Senior notes, 5.00%, due January 2044 895 892
Other1 (15) 32
Total unsecured debt 2,675 2,719
Total long-term debt 2,685 2,737
Less: current portion (8) (56)
Total due beyond one year $2,677 $2,681
1 Other unsecured debt includes deferred bond issue costs as of February 2, 2019. As of February 3, 2018, Other included our Puerto Rico unsecured borrowing facility partially
offset by deferred bond issue costs.
Our mortgage payable is secured by an office building that had a net book value of $53 at the end of 2018.
Required principal payments on long-term debt, excluding capital lease obligations, are as follows:
Fiscal year
2019 $8
2020 502
2021 500
2022 —
2023 —
Thereafter 1,764
During the first quarter of 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300
aggregate principal amount of 5.00% senior unsecured notes due January 2044. With the proceeds of these new notes, we retired our $650
senior unsecured notes that were due January 2018. We incurred $18 of net interest expense related to the refinancing, which included the
write-off of unamortized balances associated with the debt discount, issue costs and fair value hedge adjustment resulting from the sale of
our interest rate swap agreements in 2012. It also included a one-time payment of $24 to 2018 Senior Note holders under a make-whole
provision, which represents the net present value of the expected coupon payments had the notes been outstanding through the original
maturity date.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
52
Interest Expense
The components of interest expense, net are as follows:
Fiscal year 2018 2017 2016
Interest on long-term debt and short-term borrowings $146 $168 $147
Less:
Interest income (15) (5) (1)
Capitalized interest (27) (27) (25)
Interest expense, net $104 $136 $121
Credit Facilities
As of February 2, 2019, we had total short-term borrowing capacity of $800. In September 2018, we renewed our existing $800 senior
unsecured revolving credit facility (“revolver”), extending the expiration from April 2020 to September 2023. Our revolver contains customary
representations, warranties, covenants and terms, which are substantially similar to our 2015 revolver. Under the terms of our revolver, we
pay 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
revolving commitment by up to $200, to a total of $1,000, and two options to extend the revolving commitment by one year.
The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) leverage ratio of no more than four times. As of February 2, 2019 and February 3, 2018, we were in compliance with this
covenant.
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 February 2, 2019 and February 3, 2018, we had no issuances outstanding under our commercial paper program and no borrowings
outstanding under our revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market.
Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused
commitment. In 2018, we fully repaid $47 outstanding on this facility, which was included in the current portion of long-term debt. This facility
expired in the fourth quarter of 2018.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 53
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 Not Measured at Fair Value
Financial instruments not measured at fair 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, and long-term debt.
We estimate the fair value of long-term debt using quoted market prices of the same or similar issues and, as such, this is considered a Level
2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current
maturities:
February 2, 2019 February 3, 2018
Carrying value of long-term debt $2,685 $2,737
Fair value of long-term debt 2,692 2,827
NOTE 8: DEBT AND CREDIT FACILITIES
Debt
A summary of our long-term debt, including capital leases, is as follows:
February 2, 2019 February 3, 2018
Secured
Mortgage payable, 7.68%, due April 2020 $10 $17
Other — 1
Total secured debt 10 18
Unsecured
Net of unamortized discount:
Senior notes, 4.75%, due May 2020 500 500
Senior notes, 4.00%, due October 2021 500 500
Senior notes, 4.00%, due March 2027 349 349
Senior debentures, 6.95%, due March 2028 300 300
Senior notes, 7.00%, due January 2038 146 146
Senior notes, 5.00%, due January 2044 895 892
Other1 (15) 32
Total unsecured debt 2,675 2,719
Total long-term debt 2,685 2,737
Less: current portion (8) (56)
Total due beyond one year $2,677 $2,681
1 Other unsecured debt includes deferred bond issue costs as of February 2, 2019. As of February 3, 2018, Other included our Puerto Rico unsecured borrowing facility partially
offset by deferred bond issue costs.
Our mortgage payable is secured by an office building that had a net book value of $53 at the end of 2018.
Required principal payments on long-term debt, excluding capital lease obligations, are as follows:
Fiscal year
2019 $8
2020 502
2021 500
2022 —
2023 —
Thereafter 1,764
During the first quarter of 2017, we issued $350 aggregate principal amount of 4.00% senior unsecured notes due March 2027 and $300
aggregate principal amount of 5.00% senior unsecured notes due January 2044. With the proceeds of these new notes, we retired our $650
senior unsecured notes that were due January 2018. We incurred $18 of net interest expense related to the refinancing, which included the
write-off of unamortized balances associated with the debt discount, issue costs and fair value hedge adjustment resulting from the sale of
our interest rate swap agreements in 2012. It also included a one-time payment of $24 to 2018 Senior Note holders under a make-whole
provision, which represents the net present value of the expected coupon payments had the notes been outstanding through the original
maturity date.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
52
Interest Expense
The components of interest expense, net are as follows:
Fiscal year 2018 2017 2016
Interest on long-term debt and short-term borrowings $146 $168 $147
Less:
Interest income (15) (5) (1)
Capitalized interest (27) (27) (25)
Interest expense, net $104 $136 $121
Credit Facilities
As of February 2, 2019, we had total short-term borrowing capacity of $800. In September 2018, we renewed our existing $800 senior
unsecured revolving credit facility (“revolver”), extending the expiration from April 2020 to September 2023. Our revolver contains customary
representations, warranties, covenants and terms, which are substantially similar to our 2015 revolver. Under the terms of our revolver, we
pay 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
revolving commitment by up to $200, to a total of $1,000, and two options to extend the revolving commitment by one year.
The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) leverage ratio of no more than four times. As of February 2, 2019 and February 3, 2018, we were in compliance with this
covenant.
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 February 2, 2019 and February 3, 2018, we had no issuances outstanding under our commercial paper program and no borrowings
outstanding under our revolver.
Our wholly owned subsidiary in Puerto Rico maintained a $52 unsecured borrowing facility to support our expansion into that market.
Borrowings on this facility incurred interest at an annual rate based upon LIBOR plus 1.275% and also incurred a fee based on any unused
commitment. In 2018, we fully repaid $47 outstanding on this facility, which was included in the current portion of long-term debt. This facility
expired in the fourth quarter of 2018.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 53
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 Not Measured at Fair Value
Financial instruments not measured at fair 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, and long-term debt.
We estimate the fair value of long-term debt using quoted market prices of the same or similar issues and, as such, this is considered a Level
2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current
maturities:
February 2, 2019 February 3, 2018
Carrying value of long-term debt $2,685 $2,737
Fair value of long-term debt 2,692 2,827
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 and long-lived tangible and intangible
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. There were no material impairment charges for
these assets for fiscal years 2018 and 2017.
In 2016, the long-term operating plan for Trunk Club was updated to reflect current expectations for future growth and profitability, which were
lower than previous expectations. Due to lowered expectations, we tested Trunk Club goodwill for impairment one quarter prior to the annual
evaluation. Step 1 test results indicated that the estimated fair value of the reporting unit was less than the carrying value.
In our Step 2 analysis, we used a combination of the expected present value of future cash flows (income approach) and comparable public
companies (market approach) to determine the fair value of the reporting unit. These approaches use primarily unobservable inputs, including
discount, sales growth and profit margin rates, which are considered Level 3 fair value measurements. The fair value analysis took into
account recent and expected operating performance as well as the overall decline in the retail industry. Within our Retail Segment, we
recognized a goodwill impairment charge of $197 in 2016, reducing Trunk Club goodwill to $64 as of January 28, 2017, from $261 as of
January 30, 2016.
For additional information related to goodwill, intangible assets, long-lived assets and impairments, see 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)
54
NOTE 10: LEASES
We lease the land or the land and buildings at many of our stores. Additionally, we lease office facilities, Supply Chain Network facilities and
equipment. Most of these leases are classified as operating leases and they expire at various dates through 2080. The majority of our fixed,
non-cancellable lease terms are 15 to 30 years for Nordstrom full-line stores, 10 to 15 years for Nordstrom Rack stores and 5 to 20 years for
other facilities. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to
terms agreed to at lease inception. Most of our leases also provide for payment of operating expenses, such as common area charges, real
estate taxes and other executory costs, and some real estate leases require additional payments based on sales, referred to as “percentage
rent.”
Future minimum lease payments as of February 2, 2019 are as follows:
Fiscal year Operating leases
2019 $322
2020 313
2021 294
2022 271
2023 249
Thereafter 1,160
Total minimum lease payments $2,609
Rent expense for 2018, 2017 and 2016 was as follows:
Fiscal year 2018 2017 2016
Minimum rent:
Store locations $283 $274 $230
Other1 38 44 40
Percentage rent 9 11 12
Property incentives (79) (79) (80)
Total rent expense $251 $250 $202
1 Other includes Supply Chain Network facilities, Trunk Club clubhouses, Jeffrey boutiques, office facilities and equipment.
The rent expense above does not include common area charges, real estate taxes and other executory costs, which were $138 in 2018,
$121 in 2017 and $112 in 2016.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Our estimated total purchase obligations, which primarily consist of capital expenditure commitments and inventory purchase orders, were
$1,865 as of February 2, 2019. In connection with the purchase of foreign merchandise, we have no outstanding trade letters of credit as of
February 2, 2019.
Plans for our Nordstrom NYC store, which we currently expect to open in October 2019, ultimately include owning a condominium interest in
a mixed-use tower and leasing certain nearby properties. As of February 2, 2019, we had approximately $302 of fee interest in land, which is
expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments
based on the developer meeting pre-established construction and development milestones. In the event that this project is not completed, the
opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our
investment.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 55
NOTE 12: SHAREHOLDERS’ EQUITY
The following is a summary of the activity related to our share repurchase programs in 2016, 2017 and 2018:
Shares
Average price
per share Amount
Capacity at January 30, 2016 $811
Shares repurchased 5.9 $48 (282)
Capacity at January 28, 2017 529
February 2017 authorization (ended August 31, 2018) 500
Shares repurchased 4.6 $45 (206)
Expiration of unused October 2015 authorization capacity in March 2017 (409)
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
The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and
applicable SEC rules.
We paid dividends of $1.48 per share in 2018, 2017 and 2016. In February 2019, subsequent to year end, we declared a quarterly dividend
of $0.37 per share, which will be paid on March 26, 2019 to holders of record as of March 11, 2019.
NOTE 13: STOCK-BASED COMPENSATION
We currently grant stock-based awards under our 2010 Plan and 2002 Plan, and employees may purchase our stock at a discount under our
ESPP.
In 2010, our shareholders approved the adoption of the 2010 Plan, which replaced the 2004 Equity Incentive Plan (“2004 Plan”). The 2010 Plan
authorizes the grant of stock options, restricted stock, performance share units, stock appreciation rights and unrestricted shares of common
stock to employees. On May 16, 2017, our shareholders approved an amendment to the 2010 Plan. The amendment increased common stock
available for issuance by 6.2. The aggregate number of shares to be issued under the 2010 Plan may not exceed 30.4 plus any shares currently
outstanding under the 2004 Plan that are forfeited or expire during the term of the 2010 Plan. No future grants will be made under the 2004
Plan. As of February 2, 2019, we have 84.1 shares authorized, 59.1 shares issued and outstanding and 12.5 shares remaining available for
future grants under the 2010 Plan.
The 2002 Plan authorizes the grant of stock awards to our nonemployee directors. These awards may be deferred or issued in the form of
restricted or unrestricted stock, non-qualified stock options or stock appreciation rights. As of February 2, 2019, we had 0.9 shares authorized
and 0.3 shares available for issuance under this plan. In 2018, total expense on deferred shares was less than $1.
The Trunk Club Value Creation Plan (“VCP”) was a performance-based plan that provided for three payout scenarios based on the results of
Trunk Club’s business meeting minimum or exceeding maximum 2018 sales and earnings metrics. As of February 2, 2019, we granted 0.5 of
the 1.0 units available for grant. As Trunk Club’s business did not meet the minimum performance metrics in 2018, there was no
unrecognized stock-based compensation expense related to nonvested VCP units and no payout occurred.
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 and long-lived tangible and intangible
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. There were no material impairment charges for
these assets for fiscal years 2018 and 2017.
In 2016, the long-term operating plan for Trunk Club was updated to reflect current expectations for future growth and profitability, which were
lower than previous expectations. Due to lowered expectations, we tested Trunk Club goodwill for impairment one quarter prior to the annual
evaluation. Step 1 test results indicated that the estimated fair value of the reporting unit was less than the carrying value.
In our Step 2 analysis, we used a combination of the expected present value of future cash flows (income approach) and comparable public
companies (market approach) to determine the fair value of the reporting unit. These approaches use primarily unobservable inputs, including
discount, sales growth and profit margin rates, which are considered Level 3 fair value measurements. The fair value analysis took into
account recent and expected operating performance as well as the overall decline in the retail industry. Within our Retail Segment, we
recognized a goodwill impairment charge of $197 in 2016, reducing Trunk Club goodwill to $64 as of January 28, 2017, from $261 as of
January 30, 2016.
For additional information related to goodwill, intangible assets, long-lived assets and impairments, see 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)
54
NOTE 10: LEASES
We lease the land or the land and buildings at many of our stores. Additionally, we lease office facilities, Supply Chain Network facilities and
equipment. Most of these leases are classified as operating leases and they expire at various dates through 2080. The majority of our fixed,
non-cancellable lease terms are 15 to 30 years for Nordstrom full-line stores, 10 to 15 years for Nordstrom Rack stores and 5 to 20 years for
other facilities. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to
terms agreed to at lease inception. Most of our leases also provide for payment of operating expenses, such as common area charges, real
estate taxes and other executory costs, and some real estate leases require additional payments based on sales, referred to as “percentage
rent.”
Future minimum lease payments as of February 2, 2019 are as follows:
Fiscal year Operating leases
2019 $322
2020 313
2021 294
2022 271
2023 249
Thereafter 1,160
Total minimum lease payments $2,609
Rent expense for 2018, 2017 and 2016 was as follows:
Fiscal year 2018 2017 2016
Minimum rent:
Store locations $283 $274 $230
Other1 38 44 40
Percentage rent 9 11 12
Property incentives (79) (79) (80)
Total rent expense $251 $250 $202
1 Other includes Supply Chain Network facilities, Trunk Club clubhouses, Jeffrey boutiques, office facilities and equipment.
The rent expense above does not include common area charges, real estate taxes and other executory costs, which were $138 in 2018,
$121 in 2017 and $112 in 2016.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Our estimated total purchase obligations, which primarily consist of capital expenditure commitments and inventory purchase orders, were
$1,865 as of February 2, 2019. In connection with the purchase of foreign merchandise, we have no outstanding trade letters of credit as of
February 2, 2019.
Plans for our Nordstrom NYC store, which we currently expect to open in October 2019, ultimately include owning a condominium interest in
a mixed-use tower and leasing certain nearby properties. As of February 2, 2019, we had approximately $302 of fee interest in land, which is
expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments
based on the developer meeting pre-established construction and development milestones. In the event that this project is not completed, the
opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our
investment.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 55
NOTE 12: SHAREHOLDERS’ EQUITY
The following is a summary of the activity related to our share repurchase programs in 2016, 2017 and 2018:
Shares
Average price
per share Amount
Capacity at January 30, 2016 $811
Shares repurchased 5.9 $48 (282)
Capacity at January 28, 2017 529
February 2017 authorization (ended August 31, 2018) 500
Shares repurchased 4.6 $45 (206)
Expiration of unused October 2015 authorization capacity in March 2017 (409)
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
The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and
applicable SEC rules.
We paid dividends of $1.48 per share in 2018, 2017 and 2016. In February 2019, subsequent to year end, we declared a quarterly dividend
of $0.37 per share, which will be paid on March 26, 2019 to holders of record as of March 11, 2019.
NOTE 13: STOCK-BASED COMPENSATION
We currently grant stock-based awards under our 2010 Plan and 2002 Plan, and employees may purchase our stock at a discount under our
ESPP.
In 2010, our shareholders approved the adoption of the 2010 Plan, which replaced the 2004 Equity Incentive Plan (“2004 Plan”). The 2010 Plan
authorizes the grant of stock options, restricted stock, performance share units, stock appreciation rights and unrestricted shares of common
stock to employees. On May 16, 2017, our shareholders approved an amendment to the 2010 Plan. The amendment increased common stock
available for issuance by 6.2. The aggregate number of shares to be issued under the 2010 Plan may not exceed 30.4 plus any shares currently
outstanding under the 2004 Plan that are forfeited or expire during the term of the 2010 Plan. No future grants will be made under the 2004
Plan. As of February 2, 2019, we have 84.1 shares authorized, 59.1 shares issued and outstanding and 12.5 shares remaining available for
future grants under the 2010 Plan.
The 2002 Plan authorizes the grant of stock awards to our nonemployee directors. These awards may be deferred or issued in the form of
restricted or unrestricted stock, non-qualified stock options or stock appreciation rights. As of February 2, 2019, we had 0.9 shares authorized
and 0.3 shares available for issuance under this plan. In 2018, total expense on deferred shares was less than $1.
The Trunk Club Value Creation Plan (“VCP”) was a performance-based plan that provided for three payout scenarios based on the results of
Trunk Club’s business meeting minimum or exceeding maximum 2018 sales and earnings metrics. As of February 2, 2019, we granted 0.5 of
the 1.0 units available for grant. As Trunk Club’s business did not meet the minimum performance metrics in 2018, there was no
unrecognized stock-based compensation expense related to nonvested VCP units and no payout occurred.
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 and long-lived tangible and intangible
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. There were no material impairment charges for
these assets for fiscal years 2018 and 2017.
In 2016, the long-term operating plan for Trunk Club was updated to reflect current expectations for future growth and profitability, which were
lower than previous expectations. Due to lowered expectations, we tested Trunk Club goodwill for impairment one quarter prior to the annual
evaluation. Step 1 test results indicated that the estimated fair value of the reporting unit was less than the carrying value.
In our Step 2 analysis, we used a combination of the expected present value of future cash flows (income approach) and comparable public
companies (market approach) to determine the fair value of the reporting unit. These approaches use primarily unobservable inputs, including
discount, sales growth and profit margin rates, which are considered Level 3 fair value measurements. The fair value analysis took into
account recent and expected operating performance as well as the overall decline in the retail industry. Within our Retail Segment, we
recognized a goodwill impairment charge of $197 in 2016, reducing Trunk Club goodwill to $64 as of January 28, 2017, from $261 as of
January 30, 2016.
For additional information related to goodwill, intangible assets, long-lived assets and impairments, see 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)
54
NOTE 10: LEASES
We lease the land or the land and buildings at many of our stores. Additionally, we lease office facilities, Supply Chain Network facilities and
equipment. Most of these leases are classified as operating leases and they expire at various dates through 2080. The majority of our fixed,
non-cancellable lease terms are 15 to 30 years for Nordstrom full-line stores, 10 to 15 years for Nordstrom Rack stores and 5 to 20 years for
other facilities. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to
terms agreed to at lease inception. Most of our leases also provide for payment of operating expenses, such as common area charges, real
estate taxes and other executory costs, and some real estate leases require additional payments based on sales, referred to as “percentage
rent.”
Future minimum lease payments as of February 2, 2019 are as follows:
Fiscal year Operating leases
2019 $322
2020 313
2021 294
2022 271
2023 249
Thereafter 1,160
Total minimum lease payments $2,609
Rent expense for 2018, 2017 and 2016 was as follows:
Fiscal year 2018 2017 2016
Minimum rent:
Store locations $283 $274 $230
Other1 38 44 40
Percentage rent 9 11 12
Property incentives (79) (79) (80)
Total rent expense $251 $250 $202
1 Other includes Supply Chain Network facilities, Trunk Club clubhouses, Jeffrey boutiques, office facilities and equipment.
The rent expense above does not include common area charges, real estate taxes and other executory costs, which were $138 in 2018,
$121 in 2017 and $112 in 2016.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Our estimated total purchase obligations, which primarily consist of capital expenditure commitments and inventory purchase orders, were
$1,865 as of February 2, 2019. In connection with the purchase of foreign merchandise, we have no outstanding trade letters of credit as of
February 2, 2019.
Plans for our Nordstrom NYC store, which we currently expect to open in October 2019, ultimately include owning a condominium interest in
a mixed-use tower and leasing certain nearby properties. As of February 2, 2019, we had approximately $302 of fee interest in land, which is
expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments
based on the developer meeting pre-established construction and development milestones. In the event that this project is not completed, the
opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our
investment.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 55
NOTE 12: SHAREHOLDERS’ EQUITY
The following is a summary of the activity related to our share repurchase programs in 2016, 2017 and 2018:
Shares
Average price
per share Amount
Capacity at January 30, 2016 $811
Shares repurchased 5.9 $48 (282)
Capacity at January 28, 2017 529
February 2017 authorization (ended August 31, 2018) 500
Shares repurchased 4.6 $45 (206)
Expiration of unused October 2015 authorization capacity in March 2017 (409)
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
The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and
applicable SEC rules.
We paid dividends of $1.48 per share in 2018, 2017 and 2016. In February 2019, subsequent to year end, we declared a quarterly dividend
of $0.37 per share, which will be paid on March 26, 2019 to holders of record as of March 11, 2019.
NOTE 13: STOCK-BASED COMPENSATION
We currently grant stock-based awards under our 2010 Plan and 2002 Plan, and employees may purchase our stock at a discount under our
ESPP.
In 2010, our shareholders approved the adoption of the 2010 Plan, which replaced the 2004 Equity Incentive Plan (“2004 Plan”). The 2010 Plan
authorizes the grant of stock options, restricted stock, performance share units, stock appreciation rights and unrestricted shares of common
stock to employees. On May 16, 2017, our shareholders approved an amendment to the 2010 Plan. The amendment increased common stock
available for issuance by 6.2. The aggregate number of shares to be issued under the 2010 Plan may not exceed 30.4 plus any shares currently
outstanding under the 2004 Plan that are forfeited or expire during the term of the 2010 Plan. No future grants will be made under the 2004
Plan. As of February 2, 2019, we have 84.1 shares authorized, 59.1 shares issued and outstanding and 12.5 shares remaining available for
future grants under the 2010 Plan.
The 2002 Plan authorizes the grant of stock awards to our nonemployee directors. These awards may be deferred or issued in the form of
restricted or unrestricted stock, non-qualified stock options or stock appreciation rights. As of February 2, 2019, we had 0.9 shares authorized
and 0.3 shares available for issuance under this plan. In 2018, total expense on deferred shares was less than $1.
The Trunk Club Value Creation Plan (“VCP”) was a performance-based plan that provided for three payout scenarios based on the results of
Trunk Club’s business meeting minimum or exceeding maximum 2018 sales and earnings metrics. As of February 2, 2019, we granted 0.5 of
the 1.0 units available for grant. As Trunk Club’s business did not meet the minimum performance metrics in 2018, there was no
unrecognized stock-based compensation expense related to nonvested VCP units and no payout occurred.
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 and long-lived tangible and intangible
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. There were no material impairment charges for
these assets for fiscal years 2018 and 2017.
In 2016, the long-term operating plan for Trunk Club was updated to reflect current expectations for future growth and profitability, which were
lower than previous expectations. Due to lowered expectations, we tested Trunk Club goodwill for impairment one quarter prior to the annual
evaluation. Step 1 test results indicated that the estimated fair value of the reporting unit was less than the carrying value.
In our Step 2 analysis, we used a combination of the expected present value of future cash flows (income approach) and comparable public
companies (market approach) to determine the fair value of the reporting unit. These approaches use primarily unobservable inputs, including
discount, sales growth and profit margin rates, which are considered Level 3 fair value measurements. The fair value analysis took into
account recent and expected operating performance as well as the overall decline in the retail industry. Within our Retail Segment, we
recognized a goodwill impairment charge of $197 in 2016, reducing Trunk Club goodwill to $64 as of January 28, 2017, from $261 as of
January 30, 2016.
For additional information related to goodwill, intangible assets, long-lived assets and impairments, see 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)
54
NOTE 10: LEASES
We lease the land or the land and buildings at many of our stores. Additionally, we lease office facilities, Supply Chain Network facilities and
equipment. Most of these leases are classified as operating leases and they expire at various dates through 2080. The majority of our fixed,
non-cancellable lease terms are 15 to 30 years for Nordstrom full-line stores, 10 to 15 years for Nordstrom Rack stores and 5 to 20 years for
other facilities. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to
terms agreed to at lease inception. Most of our leases also provide for payment of operating expenses, such as common area charges, real
estate taxes and other executory costs, and some real estate leases require additional payments based on sales, referred to as “percentage
rent.”
Future minimum lease payments as of February 2, 2019 are as follows:
Fiscal year Operating leases
2019 $322
2020 313
2021 294
2022 271
2023 249
Thereafter 1,160
Total minimum lease payments $2,609
Rent expense for 2018, 2017 and 2016 was as follows:
Fiscal year 2018 2017 2016
Minimum rent:
Store locations $283 $274 $230
Other1 38 44 40
Percentage rent 9 11 12
Property incentives (79) (79) (80)
Total rent expense $251 $250 $202
1 Other includes Supply Chain Network facilities, Trunk Club clubhouses, Jeffrey boutiques, office facilities and equipment.
The rent expense above does not include common area charges, real estate taxes and other executory costs, which were $138 in 2018,
$121 in 2017 and $112 in 2016.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Our estimated total purchase obligations, which primarily consist of capital expenditure commitments and inventory purchase orders, were
$1,865 as of February 2, 2019. In connection with the purchase of foreign merchandise, we have no outstanding trade letters of credit as of
February 2, 2019.
Plans for our Nordstrom NYC store, which we currently expect to open in October 2019, ultimately include owning a condominium interest in
a mixed-use tower and leasing certain nearby properties. As of February 2, 2019, we had approximately $302 of fee interest in land, which is
expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments
based on the developer meeting pre-established construction and development milestones. In the event that this project is not completed, the
opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our
investment.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 55
NOTE 12: SHAREHOLDERS’ EQUITY
The following is a summary of the activity related to our share repurchase programs in 2016, 2017 and 2018:
Shares
Average price
per share Amount
Capacity at January 30, 2016 $811
Shares repurchased 5.9 $48 (282)
Capacity at January 28, 2017 529
February 2017 authorization (ended August 31, 2018) 500
Shares repurchased 4.6 $45 (206)
Expiration of unused October 2015 authorization capacity in March 2017 (409)
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
The actual timing, price, manner and amounts of future share repurchases, if any, will be subject to market and economic conditions and
applicable SEC rules.
We paid dividends of $1.48 per share in 2018, 2017 and 2016. In February 2019, subsequent to year end, we declared a quarterly dividend
of $0.37 per share, which will be paid on March 26, 2019 to holders of record as of March 11, 2019.
NOTE 13: STOCK-BASED COMPENSATION
We currently grant stock-based awards under our 2010 Plan and 2002 Plan, and employees may purchase our stock at a discount under our
ESPP.
In 2010, our shareholders approved the adoption of the 2010 Plan, which replaced the 2004 Equity Incentive Plan (“2004 Plan”). The 2010 Plan
authorizes the grant of stock options, restricted stock, performance share units, stock appreciation rights and unrestricted shares of common
stock to employees. On May 16, 2017, our shareholders approved an amendment to the 2010 Plan. The amendment increased common stock
available for issuance by 6.2. The aggregate number of shares to be issued under the 2010 Plan may not exceed 30.4 plus any shares currently
outstanding under the 2004 Plan that are forfeited or expire during the term of the 2010 Plan. No future grants will be made under the 2004
Plan. As of February 2, 2019, we have 84.1 shares authorized, 59.1 shares issued and outstanding and 12.5 shares remaining available for
future grants under the 2010 Plan.
The 2002 Plan authorizes the grant of stock awards to our nonemployee directors. These awards may be deferred or issued in the form of
restricted or unrestricted stock, non-qualified stock options or stock appreciation rights. As of February 2, 2019, we had 0.9 shares authorized
and 0.3 shares available for issuance under this plan. In 2018, total expense on deferred shares was less than $1.
The Trunk Club Value Creation Plan (“VCP”) was a performance-based plan that provided for three payout scenarios based on the results of
Trunk Club’s business meeting minimum or exceeding maximum 2018 sales and earnings metrics. As of February 2, 2019, we granted 0.5 of
the 1.0 units available for grant. As Trunk Club’s business did not meet the minimum performance metrics in 2018, there was no
unrecognized stock-based compensation expense related to nonvested VCP units and no payout occurred.
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 February 2, 2019, we had 12.6 shares
authorized and 1.8 shares available for issuance under the ESPP. We issued 0.4 shares under the ESPP during 2018 and 2017. At the end of
2018 and 2017, we had current liabilities of $6 for future purchases of shares under the ESPP.
The following table summarizes our stock-based compensation expense:
Fiscal year 2018 2017 2016
Restricted stock units $71 $51 $34
Stock options 12 18 36
Acquisition-related stock compensation — 1 15
Other1 7 7 6
Total stock-based compensation expense, before income tax benefit 90 77 91
Income tax benefit (23) (20) (28)
Total stock-based compensation expense, net of income tax benefit $67 $57 $63
1 Other stock-based compensation expense includes performance share units, 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 2018 2017 2016
Cost of sales and related buying and occupancy costs $28 $25 $25
Selling, general and administrative expenses 62 52 66
Total stock-based compensation expense, before income tax benefit $90 $77 $91
Restricted Stock
Our Compensation 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.
A summary of restricted stock unit activity for 2018 is presented below:
Fiscal year 2018
Shares
Weighted-average
grant date fair value
per unit
Outstanding, beginning of year 3.3 $45
Granted 2.2 49
Vested (1.2) 46
Forfeited or cancelled (0.4) 46
Outstanding, end of year 3.9 $47
The aggregate fair value of restricted stock units vested during 2018, 2017 and 2016 was $54, $26 and $17. As of February 2, 2019, the total
unrecognized stock-based compensation expense related to nonvested restricted stock units was $99, which is expected to be recognized
over a weighted-average period of 30 months.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
56
Stock Options
Our Compensation Committee of our Board of Directors approves annual grants of nonqualified stock options to employees. There were no
stock options granted in 2018. We used the following assumptions to estimate the fair value for stock options at each grant date (excluding
options granted in connection with the Trunk Club acquisition):
Fiscal Year 2017 2016
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. 1.0% – 2.5% 0.7% – 1.9%
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. 40.1% 36.8%
Weighted-average expected dividend yield: Our forecasted dividend yield for the next 10 years. 2.4% 2.2%
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.
7.1 6.9
Grant Date Information
Date of grant February 28, 2017 February 29, 2016
Weighted-average fair value per option $16 $16
Exercise price per option $47 $51
Supplemental nonqualified stock options were also granted to certain company leaders on June 7, 2016, at an exercise price per option of
$41. The assumptions used to estimate the fair value for the supplemental stock options were similar to the 2016 annual grant assumptions.
The weighted-average fair value per option at the grant date was $13. In 2016, we also granted stock options to certain qualified employees
outside of the annual and supplemental grant dates, which were insignificant in aggregate. The number of awards granted to an individual are
determined based upon a percentage of the recipient’s base salary and the fair value of the stock options. Options typically vest over four
years, and expire 10 years after the date of grant.
A summary of stock option activity for 2018 is presented below:
Fiscal year 2018
Shares
Weighted-
average
exercise price
Weighted-average
remaining
contractual
life (years)
Aggregate
intrinsic
value
Outstanding, beginning of year 12.3 $49
Exercised (3.6) 40
Forfeited or cancelled (0.3) 57
Outstanding, end of year 8.4 $53 5 $
62
Vested, end of year 6.6 $52 4 $47
Vested or expected to vest, end of year 8.0 $53 5 $57
Fiscal year 2018 2017 2016
Aggregate intrinsic value of options exercised $67 $13 $30
Fair value of stock options vested $22 $34 $40
As of February 2, 2019, the total unrecognized stock-based compensation expense related to nonvested stock options was $7, which is
expected to be recognized over a weighted-average period of 13 months.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 57
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 February 2, 2019, we had 12.6 shares
authorized and 1.8 shares available for issuance under the ESPP. We issued 0.4 shares under the ESPP during 2018 and 2017. At the end of
2018 and 2017, we had current liabilities of $6 for future purchases of shares under the ESPP.
The following table summarizes our stock-based compensation expense:
Fiscal year 2018 2017 2016
Restricted stock units $71 $51 $34
Stock options 12 18 36
Acquisition-related stock compensation — 1 15
Other1 7 7 6
Total stock-based compensation expense, before income tax benefit 90 77 91
Income tax benefit (23) (20) (28)
Total stock-based compensation expense, net of income tax benefit $67 $57 $63
1 Other stock-based compensation expense includes performance share units, 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 2018 2017 2016
Cost of sales and related buying and occupancy costs $28 $25 $25
Selling, general and administrative expenses 62 52 66
Total stock-based compensation expense, before income tax benefit $90 $77 $91
Restricted Stock
Our Compensation 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.
A summary of restricted stock unit activity for 2018 is presented below:
Fiscal year 2018
Shares
Weighted-average
grant date fair value
per unit
Outstanding, beginning of year 3.3 $45
Granted 2.2 49
Vested (1.2) 46
Forfeited or cancelled (0.4) 46
Outstanding, end of year 3.9 $47
The aggregate fair value of restricted stock units vested during 2018, 2017 and 2016 was $54, $26 and $17. As of February 2, 2019, the total
unrecognized stock-based compensation expense related to nonvested restricted stock units was $99, which is expected to be recognized
over a weighted-average period of 30 months.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
56
Stock Options
Our Compensation Committee of our Board of Directors approves annual grants of nonqualified stock options to employees. There were no
stock options granted in 2018. We used the following assumptions to estimate the fair value for stock options at each grant date (excluding
options granted in connection with the Trunk Club acquisition):
Fiscal Year 2017 2016
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. 1.0% – 2.5% 0.7% – 1.9%
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. 40.1% 36.8%
Weighted-average expected dividend yield: Our forecasted dividend yield for the next 10 years. 2.4% 2.2%
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.
7.1 6.9
Grant Date Information
Date of grant February 28, 2017 February 29, 2016
Weighted-average fair value per option $16 $16
Exercise price per option $47 $51
Supplemental nonqualified stock options were also granted to certain company leaders on June 7, 2016, at an exercise price per option of
$41. The assumptions used to estimate the fair value for the supplemental stock options were similar to the 2016 annual grant assumptions.
The weighted-average fair value per option at the grant date was $13. In 2016, we also granted stock options to certain qualified employees
outside of the annual and supplemental grant dates, which were insignificant in aggregate. The number of awards granted to an individual are
determined based upon a percentage of the recipient’s base salary and the fair value of the stock options. Options typically vest over four
years, and expire 10 years after the date of grant.
A summary of stock option activity for 2018 is presented below:
Fiscal year 2018
Shares
Weighted-
average
exercise price
Weighted-average
remaining
contractual
life (years)
Aggregate
intrinsic
value
Outstanding, beginning of year 12.3 $49
Exercised (3.6) 40
Forfeited or cancelled (0.3) 57
Outstanding, end of year 8.4 $53 5 $62
Vested, end of year 6.6 $52 4 $47
Vested or expected to vest, end of year 8.0 $53 5 $57
Fiscal year 2018 2017 2016
Aggregate intrinsic value of options exercised $67 $13 $30
Fair value of stock options vested $22 $34 $40
As of February 2, 2019, the total unrecognized stock-based compensation expense related to nonvested stock options was $7, which is
expected to be recognized over a weighted-average period of 13 months.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 57
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 February 2, 2019, we had 12.6 shares
authorized and 1.8 shares available for issuance under the ESPP. We issued 0.4 shares under the ESPP during 2018 and 2017. At the end of
2018 and 2017, we had current liabilities of $6 for future purchases of shares under the ESPP.
The following table summarizes our stock-based compensation expense:
Fiscal year 2018 2017 2016
Restricted stock units $71 $51 $34
Stock options 12 18 36
Acquisition-related stock compensation — 1 15
Other1 7 7 6
Total stock-based compensation expense, before income tax benefit 90 77 91
Income tax benefit (23) (20) (28)
Total stock-based compensation expense, net of income tax benefit $67 $57 $63
1 Other stock-based compensation expense includes performance share units, 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 2018 2017 2016
Cost of sales and related buying and occupancy costs $28 $25 $25
Selling, general and administrative expenses 62 52 66
Total stock-based compensation expense, before income tax benefit $90 $77 $91
Restricted Stock
Our Compensation 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.
A summary of restricted stock unit activity for 2018 is presented below:
Fiscal year 2018
Shares
Weighted-average
grant date fair value
per unit
Outstanding, beginning of year 3.3 $45
Granted 2.2 49
Vested (1.2) 46
Forfeited or cancelled (0.4) 46
Outstanding, end of year 3.9 $47
The aggregate fair value of restricted stock units vested during 2018, 2017 and 2016 was $54, $26 and $17. As of February 2, 2019, the total
unrecognized stock-based compensation expense related to nonvested restricted stock units was $99, which is expected to be recognized
over a weighted-average period of 30 months.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
56
Stock Options
Our Compensation Committee of our Board of Directors approves annual grants of nonqualified stock options to employees. There were no
stock options granted in 2018. We used the following assumptions to estimate the fair value for stock options at each grant date (excluding
options granted in connection with the Trunk Club acquisition):
Fiscal Year 2017 2016
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. 1.0% – 2.5% 0.7% – 1.9%
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. 40.1% 36.8%
Weighted-average expected dividend yield: Our forecasted dividend yield for the next 10 years. 2.4% 2.2%
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.
7.1 6.9
Grant Date Information
Date of grant February 28, 2017 February 29, 2016
Weighted-average fair value per option $16 $16
Exercise price per option $47 $51
Supplemental nonqualified stock options were also granted to certain company leaders on June 7, 2016, at an exercise price per option of
$41. The assumptions used to estimate the fair value for the supplemental stock options were similar to the 2016 annual grant assumptions.
The weighted-average fair value per option at the grant date was $13. In 2016, we also granted stock options to certain qualified employees
outside of the annual and supplemental grant dates, which were insignificant in aggregate. The number of awards granted to an individual are
determined based upon a percentage of the recipient’s base salary and the fair value of the stock options. Options typically vest over four
years, and expire 10 years after the date of grant.
A summary of stock option activity for 2018 is presented below:
Fiscal year 2018
Shares
Weighted-
average
exercise price
Weighted-average
remaining
contractual
life (years)
Aggregate
intrinsic
value
Outstanding, beginning of year 12.3 $49
Exercised (3.6) 40
Forfeited or cancelled (0.3) 57
Outstanding, end of year 8.4 $53 5 $62
Vested, end of year 6.6 $52 4 $47
Vested or expected to vest, end of year 8.0 $53 5 $57
Fiscal year 2018 2017 2016
Aggregate intrinsic value of options exercised $67 $13 $30
Fair value of stock options vested $22 $34 $40
As of February 2, 2019, the total unrecognized stock-based compensation expense related to nonvested stock options was $7, which is
expected to be recognized over a weighted-average period of 13 months.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 57
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 February 2, 2019, we had 12.6 shares
authorized and 1.8 shares available for issuance under the ESPP. We issued 0.4 shares under the ESPP during 2018 and 2017. At the end of
2018 and 2017, we had current liabilities of $6 for future purchases of shares under the ESPP.
The following table summarizes our stock-based compensation expense:
Fiscal year 2018 2017 2016
Restricted stock units $71 $51 $34
Stock options 12 18 36
Acquisition-related stock compensation — 1 15
Other1 7 7 6
Total stock-based compensation expense, before income tax benefit 90 77 91
Income tax benefit (23) (20) (28)
Total stock-based compensation expense, net of income tax benefit $67 $57 $63
1 Other stock-based compensation expense includes performance share units, 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 2018 2017 2016
Cost of sales and related buying and occupancy costs $28 $25 $25
Selling, general and administrative expenses 62 52 66
Total stock-based compensation expense, before income tax benefit $90 $77 $91
Restricted Stock
Our Compensation 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.
A summary of restricted stock unit activity for 2018 is presented below:
Fiscal year 2018
Shares
Weighted-average
grant date fair value
per unit
Outstanding, beginning of year 3.3 $45
Granted 2.2 49
Vested (1.2) 46
Forfeited or cancelled (0.4) 46
Outstanding, end of year 3.9 $47
The aggregate fair value of restricted stock units vested during 2018, 2017 and 2016 was $54, $26 and $17. As of February 2, 2019, the total
unrecognized stock-based compensation expense related to nonvested restricted stock units was $99, which is expected to be recognized
over a weighted-average period of 30 months.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
56
Stock Options
Our Compensation Committee of our Board of Directors approves annual grants of nonqualified stock options to employees. There were no
stock options granted in 2018. We used the following assumptions to estimate the fair value for stock options at each grant date (excluding
options granted in connection with the Trunk Club acquisition):
Fiscal Year 2017 2016
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. 1.0% – 2.5% 0.7% – 1.9%
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. 40.1% 36.8%
Weighted-average expected dividend yield: Our forecasted dividend yield for the next 10 years. 2.4% 2.2%
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.
7.1 6.9
Grant Date Information
Date of grant February 28, 2017 February 29, 2016
Weighted-average fair value per option $16 $16
Exercise price per option $47 $51
Supplemental nonqualified stock options were also granted to certain company leaders on June 7, 2016, at an exercise price per option of
$41. The assumptions used to estimate the fair value for the supplemental stock options were similar to the 2016 annual grant assumptions.
The weighted-average fair value per option at the grant date was $13. In 2016, we also granted stock options to certain qualified employees
outside of the annual and supplemental grant dates, which were insignificant in aggregate. The number of awards granted to an individual are
determined based upon a percentage of the recipient’s base salary and the fair value of the stock options. Options typically vest over four
years, and expire 10 years after the date of grant.
A summary of stock option activity for 2018 is presented below:
Fiscal year 2018
Shares
Weighted-
average
exercise price
Weighted-average
remaining
contractual
life (years)
Aggregate
intrinsic
value
Outstanding, beginning of year 12.3 $49
Exercised (3.6) 40
Forfeited or cancelled (0.3) 57
Outstanding, end of year 8.4 $53 5 $62
Vested, end of year 6.6 $52 4 $47
Vested or expected to vest, end of year 8.0 $53 5 $57
Fiscal year 2018 2017 2016
Aggregate intrinsic value of options exercised $67 $13 $30
Fair value of stock options vested $22 $34 $40
As of February 2, 2019, the total unrecognized stock-based compensation expense related to nonvested stock options was $7, which is
expected to be recognized over a weighted-average period of 13 months.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 57
NOTE 14: INCOME TAXES
In December 2017, the Tax Act was signed into law. Among numerous other provisions, the Tax Act significantly revised the U.S. federal
corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact and provisionally recorded this
estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax Act, resulting in no material
changes to previously recorded provisional amounts.
U.S. and foreign components of earnings before income taxes were as follows:
Fiscal year 2018 2017 2016
U.S. $792 $803 $687
Foreign (59) (13) (3)
Earnings before income taxes $733 $790 $684
Income tax expense consists of the following:
Fiscal year 2018 2017 2016
Current income taxes:
Federal $147 $291 $290
State and local 56 51 54
Foreign — — 1
Total current income tax expense 203 342 345
Deferred income taxes:
Federal (5) 10 (17)
State and local (3) 1 (5)
Foreign (26) — 7
Total deferred income tax (benefit) expense (34) 11 (15)
Total income tax expense $169 $353 $330
A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings before income taxes is as follows:
Fiscal year 2018 2017 2016
Statutory rate 21.0% 33.7% 35.0%
Tax Act impact (0.1%) 6.1% —
Goodwill impairment — — 10.1%
State and local income taxes, net of federal income taxes 5.8% 4.5% 5.1%
Federal credits (1.5%) (0.7%) (0.6%)
Valuation allowance release (1.2%) — —
Other, net (0.9%) 1.1% (1.4%)
Effective tax rate 23.1% 44.7% 48.2%
The decrease in the effective tax rate for 2018 compared with 2017 was primarily due to the lower statutory tax rate enacted under the Tax
Act, the benefit of certain current year foreign losses and release of a foreign valuation allowance.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
58
The components of deferred tax assets and liabilities are as follows:
February 2, 2019 February 3, 2018
Deferred tax assets:
Compensation and benefits accruals $139 $148
Allowance for sales returns 52 50
Credit card receivable transaction (4) 8
Accrued expenses 28 27
Merchandise inventories 20 12
Gift cards 26 27
Loyalty program 12 —
Federal benefit of state taxes 7 16
Net operating losses 41 22
Other 2 2
Total deferred tax assets 323 312
Valuation allowance (43) (51)
Total net deferred tax assets 280 261
Deferred tax liabilities:
Land, property and equipment basis and depreciation differences (94) (109)
Debt exchange premium (13) (14)
Total deferred tax liabilities (107) (123)
Net deferred tax assets $173 $138
As of February 2, 2019, our state and foreign net operating loss carryforwards for income tax purposes were approximately $12 and $132. As
of February 3, 2018, our state and foreign net operating loss carryforwards for income tax purposes were approximately $11 and $64. 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 2031 and 2033.
As of February 2, 2019, we believe certain foreign net operating loss carryforwards and deferred tax assets will be realized and therefore we
released $9 of related valuation allowance. As of February 2, 2019 and February 3, 2018, we believe there are certain other foreign net
operating loss carryforwards and deferred tax assets that will not be realized in the foreseeable future. As such, valuation allowances of $43
and $51 have been recorded as of February 2, 2019 and February 3, 2018.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Fiscal year 2018 2017 2016
Unrecognized tax benefit at beginning of year $31 $32 $19
Gross increase to tax positions in prior periods 9 2 16
Gross decrease to tax positions in prior periods (14) (7) —
Gross increase to tax positions in current period 6 5 2
Lapses in statute (2) (1) (5)
Unrecognized tax benefit at end of year $30 $31 $32
At the end of 2018 and 2017, $26 and $18 of the ending gross unrecognized tax benefit related to items which, if recognized, would affect the
effective tax rate.
There were no significant changes to expense for interest and penalties in 2018, 2017 and 2016. At the end of 2018 and 2017, our liability for
interest and penalties was $3 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 2013. Unrecognized tax benefits related to federal, state and local tax
positions may decrease by $14 by February 1, 2020, due to the completion of examinations and the expiration of various statutes of
limitations.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 59
NOTE 14: INCOME TAXES
In December 2017, the Tax Act was signed into law. Among numerous other provisions, the Tax Act significantly revised the U.S. federal
corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact and provisionally recorded this
estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax Act, resulting in no material
changes to previously recorded provisional amounts.
U.S. and foreign components of earnings before income taxes were as follows:
Fiscal year 2018 2017 2016
U.S. $792 $803 $687
Foreign (59) (13) (3)
Earnings before income taxes $733 $790 $684
Income tax expense consists of the following:
Fiscal year 2018 2017 2016
Current income taxes:
Federal $147 $291 $290
State and local 56 51 54
Foreign — — 1
Total current income tax expense 203 342 345
Deferred income taxes:
Federal (5) 10 (17)
State and local (3) 1 (5)
Foreign (26) — 7
Total deferred income tax (benefit) expense (34) 11 (15)
Total income tax expense $169 $353 $330
A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings before income taxes is as follows:
Fiscal year 2018 2017 2016
Statutory rate 21.0% 33.7% 35.0%
Tax Act impact (0.1%) 6.1% —
Goodwill impairment — — 10.1%
State and local income taxes, net of federal income taxes 5.8% 4.5% 5.1%
Federal credits (1.5%) (0.7%) (0.6%)
Valuation allowance release (1.2%) — —
Other, net (0.9%) 1.1% (1.4%)
Effective tax rate 23.1% 44.7% 48.2%
The decrease in the effective tax rate for 2018 compared with 2017 was primarily due to the lower statutory tax rate enacted under the Tax
Act, the benefit of certain current year foreign losses and release of a foreign valuation allowance.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
58
The components of deferred tax assets and liabilities are as follows:
February 2, 2019 February 3, 2018
Deferred tax assets:
Compensation and benefits accruals $139 $148
Allowance for sales returns 52 50
Credit card receivable transaction (4) 8
Accrued expenses 28 27
Merchandise inventories 20 12
Gift cards 26 27
Loyalty program 12 —
Federal benefit of state taxes 7 16
Net operating losses 41 22
Other 2 2
Total deferred tax assets 323 312
Valuation allowance (43) (51)
Total net deferred tax assets 280 261
Deferred tax liabilities:
Land, property and equipment basis and depreciation differences (94) (109)
Debt exchange premium (13) (14)
Total deferred tax liabilities (107) (123)
Net deferred tax assets $173 $138
As of February 2, 2019, our state and foreign net operating loss carryforwards for income tax purposes were approximately $12 and $132. As
of February 3, 2018, our state and foreign net operating loss carryforwards for income tax purposes were approximately $11 and $64. 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 2031 and 2033.
As of February 2, 2019, we believe certain foreign net operating loss carryforwards and deferred tax assets will be realized and therefore we
released $9 of related valuation allowance. As of February 2, 2019 and February 3, 2018, we believe there are certain other foreign net
operating loss carryforwards and deferred tax assets that will not be realized in the foreseeable future. As such, valuation allowances of $43
and $51 have been recorded as of February 2, 2019 and February 3, 2018.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Fiscal year 2018 2017 2016
Unrecognized tax benefit at beginning of year $31 $32 $19
Gross increase to tax positions in prior periods 9 2 16
Gross decrease to tax positions in prior periods (14) (7) —
Gross increase to tax positions in current period 6 5 2
Lapses in statute (2) (1) (5)
Unrecognized tax benefit at end of year $30 $31 $32
At the end of 2018 and 2017, $26 and $18 of the ending gross unrecognized tax benefit related to items which, if recognized, would affect the
effective tax rate.
There were no significant changes to expense for interest and penalties in 2018, 2017 and 2016. At the end of 2018 and 2017, our liability for
interest and penalties was $3 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 2013. Unrecognized tax benefits related to federal, state and local tax
positions may decrease by $14 by February 1, 2020, due to the completion of examinations and the expiration of various statutes of
limitations.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 59
NOTE 14: INCOME TAXES
In December 2017, the Tax Act was signed into law. Among numerous other provisions, the Tax Act significantly revised the U.S. federal
corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact and provisionally recorded this
estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax Act, resulting in no material
changes to previously recorded provisional amounts.
U.S. and foreign components of earnings before income taxes were as follows:
Fiscal year 2018 2017 2016
U.S. $792 $803 $687
Foreign (59) (13) (3)
Earnings before income taxes $733 $790 $684
Income tax expense consists of the following:
Fiscal year 2018 2017 2016
Current income taxes:
Federal $147 $291 $290
State and local 56 51 54
Foreign — — 1
Total current income tax expense 203 342 345
Deferred income taxes:
Federal (5) 10 (17)
State and local (3) 1 (5)
Foreign (26) — 7
Total deferred income tax (benefit) expense (34) 11 (15)
Total income tax expense $169 $353 $330
A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings before income taxes is as follows:
Fiscal year 2018 2017 2016
Statutory rate 21.0% 33.7% 35.0%
Tax Act impact (0.1%) 6.1% —
Goodwill impairment — — 10.1%
State and local income taxes, net of federal income taxes 5.8% 4.5% 5.1%
Federal credits (1.5%) (0.7%) (0.6%)
Valuation allowance release (1.2%) — —
Other, net (0.9%) 1.1% (1.4%)
Effective tax rate 23.1% 44.7% 48.2%
The decrease in the effective tax rate for 2018 compared with 2017 was primarily due to the lower statutory tax rate enacted under the Tax
Act, the benefit of certain current year foreign losses and release of a foreign valuation allowance.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
58
The components of deferred tax assets and liabilities are as follows:
February 2, 2019 February 3, 2018
Deferred tax assets:
Compensation and benefits accruals $139 $148
Allowance for sales returns 52 50
Credit card receivable transaction (4) 8
Accrued expenses 28 27
Merchandise inventories 20 12
Gift cards 26 27
Loyalty program 12 —
Federal benefit of state taxes 7 16
Net operating losses 41 22
Other 2 2
Total deferred tax assets 323 312
Valuation allowance (43) (51)
Total net deferred tax assets 280 261
Deferred tax liabilities:
Land, property and equipment basis and depreciation differences (94) (109)
Debt exchange premium (13) (14)
Total deferred tax liabilities (107) (123)
Net deferred tax assets $173 $138
As of February 2, 2019, our state and foreign net operating loss carryforwards for income tax purposes were approximately $12 and $132. As
of February 3, 2018, our state and foreign net operating loss carryforwards for income tax purposes were approximately $11 and $64. 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 2031 and 2033.
As of February 2, 2019, we believe certain foreign net operating loss carryforwards and deferred tax assets will be realized and therefore we
released $9 of related valuation allowance. As of February 2, 2019 and February 3, 2018, we believe there are certain other foreign net
operating loss carryforwards and deferred tax assets that will not be realized in the foreseeable future. As such, valuation allowances of $43
and $51 have been recorded as of February 2, 2019 and February 3, 2018.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Fiscal year 2018 2017 2016
Unrecognized tax benefit at beginning of year $31 $32 $19
Gross increase to tax positions in prior periods 9 2 16
Gross decrease to tax positions in prior periods (14) (7) —
Gross increase to tax positions in current period 6 5 2
Lapses in statute (2) (1) (5)
Unrecognized tax benefit at end of year $30 $31 $32
At the end of 2018 and 2017, $26 and $18 of the ending gross unrecognized tax benefit related to items which, if recognized, would affect the
effective tax rate.
There were no significant changes to expense for interest and penalties in 2018, 2017 and 2016. At the end of 2018 and 2017, our liability for
interest and penalties was $3 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 2013. Unrecognized tax benefits related to federal, state and local tax
positions may decrease by $14 by February 1, 2020, due to the completion of examinations and the expiration of various statutes of
limitations.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 59
NOTE 14: INCOME TAXES
In December 2017, the Tax Act was signed into law. Among numerous other provisions, the Tax Act significantly revised the U.S. federal
corporate income tax by reducing the statutory rate from 35% to 21%. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act, we made a reasonable estimate of the Tax Act’s impact and provisionally recorded this
estimate in our 2017 results. As of February 2, 2019, we completed our accounting for the impacts of the Tax Act, resulting in no material
changes to previously recorded provisional amounts.
U.S. and foreign components of earnings before income taxes were as follows:
Fiscal year 2018 2017 2016
U.S. $792 $803 $687
Foreign (59) (13) (3)
Earnings before income taxes $733 $790 $684
Income tax expense consists of the following:
Fiscal year 2018 2017 2016
Current income taxes:
Federal $147 $291 $290
State and local 56 51 54
Foreign — — 1
Total current income tax expense 203 342 345
Deferred income taxes:
Federal (5) 10 (17)
State and local (3) 1 (5)
Foreign (26) — 7
Total deferred income tax (benefit) expense (34) 11 (15)
Total income tax expense $169 $353 $330
A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings before income taxes is as follows:
Fiscal year 2018 2017 2016
Statutory rate 21.0% 33.7% 35.0%
Tax Act impact (0.1%) 6.1% —
Goodwill impairment — — 10.1%
State and local income taxes, net of federal income taxes 5.8% 4.5% 5.1%
Federal credits (1.5%) (0.7%) (0.6%)
Valuation allowance release (1.2%) — —
Other, net (0.9%) 1.1% (1.4%)
Effective tax rate 23.1% 44.7% 48.2%
The decrease in the effective tax rate for 2018 compared with 2017 was primarily due to the lower statutory tax rate enacted under the Tax
Act, the benefit of certain current year foreign losses and release of a foreign valuation allowance.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
58
The components of deferred tax assets and liabilities are as follows:
February 2, 2019 February 3, 2018
Deferred tax assets:
Compensation and benefits accruals $139 $148
Allowance for sales returns 52 50
Credit card receivable transaction (4) 8
Accrued expenses 28 27
Merchandise inventories 20 12
Gift cards 26 27
Loyalty program 12 —
Federal benefit of state taxes 7 16
Net operating losses 41 22
Other 2 2
Total deferred tax assets 323 312
Valuation allowance (43) (51)
Total net deferred tax assets 280 261
Deferred tax liabilities:
Land, property and equipment basis and depreciation differences (94) (109)
Debt exchange premium (13) (14)
Total deferred tax liabilities (107) (123)
Net deferred tax assets $173 $138
As of February 2, 2019, our state and foreign net operating loss carryforwards for income tax purposes were approximately $12 and $132. As
of February 3, 2018, our state and foreign net operating loss carryforwards for income tax purposes were approximately $11 and $64. 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 2031 and 2033.
As of February 2, 2019, we believe certain foreign net operating loss carryforwards and deferred tax assets will be realized and therefore we
released $9 of related valuation allowance. As of February 2, 2019 and February 3, 2018, we believe there are certain other foreign net
operating loss carryforwards and deferred tax assets that will not be realized in the foreseeable future. As such, valuation allowances of $43
and $51 have been recorded as of February 2, 2019 and February 3, 2018.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Fiscal year 2018 2017 2016
Unrecognized tax benefit at beginning of year $31 $32 $19
Gross increase to tax positions in prior periods 9 2 16
Gross decrease to tax positions in prior periods (14) (7) —
Gross increase to tax positions in current period 6 5 2
Lapses in statute (2) (1) (5)
Unrecognized tax benefit at end of year $30 $31 $32
At the end of 2018 and 2017, $26 and $18 of the ending gross unrecognized tax benefit related to items which, if recognized, would affect the
effective tax rate.
There were no significant changes to expense for interest and penalties in 2018, 2017 and 2016. At the end of 2018 and 2017, our liability for
interest and penalties was $3 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 2013. Unrecognized tax benefits related to federal, state and local tax
positions may decrease by $14 by February 1, 2020, due to the completion of examinations and the expiration of various statutes of
limitations.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 59
NOTE 15: 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 restricted stock 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 2018 2017 2016
Net earnings $564 $437 $354
Basic shares 167.3 166.8 173.2
Dilutive effect of common stock equivalents 2.7 2.1 2.4
Diluted shares 170.0 168.9 175.6
Earnings per basic share $3.37 $2.62 $2.05
Earnings per diluted share $3.32 $2.59 $2.02
Anti-dilutive common stock equivalents 5.2 10.5 8.0
Net earnings in 2018 included the Estimated Non-recurring Charge of $72, which had an impact of $0.28 per diluted share (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies). Net earnings in 2016 included the Trunk Club goodwill impairment
charge of $197, which had an impact of $1.12 per diluted share.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
60
NOTE 16: 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. In the first quarter of 2018, as a result of the evolution of our operations,
our reportable segments have become progressively more integrated such that we have changed to one reportable “Retail” segment to align
with how management operates and evaluates and views the results of our operations. Our principal executive officer, who is our chief
operating decision maker (“CODM”), reviews results on a total company, Full-Price and Off-Price basis and uses earnings before interest and
taxes as a measure of profitability. We completed the reporting and budgeting in the first quarter of 2018 to better align with how the CODM
allocates resources and assesses business performance. As part of this evolution, we now allocate our previous Credit segment assets, loss
before interest and income taxes and loss before income taxes to the Retail segment.
Our Retail reportable segment aggregates our two operating segments, Full-Price and Off-Price. Full-Price consists of Nordstrom U.S. Full-
Price stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local. Off-Price consists of Nordstrom U.S. Rack stores,
Nordstromrack.com/HauteLook and Last Chance clearance stores.
Our Full-Price and Off-Price operating segments both generate revenue by offering customers an extensive selection of high-quality, brand-
name and private label merchandise, which includes apparel, shoes, cosmetics and accessories 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. Full-Price and Off-Price 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 Full-Price and
Off-Price 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 generally accepted
accounting principles.
Accounting Policy
We present our segment results for all years in the way that management views our results internally, including presenting 2018 under the
new Revenue Standard while prior period amounts are not adjusted. For 2018, we generally use the same methodology to compute earnings
before income taxes for our reportable segment as we do for the consolidated Company. As a result, for our Retail segment in 2018, we defer
a portion of underlying sales revenue as customers earn points and Notes in the Nordy Club, based on an estimated stand-alone selling price
of primarily points and Notes, and recognize the deferred revenue and related cost of sales when the Notes are ultimately redeemed.
For 2017 and 2016, prior to the adoption of the new Revenue Standard, we estimated the net cost of Notes to be issued and redeemed. We
recorded this cost as reward points were accumulated in cost of sales in our total company results. The related Notes expenses were
included at face value in the Retail segment. As a result, our Corporate/Other column included an adjustment to reduce the Notes expense
from face value to their estimated cost. In addition, the full amount of redemptions of our Notes were included in net sales for our Retail
segment. The net sales amount in our Corporate/Other column primarily related to an entry to eliminate these transactions from our
consolidated net sales. If we allocated these types of Corporate/Other adjustments in 2017 and 2016, Retail segment earnings before interest
and income taxes would increase $1 and $8 and Corporate/Other loss before interest and income taxes would increase $1 and $8. Other
than as described above, the accounting policies of our reportable segment are the same as those described in Note 1: Nature of Operations
and Summary of Significant Accounting Policies.
The following table sets forth information for our reportable segment:
Retail Corporate/Other Total
Fiscal year 2018
Net sales $15,480 $— $15,480
Credit card revenues, net — 380 380
Earnings (loss) before interest and income taxes 1,095 (258) 837
Interest expense, net — (104) (104)
Earnings (loss) before income taxes 1,095 (362) 733
Capital expenditures 415 239 654
Depreciation and amortization 436 233 669
Assets 5,300 2,586 7,886
Fiscal year 2017
Net sales1 $15,408 ($271) $15,137
Credit card revenues, net — 341 341
Earnings (loss) before interest and income taxes 1,111 (185) 926
Interest expense, net — (136) (136)
Earnings (loss) before income taxes 1,111 (321) 790
Capital expenditures 516 215 731
Depreciation and amortization 445 221 666
Assets 5,477 2,638 8,115
Fiscal year 2016
Net sales1 $14,768 ($270) $14,498
Credit card revenues, net — 259 259
Earnings (loss) before interest and income taxes 917 (112) 805
Interest expense, net — (121) (121)
Earnings (loss) before income taxes 917 (233) 684
Capital expenditures 593 253 846
Depreciation and amortization 456 189 645
Assets 5,770 2,088 7,858
1 If we applied the sales return allowance allocation and the loyalty related adjustments in 2017 and 2016, Retail segment net sales would decrease $271 and $270 and
Corporate/Other would increase $271 and $270.
For information about disaggregated revenues, see Note 2: Revenue.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 61
NOTE 15: 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 restricted stock 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 2018 2017 2016
Net earnings $564 $437 $354
Basic shares 167.3 166.8 173.2
Dilutive effect of common stock equivalents 2.7 2.1 2.4
Diluted shares 170.0 168.9 175.6
Earnings per basic share $3.37 $2.62 $2.05
Earnings per diluted share $3.32 $2.59 $2.02
Anti-dilutive common stock equivalents 5.2 10.5 8.0
Net earnings in 2018 included the Estimated Non-recurring Charge of $72, which had an impact of $0.28 per diluted share (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies). Net earnings in 2016 included the Trunk Club goodwill impairment
charge of $197, which had an impact of $1.12 per diluted share.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
60
NOTE 16: 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. In the first quarter of 2018, as a result of the evolution of our operations,
our reportable segments have become progressively more integrated such that we have changed to one reportable “Retail” segment to align
with how management operates and evaluates and views the results of our operations. Our principal executive officer, who is our chief
operating decision maker (“CODM”), reviews results on a total company, Full-Price and Off-Price basis and uses earnings before interest and
taxes as a measure of profitability. We completed the reporting and budgeting in the first quarter of 2018 to better align with how the CODM
allocates resources and assesses business performance. As part of this evolution, we now allocate our previous Credit segment assets, loss
before interest and income taxes and loss before income taxes to the Retail segment.
Our Retail reportable segment aggregates our two operating segments, Full-Price and Off-Price. Full-Price consists of Nordstrom U.S. Full-
Price stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local. Off-Price consists of Nordstrom U.S. Rack stores,
Nordstromrack.com/HauteLook and Last Chance clearance stores.
Our Full-Price and Off-Price operating segments both generate revenue by offering customers an extensive selection of high-quality, brand-
name and private label merchandise, which includes apparel, shoes, cosmetics and accessories 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. Full-Price and Off-Price 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 Full-Price and
Off-Price 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 generally accepted
accounting principles.
Accounting Policy
We present our segment results for all years in the way that management views our results internally, including presenting 2018 under the
new Revenue Standard while prior period amounts are not adjusted. For 2018, we generally use the same methodology to compute earnings
before income taxes for our reportable segment as we do for the consolidated Company. As a result, for our Retail segment in 2018, we defer
a portion of underlying sales revenue as customers earn points and Notes in the Nordy Club, based on an estimated stand-alone selling price
of primarily points and Notes, and recognize the deferred revenue and related cost of sales when the Notes are ultimately redeemed.
For 2017 and 2016, prior to the adoption of the new Revenue Standard, we estimated the net cost of Notes to be issued and redeemed. We
recorded this cost as reward points were accumulated in cost of sales in our total company results. The related Notes expenses were
included at face value in the Retail segment. As a result, our Corporate/Other column included an adjustment to reduce the Notes expense
from face value to their estimated cost. In addition, the full amount of redemptions of our Notes were included in net sales for our Retail
segment. The net sales amount in our Corporate/Other column primarily related to an entry to eliminate these transactions from our
consolidated net sales. If we allocated these types of Corporate/Other adjustments in 2017 and 2016, Retail segment earnings before interest
and income taxes would increase $1 and $8 and Corporate/Other loss before interest and income taxes would increase $1 and $8. Other
than as described above, the accounting policies of our reportable segment are the same as those described in Note 1: Nature of Operations
and Summary of Significant Accounting Policies.
The following table sets forth information for our reportable segment:
Retail Corporate/Other Total
Fiscal year 2018
Net sales $15,480 $— $15,480
Credit card revenues, net — 380 380
Earnings (loss) before interest and income taxes 1,095 (258) 837
Interest expense, net — (104) (104)
Earnings (loss) before income taxes 1,095 (362) 733
Capital expenditures 415 239 654
Depreciation and amortization 436 233 669
Assets 5,300 2,586 7,886
Fiscal year 2017
Net sales1 $15,408 ($271) $15,137
Credit card revenues, net — 341 341
Earnings (loss) before interest and income taxes 1,111 (185) 926
Interest expense, net — (136) (136)
Earnings (loss) before income taxes 1,111 (321) 790
Capital expenditures 516 215 731
Depreciation and amortization 445 221 666
Assets 5,477 2,638 8,115
Fiscal year 2016
Net sales1 $14,768 ($270) $14,498
Credit card revenues, net — 259 259
Earnings (loss) before interest and income taxes 917 (112) 805
Interest expense, net — (121) (121)
Earnings (loss) before income taxes 917 (233) 684
Capital expenditures 593 253 846
Depreciation and amortization 456 189 645
Assets 5,770 2,088 7,858
1 If we applied the sales return allowance allocation and the loyalty related adjustments in 2017 and 2016, Retail segment net sales would decrease $271 and $270 and
Corporate/Other would increase $271 and $270.
For information about disaggregated revenues, see Note 2: Revenue.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
Nordstrom, Inc. and subsidiaries 61
NOTE 15: 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 restricted stock 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 2018 2017 2016
Net earnings $564 $437 $354
Basic shares 167.3 166.8 173.2
Dilutive effect of common stock equivalents 2.7 2.1 2.4
Diluted shares 170.0 168.9 175.6
Earnings per basic share $3.37 $2.62 $2.05
Earnings per diluted share $3.32 $2.59 $2.02
Anti-dilutive common stock equivalents 5.2 10.5 8.0
Net earnings in 2018 included the Estimated Non-recurring Charge of $72, which had an impact of $0.28 per diluted share (see Note 1:
Nature of Operations and Summary of Significant Accounting Policies). Net earnings in 2016 included the Trunk Club goodwill impairment
charge of $197, which had an impact of $1.12 per diluted share.
Nordstrom, Inc.
Notes to Consolidated Financial Statements
(Dollar and share amounts in millions except per share, per option and per unit amounts)
60
NOTE 16: 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. In the first quarter of 2018, as a result of the evolution of our operations,
our reportable segments have become progressively more integrated such that we have changed to one reportable “Retail” segment to align
with how management operates and evaluates and views the results of our operations. Our principal executive officer, who is our chief
operating decision maker (“CODM”), reviews results on a total company, Full-Price and Off-Price basis and uses earnings before interest and
taxes as a measure of profitability. We completed the reporting and budgeting in the first quarter of 2018 to better align with how the CODM
allocates resources and assesses business performance. As part of this evolution, we now allocate our previous Credit segment assets, loss
before interest and income taxes and loss before income taxes to the Retail segment.
Our Retail reportable segment aggregates our two operating segments, Full-Price and Off-Price. Full-Price consists of Nordstrom U.S. Full-
Price stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local. Off-Price consists of Nordstrom U.S. Rack stores,
Nordstromrack.com/HauteLook and Last Chance clearance stores.
Our Full-Price and Off-Price operating segments both generate revenue by offering customers an extensive selection of high-quality, brand-
name and private label merchandise, which includes apparel, shoes, cosmetics and accessories 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. Full-Price and Off-Price 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 Full-Price and
Off-Price 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 generally accepted
accounting principles.
Accounting Policy
We present our segment results for all years in the way that management views our results internally, including presenting 2018 under the
new Revenue Standard while prior period amounts are not adjusted. For 2018, we generally use the same methodology to compute earnings
before income taxes for our reportable segment as we do for the consolidated Company. As a result, for our Retail segment in 2018, we defer
a portion of underlying sales revenue as customers earn points and Notes in the Nordy Club, based on an estimated stand-alone selling price
of primarily points and Notes, and recognize the deferred revenue and related cost of