10-K: Nordstrom's 2024 10-K Filing: Navigating Challenges, Charting Future Growth

Nordstrom's 2024 10-K filing reveals a year of strategic adjustments, including the wind-down of Canadian operations, alongside efforts to enhance performance and customer experience.

Summary

• Nordstrom's 2023 net earnings were $134 million, representing 0.9% of net sales, or $0.82 per diluted share.
• EBIT stood at $251 million, or 1.8% of net sales.
• Adjusted EBIT was $567 million, or 4.0% of net sales, and Adjusted EPS was $2.12, excluding impacts from Canadian operations wind-down and a supply chain asset impairment.
• Total company net sales decreased by 5.8% compared to 2022, including a negative 245 basis point impact from the Canadian wind-down and a positive 130 basis point impact from the 53rd week.
• The company saw sequential improvement in topline trends across both Nordstrom and Nordstrom Rack banners throughout the year.
• Ending inventory levels were 3% lower than the fourth quarter of 2022, contributing to a 95 basis point expansion in gross profit as a rate of sales.
• Key priorities for 2024 include driving Nordstrom banner growth, optimizing operations, and building on momentum at Nordstrom Rack.
• The company plans to launch a digital marketplace on Nordstrom.com to expand its online assortment.
• Nordstrom intends to open 22 new Rack stores in 2024, building on the 19 new stores opened in 2023.
• A decision was made to relocate the San Bernardino fulfillment center operations to the West Coast omni-channel center subsequent to year end.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While there are positive aspects like improved gross profit margin and plans for growth, there are also negative aspects like decreased sales and the wind-down of Canadian operations. The outlook is cautiously optimistic.

Positives

• Gross profit margin improved by 95 basis points due to lower markdowns and buying and occupancy costs.
• The company is focused on improving supply chain efficiency and inventory productivity.
• The company plans to launch a digital marketplace on Nordstrom.com to expand online offerings.
• The company intends to open 22 new Nordstrom Rack stores in 2024.

Negatives

• Total company net sales decreased by 5.8% compared to 2022, influenced by the Canadian wind-down.
• The wind-down of Canadian operations resulted in $284 million in pre-tax charges.
• Two of the three major ratings agencies revised the company's credit rating outlook from stable to negative in 2023.

Risks

• Failure to successfully execute the customer strategy and evolve the business model could negatively impact the business.
• Inability to appropriately assess and react to competitive market forces and changes in customer behavior could lead to loss of market share.
• Any inability to mitigate global labor and merchandise pricing pressures or disruptions may negatively impact profitability.
• Even with appropriate measures, security breaches or unauthorized disclosures could expose customers, employees, and the business to risk.
• Failure to maintain corporate culture and reputation could negatively affect customer, employee, vendor, and other stakeholder relationships.
• Disruptions in the global supply chain could result in lost sales or increased costs.
• A downturn in economic conditions, currency fluctuations, inflation, unemployment, and other external market factors could have a significant adverse effect on the business.
• Severe weather patterns, climate change, natural disasters, widespread pandemics, epidemics, civil unrest, and other natural or man-made disruptions could materially and adversely affect the business and operations.
• Failure to comply with certain laws, litigation, regulatory matters, and ethical standards could adversely affect the company's reputation and operations.
• Changes to accounting rules and regulations could affect financial results or financial condition.
• If Nordstrom Canada is unable to make a fair and orderly wind-down of its business operations, or if existing reserves are not adequate to cover ultimate liability, financial condition and results of operations could be adversely affected.

Future Outlook

For fiscal year 2024, the company expects a total revenue range, including retail sales and credit card revenues, of 2% decline to 1% growth compared with the 53-week fiscal 2023, which includes an approximately 135 basis point unfavorable impact from the 53rd week.

Management Comments

• The company remains committed to delivering profitable growth while improving the customer experience.
• The company will continue to build on the progress made in 2023 as it focuses its efforts on three refreshed key priorities in 2024: driving Nordstrom banner growth, optimizing operationally and building on momentum at the Rack.

Industry Context

The retail environment is rapidly evolving with shifting customer preferences and increasing competition from non-traditional retailers, including online marketplaces and rental and recommerce companies.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• The document does not provide specific global benchmarks.

Corporate Governance

Legal Proceedings

• The company is subject to various claims and lawsuits arising in the ordinary course of business.
• Nordstrom Canada commenced a wind-down of its business operations pursuant to a CCAA proceeding overseen by the Ontario Superior Court of Justice.

Related Party Transactions

• As of February 3, 2024, Nordstrom had a net outstanding liability to Nordstrom Canada of $52 million related to certain intercompany charges incurred prior to deconsolidation.

Stakeholder Impact

• The wind-down of Canadian operations has impacted customers, employees, vendors, and third-party partners and landlords.
• The company is committed to supporting the communities where it operates and to supporting the health, safety, and human rights of everyone in its value chain.

Next Steps

• Launch digital marketplace on Nordstrom.com.
• Open 22 new Nordstrom Rack stores in 2024.
• Relocate San Bernardino fulfillment center operations to the West Coast omni-channel center.
• Finalize the wind-down of business operations in Canada.

Key Dates

Keywords

Nordstrom, financial results, retail, Nordstrom Rack, sales, EBIT, inventory, supply chain, Canada wind-down, digital sales