UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 15, 2014
NORDSTROM, INC.
(Exact name of registrant as specified in its charter)
Washington | 001-15059 | 91-0515058 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS 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
Inapplicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
___ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
___ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
___ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
___ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02 Results of Operations and Financial Condition
On May 15, 2014, Nordstrom, Inc. issued an earnings release announcing its results of operations for the quarter ended May 3, 2014, its financial position as of May 3, 2014, and its cash flows for the quarter ended May 3, 2014. A copy of this earnings release is attached as Exhibit 99.1.
ITEM 7.01 Regulation FD Disclosure
On May 15, 2014, Nordstrom, Inc. issued an earnings release announcing its results of operations for the quarter ended May 3, 2014, its financial position as of May 3, 2014, and its cash flows for the quarter ended May 3, 2014. A copy of this earnings release is attached as Exhibit 99.1.
The information furnished in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, regardless of any general incorporation language in such filing, except as shall be expressly set forth by a specific reference in such filing.
ITEM 9.01 Financial Statements and Exhibits
99.1 | Nordstrom earnings release dated May 15, 2014 relating to the Company's results of operations for the quarter ended May 3, 2014, its financial position as of May 3, 2014, and its cash flows for the quarter ended May 3, 2014. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NORDSTROM, INC. | |
(Registrant) | |
/s/ Robert B. Sari | |
Robert B. Sari | |
Executive Vice President, | |
General Counsel and Corporate Secretary | |
Date: May 15, 2014
EXHIBIT INDEX | ||
EXHIBIT | ||
NUMBER | DESCRIPTION | |
99.1 | Nordstrom earnings release dated May 15, 2014 relating to the Company's results of operations for the quarter ended May 3, 2014, its financial position as of May 3, 2014, and its cash flows for the quarter ended May 3, 2014. | |
Exhibit 99.1
FOR RELEASE: | INVESTOR CONTACT: | Rob Campbell | ||
May 15, 2014 at 1:05 PM PDT | Nordstrom, Inc. | |||
(206) 233-6550 | ||||
MEDIA CONTACT: | Dan Evans | |||
Nordstrom, Inc. | ||||
(206) 303-3036 | ||||
Nordstrom First Quarter 2014 Earnings Exceed Outlook
Seeks Financial Partner for its Credit Card Receivables
SEATTLE, Wash. (May 15, 2014) – Nordstrom, Inc. (NYSE: JWN) today reported earnings per diluted share of $0.72 for the first quarter ended May 3, 2014, which exceeded the Company’s prior outlook of $0.60 to $0.70. The Company continued its progress in executing its customer strategy while maintaining disciplined execution around inventory and expenses.
Nordstrom also announced it will seek a financial partner for its Nordstrom credit card receivables, which totals approximately $2 billion. The Company believes there is an opportunity to explore a financial partnership in which it can maintain its customer focus while gaining greater financial flexibility. With any potential transaction, the Company does not expect any change to the customers’ experience and plans to retain all key aspects of the customer relationship. The Company expects any such partnership to have a minimal impact on existing operations and jobs.
There can be no assurance that the process of exploring any partnership will result in a consummated transaction. The Company does not expect to disclose further developments with respect to the process unless and until a definitive agreement is reached or the process of exploration is otherwise terminated. Any potential transaction will be subject to certain strategic and financial considerations, as well as regulatory approvals and other customary conditions. Goldman, Sachs & Co. and Guggenheim Securities, LLC are serving as financial advisors to Nordstrom in this process.
FIRST QUARTER SUMMARY
• | First quarter net earnings were $140 million compared with $145 million for the same period last year. This decrease reflected planned technology investments to improve service and experience across channels and infrastructure costs related to the upcoming entry into Canada. Total Company net sales of $2.8 billion increased 6.8 percent compared with the same period in fiscal 2013 and total Company comparable sales increased 3.9 percent. |
• | Nordstrom comparable sales, which consist of the full-line and Direct businesses, increased 3.3 percent compared with last year’s comparable sales increase of 3.1 percent. Top-performing merchandise categories included Accessories, Women’s Shoes, and Cosmetics. |
• | Full-line comparable sales decreased 1.9 percent. The Southwest and Southern California regions were the top-performing geographic areas. |
• | Direct net sales increased 33 percent in the first quarter, on top of last year’s first quarter increase of 25 percent, driven by expanded merchandise selection and ongoing technology investments to enhance the online experience. |
• | Nordstrom Rack net sales increased $126 million, or 20 percent, compared with the same period in fiscal 2013, reflecting 27 store openings since the first quarter of fiscal 2013. Nordstrom Rack comparable sales increased 6.4 percent. |
• | Gross profit, as a percentage of net sales, decreased 124 basis points compared with the same period in fiscal 2013 in part due to increased markdowns in response to the heightened promotional environment. The decrease was also attributable to Nordstrom Rack’s accelerated store expansion and growth in the Nordstrom Rewards loyalty program. With 3.9 million active members, sales from members represented 38 percent of sales, increasing from 36 percent for the same period last year. |
• | Ending inventory increased 10.2 percent per square foot compared with the same period in fiscal 2013, which outpaced the increase in sales per square foot of 3.6 percent. The difference primarily reflected planned inventory investments to fuel growth at Nordstrom Rack, in well-performing merchandise categories, and at NordstromRack.com. |
• | Selling, general and administrative expenses, as a percentage of net sales, decreased 40 basis points compared with the same period in fiscal 2013, primarily due to the combination of lower variable expenses and expense leverage from increased sales volume. |
• | Earnings before interest and taxes was $265 million, or 9.3 percent of net sales, compared with $275 million, or 10.3 percent of net sales, for the same quarter last year. |
• | During the quarter, the Company repurchased 3.2 million shares of its common stock for $192 million. A total of $478 million remains under existing share repurchase board authorization. The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission rules. |
• | Return on invested capital (ROIC) for the 12 months ended May 3, 2014 was 13.3 percent compared with 14.0 percent for the same period last year. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below. |
EXPANSION UPDATE
Nordstrom announced plans to open three full-line stores and 17 Nordstrom Rack stores during the remainder of fiscal 2014. In the first quarter of 2014, Nordstrom opened the following stores:
Location | Store Name | Square Footage (000's) | Timing | |||
Nordstrom Rack | ||||||
Palm Desert, CA | One Eleven Towne Center | 33 | March 6 | |||
San Francisco, CA | 901 Market Street | 44 | March 6 | |||
Chicago, IL | Lincoln Park | 40 | April 3 | |||
Riverside, CA | Riverside Plaza | 44 | April 3 | |||
Skokie, IL | Shops at Orchard Place | 35 | April 3 | |||
Tulsa, OK | Woodland Plaza | 33 | April 3 | |||
Wauwatosa, WI | Mayfair Collection | 36 | April 3 | |||
Brooklyn, NY | 505 Fulton Street | 40 | May 1 | |||
Columbus, OH | Sun Center | 38 | May 1 | |||
Houston, TX | Village Plaza at Bunker Hill | 30 | May 1 | |||
Number of stores | May 3, 2014 | May 4, 2013 | |
Nordstrom | 117 | 117 | |
Nordstrom Rack and other | 153 | 128 | |
Total | 270 | 245 | |
Gross square footage | 26,407,000 | 25,463,000 | |
FISCAL YEAR 2014 OUTLOOK
The Company’s annual earnings per diluted share expectations are unchanged, incorporating first quarter results, the impact of share repurchases in the first quarter, and assumptions around the promotional environment over the near-term. Our updated expectations for fiscal 2014 are as follows:
Prior Outlook | Current Outlook | |||
Net sales | 5.5 to 7.5 percent increase | 5.5 to 7.5 percent increase | ||
Comparable sales | 2 to 4 percent increase | 2 to 4 percent increase | ||
Credit card revenues | $0 to $5 increase | $0 to $5 increase | ||
Gross profit (%) | 10 to 30 basis point decrease | 30 to 50 basis point decrease | ||
Selling, general and administrative expenses (%) | 10 to 30 basis point increase | 0 to 20 basis point increase | ||
Interest expense, net | Approximately $25 decrease | Approximately $25 decrease | ||
Effective tax rate | 39.0% | 39.0% | ||
Earnings per diluted share, excluding the impact of any future share repurchases | $3.75 to $3.90 | $3.75 to $3.90 | ||
Diluted shares outstanding | Approximately 196 million | Approximately 194 million | ||
CONFERENCE CALL INFORMATION
The Company’s senior management will host a conference call to discuss first quarter 2014 results and 2014 outlook at 4:45 p.m. Eastern Daylight Time today. To listen to the live call online and view the speakers’ slides and Performance Summary document, visit the Investor Relations section of the Company’s corporate website at http://investor.nordstrom.com. An archived webcast with the speakers’ slides and Performance Summary document will be available in the Earnings section for one year. Interested parties may also dial 415-228-4850 (passcode: NORD). A telephone replay will be available beginning approximately one hour after the conclusion of the call by dialing 203-369-1087 until the close of business on May 22, 2014.
ABOUT NORDSTROM
Nordstrom, Inc. is one of the leading fashion specialty retailers based in the U.S. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 270 stores in 36 states, including 117 full-line stores, 150 Nordstrom Racks, two Jeffrey boutiques and one clearance store. Nordstrom also serves customers through Nordstrom.com and the newly developed site NordstromRack.com, which operates in partnership with its online private sale site, HauteLook. Nordstrom, Inc.’s common stock is publicly traded on the NYSE under the symbol JWN.
Certain statements in this news release contain or may suggest "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial outlook for the fiscal year ending January 31, 2015, anticipated annual comparable sales rate, anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of the company's management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: successful execution of our growth strategy, including expansion into new markets, acquisitions, investments in our stores and online, our ability to realize the anticipated benefits from such growth initiatives, and the timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties; our ability to manage the transformation of our business/financial model as we increase our investments in growth opportunities, including our online business and our ability to manage related organizational changes; exploration of a partnering relationship with respect to the Company's credit card receivables; our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders; effective inventory management, disruptions in our supply chain and our ability to control costs; the impact of any systems failures, cybersecurity and/or security breaches, including any security breach of our systems or those of a third-party provider that results in the theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; our ability to effectively utilize data in strategic planning and decision-making; efficient and proper allocation of our capital resources; our ability to safeguard our reputation and maintain our vendor relationships; the impact of economic and market conditions and the resultant impact on consumer spending patterns; our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online; the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry; weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the impact on consumer spending patterns; our compliance with applicable banking-related laws and regulations impacting our ability to extend credit to our customers, employment laws and regulations, certain international laws and regulations, other laws and regulations applicable to us, including the outcome of claims and litigation and resolution of tax matters, and ethical standards; impact of the current regulatory environment and
financial system and health care reforms; compliance with debt covenants, availability and cost of credit, changes in interest rates, and trends in debt repayment patterns, personal bankruptcies, and bad debt write-offs; and the timing and amounts of share repurchases by the company, if any, or any share issuances by the company, including issuances associated with option exercises or other matters. Our SEC reports, including our Form 10-K for the fiscal year ended February 1, 2014, contain other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited; amounts in millions, except per share amounts)
Quarter Ended | |||||||
May 3, 2014 | May 4, 2013 | ||||||
Net sales | $ | 2,837 | $ | 2,657 | |||
Credit card revenues | 94 | 92 | |||||
Total revenues | 2,931 | 2,749 | |||||
Cost of sales and related buying and occupancy costs | (1,822 | ) | (1,673 | ) | |||
Selling, general and administrative expenses | (844 | ) | (801 | ) | |||
Earnings before interest and income taxes | 265 | 275 | |||||
Interest expense, net | (35 | ) | (39 | ) | |||
Earnings before income taxes | 230 | 236 | |||||
Income tax expense | (90 | ) | (91 | ) | |||
Net earnings | $ | 140 | $ | 145 | |||
Earnings per share: | |||||||
Basic | $ | 0.74 | $ | 0.74 | |||
Diluted | $ | 0.72 | $ | 0.73 | |||
Weighted-average shares outstanding: | |||||||
Basic | 189.8 | 195.6 | |||||
Diluted | 192.7 | 199.0 | |||||
NORDSTROM, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; amounts in millions)
May 3, 2014 | February 1, 2014 | May 4, 2013 | |||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 1,015 | $ | 1,194 | $ | 1,190 | |||||
Accounts receivable, net | 2,167 | 2,177 | 2,087 | ||||||||
Merchandise inventories | 1,698 | 1,531 | 1,485 | ||||||||
Current deferred tax assets, net | 238 | 239 | 226 | ||||||||
Prepaid expenses and other | 89 | 87 | 84 | ||||||||
Total current assets | 5,207 | 5,228 | 5,072 | ||||||||
Land, buildings and equipment (net of accumulated depreciation of $4,502, $4,395 and $4,164) | 3,011 | 2,949 | 2,624 | ||||||||
Goodwill | 175 | 175 | 175 | ||||||||
Other assets | 240 | 222 | 264 | ||||||||
Total assets | $ | 8,633 | $ | 8,574 | $ | 8,135 | |||||
Liabilities and Shareholders' Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 1,347 | $ | 1,263 | $ | 1,206 | |||||
Accrued salaries, wages and related benefits | 295 | 395 | 230 | ||||||||
Other current liabilities | 982 | 876 | 856 | ||||||||
Current portion of long-term debt | 7 | 7 | 7 | ||||||||
Total current liabilities | 2,631 | 2,541 | 2,299 | ||||||||
Long-term debt, net | 3,110 | 3,106 | 3,119 | ||||||||
Deferred property incentives, net | 499 | 498 | 482 | ||||||||
Other liabilities | 357 | 349 | 347 | ||||||||
Commitments and contingencies | |||||||||||
Shareholders' equity: | |||||||||||
Common stock, no par value: 1,000 shares authorized; 189.3, 191.2 and 195.0 shares issued and outstanding | 1,896 | 1,827 | 1,698 | ||||||||
Retained earnings | 177 | 292 | 235 | ||||||||
Accumulated other comprehensive loss | (37 | ) | (39 | ) | (45 | ) | |||||
Total shareholders' equity | 2,036 | 2,080 | 1,888 | ||||||||
Total liabilities and shareholders' equity | $ | 8,633 | $ | 8,574 | $ | 8,135 | |||||
NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; amounts in millions)
Quarter Ended | |||||||
May 3, 2014 | May 4, 2013 | ||||||
Operating Activities | |||||||
Net earnings | $ | 140 | $ | 145 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization expenses | 118 | 109 | |||||
Amortization of deferred property incentives and other, net | (18 | ) | (16 | ) | |||
Deferred income taxes, net | (16 | ) | (11 | ) | |||
Stock-based compensation expense | 13 | 17 | |||||
Tax benefit from stock-based compensation | 4 | 6 | |||||
Excess tax benefit from stock-based compensation | (5 | ) | (7 | ) | |||
Bad debt expense | 15 | 14 | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable | (16 | ) | 8 | ||||
Merchandise inventories | (184 | ) | (143 | ) | |||
Prepaid expenses and other assets | (2 | ) | (5 | ) | |||
Accounts payable | 131 | 141 | |||||
Accrued salaries, wages and related benefits | (98 | ) | (174 | ) | |||
Other current liabilities | 105 | 54 | |||||
Deferred property incentives | 22 | 16 | |||||
Other liabilities | 8 | 7 | |||||
Net cash provided by operating activities | 217 | 161 | |||||
Investing Activities | |||||||
Capital expenditures | (174 | ) | (149 | ) | |||
Change in credit card receivables originated at third parties | 12 | 20 | |||||
Other, net | (3 | ) | (2 | ) | |||
Net cash used in investing activities | (165 | ) | (131 | ) | |||
Financing Activities | |||||||
Proceeds from long-term borrowings | 8 | — | |||||
Principal payments on long-term borrowings | (2 | ) | (2 | ) | |||
(Decrease) increase in cash book overdrafts | (21 | ) | 75 | ||||
Cash dividends paid | (63 | ) | (59 | ) | |||
Payments for repurchase of common stock | (207 | ) | (174 | ) | |||
Proceeds from issuances under stock compensation plans | 50 | 31 | |||||
Excess tax benefit from stock-based compensation | 5 | 7 | |||||
Other, net | (1 | ) | (3 | ) | |||
Net cash used in financing activities | (231 | ) | (125 | ) | |||
Net decrease in cash and cash equivalents | (179 | ) | (95 | ) | |||
Cash and cash equivalents at beginning of period | 1,194 | 1,285 | |||||
Cash and cash equivalents at end of period | $ | 1,015 | $ | 1,190 | |||
NORDSTROM, INC.
STATEMENTS OF EARNINGS BY BUSINESS
(unaudited; dollar and share amounts in millions)
Retail Business
Our Retail business includes our Nordstrom branded full-line stores and website, our Nordstrom Rack stores, and our other retail channels including HauteLook, NordstromRack.com and our Jeffrey stores. It also includes unallocated corporate center expenses. The following table summarizes the results of our Retail business for the first quarter of 2014 compared with the first quarter of 2013:
Quarter Ended | |||||||||||||
May 3, 2014 | May 4, 2013 | ||||||||||||
Amount | % of net sales1 | Amount | % of net sales1 | ||||||||||
Net sales | $ | 2,837 | 100.0 | % | $ | 2,657 | 100.0 | % | |||||
Cost of sales and related buying and occupancy costs | (1,820 | ) | (64.2 | %) | (1,672 | ) | (62.9 | %) | |||||
Gross profit | 1,017 | 35.8 | % | 985 | 37.1 | % | |||||||
Selling, general and administrative expenses | (793 | ) | (28.0 | %) | (754 | ) | (28.4 | %) | |||||
Earnings before interest and income taxes | 224 | 7.9 | % | 231 | 8.7 | % | |||||||
Interest expense, net | (31 | ) | (1.1 | %) | (33 | ) | (1.2 | %) | |||||
Earnings before income taxes | $ | 193 | 6.8 | % | $ | 198 | 7.5 | % | |||||
1Subtotals and totals may not foot due to rounding.
NORDSTROM, INC.
STATEMENTS OF EARNINGS BY BUSINESS
(unaudited; dollar and share amounts in millions)
Credit
Our Credit business earns finance charges, interchange fees, late fees and other revenue through operation of the Nordstrom private label and Nordstrom VISA credit cards. The following tables summarize the results of our Credit business for the first quarter of 2014 compared with the first quarter of 2013:
Quarter Ended | |||||||
May 3, 2014 | May 4, 2013 | ||||||
Credit card revenues | $ | 94 | $ | 92 | |||
Credit expenses | (53 | ) | (48 | ) | |||
Earnings before interest and income taxes | 41 | 44 | |||||
Interest expense | (4 | ) | (6 | ) | |||
Earnings before income taxes | $ | 37 | $ | 38 | |||
Quarter Ended | |||||||
May 3, 2014 | May 4, 2013 | ||||||
Allowance at beginning of period | $ | 80 | $ | 85 | |||
Bad debt expense | 15 | 14 | |||||
Write-offs | (19 | ) | (21 | ) | |||
Recoveries | 4 | 7 | |||||
Allowance at end of period | $ | 80 | $ | 85 | |||
Annualized net write-offs as a percentage of average credit card receivables | 2.9 | % | 2.8 | % | |||
Annualized net write-offs (including finance charges and fees) as a percentage of average credit card receivables | 3.4 | % | 3.3 | % | |||
30 days or more delinquent as a percentage of ending credit card receivables | 1.6 | % | 1.7 | % | |||
Allowance as a percentage of ending credit card receivables | 3.7 | % | 4.1 | % | |||
NORDSTROM, INC.
RETURN ON INVESTED CAPITAL (NON-GAAP FINANCIAL MEASURE)
(unaudited; dollar and share amounts in millions)
We believe ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important component of shareholders' return over the long term. In addition, we incorporate ROIC in our executive incentive compensation measures. For the 12 fiscal months ended May 3, 2014, our ROIC decreased to 13.3% compared with 14.0% for the 12 fiscal months ended May 4, 2013.
ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to ROIC is return on assets. The following is a reconciliation of the components of ROIC and return on assets:
12 Fiscal Months Ended | |||||||
May 3, 2014 | May 4, 2013 | ||||||
Net earnings | $ | 728 | $ | 732 | |||
Add: income tax expense | 454 | 450 | |||||
Add: interest expense | 158 | 160 | |||||
Earnings before interest and income tax expense | 1,340 | 1,342 | |||||
Add: rent expense | 131 | 111 | |||||
Less: estimated depreciation on capitalized operating leases1 | (70 | ) | (59 | ) | |||
Net operating profit | 1,401 | 1,394 | |||||
Estimated income tax expense2 | (538 | ) | (531 | ) | |||
Net operating profit after tax | $ | 863 | $ | 863 | |||
Average total assets3 | $ | 8,490 | $ | 8,175 | |||
Less: average non-interest-bearing current liabilities4 | (2,492 | ) | (2,303 | ) | |||
Less: average deferred property incentives3 | (492 | ) | (491 | ) | |||
Add: average estimated asset base of capitalized operating leases5 | 969 | 777 | |||||
Average invested capital | $ | 6,475 | $ | 6,158 | |||
Return on assets | 8.6 | % | 8.9 | % | |||
ROIC | 13.3 | % | 14.0 | % | |||
1Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease, or we had purchased the property. Asset base is calculated as described in footnote 5 below.
2Based upon our effective tax rate multiplied by the net operating profit for the 12 fiscal months ended May 3, 2014 and May 4, 2013.
3Based upon the trailing 12-month average.
4Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other current liabilities.
5Based upon the trailing 12-month average of the monthly asset base. The asset base for each month is calculated as the trailing 12-months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1.
NORDSTROM, INC.
ADJUSTED DEBT TO EBITDAR (NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in millions)
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 cost of capital. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of less than four times. As of May 3, 2014 and May 4, 2013, our Adjusted Debt to EBITDAR was 2.1.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted Debt to EBITDAR is debt to net earnings. The following is a reconciliation of the components of Adjusted Debt to EBITDAR and debt to net earnings:
20141 | 20131 | ||||||
Debt | $ | 3,117 | $ | 3,126 | |||
Add: estimated capitalized operating lease liability2 | 1,045 | 890 | |||||
Less: fair value hedge adjustment included in long-term debt | (45 | ) | (57 | ) | |||
Adjusted Debt | $ | 4,117 | $ | 3,959 | |||
Net earnings | $ | 728 | $ | 732 | |||
Add: income tax expense | 454 | 450 | |||||
Add: interest expense, net | 157 | 158 | |||||
Earnings before interest and income taxes | 1,339 | 1,340 | |||||
Add: depreciation and amortization expenses | 464 | 438 | |||||
Add: rent expense | 131 | 111 | |||||
Add: non-cash acquisition-related charges | 7 | 9 | |||||
EBITDAR | $ | 1,941 | $ | 1,898 | |||
Debt to Net Earnings | 4.3 | 4.3 | |||||
Adjusted Debt to EBITDAR | 2.1 | 2.1 | |||||
1The components of Adjusted Debt are as of May 3, 2014 and May 4, 2013, while the components of EBITDAR are for the 12 months ended May 3, 2014 and May 4, 2013.
2Based upon the estimated lease liability as of the end of the period, calculated as the trailing 12-months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease, or we had purchased the property.
NORDSTROM, INC.
FREE CASH FLOW (NON-GAAP FINANCIAL MEASURE)
(unaudited; amounts in millions)
Free Cash Flow is one of our key liquidity measures, and when used in conjunction with GAAP measures, provides investors with a meaningful analysis of our ability to generate cash from our business. For the first quarter of 2014, Free Cash Flow decreased to $(29) compared with $48 for the first quarter of 2013.
Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
Quarter Ended | |||||||
May 3, 2014 | May 4, 2013 | ||||||
Net cash provided by operating activities | $ | 217 | $ | 161 | |||
Less: capital expenditures | (174 | ) | (149 | ) | |||
Less: cash dividends paid | (63 | ) | (59 | ) | |||
Add: change in credit card receivables originated at third parties | 12 | 20 | |||||
(Less) Add: change in cash book overdrafts | (21 | ) | 75 | ||||
Free Cash Flow | $ | (29 | ) | $ | 48 | ||
Net cash used in investing activities | $ | (165 | ) | $ | (131 | ) | |
Net cash used in financing activities | $ | (231 | ) | $ | (125 | ) | |