DBRS Confirms Ratings of Nordstrom, Inc.

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Nordstrom, Inc. (Nordstrom or the Company) at BBB (high) and the Company’s Short-Term Issuer Rating at R-2 (high). All trends are Stable. The rating confirmations reflect continued stabilization in Nordstrom’s earnings and financial profile and DBRS’s expectation that credit metrics will remain in a range acceptable for the rating over the foreseeable future. The ratings continue to be supported by Nordstrom’s robust reputation for customer service, size, scale and market position, as well as the Company’s increasingly diverse customer base and retail channels. The ratings also continue to consider Nordstrom’s exposure to intense competition, particularly from e-commerce, economic cycles, shifting consumer trends and execution risk related to the Company’s expansion.

Nordstrom’s earnings and financial profile continued to show signs of stabilization during the last twelve months ended May 5, 2018 (LTM F2018). Revenues grew to $15.7 billion for the LTM F2018, from $14.8 in F2016, driven by growth from Nordstrom’s e-commerce channels and new store openings, partially offset by negative comparable sales from Nordstrom’s existing stores. EBITDA margins declined to 10.2% during the LTM F2018, from 11.2% in F2016, largely because of continued investments and expenses related to technology, supply chain and new store openings, while gross margins remained relatively stable. Consequently, EBITDA decreased to $1.60 billion during the LTM F2018, from $1.65 billion in F2016. As such, in combination with increased operating leases and despite a modest reduction in debt, lease-adjusted debt-to-EBITDAR, lease-adjusted EBITDA coverage and cash flow from operations (after dividends but before changes in working capital) as a percentage of debt weakened modestly during the LTM F2018 to 2.42 times (x), 7.55x and 29.4%, respectively, from 2.33x, 7.96x and 30.8%, respectively, at the end of F2016.

DBRS believes Nordstrom’s earnings and financial profile should remain relatively stable and appropriate for the current rating category in F2018 and F2019. This view is supported by DBRS’s expectation of low-single-digit revenue growth, despite a decline in comparable sales from Nordstrom’s existing stores, driven by strong growth from the Company’s e-commerce channels and contributions from new Nordstrom Rack store openings. EBITDA margins are expected to remain relatively stable, and as such, EBITDA is expected to remain relatively flat at approximately $1.6 billion in F2018. DBRS expects Nordstrom’s cash flow from operations to continue to track operating income, capital expenditures to decrease modestly and dividend cash outlay to remain relatively flat in F2018. DBRS believes the Company will use its free cash flow and potentially some cash on hand for share repurchases. Consequently, DBRS expects credit metrics to remain in a range commensurate for the BBB (high) rating (lease-adjusted debt to EBITDAR in a range from 2.0x to 2.5x). However, should lease-adjusted debt-to-EBITDAR increase above 2.5x for a sustained period because of either weaker than expected operating performance and/or more aggressive financial management, Nordstrom’s ratings could be pressured.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Companies in the Merchandising Industry, which can be found on dbrs.com under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.