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Published: 2023-12-01 00:00:00 ET

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2023


☐			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						91-0515058
(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)

206-628-2111

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, without par value	JWN	New York Stock Exchange
Common stock purchase rights		New York Stock Exchange

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 ☑ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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	☐	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 Exchange Act).

Yes ☐ No ☑

Common stock outstanding as of November 24, 2023: 162,332,792 shares

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TABLE OF CONTENTS


		Page
FORWARD-LOOKING STATEMENTS		3
DEFINITIONS OF COMMONLY USED TERMS		5
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited).	6
	Condensed Consolidated Statements of Earnings	6
	Condensed Consolidated Statements of Comprehensive Earnings	6
	Condensed Consolidated Balance Sheets	7
	Condensed Consolidated Statements of Shareholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements
	Note 1: Basis of Presentation	10
	Note 2: Canada Wind-down	11
	Note 3: Revenue	13
	Note 4: Debt and Credit Facilities	14
	Note 5: Fair Value Measurements	14
	Note 6: Stock-based Compensation	15
	Note 7: Shareholders’ Equity	16
	Note 8: Earnings Per Share	17
	Note 9: Segment Reporting	17
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	29
Item 4.	Controls and Procedures.	30
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings.	31
Item 1A.	Risk Factors.	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	31
Item 3.	Defaults Upon Senior Securities.	31
Item 4.	Mine Safety Disclosures.	31
Item 5.	Other Information.	31
Item 6.	Exhibits.	31
Exhibit Index		32
Signatures		33

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements regarding matters that are not historical facts, and are based on our management’s beliefs and assumptions and on information currently available to our management. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. In some cases, forward-looking statements can be identified 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. These risks, uncertainties and other factors include, but are not limited to, our anticipated financial outlook for the fiscal year ending February 3, 2024, trends in our operations and the following:

Strategic and Operational

•successful execution of our customer strategy to provide customers superior service, products and experiences, online, through our fulfillment capabilities and in stores,

•timely and effective implementation and execution of our evolving business model, including:

◦winning at our market strategy by providing a differentiated and seamless experience, which consists of the integration of our digital and physical assets, development of new supply chain capabilities and timely delivery of products,

◦broadening the reach of Nordstrom Rack, including delivering great brands at great prices and leveraging our digital and physical assets,

◦enhancing our platforms and processes to deliver core capabilities to drive customer, employee and partner experiences both digitally and in stores,

•our ability to effectively manage our merchandise strategy, including our ability to offer compelling assortments and optimize our inventory to ensure we have the right product mix and quantity in each of our channels and locations, allowing us to get closer to our customers,

•our ability to effectively allocate and scale our marketing strategies and resources, as well as realize the expected benefits of, Nordstrom Media Network, The Nordy Club, advertising and promotional campaigns,

•our ability to respond to the evolving retail environment, including new fashion trends, environmental considerations and our customers’ changing expectations of service and experience in stores and online, and our development and outcome of new market strategies and customer offerings,

•our ability to mitigate the effects of disruptions in the global supply chain, including factory closures, transportation challenges or stoppages of certain imports, and rising prices of raw materials and freight expenses,

•our ability to control costs through effective inventory management and supply chain processes and systems,

•our ability to acquire, develop and retain qualified and diverse talent by providing appropriate training, compelling work environments and competitive compensation and benefits, especially in areas with increased market compensation, all in the context of any labor shortage and competition for talent,

•our ability to realize expected benefits, anticipate and respond to potential risks and appropriately manage costs associated with our credit card revenue sharing program,

•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 or if our strategic direction changes,

Data, Cybersecurity and Information Technology

•successful execution of our information technology strategy, including engagement with third-party service providers,

•the impact of any system 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 that results in the interruption of business processes or causes financial loss, and our compliance with information security and privacy laws and regulations, as well as third-party contractual obligations in the event of such an incident,

Reputation and Relationships

•our ability to maintain our reputation and relationships with our customers, employees, vendors and third-party partners and landlords,

•our ability to act responsibly and with transparency with respect to our corporate social responsibility practices and initiatives, meet any communicated targets, goals or milestones and adapt to evolving reporting requirements,

•our ability to market our brand and distribute our products through a variety of third-party publisher or platform channels, as well as access mobile operating system and website identifiers for personalized delivery of targeted advertising,

•the impact of a concentration of stock ownership on our shareholders’ ability to influence corporate matters,

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Investment and Capital

•efficient and proper allocation of our capital resources,

•our ability to properly balance our investments in technology, Supply Chain Network facilities and existing and new store locations, including the expansion of our market strategy,

•our ability to maintain or expand our presence, including timely completion of construction associated with Supply Chain Network facilities and new, relocated and remodeled stores, as well as any potential store closures, all of which may be impacted by third parties, consumer demand and other natural or man-made disruptions, and government responses to any such disruptions,

•market fluctuations, increases in operating costs, exit costs and overall liabilities and losses associated with owning and leasing real estate,

•compliance with debt and operating covenants, availability and cost of credit, changes in our credit rating and changes in interest rates,

•the actual timing, price, manner and amounts of future share repurchases, dividend payments or share issuances, if any, subject to the discretion of our Board of Directors, contractual commitments, market and economic conditions and applicable SEC rules,

Economic and External

•the length and severity of epidemics or pandemics, or other catastrophic events, and the related impact on customer behavior, store and online operations and supply chain functions, as well as our future consolidated financial position, results of operations and cash flows,

•the impact of the seasonal nature of our business and cyclical customer spending,

•the impact of economic and market conditions, including inflation and measures to control inflation, and resulting changes to customer purchasing behavior, unemployment and bankruptcy rates, as well as any fiscal stimulus or the cessation of any fiscal stimulus, and the resulting impact on consumer spending and credit patterns,

•the impact of economic, environmental or political conditions,

•the impact of changing traffic patterns at shopping centers and malls,

•financial insecurity or potential insolvency experienced by our vendors, suppliers, developers, landlords, competitors or customers,

•weather conditions, natural disasters, climate change, national security concerns, global conflicts, civil unrest, other market and supply chain disruptions, the effects of tariffs, or the prospects of these events, and the resulting impact on consumer spending patterns or information technology systems and communications,

Legal and Regulatory

•our, and our vendors’, compliance with applicable domestic and international laws, regulations and ethical standards, minimum wage, employment and tax, information security and privacy, consumer credit and environmental regulations and the outcome of any claims, litigation and regulatory investigations and resolution of such matters,

•the impact of changes in laws relating to consumer credit, the current regulatory environment, the financial system 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 outcome of events or occurrences related to the wind-down of business operations in Canada.

These and other factors, including those factors we discuss in Part II, Item 1A. Risk Factors, could affect our financial results and cause our actual results to differ materially from any forward-looking information we may provide. Given these risks, uncertainties and other factors, undue reliance should not be placed on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing, and these estimates and assumptions may prove to be incorrect. This Quarterly Report on Form 10-Q should be read 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 “we,” “us,” “our,” or the “Company” mean Nordstrom, Inc. and its subsidiaries. On March 2, 2023, Nordstrom Canada commenced a wind-down of its business operations (see Note 2: Canada Wind-down) and as of this date, Nordstrom Canada was deconsolidated from Nordstrom, Inc.’s financial statements. Nordstrom Canada results prior to March 2, 2023 are included in the Company’s Condensed Consolidated Financial Statements.

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 Quarterly Report on Form 10-Q, 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. In addition, forward-looking statements may be impacted by the actual outcome of events or occurrences related to the wind-down of business operations in Canada.

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DEFINITIONS OF COMMONLY USED TERMS


Term						Definition


2022 Annual Report						Annual Report on Form 10-K filed on March 10, 2023
Adjusted EPS						Adjusted earnings (loss) per diluted share (a non-GAAP financial measure)
Adjusted ROIC						Adjusted return on invested capital (a non-GAAP financial measure)

ASC						Accounting Standards Codification
ASU						Accounting Standards Update

CCAA						Companies’ Creditors Arrangement Act
Digital sales						Sales conducted through a digital platform such as our websites or mobile apps. Digital sales may be self-guided by the customer, as in a traditional online order, or facilitated by a salesperson using a virtual styling or selling tool. Digital sales may be delivered to the customer or picked up in our Nordstrom stores, Nordstrom Rack stores or Nordstrom Local service hubs. Digital sales also includes a reserve for estimated returns.
EBIT						Earnings (loss) before interest and income taxes
EBIT Margin						Earnings (loss) before interest and income taxes as a percent of net sales
EBITDA						Earnings (loss) before interest, income taxes, depreciation and amortization
EBITDAR						Earnings (loss) before interest, income taxes, depreciation, amortization and rent, as defined by our Revolver covenant
EPS						Earnings (loss) per share
ESPP						Employee Stock Purchase Plan
Exchange Act						Securities Exchange Act of 1934, as amended
FASB						Financial Accounting Standards Board
Third quarter of 2023						13 fiscal weeks ending October 28, 2023
Third quarter of 2022						13 fiscal weeks ending October 29, 2022
Fiscal year 2023						53 fiscal weeks ending February 3, 2024
Fiscal year 2022						52 fiscal weeks ending January 28, 2023
GAAP						U.S. generally accepted accounting principles
GMV						Gross merchandise value
Gross profit						Net sales less cost of sales and related buying and occupancy costs
Leverage Ratio						The sum of our funded debt and operating lease liabilities divided by the preceding twelve months of Adjusted EBITDAR as defined by our Revolver covenant
MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations
NAV						Net asset value
Nordstrom						Nordstrom.com, Nordstrom U.S. stores, Nordstrom Local and ASOS \| Nordstrom. Nordstrom also included Canada operations prior to March 2, 2023, inclusive of Nordstrom.ca, Nordstrom Canadian stores and Nordstrom Rack Canadian stores, and TrunkClub.com prior to October 2022.
Nordstrom Canada						Nordstrom Canada Retail, Inc., Nordstrom Canada Holdings, LLC and Nordstrom Canada Holdings II, LLC
Nordstrom Local						Nordstrom Local service hubs, which offer order pickups, returns, alterations and other services

Nordstrom Rack						NordstromRack.com, Nordstrom Rack U.S. stores and Last Chance clearance stores
The Nordy Club						Our customer loyalty program
NYSE						New York Stock Exchange
Operating Lease Cost						Fixed rent expense, including fixed common area maintenance expense, net of developer reimbursement amortization
Property incentives						Developer and vendor reimbursements
PSU						Performance share unit


Revolver						Senior revolving credit facility
Rights Plan						Our limited-duration Shareholder Rights Agreement adopted by the Board of Directors
ROU asset						Operating lease right-of-use asset
RSU						Restricted stock unit
SEC						Securities and Exchange Commission
SG&A						Selling, general and administrative
Supply Chain Network						Fulfillment centers that primarily process and ship orders to our customers, distribution centers that primarily process and ship merchandise to our stores and other facilities and omni-channel centers that both fulfill customer orders and ship merchandise to our stores

TD						Toronto-Dominion Bank, N.A.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Amounts in millions except per share amounts)

(Unaudited)


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Net sales	$3,200	$3,433	$9,926	$10,891
Credit card revenues, net	120	113	347	320
Total revenues	3,320	3,546	10,273	11,211
Cost of sales and related buying and occupancy costs	(2,080)	(2,294)	(6,488)	(7,211)
Selling, general and administrative expenses	(1,163)	(1,249)	(3,466)	(3,722)
Canada wind-down costs	25	—	(284)	—
Earnings before interest and income taxes	102	3	35	278
Interest expense, net	(24)	(32)	(78)	(101)
Earnings (loss) before income taxes	78	(29)	(43)	177
Income tax (expense) benefit	(11)	9	43	(51)
Net earnings (loss)	$67	($20)	$—	$126

Earnings (loss) per share:
Basic	$0.41	($0.13)	$—	$0.79
Diluted	$0.41	($0.13)	$—	$0.77

Weighted-average shares outstanding:
Basic	162.0	159.5	161.5	160.1
Diluted	163.6	159.5	161.5	162.3

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Amounts in millions)

(Unaudited)


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Net earnings (loss)	$67	($20)	$—	$126
Foreign currency translation adjustment	—	(10)	(4)	(11)
Post retirement plan adjustments, net of tax	—	1	—	2
Comprehensive net earnings (loss)	$67	($29)	($4)	$117

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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NORDSTROM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions)

(Unaudited)


	October 28, 2023	January 28, 2023	October 29, 2022
Assets
Current assets:
Cash and cash equivalents	$375	$687	$293
Accounts receivable, net	322	265	288
Merchandise inventories	2,626	1,941	2,878
Prepaid expenses and other current assets	392	316	348
Total current assets	3,715	3,209	3,807

Land, property and equipment (net of accumulated depreciation of $8,258, $8,289 and $8,135)	3,187	3,351	3,373
Operating lease right-of-use assets	1,402	1,470	1,490
Goodwill	249	249	249
Other assets	460	466	476
Total assets	$9,013	$8,745	$9,395

Liabilities and Shareholders’ Equity
Current liabilities:
Borrowings under revolving line of credit	$—	$—	$100
Accounts payable	1,890	1,238	2,073
Accrued salaries, wages and related benefits	245	291	242
Current portion of operating lease liabilities	232	258	256
Other current liabilities	1,092	1,203	1,168
Current portion of long-term debt	250	—	—
Total current liabilities	3,709	2,990	3,839

Long-term debt, net	2,611	2,856	2,855

Noncurrent operating lease liabilities	1,403	1,526	1,544
Other liabilities	561	634	551

Commitments and contingencies

Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized; 162.3, 160.1 and 159.7 shares issued and outstanding	3,407	3,353	3,334
Accumulated deficit	(2,681)	(2,588)	(2,669)
Accumulated other comprehensive gain (loss)	3	(26)	(59)
Total shareholders’ equity	729	739	606
Total liabilities and shareholders’ equity	$9,013	$8,745	$9,395

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in millions except per share amounts)

(Unaudited)


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Common stock
Balance, beginning of period	$3,388	$3,314	$3,353	$3,283
Issuance of common stock under stock compensation plans	7	9	19	18
Stock-based compensation	12	11	35	33
Balance, end of period	$3,407	$3,334	$3,407	$3,334

Accumulated deficit
Balance, beginning of period	($2,717)	($2,601)	($2,588)	($2,652)

Net earnings (loss)	67	(20)	—	126
Dividends	(31)	(30)	(92)	(90)
Repurchase of common stock	—	(18)	(1)	(53)
Balance, end of period	($2,681)	($2,669)	($2,681)	($2,669)

Accumulated other comprehensive gain (loss)
Balance, beginning of period	$3	($50)	($26)	($50)
Accumulated translation loss reclassified to earnings	—	—	33	—
Other comprehensive loss	—	(9)	(4)	(9)
Balance, end of period	$3	($59)	$3	($59)

Total shareholders’ equity	$729	$606	$729	$606

Dividends per share	$0.19	$0.19	$0.57	$0.57

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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NORDSTROM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Nine Months Ended
	October 28, 2023	October 29, 2022
Operating Activities
Net earnings	$—	$126
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expenses	430	453
Canada wind-down costs	207	—
Asset impairment	—	80
Right-of-use asset amortization	132	141
Deferred income taxes, net	2	(85)
Stock-based compensation expense	41	50
Other, net	(61)	(53)
Change in operating assets and liabilities:
Merchandise inventories	(687)	(550)
Other current and noncurrent assets	(140)	(61)
Accounts payable	509	469
Accrued salaries, wages and related benefits	(41)	(142)
Lease liabilities	(203)	(201)
Other current and noncurrent liabilities	(82)	13
Net cash provided by operating activities	107	240

Investing Activities
Capital expenditures	(375)	(325)
Decrease in cash and cash equivalents resulting from Canada deconsolidation	(33)	—
Proceeds from the sale of assets and other, net	32	82
Net cash used in investing activities	(376)	(243)

Financing Activities
Proceeds from revolving line of credit	—	100



Change in cash book overdrafts	37	21
Cash dividends paid	(92)	(90)
Payments for repurchase of common stock	(1)	(53)
Proceeds from issuances under stock compensation plans	19	18
Other, net	(6)	(19)
Net cash used in financing activities	(43)	(23)

Effect of exchange rate changes on cash and cash equivalents	—	(3)
Net decrease in cash and cash equivalents	(312)	(29)
Cash and cash equivalents at beginning of period	687	322
Cash and cash equivalents at end of period	$375	$293

Supplemental Cash Flow Information
Income taxes paid, net of refunds received	$35	$161
Interest paid, net of capitalized interest	106	108

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

NOTE 1: BASIS OF PRESENTATION

The interim Condensed Consolidated Financial Statements have been prepared on a basis consistent in all material respects with the accounting policies described and applied in our 2022 Annual Report and reflect all adjustments of a normal recurring nature that are, in management’s opinion, necessary for the fair presentation of the results of operations, financial position and cash flows for the periods presented.

The Condensed Consolidated Financial Statements as of and for the periods ended October 28, 2023 and October 29, 2022 are unaudited. The Condensed Consolidated Balance Sheet as of January 28, 2023 has been derived from the audited Consolidated Financial Statements included in our 2022 Annual Report. The interim Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and related footnote disclosures contained in our 2022 Annual Report.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the balances of Nordstrom, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation.

On March 2, 2023, Nordstrom Canada commenced a wind-down of its business operations (see Note 2: Canada Wind-down) and as of this date, Nordstrom Canada was deconsolidated from Nordstrom, Inc.’s financial statements. Nordstrom Canada results prior to March 2, 2023 are included in the Company’s Condensed Consolidated Financial Statements.

Fiscal Year

We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2023 relate to the 53-week fiscal year ending February 3, 2024. References to any other years included within this document are based on a 52-week fiscal year.

Seasonality

Our business, like that of other retailers, is subject to seasonal fluctuations and cyclical trends in consumer spending. Our sales are typically higher in our second quarter, which usually includes most of our Anniversary Sale, and in the fourth quarter due to the holidays. One week of our Anniversary Sale shifted from the second quarter in 2022 to the third quarter in 2023.

Results for any one quarter are not indicative of the results that may be achieved for a full fiscal year. We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and receipts increase prior to the Anniversary Sale and in the fall as we prepare for the holiday shopping season (typically from November through December). Consistent with our seasonal fluctuations, our working capital requirements have historically increased during the months leading up to the Anniversary Sale and the holidays as we purchase inventory in anticipation of increased sales.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires that we make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results may differ from these estimates and assumptions. Our most significant accounting judgments and estimates include revenue recognition, inventory valuation, long-lived asset recoverability, income taxes and contingent liabilities, including assumptions related to our Canada wind-down, all of which involve assumptions about future events.

Leases

We incurred operating lease liabilities arising from lease agreements of $200 for the nine months ended October 28, 2023 and $212 for the nine months ended October 29, 2022.

Supply Chain Impairment

During the third quarter of 2022, as part of our supply chain optimization initiatives, we decommissioned certain supply chain technology and related assets and incurred a non-cash impairment charge of $70. This included $58 on long-lived tangible assets and $12 on ROU assets to adjust the carrying values to their estimated fair values. These charges are included in our Corporate/Other SG&A expense on the Condensed Consolidated Statement of Earnings and asset impairment on the Condensed Consolidated Statement of Cash Flows. We evaluated the assets for impairment by comparing the carrying values to the related projected future cash flows, among other quantitative and qualitative analyses. After impairment, the carrying values of the remaining long-lived tangible and ROU assets were not material.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

Trunk Club Wind-down

During the first quarter of 2022, in conjunction with the decision to sunset the Trunk Club brand, we incurred non-cash impairment charges of $10 related to a Trunk Club property to adjust the carrying value to the estimated fair value. These charges are included in our Retail segment SG&A expense on the Condensed Consolidated Statement of Earnings. During the second quarter of 2022, we also incurred additional costs of $8 associated with the wind-down of Trunk Club. These expenses are primarily included in our Retail segment cost of sales and related buying and occupancy costs on the Condensed Consolidated Statement of Earnings. All charges are classified as operating activities on the Condensed Consolidated Statement of Cash Flows.

Investments

From time to time, we invest in financial interests of private companies and venture capital funds that align with our business and omni-channel strategies, which are recorded in other assets in the Condensed Consolidated Balance Sheets and proceeds from the sale of assets and other, net within investing activities on the Condensed Consolidated Statements of Cash Flows.

During the first quarter of 2022, in connection with the sale of a limited partnership interest in a corporate office building, we recognized a gain of $51 in our Corporate/Other SG&A expense in the Condensed Consolidated Statement of Earnings and $73 in proceeds from the sale of assets and other, net within investing activities on the Condensed Consolidated Statement of Cash Flows.

Reclassification

We reclassified amounts in our fiscal 2022 Condensed Consolidated Statement of Cash Flows to conform with current period presentation. As a result, we aggregated:

•Accounts receivable, net with prepaid expenses and other assets into other current and noncurrent assets

•Other current liabilities with other liabilities into other current and noncurrent liabilities

•Tax withholding on share-based awards with other financing, net

These reclassifications had no impact on cash flows from operations, cash flows from investing or cash flows from financing.

NOTE 2: CANADA WIND-DOWN

Background

On March 2, 2023, as part of our initiatives to drive long-term profitable growth and enhance shareholder value, and after careful consideration of all reasonably available options, we announced the decision to discontinue support for Nordstrom Canada’s operations. Accordingly, Nordstrom Canada commenced a wind-down of its business operations, obtaining an Initial Order from the Ontario Superior Court of Justice under the CCAA on March 2, 2023 to facilitate the wind-down in an orderly fashion. Nordstrom Canada’s ecommerce platform ceased operations on March 2, 2023 and the closure of our six Nordstrom and seven Nordstrom Rack stores was completed in June 2023.

The Ontario Superior Court of Justice has appointed a monitor to oversee the wind-down process. Subsequent to the CCAA filing, Nordstrom has been providing limited support to Nordstrom Canada for the purpose of supporting an orderly wind-down, including providing shared services and temporary use of intellectual property.

Wind-down Charges and Deconsolidation of Nordstrom Canada

The following table provides detail of pre-tax charges associated with the wind-down of operations in Canada:


	October 28, 2023
	Quarter Ended	Nine Months Ended
(Gain) loss on Canada write-off1	($14)	$174
Accumulated translation loss reclassified to earnings1	—	33
Contingent liabilities	(5)	72
Other exit costs2	(6)	5
Total pre-tax charges	($25)	$284

1 Non-cash amounts are included in Canada wind-down costs on the Condensed Consolidated Statement of Cash Flows.

2 Other exit costs include funding an employee trust, net of expected recoveries, and professional fees.

These charges are primarily included in Corporate/Other in Note 9: Segment Reporting. The decrease in cash due to the deconsolidation of Nordstrom Canada is included in investing activities on the Condensed Consolidated Statement of Cash Flows and all other impacts are included in operating cash flows.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

Loss on Canada Write-off and Accumulated Translation Loss

While Nordstrom continues to own 100% of the shares of Nordstrom Canada, as of March 2, 2023, the date of the CCAA filing, we no longer have a controlling interest under GAAP and have deconsolidated Nordstrom Canada. We hold a variable interest in the Nordstrom Canada entities, which are considered variable interest entities, but are not consolidated, as we are no longer the primary beneficiary.

For the nine months ended October 28, 2023, we recorded a pre-tax loss on Canada write-off of $174 that included the derecognition of Nordstrom Canada’s assets and liabilities and the write-down of both our Nordstrom Canada investment and related-party receivables to estimated fair value. In addition, in the first quarter of 2023, we recognized a charge of $33 related to the derecognition of the accumulated comprehensive loss on foreign currency translation.

To assess the estimated fair value of our Nordstrom Canada investment and our related-party receivables, we estimated the assets available for distribution in relation to expected claims. At the time of filing, the estimated amount of Nordstrom Canada’s liabilities exceeded the estimated fair value of assets available for distribution to creditors, and in relation to the receivables, we may not recover significant proceeds. As a result, our fair value was recorded as zero in our Condensed Consolidated Balance Sheets as of April 29, 2023. As of October 28, 2023, we adjusted our receivables by an immaterial amount based on currently available information.

Prior to deconsolidation, Nordstrom made loans to the Canadian subsidiaries and incurred liabilities related to certain intercompany charges. These were considered intercompany transactions and were eliminated in consolidation of Nordstrom. Subsequent to deconsolidation, these liabilities and receivables were no longer eliminated through consolidation, are considered related-party transactions and are recorded in our Condensed Consolidated Balance Sheets at estimated fair value. As of October 28, 2023, Nordstrom had a net outstanding liability to Nordstrom Canada of $50 related to certain intercompany charges incurred prior to deconsolidation. In the third quarter of 2023, we reduced the estimated liability by $12 based on the amount we ultimately expect to pay based on currently available information.

Contingent Liabilities and Guarantees

In the third quarter of 2023, Nordstrom, Inc. reached a settlement with former landlords related to guarantees of certain lease obligations of Nordstrom Canada. As part of the agreements, we have made cash payments to the former landlords in exchange for a release of substantially all our guarantee obligations, as well as the right to these landlords’ distributions from Nordstrom Canada as part of the CCAA proceedings. The net financial impact of the expected settlement of these agreements are materially consistent with amounts previously recorded in our financial statements.

Employee Trust

In connection with the filing, Nordstrom established an employee trust to fund termination and severance payments to employees of Nordstrom Canada. For the nine months ended October 28, 2023, we contributed $11 based on our best estimate to fully fund the employee trust. We anticipate that the trust will be terminated in the fourth quarter of 2023, and we expect to have no additional commitments related to the trust. The cash balance of the employee trust is not recorded in Nordstrom, Inc.’s Condensed Consolidated Balance Sheet.

Debtor-in-Possession Financing

If needed, Nordstrom has agreed to provide Nordstrom Canada debtor-in-possession financing up to $11. However, we believe Nordstrom Canada has sufficient liquidity to sustain operations through the wind-down period. As of October 28, 2023, there were no outstanding borrowings.

Estimates

As of October 28, 2023, we recorded $69 within accounts receivable, net on the Condensed Consolidated Balance Sheet to reflect the amount we believe probable of receipt as part of the claims process. This includes receipts related to the rights to the former landlords’ distributions, reimbursement of employee trust contributions and other receivables existing at the time of deconsolidation. The receivable and our other estimates are dependent on the outcome of the Nordstrom Canada wind-down process, including the amount of third-party and Nordstrom claims asserted and recognized in the claims process, the amount of assets available for distribution and the negotiation of a CCAA plan of arrangement approved by the creditors and the Ontario Superior Court of Justice. We continue to work through the wind-down process and our estimates of net losses are based on currently available information, our assessment of the validity of certain expected claims and our assessment of the recoverability of amounts receivable from Nordstrom Canada. These estimates may change as new information becomes available and it is reasonably possible that they may materially change from the estimated amounts. Increases in estimated costs to settle claims and decreases in estimated assets available for distribution may result in additional material charges. At the same time, any future decreases in estimated costs to settle claims or increases in estimated assets available for distribution may result in a gain, which would reduce our estimated charges.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

Amendment of Revolver Agreement

On March 1, 2023, we amended our Revolver originally dated May 6, 2022. Prior to this amendment, Nordstrom Canada Retail, Inc. was a loan party under the Revolver and the obligations under the Revolver were secured, in part, by the assets of this subsidiary. As a result of this amendment, Nordstrom Canada Retail, Inc. was removed as a loan party and obligations under the Revolver are no longer secured by these assets. In addition, this amendment excludes as subsidiaries or affiliates all Nordstrom Canada entities and carves out certain CCAA-related expenses and obligations from financial covenants under the Revolver.

Income Taxes

For the nine months ended October 28, 2023, we recognized net tax benefits of $95 primarily related to the write-off of excess tax basis in our investment in Canada, net of tax expense related to an increase in valuation allowance for Canada deferred tax assets.

NOTE 3: REVENUE

Contract Liabilities

Contract liabilities represent our obligation to transfer goods or services to customers and include deferred revenue for The Nordy Club (including points and Nordstrom Notes), gift cards and our amended 2022 TD program agreement. Our contract liabilities are classified on the Condensed Consolidated Balance Sheets as follows:


	Other current liabilities	Other liabilities
Balance as of January 29, 2022	$478	$—
Balance as of April 30, 2022	442	—
Balance as of July 30, 2022	438	—
Balance as of October 29, 2022	430	—

Balance as of January 28, 2023	536	136
Balance as of April 29, 2023	489	123
Balance as of July 29, 2023	464	111
Balance as of October 28, 2023	472	98

Revenues recognized from our beginning contract liability balance were $114 and $268 for the quarter and nine months ended October 28, 2023 and $100 and $232 for the quarter and nine months ended October 29, 2022.

Disaggregation of Revenue

The following table summarizes our disaggregated net sales:


	Quarter Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Nordstrom	$2,051		$2,264		$6,570		$7,324
Nordstrom Rack	1,149		1,169		3,356		3,567

Total net sales	$3,200		$3,433		$9,926		$10,891

Digital sales as a % of total net sales	34	%	34	%	35	%	37	%

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

The following table summarizes the percent of net sales by merchandise category:


	Quarter Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Women’s Apparel	28	%	29	%	28	%	29	%
Shoes	27	%	27	%	26	%	26	%
Men’s Apparel	15	%	15	%	15	%	15	%
Accessories	11	%	11	%	12	%	12	%
Beauty	12	%	11	%	12	%	11	%
Kids’ Apparel	4	%	4	%	4	%	4	%
Other	3	%	3	%	3	%	3	%
Total net sales	100	%	100	%	100	%	100	%

NOTE 4: DEBT AND CREDIT FACILITIES

Credit Facilities

As of October 28, 2023, we had total short-term borrowing capacity of $800 and no outstanding borrowings under the Revolver that expires in May 2027. Provided that we obtain written consent from the lenders, we have the option to increase the Revolver by up to $200, to a total of $1,000, and two options to extend the Revolver for additional one-year terms.

Any outstanding borrowings under the Revolver are secured by substantially all our personal and intellectual property assets and are guaranteed by certain of our subsidiaries. Under the Revolver, our obligation to secure any outstanding borrowings will be eliminated if no default exists and we either have an unsecured investment-grade debt rating from two of three specified ratings agencies, or we have one investment-grade rating and achieve two consecutive fiscal quarters with a Leverage Ratio of less than 2.5 times. On March 1, 2023, we amended our Revolver agreement (see Note 2: Canada Wind-down).

Under the Revolver, we have two financial covenant tests that need to be met on a quarterly basis: a Leverage Ratio that is less than or equal to 4 times and a fixed charge coverage ratio that is greater than or equal to 1.25 times. As of October 28, 2023, we were in compliance with all covenants.

The Revolver contains customary representations, warranties, covenants and terms, including paying a variable rate of interest and a facility fee based on our debt rating, and is available for working capital, capital expenditures and general corporate purposes. The Revolver allows us to issue dividends and repurchase shares provided we are not in default and no default would arise as a result of such payments. If the pro-forma Leverage Ratio after such payments is less than 3 times, then such payments are unlimited. If the pro-forma Leverage Ratio is greater than or equal to 3 times but less than 3.5 times, then we are limited to $100 per fiscal quarter and if the pro-forma Leverage Ratio is greater than or equal to 3.5 times then the limit is $60 per fiscal quarter.

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 of reducing available liquidity under the Revolver by an amount equal to the principal amount of commercial paper outstanding. Conversely, borrowings under our Revolver have the effect of reducing the available capacity of our commercial paper program by an amount equal to the amount outstanding. As of October 28, 2023, we had no issuances outstanding under our commercial paper program.

NOTE 5: FAIR VALUE MEASUREMENTS

We disclose our financial assets and liabilities that are measured at fair value in our Condensed 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

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

Financial Instruments Measured at Carrying Value

Financial instruments measured at carrying value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable and our Revolver, which approximate fair value due to their short-term nature.

Long-term debt is recorded at carrying value. If long-term debt was measured at fair value, we would use quoted market prices of the same or similar issues, which is considered 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:


	October 28, 2023	January 28, 2023	October 29, 2022
Carrying value of long-term debt	$2,861	$2,856	$2,855
Fair value of long-term debt	2,168	2,278	2,224

Non-financial Assets Measured at Fair Value on a Nonrecurring Basis

We measure certain non-financial assets at fair value on a nonrecurring basis, primarily goodwill and long-lived tangible and ROU assets, in connection with periodic evaluations for potential impairment. We estimate the fair value of these assets and liabilities using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements.

During the nine months ended October 28, 2023, we measured our investment in Nordstrom Canada, our related-party receivables and related lease guarantees at fair value (see Note 2: Canada Wind-down for additional information).

Investments Measured at NAV

We have certain investments that are measured at fair value using the NAV per share, or its equivalent, as a practical expedient. This class of investments consists of partnership interests that mainly invest in venture capital strategies with a focus on privately held consumer and technology companies. The NAV is based on the fair value of the underlying net assets owned by the fund and the relative interest of each participating investor in the fair value of the underlying assets. Our interest in these partnerships is generally not redeemable and is subject to significant restrictions regarding transfers. Distributions from each fund will be received as the underlying assets of the funds are liquidated. Liquidation is triggered by clauses within the partnership agreements or at the funds’ stated end date. The contractual terms of the partnership interests range from six to ten years.

NOTE 6: STOCK-BASED COMPENSATION

The following table summarizes our stock-based compensation expense:


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
RSUs	$11	$10	$31	$32
Stock options	1	1	5	12
Other1	1	1	5	6
Total stock-based compensation expense, before income tax benefit	13	12	41	50
Income tax benefit	(3)	(3)	(10)	(12)
Total stock-based compensation expense, net of income tax benefit	$10	$9	$31	$38

1 Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

The following table summarizes our grant allocations:


	Nine Months Ended
	October 28, 2023		October 29, 2022
	Granted	Weighted-average grant-date fair value per unit	Granted	Weighted-average grant-date fair value per unit
RSUs	3.2	$16	2.9	$22
Stock options	1.2	$8	1.1	$10
PSUs	0.4	$16	0.5	$23

Under our deferred and stock-based compensation plan arrangements, we issued 0.7 and 2.3 shares of common stock during the quarter and nine months ended October 28, 2023 and 0.7 and 2.6 shares during the quarter and nine months ended October 29, 2022.

NOTE 7: SHAREHOLDERS’ EQUITY

Share Repurchases

In May 2022, our Board of Directors authorized a program to repurchase up to $500 of our outstanding common stock, with no expiration date. We repurchased 0.03 shares of common stock for $1 at an average purchase price per share of $19.41 during the nine months ended October 28, 2023, compared with 2.3 shares for $53 at an average purchase price per share of $22.95 during the nine months ended October 29, 2022, and had $438 remaining in share repurchase capacity as of October 28, 2023.

Dividends

In November 2023, subsequent to quarter end, we declared a quarterly dividend of $0.19 per share, which will be paid on December 13, 2023 to shareholders of record at the close of business on November 28, 2023.

We have certain limitations with respect to the payment of dividends and share repurchases under our Revolver agreement (see Note 4: Debt and Credit Facilities).

Rights Plan

In September 2022, our Board of Directors approved a shareholder rights agreement and declared a dividend of one right for each outstanding share of Nordstrom common stock to shareholders of record on September 30, 2022. In June 2023, shareholders approved an advisory vote on the extension of our Rights Plan at our 2023 Annual Meeting, and in August 2023, the Board of Directors extended the expiration date to September 19, 2025, unless redeemed, exchanged or terminated earlier by our Board. Each right entitles holders to purchase one newly issued share of Nordstrom common stock at an exercise price of $94 per right, subject to adjustment. Initially, the rights are not exercisable and trade with our shares of common stock.

In general, the rights become exercisable following a public announcement that a person acquires 10% or more of the outstanding shares of Nordstrom common stock. If the rights are exercised, each holder (except the acquiring person) will have the right to receive common stock equal to two times the exercise price of the right. The Company may redeem the rights for $0.001 per right anytime prior to the rights becoming exercisable. The agreement also provides for exceptions and additional terms for other certain situations and circumstances. There is currently no impact to our Condensed Consolidated Financial Statements.

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NORDSTROM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in millions except per share, per option and per unit amounts)

(Unaudited)

NOTE 8: EARNINGS PER SHARE

The computation of EPS is as follows:


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Net earnings (loss)	$67	($20)	$—	$126

Basic weighted-average shares outstanding	162.0	159.5	161.5	160.1
Dilutive effect of common stock equivalents	1.6	—	—	2.2
Diluted weighted-average shares outstanding	163.6	159.5	161.5	162.3

Basic EPS	$0.41	($0.13)	$—	$0.79
Diluted EPS	$0.41	($0.13)	$—	$0.77

Anti-dilutive common stock equivalents	8.2	10.1	10.3	9.2

NOTE 9: SEGMENT REPORTING

The following table sets forth information for our reportable segment:


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Retail segment EBIT	$149	$119	$535	$471
Corporate/Other EBIT	(47)	(116)	(500)	(193)
Interest expense, net	(24)	(32)	(78)	(101)
Earnings (loss) before income taxes	$78	($29)	($43)	$177

For information about disaggregated revenues, see Note 3: Revenue.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

The following MD&A provides a narrative of our financial performance and is intended to promote understanding of our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, Item 1. Financial Statements (Unaudited) and generally discusses the results of operations for the quarter and nine months ended October 28, 2023 compared with the quarter and nine months ended October 29, 2022. The following discussion and analysis contains forward-looking statements and should also be read in conjunction with cautionary statements and risks described elsewhere in this Form 10-Q before deciding to purchase, hold or sell shares of our common stock.


Overview			19
Results of Operations			20

Liquidity			26
Capital Resources			27
Critical Accounting Estimates			29
Recent Accounting Pronouncements			29

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

OVERVIEW

Third quarter results reflected continued progress on our 2023 key priorities of improving Nordstrom Rack performance, increasing inventory productivity and optimizing our supply chain capabilities. Execution on these priorities and quickly adapting to shifting sales trends helped us deliver earnings growth despite lower sales in a challenging macroeconomic environment.

For the third quarter of 2023, we reported net earnings of $67, or $0.41 per diluted share, compared with a loss of $20, or $0.13 loss per diluted share, in 2022. After excluding adjustments from the wind-down of Canadian operations, Adjusted EPS1 in the third quarter of 2023 was $0.25, compared with Adjusted EPS1 of $0.20 in the third quarter of 2022, which excludes an asset impairment charge.

Total Company net sales decreased 6.8% compared with the third quarter of 2022. This included a negative 270 basis point impact from the wind-down of Canadian operations and an approximately 200 basis point positive impact from one week of the Anniversary Sale shifting into the third quarter of 2023. The majority of our categories improved sequentially from the second quarter of 2023, when compared with the same period in 2022.

We are encouraged by the progress we are making as a result of our focus on our key priorities. We are committed to delivering profitable growth while improving the customer experience through our key priorities.

Nordstrom Rack – We deliver great brands at great prices for our customers at Nordstrom Rack, and we continue to improve by growing the most desirable brands offered, driving greater engagement and profitability at NordstromRack.com and expanding our reach and convenience with new Rack stores in key markets. We adjusted our assortment throughout the quarter to meet shifting demand and ensure our customers have a compelling flow of new and relevant products. As we continue to focus on our digital offering, we made progress on its profitability. Our Rack digital channel is now profitable on a year-to-date basis.

We opened 19 new stores and relocated one store year to date through December 1, 2023. We believe that Rack stores are a great investment, with returns that exceed our cost of capital and have a short payback period, and they are also our largest source of new customer acquisition. We are excited to roll out to more markets and increase our Rack footprint, and have announced plans to open 17 more stores beyond 2023.

Inventory Productivity – We are focused on better inventory discipline to provide customers with relevant and new assortments and improve our earnings and return on invested capital. We continue to manage with leaner inventories, with overall ending inventory levels 9% lower than the third quarter of 2022 and a positive sales-to-inventory spread. This lower level of inventory required fewer markdowns and helped drive 180 basis points of expansion in our gross profit as a rate of sales, compared with the third quarter of 2022. We are also gaining traction with our Nordstrom private label brands, which are more profitable and have lower return rates. Our overall inventory position is healthy heading into the holiday season, and while our designer category remains pressured, we expect to end the year with an improved inventory position in this category.

Supply Chain Optimization – We continue to make good progress on our supply chain initiatives, which drive improvements in customer experience and profitability. We delivered a better experience to our customers through faster delivery, lower cancellation rates and increased accuracy of inventory, while also driving cost savings. Following four consecutive quarters of reductions in our variable supply chain costs of more than 100 basis points compared with the prior year, we were able to drive another 50 basis point reduction in the third quarter of 2023. We expect the level of cost savings to stabilize going forward, as we have been focused on this priority for over a year. However, we will continue to seek out additional efficiencies in flow and improved productivity through inventory management initiatives.

Throughout this year, we made solid progress against each of our priorities, which we believe will help us expand market share and improve profitability. Looking ahead, we are excited to fulfill our brand purpose to help our customers feel good and look their best this holiday season and beyond. We are navigating through near-term uncertainty while continuing to advance our long-term strategic priorities to better serve our customers and increase shareholder value.

1 Adjusted EPS is a non-GAAP financial measure. For a reconciliation between GAAP and non-GAAP financial measures, see Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT margin and Adjusted EPS (Non-GAAP financial measures) below.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

RESULTS OF OPERATIONS

In our ongoing effort to enhance the customer experience, we are focused on providing a seamless retail experience across our Company. We invested early in integrating our operations, merchandising and technology across our stores and online in both our Nordstrom and Nordstrom Rack banners. By connecting our digital and physical assets across Nordstrom and Nordstrom Rack, we are able to better serve customers when, where and how they want to shop. We have one Retail reportable segment and analyze our results on a total Company basis, using customer, market share, operational and net sales metrics.

Our Anniversary Sale, historically the largest event of the year, typically falls in the second quarter. One week of our Anniversary Sale shifted from the second quarter in 2022 to the third quarter in 2023.

We monitor a number of key operating metrics to evaluate our Company’s performance. In addition to net sales, net earnings (loss) and other results under GAAP, two other key operating metrics we use are GMV and inventory turnover rate. Beginning in the first quarter of 2023, we made changes to how we calculate these metrics to more closely align with how our business is operated. Changes in the methodologies are discussed below and prior periods have been adjusted to reflect a comparable presentation.

•GMV: calculated as the total dollar value of merchandise sold through our digital platforms and stores. GMV includes net merchandise sales from inventory we own, as well as the retail value of merchandise sold under our unowned inventory models with our vendors. We use GMV as an indicator of the scale and growth of our operations and the impact of our unowned inventory models. Prior to the first quarter of 2023, we also included non-merchandise sales in our GMV calculation.

•Inventory Turnover Rate: calculated as the trailing 4-quarter merchandise cost of sales divided by the trailing 13-month average inventory. Inventory turnover rate is an indicator of our success in optimizing inventory volumes in accordance with customer demand. Prior to the first quarter of 2023, we calculated inventory turnover rate as the trailing 4-quarter cost of sales and related buying and occupancy costs divided by the trailing 4-quarter average inventory.

Net Sales

The following table summarizes net sales:


	Quarter Ended				Nine Months Ended
	October 28, 2023		October 29, 2022			October 28, 2023		October 29, 2022
Net sales:
Nordstrom	$2,051		$2,264			$6,570		$7,324
Nordstrom Rack	1,149		1,169			3,356		3,567
Total net sales	$3,200		$3,433			$9,926		$10,891

Net sales (decrease) increase:
Nordstrom	(9.4	%)	(3.4	%)		(10.3	%)	10.7	%
Nordstrom Rack	(1.8	%)	(1.9	%)		(5.9	%)	4.7	%
Total Company	(6.8	%)	(2.9	%)		(8.9	%)	8.7	%

Digital sales as a % of total net sales	34	%	34	%		35	%	37	%
Digital sales decrease	(11	%)	(16	%)		(14	%)	(4	%)

Nordstrom GMV (decrease) increase	(9.8	%)	(3.3	%)		(10.6	%)	10.8	%
Total Company GMV (decrease) increase	(7.1	%)	(3.0	%)		(9.1	%)	8.6	%

Total Company net sales and GMV decreased for the quarter and nine months ended October 28, 2023, compared with the same periods in 2022. For the third quarter of 2023, 270 basis points of the decrease was due to the deconsolidation of our Canadian operations as of March 2, 2023 (see Note 2: Canada Wind-down in Item 1). This was partially offset by the timing shift of the Anniversary Sale, which had a positive impact on net sales of approximately 200 basis points compared with the third quarter of 2022. Total Company net sales for the nine months ended October 28, 2023, compared with the same period in 2022, were negatively impacted 245 basis points from the wind-down of Canadian operations. For the third quarter and nine months ended October 28, 2023, active and beauty were the strongest categories compared with the same periods in 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

Nordstrom net sales and GMV decreased for the third quarter and nine months ended October 28, 2023, compared with the same periods in 2022. Nordstrom net sales were negatively impacted 410 basis points for the third quarter of 2023 and 360 basis points for the nine months ended October 28, 2023 from the wind-down of Canadian operations. For the third quarter of 2023, this was partially offset by the timing shift of the Anniversary Sale which had a positive impact on net sales of approximately 300 basis points, compared with the third quarter of 2022. For both the quarter and nine months ended October 28, 2023, Nordstrom net sales reflected a decrease in the number of items sold, partially offset by an increase in the average selling price per item sold.

Nordstrom Rack net sales decreased for the third quarter and nine months ended October 28, 2023, compared with the same periods in 2022, which reflected a decrease in the number of items sold, partially offset by an increase in the average selling price per item sold. Eliminating store fulfillment for Nordstrom Rack digital orders during the third quarter of 2022 negatively impacted Nordstrom Rack sales by approximately 100 basis points for the third quarter of 2023 and approximately 400 basis points for the nine months ended October 28, 2023, compared with the same periods in 2022.

Total Company digital sales decreased for the third quarter and nine months ended October 28, 2023, compared with the same periods in 2022. Eliminating store fulfillment for Nordstrom Rack digital orders during the third quarter of 2022 and sunsetting Trunk Club in the second quarter of 2022 negatively impacted digital sales by approximately 100 basis points for the third quarter of 2023 and approximately 500 basis points for the nine months ended October 28, 2023. The decrease in digital sales for the third quarter of 2023 was partially offset by the timing of the Anniversary Sale, which had a positive impact on digital sales of approximately 400 basis points, compared with the same period in 2022.

During the nine months ended October 28, 2023, we opened 18 Nordstrom Rack stores and relocated one Nordstrom Rack store. We also closed one Nordstrom Rack store, one Nordstrom store and one Nordstrom Local service hub. We deconsolidated six Nordstrom and seven Nordstrom Rack stores in Canada as of March 2, 2023 (see Note 2: Canada Wind-down in Item 1).

Credit Card Revenues, Net

Credit card revenues, net increased $7 and $27 for the third quarter and nine months ended October 28, 2023, compared with the same periods in 2022. The increases were due to higher revenue recognized in connection with our 2022 TD program agreement amendment and higher finance charges from both higher outstanding balances and rates. The increases were partially offset by increased credit losses.

Fiscal Year 2023 Total Revenue Outlook

In fiscal 2023, which includes a 53rd week, we expect total revenue, including retail sales and credit card revenues, to decline 4 to 6 percent compared with fiscal 2022. Our outlook includes approximately 250 basis points of negative impact from the wind-down of business operations in Canada (see Note 2: Canada Wind-down in Item 1) and approximately 130 basis points of positive impact from the 53rd week.

Gross Profit

The following table summarizes gross profit:


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Gross profit	$1,120	$1,139	$3,438	$3,680
Gross profit as a % of net sales	35.0%	33.2%	34.6%	33.8%

			October 28, 2023	October 29, 2022
Inventory turnover rate			3.43	3.26

Gross profit decreased $19 and $242 for the third quarter and nine months ended October 28, 2023, compared with the same periods in 2022, due to lower sales, partially offset by lower markdowns, increased inventory productivity and lower buying and occupancy costs. Gross profit as a rate of net sales increased 180 and 85 basis points for the third quarter and nine months ended October 28, 2023, compared with the same periods in 2022, due to lower markdowns, increased inventory productivity and lower buying and occupancy costs, partially offset by deleverage on lower sales.

Ending inventory as of October 28, 2023 decreased 8.8%, compared with the same period in 2022, versus a 6.8% decrease in sales for the third quarter of 2023, reflecting continued strong inventory discipline.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

Selling, General and Administrative Expenses

SG&A is summarized in the following table:


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022		October 28, 2023	October 29, 2022
SG&A expenses	$1,163	$1,249		$3,466	$3,722
SG&A expenses as a % of net sales	36.3%	36.4%		34.9%	34.2%

SG&A decreased $86 and $256 for the third quarter and nine months ended October 28, 2023, compared with the same periods in 2022, primarily due to lower variable costs, driven by lower sales and supply chain efficiency initiatives, partially offset by higher labor costs. The third quarter of 2022 included a supply chain technology and related asset impairment charge of $70, and the nine months ended October 29, 2022 also included a $51 gain on sale of our interest in a corporate office building and an $18 impairment charge related to costs associated with the wind-down of Trunk Club.

SG&A as a percent of net sales decreased 5 basis points for the third quarter of 2023, compared with the same period in 2022, due to a supply chain technology and related asset impairment charge incurred in the third quarter of 2022 and improvements in variable costs from supply chain efficiency initiatives, partially offset by deleverage from lower sales and higher labor costs. SG&A as a percent of net sales increased 75 basis points for the nine months ended October 28, 2023, compared with the same period in 2022, primarily due to deleverage from lower sales and higher labor costs, partially offset by supply chain efficiencies.

Canada Wind-down Costs

We recognized charges associated with the wind-down of Nordstrom Canada of $284 in the nine months ended October 28, 2023, including a favorable adjustment of $25 in the third quarter of 2023 (see Note 2: Canada Wind-down in Item 1).

Earnings Before Interest and Income Taxes

EBIT is summarized in the following table:


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022		October 28, 2023	October 29, 2022
EBIT	$102	$3		$35	$278
EBIT as a % of net sales	3.2%	0.1%		0.4%	2.6%

EBIT improved $99 and 310 basis points as a rate of net sales for the third quarter of 2023, compared with the same period in 2022, due to an improved gross profit rate and supply chain efficiency initiatives, partially offset by lower sales volume. The third quarter of 2023 included a $25 favorable impact from the wind-down of Nordstrom Canada, while the third quarter of 2022 included a supply chain technology and related asset impairment charge of $70.

EBIT decreased $243 and 220 basis points as a rate of net sales for the nine months ended October 28, 2023, compared with the same period in 2022, primarily due to $284 of expenses associated with the wind-down of Canadian operations and lower sales, partially offset by an improved gross profit rate and supply chain efficiency initiatives. The nine months ended October 29, 2022 included a supply chain technology and related asset impairment charge of $70, a $51 gain on sale of our interest in a corporate office building and an $18 impairment charge related to costs associated with the wind-down of Trunk Club.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

Interest Expense, Net

Interest expense, net was $24 for the third quarter of 2023, compared with $32 for the same period in 2022, and $78 for the nine months ended October 28, 2023, compared with $101 for the same period in 2022. The decreases in interest expense, net were primarily due to an increase in interest income from higher prevailing rates.

Income Tax

Income tax expense is summarized in the following table:


	Quarter Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Income tax expense (benefit)	$11		($9)		($43)		$51
Effective tax rate	14.2	%	30.6	%	99.7	%	29.0	%

The effective tax rate decreased in the third quarter of 2023, compared with the same period in 2022, primarily due to additional tax benefits related to the wind-down of Canadian operations during the quarter. The effective tax rate increased for the nine months ended October 28, 2023, compared with the same period in 2022, primarily due to the favorable resolution of certain tax matters and net tax benefits of $95 related to the wind-down of Canadian operations.

Earnings Per Share

EPS is as follows:


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Basic	$0.41	($0.13)	$—	$0.79
Diluted	$0.41	($0.13)	$—	$0.77

Diluted EPS improved $0.54 for the third quarter of 2023 primarily due to an improved gross profit rate and supply chain efficiency initiatives, partially offset by lower sales. The third quarter of 2023 includes an adjustment from the wind-down of Canadian operations that increased diluted EPS $0.16 per share, while the third quarter of 2022 includes a net unfavorable impact of $0.33 per diluted share due to a supply chain impairment charge. For the nine months ended October 28, 2023, diluted EPS decreased $0.77 primarily due to charges related to the wind-down of Canadian operations that decreased diluted EPS by $1.16 per share and lower sales, partially offset by an improved gross profit rate and supply chain efficiency initiatives. The nine months ended October 29, 2022 includes a net unfavorable impact of $0.18 per diluted share due to a supply chain impairment charge, an impairment charge related to costs associated with the wind-down of Trunk Club, partially offset by the gain on sale of our interest in a corporate office building.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT margin and Adjusted EPS (Non-GAAP financial measures)

The following are key financial metrics and, when used in conjunction with GAAP measures, we believe they provide useful information for evaluating our core business performance, enable comparison of financial results across periods and allow for greater transparency with respect to key metrics used by management for financial and operational decision-making. Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT margin and Adjusted EPS exclude certain items that we do not consider representative of our core operating performance. The financial measure calculated under GAAP which is most directly comparable to Adjusted EBIT and Adjusted EBITDA is net earnings (loss). The financial measure calculated under GAAP which is most directly comparable to Adjusted EBIT margin is net earnings as a percent of net sales. The financial measure calculated under GAAP which is most directly comparable to Adjusted EPS is diluted EPS.

Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT margin and Adjusted EPS are not measures of financial performance under GAAP and should be considered in addition to, and not as a substitute for, net earnings, net earnings as a percent of net sales, operating cash flows, earnings per share, earnings per diluted share or other financial measures performed in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ financial measures and therefore may not be comparable to methods used by other companies.

The following is a reconciliation of net earnings (loss) to Adjusted EBIT and Adjusted EBITDA and net earnings as a percent of net sales to Adjusted EBIT margin:


	Quarter Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Net earnings (loss)	$67		($20)		$—		$126
Income tax expense (benefit)	11		(9)		(43)		51
Interest expense, net	24		32		78		101
Earnings before interest and income taxes	102		3		35		278

Canada wind-down costs	(25)		—		284		—
Supply chain impairment	—		70		—		70
Trunk Club wind-down costs	—		—		—		18
Gain on sale of interest in a corporate office building	—		—		—		(51)
Adjusted EBIT	77		73		319		315

Depreciation and amortization expenses	145		152		430		453
Amortization of developer reimbursements	(17)		(18)		(52)		(54)

Adjusted EBITDA	$205		$207		$697		$714

Net sales	$3,200		$3,433		$9,926		$10,891
Net earnings (loss) as a % of net sales	2.1	%	(0.6	%)	—	%	1.2	%
EBIT margin %	3.2	%	0.1	%	0.4	%	2.6	%
Adjusted EBIT margin %	2.4	%	2.1	%	3.2	%	2.9	%

The following is a reconciliation of diluted EPS to Adjusted EPS:


	Quarter Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Diluted EPS	$0.41	($0.13)	$—	$0.77
Canada wind-down costs	(0.15)	—	1.74	—
Supply chain impairment	—	0.44	—	0.44
Trunk Club wind-down costs	—	—	—	0.11
Gain on sale of interest in a corporate office building	—	—	—	(0.31)
Income tax impact on adjustments1	(0.01)	(0.11)	(0.58)	(0.06)
Adjusted EPS	$0.25	$0.20	$1.16	$0.95

1 The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate for the respective non-GAAP adjustment.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

Adjusted ROIC (Non-GAAP financial measure)

We believe that Adjusted ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of the capital we have invested in our business to generate returns over time. In addition, we have incorporated it in our executive incentive measures and we believe it is an important indicator of shareholders’ return over the long term.

Beginning in the second quarter of 2023, the Adjusted ROIC calculation was updated to exclude certain items that we do not consider representative of our core operating performance. Refer to non-operating related adjustments included within adjusted net operating profit after tax and adjusted average invested capital. Prior periods have been modified to conform with current period presentation.

Adjusted ROIC is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other GAAP financial measures. Our method of calculating a non-GAAP financial measure may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted ROIC is return on assets. The following shows the components to reconcile the return on assets calculation to Adjusted ROIC:


	Four Quarters Ended
	October 28, 2023		October 29, 2022
Net earnings	$119		$326
Income tax (benefit) expense	(2)		117
Interest expense	136		138
Earnings before interest and income tax expense	253		581

Operating lease interest1	86		85
Non-operating related adjustments2	284		38
Adjusted net operating profit	623		704

Adjusted estimated income tax expense3	(144)		(186)
Adjusted net operating profit after tax	$479		$518

Average total assets	$8,956		$9,227
Average noncurrent deferred property incentives in excess of ROU assets4	(167)		(205)
Average non-interest bearing current liabilities	(3,134)		(3,369)
Non-operating related adjustments5	294		(7)
Adjusted average invested capital	$5,949		$5,646

Return on assets	1.3	%	3.5	%
Adjusted ROIC	8.1	%	9.2	%

1 Operating lease interest is a component of operating lease cost recorded in occupancy costs. We add back operating lease interest for purposes of calculating adjusted net operating profit for consistency with the treatment of interest expense on our debt.

2 Non-operating related adjustments primarily relate to the wind-down of our Canadian operations for the four quarters ended October 28, 2023 and a supply chain impairment charge, partially offset by the gain on sale of our interest in a corporate office building for the four quarters ended October 29, 2022. See the Adjusted EBIT and Adjusted EBITDA section, as well as our 2022 Annual Report, for detailed information on certain non-operating related adjustments.

3 Adjusted estimated income tax expense is calculated by multiplying the adjusted net operating profit by the adjusted effective tax rate (which removes the impact of non-operating related adjustments) for the trailing twelve-month periods ended October 28, 2023 and October 29, 2022. The adjusted effective tax rate is calculated by dividing adjusted income tax by adjusted earnings before income taxes for the same trailing twelve-month periods.

4 For leases with property incentives that exceed the ROU assets, we reclassify the amount from assets to other current liabilities and other liabilities on the Condensed Consolidated Balance Sheets. The current and noncurrent amounts are used to reduce average total assets above, as this better reflects how we manage our business.

5 Non-operating related adjustments primarily relate to the wind-down of our Canadian operations for the trailing twelve-month period ended October 28, 2023 and a supply chain impairment charge, partially offset by the gain on sale of our interest in a corporate office building for the trailing twelve-month period ended October 29, 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

LIQUIDITY

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. In the short term, our ongoing working capital and capital expenditure requirements, and any dividend payments or share repurchases, are generally funded through cash flows generated from operations. In addition, we have access to the commercial paper market and can draw on our Revolver for working capital, capital expenditures and general corporate purposes. 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, share repurchases and other future investments.

We ended the third quarter of 2023 with $375 in cash and cash equivalents and $800 of additional liquidity available on our Revolver. Cash and cash equivalents in the third quarter of 2023 increased from $293 in the third quarter of 2022, driven by cash flow from earnings, partially offset by payments for capital expenditures, Canadian guarantee settlements (see Note 2: Canada Wind-down in Item 1) and dividends. We believe that our cash flows from operations are sufficient to meet our cash requirements for the next 12 months and beyond. Our cash requirements are subject to change as business conditions warrant and opportunities arise and we may elect to raise additional funds in the future through the issuance of either debt or equity.

The following is a summary of our cash flows by activity:


	Nine Months Ended
	October 28, 2023	October 29, 2022
Net cash provided by operating activities	$107	$240
Net cash used in investing activities	(376)	(243)
Net cash used in financing activities	(43)	(23)

Operating Activities

Net cash provided by operating activities decreased $133 for the nine months ended October 28, 2023, compared with the same period in 2022, due to the Canadian guarantee settlements and the timing of purchases and payments for inventory, partially offset by changes in compensation.

Investing Activities

Net cash used in investing activities increased $133 for the nine months ended October 28, 2023, compared with the same period in 2022, primarily due to increased capital expenditures for Nordstrom Rack new store openings, the sale of our interest in a corporate office building in 2022 and the decrease in cash and cash equivalents resulting from the deconsolidation of Canada in 2023 (see Note 1: Basis of Presentation and Note 2: Canada Wind-down in Item 1).

Capital Expenditures

Our capital expenditures, net are summarized as follows:


	Nine Months Ended
	October 28, 2023		October 29, 2022
Capital expenditures	$375		$325
Deferred property incentives1	(25)		(10)
Capital expenditures, net	$350		$315

Capital expenditures as a % of net sales	3.8	%	3.0	%

1 Deferred property incentives are included in our cash provided by operations in our Condensed Consolidated Statements of Cash Flows in Item 1. We operationally view the property incentives we receive from our developers and vendors as an offset to our capital expenditures.

Financing Activities

Net cash used in financing activities increased $20 for the nine months ended October 28, 2023, compared with the same period in 2022, primarily due to the drawdown on the Revolver in 2022, partially offset by decreased share repurchases.

Share Repurchases

We repurchased $1 for the nine months ended October 28, 2023, compared with $53 in the nine months ended October 29, 2022.

Dividends

We paid dividends of $92 and $90 for the nine months ended October 28, 2023 and October 29, 2022, or $0.57 per share for each year-to-date period.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

Free Cash Flow (Non-GAAP financial measure)

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

Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of calculating a non-GAAP financial measure 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:


	Nine Months Ended
	October 28, 2023	October 29, 2022
Net cash provided by operating activities	$107	$240
Capital expenditures	(375)	(325)
Change in cash book overdrafts	37	21
Free Cash Flow	($231)	($64)

CAPITAL RESOURCES

Borrowing Capacity and Activity

As of October 28, 2023, we had total short-term borrowing capacity of $800 under the Revolver that expires in May 2027. As of October 28, 2023, we had no borrowings outstanding under our Revolver and no issuances outstanding under our commercial paper program. For more information about our credit facilities, see Note 4: Debt and Credit Facilities in Item 1.

Impact of Credit Ratings and Revolver Covenants

Changes in our credit ratings may impact our costs to borrow, whether our personal property secures our Revolver and whether and to what extent we are permitted to pay dividends or conduct share repurchases.

For our Revolver, the interest rate applicable to any borrowings we may enter into depends upon the type of borrowing incurred plus an applicable margin, which is determined based on our credit ratings. At the time of this report, our credit ratings and outlook were as follows:


	Credit Ratings	Outlook
Moody’s	Ba1	Negative
S&P Global Ratings	BB+	Negative
Fitch	BB+	Stable

Should the ratings assigned to our long-term debt improve, the applicable margin associated with any borrowings under the Revolver may decrease, resulting in a lower borrowing cost under this facility. Conversely, should the ratings assigned to our long-term debt worsen, the applicable margin associated with any borrowings under the Revolver may increase, resulting in a higher borrowing cost under this facility.

As of October 28, 2023, we were in compliance with all covenants. We have certain limitations with respect to the payment of dividends and share repurchases under our Revolver agreement. For more information about our Revolver covenants, see Note 4: Debt and Credit Facilities in Item 1.

On March 1, 2023, we amended our Revolver agreement. See Note 2: Canada Wind-down in Item 1.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

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, as it provides a reflection of our creditworthiness which could impact our credit ratings and borrowing costs. This metric is calculated in accordance with the updates in our Revolver covenant and is a key component in assessing whether our revolving credit facility is secured or unsecured, as well as our ability to make dividend payments and share repurchases. Our goal is to manage debt levels to achieve and maintain investment-grade credit ratings while operating with an efficient capital structure. For more information regarding our Revolver, see Note 4: Debt and Credit Facilities in Item 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 GAAP financial measures. Our method of calculating a non-GAAP financial measure 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 shows the components to reconcile the debt to net earnings calculation to Adjusted debt to EBITDAR:


			October 28, 2023
Debt			$2,861


Operating lease liabilities			1,635
Adjusted debt			$4,496

Four Quarters Ended October 28, 2023
Net earnings			$119
Income tax benefit			(2)
Interest expense, net			106

Earnings before interest and income taxes			223

Depreciation and amortization expenses			581
Operating Lease Cost			270
Amortization of developer reimbursements1			69
Canada wind-down costs			284
Other Revolver covenant adjustments2			46
Adjusted EBITDAR			$1,473

Debt to Net Earnings			24.0
Adjusted debt to EBITDAR			3.1

1 Amortization of developer reimbursements is a non-cash reduction of Operating Lease Cost and is therefore added back to Operating Lease Cost for purposes of our Revolver covenant calculation.

2 Other adjusting items to reconcile net earnings to Adjusted EBITDAR as defined by our Revolver covenant include interest income, certain non-cash charges and other gains and losses where relevant. For the four quarters ended October 28, 2023, other Revolver covenant adjustments primarily includes interest income. See our 2022 Annual Report for detailed information on certain non-operating related adjustments.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollar and share amounts in millions except per share amounts and where otherwise noted)

CRITICAL ACCOUNTING ESTIMATES

The preparation of our financial statements in conformity with GAAP requires that we make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities.

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. We believe that the estimates, assumptions and judgments involved in the accounting policies referred to in our 2022 Annual Report have the greatest potential effect on our financial statements, so we consider these to be our critical accounting policies and estimates. Our management has discussed the development and selection of these critical accounting estimates with the Audit & Finance Committee of our Board of Directors. There have been no material changes to our significant accounting policies or critical accounting estimates as described in our 2022 Annual Report, except as noted below, and the following should be read in conjunction with Note 2: Canada Wind-down in Item 1.

Canada Wind-down

As of October 28, 2023, we recorded the amount we believe probable of receipt as part of the claims process. This includes receipts related to the rights to the former landlords’ distributions, reimbursement of employee trust contributions and other receivables existing at the time of deconsolidation. The receivable and our other estimates are dependent on the outcome of the Nordstrom Canada wind-down process, including the amount of third-party and Nordstrom claims asserted and recognized in the claims process, the amount of assets available for distribution and the negotiation of a CCAA plan of arrangement approved by the creditors and the Ontario Superior Court of Justice. We continue to work through the wind-down process and our estimates of net losses are based on currently available information, our assessment of the validity of certain expected claims and our assessment of the recoverability of amounts receivable from Nordstrom Canada. These estimates may change as new information becomes available and it is reasonably possible that they may materially change from the estimated amounts. Increases in estimated costs to settle claims and decreases in estimated assets available for distribution may result in additional material charges. At the same time, any future decreases in estimated costs to settle claims or increases in estimated assets available for distribution may result in a gain, which would reduce our estimated charges.

See Note 2: Canada Wind-down in Item 1 for additional information.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2022, the SEC adopted the final rule under SEC Release No. 33-11138, Insider Trading Arrangements and Related Disclosures, which creates new disclosure requirements regarding our insider trading policies and procedures and equity compensation awards made close in time to disclosure of material nonpublic information. Quarterly disclosure requirements under this final rule became effective for us in the second quarter of 2023 and annual disclosure requirements will be effective for us in the fourth quarter of 2023. The adoption of this final rule is not anticipated to have a material impact on our results of operations, liquidity or capital resources.

In May 2023, the SEC adopted the final rule under SEC Release No. 34-97424, Share Repurchase Disclosure Modernization, requiring disclosures related to issuers’ share repurchases that will provide investors with enhanced information to assess the purposes and effects of the repurchases. Disclosure requirements under this rule will be effective for us in the fourth quarter of 2023. The adoption of this final rule is not anticipated to have a material impact on our results of operations, liquidity or capital resources.

In July 2023, the SEC adopted the final rule under SEC Release No. 33-11216, Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, requiring disclosure of material cybersecurity incidents on Form 8-K and periodic disclosure of a registrant’s cybersecurity risk management, strategy and governance in annual reports. Regulation S-K Item 6 disclosure requirements under this rule will be effective for us in the fourth quarter of 2023. Incident disclosure requirements in Form 8-K will be effective for us on December 18, 2023. The adoption of this final rule is not anticipated to have a material impact on our results of operations, liquidity or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We discussed our interest rate risk and foreign currency exchange risk in our 2022 Annual Report. There have been no material changes to these risks since that time.

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Item 4. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

For the purposes of the Exchange Act, our Chief Executive Officer, Erik B. Nordstrom, serves as our principal executive officer and our Chief Financial Officer, Cathy R. Smith, is our principal financial officer and principal accounting officer.

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we have performed an evaluation of the design and effectiveness of our disclosure controls and procedures as of the last day of the period covered by this report.

Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified within the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. 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 may 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 Condensed Consolidated Financial Statements are adequate in light of the probable and estimable liabilities.

On March 2, 2023, Nordstrom Canada commenced a wind-down of its business operations pursuant to a CCAA proceeding overseen by the Ontario Superior Court of Justice. See Note 2: Canada Wind-down in Part I for more information.

As of the date of this report, we do not believe any other 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 1A. Risk Factors.

There have been no material changes to the Risk Factors described in our 2022 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(Dollar and share amounts in millions, except per share amounts)

We repurchased no shares of common stock during the third quarter of 2023 and we had $438 remaining in share repurchase capacity as of October 28, 2023. See Note 7: Shareholders’ Equity in Item 1 for more information about our May 2022 share repurchase program.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) The information required under this item is incorporated herein by reference or filed or furnished as part of this report at:


			Page
Nordstrom, Inc. and Subsidiaries Exhibit Index			32

All other exhibits are omitted because they are not applicable, not required or because the information required has been given as part of this report.

Table of Contents

NORDSTROM, INC.

Exhibit Index

Incorporated by Reference

Exhibit

Form

Exhibit

Filing Date

3.1

Bylaws, as amended and restated on September 20, 2023

8-K

3.1

9/21/2023

10.1

†

2023 Form of Independent Director Indemnification Agreement

31.1

†

Certification of Chief Executive Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002

31.2

†

Certification of Chief Financial Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002

32.1

‡

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

†

Inline XBRL Instance Document

101.SCH

†

Inline XBRL Taxonomy Extension Schema Document

101.CAL

†

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

†

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

†

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

†

Inline XBRL Taxonomy Extension Definition Linkbase Document

104

†

Cover Page Interactive Data File (Inline XBRL)

† Filed herewith electronically

‡ Furnished herewith electronically

Table of Contents

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 thereunto duly authorized.


NORDSTROM, INC.
(Registrant)

/s/ Cathy R. Smith
Cathy R. Smith
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

Date:			December 1, 2023