Nordstrom, Inc. - 1 –
FINANCIAL RESEARCH REPORT
NORDSTROM, INC.:
Financial Research Report
By Rie Maiden
Presented to Dr. Page
FIN 534 5016
October 12, 2009
Nordstrom, Inc. - 2 –
FINANCIAL RESEARCH REPORT
Table of Contents
Abstract
3
Introduction
4
Company Overview
5
Trend & Ration Analysis
8
Stock Price Analysis
10
Foreign Operations & Global Analysis
12
Conclusion
14
References
15
Appendix A
16
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FINANCIAL RESEARCH REPORT
Abstract
The following paper serves as an analysis of the financial data present in the Income
Statement, Balance Sheet, and Cash Flow Statements fro Nordstrom, Inc. Nordstrom, Inc
operates in the Retail sector and faces competition from various apparel retailers, re-sale,
wholesale and luxury. Performing trend and ratio analysis of the financial information
retrieved for January 2009, January 2008, and January 2007, which can be found in the
Appendix. Comparing fluctuations in the stock price of Nordstrom common stock with
those of Standard & Poor’s Stock Market Index over the past 5 years.
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FINANCIAL RESEARCH REPORT
Introduction
Nordstrom, Inc is a luxury industry retailer of designer, high-end apparel, shoes,
cosmetics and accessories for men, women and children. They offer an assortment of
designer and private labels through various retail channels. Nordstrom, Inc is comprised
of 109 Nordstrom department/anchor stores, over 55 discount stores known as Nordstrom
Rack, two high-end Jeffrey boutiques, two clearance stores or Last Chance Outlets, and
Nordstrom Direct comprised of catalogs and the online storefront
“www.Nordstrom.com”. These stores are located throughout the United States and at one
time, over 37 Façonnable boutiques throughout Europe. Nordstrom offers a private label
credit card, two Nordstrom VISA credit cards and a debit card for in house purchases,
through the wholly owned federal savings bank, Nordstrom fsb. .
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FINANCIAL RESEARCH REPORT
Company Overview
Nordstrom’s Products
As one of the most successful apparel retailers in the United States, with over 170
stores in 28 states, Nordstrom generates revenue through four business segments. Retail
Stores generate revenue through the sale of high-quality accessories, cosmetics, shoes
and apparel. Direct utilizes the Internet and catalogs for the sale of high quality apparel
and related merchandise. The Credit segment offers a private label credit card, two
Nordstrom VISA credit cards and a debit card for in-house purchases. Revenue is
generated through finance and other related charges collected by the wholly owned
federal savings bank, Nordstrom fsb. The final segment, Other, includes product
development and corporate center operations. The product development team or
Nordstrom Product Group, designs and contracts the manufacture of Nordstrom’s private
label merchandise that is sold through Retail and Direct. (Datamonitor, 2008)
Consumer Demand &Price Elasticity of Demand
Sales are higher for the Retail and Direct segments during the second and fourth
quarters of the fiscal year due in part to the Anniversary Sale in July and the Winter
holidays. Nordstrom’s ability to predict changes in fashion trends and consumer
preferences and respond accordingly by matching their merchandise mix to consumer
tastes is what has made them so successful.(United States Securities an Exchange
Commission, 2009) The significance of the impact on sales and operating results is
obvious because without the quick response they would be forced to sell merchandise at
higher than average markdowns and much lower than average margins. Various other
uncontrollable and often unforeseeable factors, such as consumer confidence, weather
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FINANCIAL RESEARCH REPORT
and other natural events, and general economic conditions, play a constant role in
consumer spending.(Lache, Exstein, & Jones, 2009) Due to the nature of the products
they sell, the price elasticity of demand can be said to be very inelastic. They have
successfully incorporated brands at a range of price points as to allow consumers at any
spending level to be accommodated. Their award winning customer service had made
achieving sales almost a non-issue for the associates because the service and the products
sell themselves.
Products Substitutes
Apparel retail is highly competitive. There are various other national, regional and
local retailers that may carry similar lines of merchandise. Department stores, specialty
stores, boutiques and Internet storefronts all offer competition for Nordstrom, which
varies from market to market. The areas that they feel they can compete in the retail
industry are customer service, product quality, product selection, and internal and
external store environment. Theses factors not only affect Nordstrom but they are
constantly changing for their vendors, manufactures and consumers. Not recognizing this
and responding could be detrimental to revenue leading to a loss of market share and
declining sales and profitability.(United States Securities and Exchange Commission,
2009)
Brand Name Association
Nordstrom, Inc. is a well-recognized brand. Its customers believe they are
receiving a high level of customer service and high quality merchandise.
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FINANCIAL RESEARCH REPORT
Patent Protection
There are 139 registered trademarks or pending trademark applications, including
but not limited to Nordstrom, Nordstrom Rack, John W. Nordstrom, Caslon, and
Classiques Entier. Each of which is renewable indefinitely provided it is still used
commercially at that time. (Datamonitor, 2008)
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FINANCIAL RESEARCH REPORT
Trend & Ratio Analysis
Current Ratio
Quick Ratio
Market-to-Book Ratio
Debt-to-Equity Ratio
Price-Earnings Ratio
2.0094
1.4472
1.0051
3.6785
18.25
Enterprise Value
EPS
10.279 (billion)
1.50
Operating Margin
Net Profit Margin
Return on Equity
12.40%
4.70%
25.50%
The current ratio is used to determine the amount of working capital an
organization has, in order to meet short-term needs. Nordstrom with a current ratio of
2.01 and a quick ratio of 1.45 is sufficient enough to say that they can meet their short
terms needs however in previous years this ratio has been higher. It is safe to assume that
with the sale in 2007 of a large percent of their business they were able to increase their
cash but also lost long-term revenue. Weigh this against the current economic situation
and its easy to understand how a lucrative organization such as Nordstrom, Inc can
maintain at roughly a 2 to 1 ratio of assets to liabilities.
When evaluating the overall value of Nordstrom, Inc. it is important to
acknowledge the market-to book ratio of 1.01, the debt to equity ratio of 3.68, and the
Price to earnings ratio of 18.25. These ratios assess the liquidation value and the firm’s
leverage. Looking at the amount of debt that an organization has in relationship to its
ability to pay its short-term expenses is an indication of how successful an organization
can be in the future. Ideally a firm should make a profit upon sale; in the retail industry
P/E ratios are generally not very high resting in the low twenties or high teens for most
comparable retailers. With the onset of the recession many apparel retailers have seen a
Nordstrom, Inc. - 9 –
FINANCIAL RESEARCH REPORT
significant drop in sales and have experience significantly higher markdowns. This
external environmental analysis puts into context these figures that might otherwise lead
you to believe that Nordstrom, Inc. is headed for serious trouble.
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FINANCIAL RESEARCH REPORT
Stock Price Analysis
According to this chart the price of Nordstrom common stock is on its way up.
Over the past 5 years the S&P 500 has stayed very consistent with the most significant
fluctuations in the past few quarters. Nordstrom, Inc common stock is all over the map,
starting very close to the S&P then soaring well above at over 150% then within one to
two quarters dropping dramatically to over minus 30%. Fluctuations like these do not
make investors very confident in purchasing the stock. (Lache, 2009) Again the
economy plays a significant factor in the fluctuation of the stocks. (Clark, 2009) The
recession has forced many investors to tighten their belt and watch their portfolios closely
not to mention the value of the organization as a whole has changed singe before during
and after the sale of the foreign subsidiary in 2007. This generated cash but it didn’t do
much on the way of valuation of stock for shareholders.(United States Securities and
Exchange Commission, 2009) I would invest in this stock because of what a solid
organization Nordstrom is. They have proven historically their ability to last in a highly
competitive market and to thrive when other organizations aren’t. (Asaeda, 2008)
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FINANCIAL RESEARCH REPORT
Nordstrom, inc is on its way to a brighter future and investing in them while they are own
means greater profits with the firms continued success.
Nordstrom, Inc. - 12 –
FINANCIAL RESEARCH REPORT
Foreign Operations & Global Analysis
Prior to its sale, Nordstrom, Inc. acquired the apparel company Façonnable of
France for roughly $170 million dollars. Paying $88 million in cash and issuing 5 million
shares of Nordstrom common stock. Façonnable, at the time, was sold by retailers in 23
countries predominantly in Europe, South and Central America, as well as the Far and
Middle East. This high-end retailer, specializing in tailored men and women's clothing,
was introduced in the United States via an exclusivity agreement with Nordstrom. In
1993 its first domestic boutique debuted on NYC's Fifth Avenue. Product design and
manufacturing operations remained in the brands home of Nice. Nordstrom controlled 36
Façonnable boutiques in Europe and the brand has been sold exclusively through
Nordstrom since 1989. (Business Editors, 2000)
A significant portion of inventory is purchased from foreign suppliers and these
costs can fluctuate based on the rise and fall of the local currency against the US dollar.
Changes in the value of the U.S. dollar relative to foreign currencies increases cost of
goods sold, and without generating revenue that reflects these cost increases via the
customers, gross margins and earnings decrease. Deterioration in economic conditions
has lead to an instable stock market, restrictive consumer credit, a decline in the housing
market, and significant reductions in consumer spending. Apparel retail is considered
discretionary ad as a retailer of high-end apparel, shoes, cosmetics, and accessories
Nordstrom has seen an adverse affect to revenues. The revenue generated through
operation of the Façonnable boutiques while successful did not do much to account for
the degeneration of revenues domestically. Having developed the integration of
Façonnable and seen it become a well-integrated part of the overall brand as well as earn
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FINANCIAL RESEARCH REPORT
significant revenues. (Thomson Reuters, 2007) In July of 2007, Nordstrom Inc. is sold its
Façonnable brand for $200 million to the M1 Group, in order to see an increase in cash to
focus more closely on the mainstay of the corporation. (Datamonitor, 2008)
According to a 2007 article for Retailer Business, the President of Nordstrom, Inc
Blake Nordstrom stated,
"We believe this transaction is in the best interest of our company, our
shareholders, our customers and Façonnable. The Façonnable brand has been very
successful for Nordstrom. Over the last 19 years our company has played a
pivotal role in the development and success of this unique line, which has become
one of our top-selling brands. This move allows Nordstrom to focus on its core
business while continuing to offer the Façonnable brand to our customers and
allows Façonnable the opportunity to grow independently."
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FINANCIAL RESEARCH REPORT
Conclusion
Overall, Nordstrom, Inc. is a solid organization that, like any other retailer, is
experiencing the long-term and short-term affects of the recession and the declined
economy. Having a strong reputation as one of the best high-end apparel retailers that
provides award winning customer service allows them to sustain revenue growth when
other firms cannot. The cost of capital is currently high due to structural changes that
have occurred in dealing with the economy. Holding onto shares of Nordstrom, Inc.
common stock should prove very lucrative over the course of the coming years. This is
an invaluable investment, as this company continues to grow and make strategic
investments that will provide for its long-term success.
Nordstrom, Inc. - 15 –
FINANCIAL RESEARCH REPORT
References
Asaeda, J. (2008) SS&P Picks and Pans: Activision, BMC Software, Autodesk,
Nordstrom, Abercrombie. Business Week Online May 19, 2008 p 18
Business Editors (2000) Nordstrom, Inc. Agrees to Acquire French Apparel Company,
Façonnable, S.A. Business Wire September 27, 2000 Retrieved from
www.albusiness.com
Clark, Evan (2009). Nordstrom Execs See Paycuts. Women’s Wear Daily April 10, 2009
Vol. 197 Issue 76 p14
Datamonitor (2008) Nordstrom, Inc. SWOT Analysis. Datamonitor plc December 15,
2008 p 1-9
Lache, Rod, Exstein, Michael, Jones, Heather (2009) Analyst Picks and Pans: CarMax,
Nordstrom, Diamond Foods. Business Week Online May 29, 2009 p16
Thomson Reuters (2007). Nordstrom Exploring Options for Façonnable Brand. Retrieved
from www.reuters.com.
United States Securities and Exchange Commission (2009). Nordstrom, Inc. Annual
Report Persuant to Section 13 or 15 (d) of the Exchange Act of 1934. (Form 10-K
Commission File Number 001-15059). Washington, D.C
Nordstrom, Inc. - 16 –
FINANCIAL RESEARCH REPORT
Appenix A
INCOME STATEMENT
Operating Revenue
Total Revenue
Adjustment to Revenue
Cost of Sales
Cost of Sales with Depreciation
Gross Margin
Gross Operating Profit
R&D
SG&A
Advertising
Operating Profit
Jan-09
(TTM)
8,573.00
8,573.00
0
5,136.00
5,417.00
0
3,437.00
0
2,386.00
0
779
Jan-07
(TTM)
8,561.00
8,561.00
0
5,105.00
5,354.00
3,207.00
3,456.00
0
2,297.00
0
910
Jan-06
(TTM)
7,722.86
7,722.86
0
4,645.05
4,888.02
2,834.84
3,077.82
0
2,100.67
0
734.17
Operating Profit before Depreciation
(EBITDA)
Depreciation
Depreciation Unreconciled
Amortization
Amortization of Intangibles
Operating Income After Depreciation
Interest Income
Earnings from Equity Interest
Other Income, Net
Income Acquired in Process R&D
Interest Restructuring and M&A
Other Special Charges
Total Income Avail for Interest Expense (EBIT)
Interest Expense
Income Before Tax (EBT)
Income Taxes
Minority Interest
Preferred Securities of Subsidiary Trust
Net Income from Continuing Operations
Net Income from Discontinued Ops.
Net Income from Total Operations
Extraordinary Income/Losses
Income from Cum. Effect of Acct Chg
Income from Tax Loss Carryforward
Other Gains (Losses)
1,051.00 1,175.00 1,159.00
281
233
249
0
0
0
0
0
0
0
0
0
770
942
910
3
16
15
0
0
0
9
271
239
0
0
0
0
34
0
0
0
0
782 1,263.00 1,164.00
134
90
57
648 1,173.00 1,107.00
247
458
428
0
0
0
0
0
0
401
715
678
0
0
0
401
715
678
0
0
0
0
0
0
0
0
0
0
0
0
977.15
242.98
0
0
0
734.17
0
0
196.35
0
0
0
930.53
45.3
885.23
333.89
0
0
551.34
0
551.34
0
0
0
0
All amounts in millions except per share amounts.
Jan-08
(TTM)
8,828.00
8,828.00
0
5,293.00
5,526.00
3,302.00
3,535.00
0
2,360.00
0
0
Total Net Income
401
715
678
551.34
Normalized Income
Net Income Available for Common
401
401
681
715
678
678
551.34
551.34
Nordstrom, Inc. - 17 –
FINANCIAL RESEARCH REPORT
Preferred Dividends
Excise Taxes
0
0
0
0
0
0
0
0
Per Share Data
Basic EPS from Continuing Ops.
Basic EPS from Discontinued Ops.
Basic EPS from Total Operations
Basic EPS from Extraordinary Inc.
Basic EPS from Cum Effect of Accounting Chg
Basic EPS from Other Gains (Losses)
Basic EPS Total
Basic Normalized Net Income/Share
Diluted EPS from Continuing Ops.
Diluted EPS from Discontinued Ops.
Diluted EPS from Total Operations
Diluted EPS from Extraordinary Inc.
1.85
0
1.85
0
0
0
1.85
1.85
1.83
0
1.83
0
2.92
0
2.92
0
0
0
2.92
2.78
2.88
0
2.88
0
2.6
0
2.6
0
0
0
2.6
2.6
2.55
0
2.55
0
2.03
0
2.03
0
0
0
2.03
2.03
1.98
0
1.98
0
Diluted EPS from Cum Effect of Accounting Chg
Diluted EPS from Other Gains (Losses)
Diluted EPS Total
Diluted Normalized Net Income/Share
Dividends Paid per Share
0
0
1.83
1.83
0.64
0
0
2.88
2.74
0.54
0
0
2.55
2.55
0.42
0
0
1.98
1.98
0.32
216.6
219.2
245
249
260.69
265.71
271.96
277.78
Jan-09
(TTM)
Jan-08
(TTM)
Jan-07
(TTM)
Jan-06
(TTM)
72
358
0
0
0
0
1,942.00 1,788.00
0
0
0
0
1,942.00 1,788.00
0
0
0
0
0
0
0
0
900
956
0
0
900
956
403
0
428
684
0
0
684
0
0
0
0
997
0
997
462.66
0
615.14
639.56
0
0
639.56
0
0
0
0
955.98
0
955.98
Additional Data
Basic Weighted Shares Outstanding
Diluted Weighted Shares Outstanding
BALANCE SHEET
All amounts in millions except per share amounts.
Assets
Cash and Equivalents
Restricted Cash
Marketable Securities
Accounts Receivable
Loans Receivable
Other Receivable
Receivables
Raw Materials
Work In Progress
Purchased Components
Finished Goods
Other Inventories
Inventories -Adj Allowances
Inventories
Nordstrom, Inc. - 18 –
FINANCIAL RESEARCH REPORT
Prepaid Expenses
Current Deferred Income Taxes
Other Current Assets
Total Current Assets
Gross Fixed Assets (Plant, Prop. &
Equip.)
Accumulated Depreciation & Depletion
Net Fixed Assets
Intangibles
Cost in Excess
Non-Current Deferred Income Taxes
Other Non-Current Assets
Total Non Current Assets
93
78
60
55.36
210
181
169
145.47
0
0
0
0
3,217.00 3,361.00 2,742.00 2,874.16
5,328.00
3,107.00
2,221.00
0
53
0
170
2,444.00
4,909.00
2,926.00
1,983.00
0
53
0
203
2,239.00
4,547.00
2,790.00
1,757.00
84
52
0
187
2,080.00
4,323.43
2,549.56
1,773.87
135.71
0
0
137.61
2,047.19
Total Assets
5,661.00 5,600.00 4,822.00 4,921.35
Liabilities
Accounts Payable
Notes Payable
Short Term Debt
Accrued Expenses
Accrued Liabilities
Deferred Revenues
Current Deferred Income Taxes
Other Current Liabilities
Total Current Liabilities
Long Term Debt
Capital Lease Obligations
Deferred Income Taxes
Other Non-Current Liabilities
Minority Interest
Preferred Securities of Subsidiary Trust
Preferred Equity outside Stock Equity
Total Non-Current Liabilities
563
556
577
540.02
0
0
0
0
299
261
7
306.62
214
0
0
0
0
268
340
285.98
0
0
0
0
0
0
0
0
525
550
510
490.69
1,601.00 1,635.00 1,433.00 1,623.31
2,214.00 2,236.00
624
627.78
0
0
0
0
435
0
0
0
201
614
596
577.58
0
0
0
0
0
0
0
0
0
0
0
0
2,850.00 2,850.00 1,220.00 1,205.36
Total Liabilities
4,451.00 4,485.00 2,654.00 2,828.67
Stockholder's Equity
Preferred Stock Equity
Common Stock Equity
Common Par
Additional Paid In Capital
Cumulative Translation Adjustment
Retained Earnings
Treasury Stock
0
0
0
0
1,210.00 1,115.00 2,169.00 2,092.68
997
0
0
0
0
936
827
685.93
0
0
0
0
223
201 1,351.00 1,404.37
0
0
0
0
Nordstrom, Inc. - 19 –
FINANCIAL RESEARCH REPORT
Other Equity Adjustments
Total Equity
Total Capitalization
-10
-22
-9
2.38
1,210.00 1,115.00 2,169.00 2,092.68
3,424.00 3,351.00 2,793.00 2,720.46
Total Liabilities & Stock Equity
5,661.00 5,600.00 4,823.00 4,921.35
Additional Data
Cash Flow
Working Capital
Free Cash Flow
682
948
927
794.32
1,616.00 1,726.00 1,308.00 1,250.85
147
-258
768
417.38
Invested Capital
3,424.00 3,351.00 2,793.00 2,720.46
Share Data
Shares Outstanding Common Class Only
Preferred Shares
Total Ordinary Shares
Total Common Shares Outstanding
Treasury Shares
CASH FLOW STATEMENT
All amounts in millions except per share amounts.
215.4
0
0
215.4
0
220.9
0
0
220.9
0
257.31
0
0
257.31
0
269.55
0
0
269.55
0
Jan-09
(TTM)
Jan-08
(TTM)
Jan-07
(TTM)
Jan-06
(TTM)
401
715
302
269
-21
-36
0
0
-36
-42
0
-34
0
0
-93 -1,234.00
53
0
9
-9
0
420
16
-19
-26
-28
678
285
-36
0
-58
0
0
-61
-39
-5
128
84
67
551.34
276.33
-33.35
0
-11.24
75.3
0
-15.14
-20.8
-1.04
-139.26
31.72
62.38
Operating Activities
Net Income (Loss)
Depreciation
Amortization
Amortization of Intangibles
Deferred Income Taxes
Operating (Gains) Losses
Extraordinary (Gains) Losses
(Increase) Decrease in Receivables
(Increase) Decrease in Inventories
(Increase) Decrease in Prepaid Expenses
(Increase) Decrease in Other Current Assets
(Increase) Decrease in Payables
(Increase) Decrease in Other Curr Liabs.
(Increase) Decrease in Other Working
Capital
Other Non-Cash Items
Net Cash from Continuing Operations
Net Cash from Discontinued Operations
43
200
848
0
24
40
135
60
161 1,142.00
0
0
0
0
776.23
0
Net Cash from Operating Activities
848
161 1,142.00
776.23
Investing Activities
Sale of Property, Plant, Equipment
2
12
0
0.11
Nordstrom, Inc. - 20 –
FINANCIAL RESEARCH REPORT
Sale of Long Term Investments
Sale of Short Term Investments
Purchase of Property, Plant, Equipment
Acquisitions
Purchase of Long Term Investments
Purchase of Short Term Investments
Other Investing Changes Net
Cash from Disc. Investing Activities
0
0
-563
0
0
0
-231
0
0
0
-501
216
0
0
3
0
0
164
-264
0
0
-110
-8
0
0
530.75
-271.66
0
0
-542.93
-8.37
0
Net Cash from Investing Activities
-792
-270
-218
-292.09
Financing Activities
Issuance of Debt
Issuance of Capital Stock
Repayment of Debt
Repurchase of Capital Stock
Payment of Cash Dividends
Other Financing Charges, Net
Cash from Disc. Financing Activities
445 2,510.00
30
51
0
-680
-264 -1,702.00
-138
-134
-415
19
0
0
0
67
-308
-622
-110
-12
0
4.95
88.62
-101.05
-287.08
-87.2
-0.35
0
Net Cash from Financing Activities
-342
64
-984
-382.11
Effect of Exchange Rate Changes
0
0
0
0
-286
-45
-60
102.03
358
72
403
358
463
403
360.62
462.66
Net Change in Cash & Cash Equivalents
Cash at Beginning of Period
Cash at End of Period