Nordstrom Reports Q4 2022 Earnings, Announces Wind-Down of Canadian Business

Nordstrom, Inc. (NYSE: JWN) yesterday reported fourth quarter net earnings of $119 million, or $0.74 per diluted share (“EPS”), and earnings before interest and taxes (“EBIT”) of $187 million, or 4.5 percent of sales, for the quarter ended January 28, 2023.

For the fiscal year ended January 28, 2023, net earnings were $245 million and diluted EPS was $1.51, with EBIT of $465 million, or 3.1 percent of sales. Excluding a gain on the sale of the Company’s interest in a corporate office building, Trunk Club wind-down costs and a supply chain technology and related asset impairment charge, all of which were reported in the first three quarters, adjusted EBIT was $502 million, or 3.3 percent of sales, and adjusted EPS was $1.69 for fiscal 2022.

For the fourth quarter ended January 28, 2023, net sales decreased 4.1 percent versus the same period in fiscal 2021 and gross merchandise value (“GMV”) decreased 4.2 percent. Nordstrom banner net sales decreased 2.4 percent and GMV decreased 2.5 percent compared with the fourth quarter of 2021. Net sales for Nordstrom Rack decreased 8.1 percent.

“We took decisive actions to right-size our inventory as we entered the new year, positioning us for greater agility amidst continuing macroeconomic uncertainty. We also made the difficult decision to wind down operations in our Canadian business. This will enable us to simplify our operations and further increase our focus on driving long-term profitable growth in our core U.S. business,” said Erik Nordstrom, chief executive officer of Nordstrom, Inc. “As we enter fiscal 2023, we are focused on enhancing the customer experience, improving Nordstrom Rack performance, increasing inventory productivity and continuing to advance our supply chain optimization initiatives. We remain confident in the strength of our brands and our ability to drive profitable growth and deliver long-term value to our shareholders.”

In the fourth quarter, men’s apparel had the strongest growth versus 2021. For fiscal 2022, men’s apparel, shoes and women’s apparel had the strongest growth versus 2021.

“While the incremental markdowns in the second half impacted our margins, we are better positioned for a stronger 2023. Our actions have given us increased flexibility to react more quickly to changing customer demand and provide the newness and fashion our customers love,” said Pete Nordstrom, president and chief brand officer of Nordstrom, Inc. “We want to thank our teams for all their hard work helping our customers feel good and look their best.”

As previously announced on February 28, 2023, the board of directors declared a quarterly cash dividend of $0.19 per share to be paid to shareholders of record at the close of business on March 14, 2023, payable on March 29, 2023. During fiscal 2022, the Company repurchased 2.8 million shares of its common stock for $62 million under its existing $500 million share repurchase program. A total capacity of $438 million remains available under this share repurchase authorization.

FOURTH QUARTER 2022 SUMMARY

• Total Company net sales in the fourth quarter decreased 4.1 percent compared with the same period in fiscal 2021. Full-year revenue for fiscal 2022, including retail sales and credit card revenues, increased 5.0 percent compared with fiscal 2021. GMV decreased 4.2 percent in the fourth quarter and increased 5.0 percent in fiscal 2022 when compared with the same periods in 2021.
• For the Nordstrom banner, net sales in the fourth quarter decreased 2.4 percent compared with the same period in fiscal 2021. GMV decreased 2.5 percent and increased 6.9 percent in the fourth quarter and in the fiscal year, respectively, when compared with the same periods in 2021.
• For the Nordstrom Rack banner, net sales decreased 8.1 percent compared with the same period in fiscal 2021. Eliminating store fulfillment for Nordstrom Rack digital orders in the third quarter negatively impacted fourth quarter Rack banner net sales by approximately 500 basis points.
• Digital sales in the fourth quarter decreased 13.1 percent compared with the same period in fiscal 2021. Eliminating store fulfillment for Nordstrom Rack digital orders in the third quarter and sunsetting Trunk Club earlier in fiscal 2022 negatively impacted fourth quarter digital sales by approximately 500 basis points. Digital sales represented 40 percent of total sales during the quarter and 38 percent of sales for the fiscal year.
• Gross profit, as a percentage of net sales, of 33.2 percent decreased 525 basis points compared with the same period in fiscal 2021 primarily due to higher markdown rates, as the Company prioritized rightsizing inventory levels in a highly promotional environment.
• Ending inventory decreased 15.2 percent compared with the same period in fiscal 2021, versus a 4.1 percent decrease in sales.
• Selling, general and administrative (“SG&A”) expenses, as a percentage of net sales, of 31.5 percent decreased 240 basis points compared with the same period in fiscal 2021, primarily due to supply chain expense efficiencies.
• EBIT was $187 million in the fourth quarter of 2022, compared with $299 million during the same period in fiscal 2021, primarily due to higher markdowns, partially offset by supply chain expense efficiencies. EBIT was $465 million for fiscal 2022, and adjusted EBIT of $502 million excluded a gain on the sale of the Company’s interest in a corporate office building, wind-down costs related to Trunk Club and a supply chain technology and related asset impairment charge, all of which were reported in the first three quarters.² EBIT margin was 4.5 percent of sales for the quarter, which was 235 basis points lower than the fourth quarter of 2021. EBIT margin and adjusted EBIT margin for the fiscal year were 3.1 percent and 3.3 percent, respectively.
• Interest expense, net, of $27 million decreased from $33 million during the same period in fiscal 2021, due to higher interest income and reduced credit facility borrowings.
• Income tax expense during the fourth quarter was $41 million, or 25.2 percent of pretax earnings, compared with $66 million, or 24.8 percent of pretax earnings, in the same period of fiscal 2021. The full-year income tax rate was 27.2 percent.
• The Company ended the year with $1.5 billion in available liquidity, including $687 million in cash and the full $800 million available on its revolving line of credit, and a leverage ratio of 3.1 times.

STORES UPDATE

During fiscal 2022, the Company opened three stores:

The Company has also announced plans to open or relocate the following stores:

The Company had the following store counts as of quarter-end:

During the fourth quarter, the Company closed one Nordstrom Rack store.

NORDSTROM WINDS DOWN CANADIAN OPERATIONS

As part of its initiatives to drive long-term profitable growth and enhance shareholder value, and after careful consideration of all reasonably available options, the Company also announced today it has decided to discontinue support for Nordstrom Canada’s business operations.³

“We regularly review every aspect of our business to make sure that we are set up for success,” said Erik Nordstrom. “We entered Canada in 2014 with a plan to build and sustain a long-term business there. Despite our best efforts, we do not see a realistic path to profitability for the Canadian business. We want to thank our team for their performance and dedication in serving customers in Canada. This decision will simplify our structure, intensify focus on our growth and profitability goals and position us to create greater value for our shareholders.”

Accordingly, Nordstrom Canada has commenced a wind-down of its operations, obtaining an Initial Order from the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (“CCAA”) earlier today to facilitate the wind-down in an orderly fashion.

Nordstrom Canada intends to wind down its Nordstrom and Nordstrom Rack stores across Canada, with the help of a third-party liquidator, and its Canadian e-commerce platform. The e-commerce platform will cease operations on March 2, 2023. The in-store wind-down is anticipated to be completed by late June 2023.

The Company expects that Nordstrom Canada will be deconsolidated from the Company’s financial statements as of the date of the CCAA filing. The Company expects to report approximately $300 million to $350 million of pre-tax charges related to the wind-down in the first quarter of fiscal 2023, driven primarily by the write-down of the Company’s investment in Nordstrom Canada. The wind-down is expected to result in an approximately $400 million decline in total Company net sales and a $35 million improvement in total Company EBIT in fiscal 2023, relative to fiscal 2022, excluding the aforementioned charges associated with the wind-down.

Nordstrom Canada operates six Nordstrom stores and seven Nordstrom Rack stores, as well as the Nordstrom.ca website, and employs approximately 2,500 people.

FISCAL YEAR 2023 OUTLOOK

The Company is providing the following financial outlook for fiscal 2023, which includes a 53rd week. The Company’s outlook also includes the anticipated impact of the wind-down of Canadian operations:

• Revenue decline, including retail sales and credit card revenues, of 4.0 to 6.0 percent versus fiscal 2022, including an approximately 250 basis point negative impact from the wind-down of Canadian operations and an approximately 130 basis point positive impact from the 53rd week
• EBIT margin (including the negative impact of charges related to the wind-down of Canadian operations) of 1.2 to 2.1 percent of sales
• Adjusted EBIT margin (excluding charges related to the wind-down of Canadian operations) of 3.7 to 4.2 percent of sales
• Income tax rate of approximately 32 percent, including an approximately 500 basis point unfavorable impact from the one-time Canada charges
• EPS (including the negative impact of charges related to the wind-down of Canadian operations) of $0.20 to $0.80, excluding the impact of share repurchase activity, if any
• Adjusted EPS (excluding charges related to the wind-down of Canadian operations) of $1.80 to $2.20, excluding the impact of share repurchase activity, if any