Edgar Filing: NORDSTROM INC

JWN-1.31.2015-10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



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

For the fiscal year ended January 31, 2015



¨	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)		(Zip Code)

Registrant’s telephone number, including area code 206-628-2111

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



Title of each class		Name of each exchange on which registered
Common stock, without par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO þ

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 þ NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO þ

As of August 1, 2014 the aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates of the Registrant was approximately $10.6 billion using the closing sales price on that day of $68.95. On March 2, 2015, 190,405,729 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2015 Annual Meeting of Shareholders scheduled to be held on May 5, 2015 are incorporated into Part III.

Nordstrom, Inc. and subsidiaries 1

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TABLE OF CONTENTS
		Page
PART I
Item 1.	Business.	4
Item 1A.	Risk Factors.	6
Item 1B.	Unresolved Staff Comments.	10
Item 2.	Properties.	10
Item 3.	Legal Proceedings.	12
Item 4.	Mine Safety Disclosures.	12

PART II
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.	13
Item 6.	Selected Financial Data.	15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	35
Item 8.	Financial Statements and Supplementary Data.	36
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	66
Item 9A.	Controls and Procedures.	66
Item 9B.	Other Information.	68

PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	68
Item 11.	Executive Compensation.	68
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.	68
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	68
Item 14.	Principal Accounting Fees and Services.	68

PART IV
Item 15.	Exhibits and Financial Statement Schedules.	69

Signatures		70
Consent of Independent Registered Public Accounting Firm		71
Exhibit Index		72

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PART I

Item 1. Business.

DESCRIPTION OF BUSINESS

Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in Washington state in 1946 and went on to become one of the leading fashion specialty retailers based in the U.S. As of March 16, 2015, we operate 290 U.S. stores located in 38 states as well as a robust ecommerce business through Nordstrom.com, Nordstromrack.com and HauteLook and TrunkClub.com. We also operate two Nordstrom full-line stores in Canada. The west and east coasts of the U.S. are the areas in which we have the largest presence. We have two reportable segments: Retail and Credit.

As of March 16, 2015, the Retail segment includes our 115 “Nordstrom” branded full-line stores in the U.S. and Nordstrom.com, 167 off-price Nordstrom Rack stores, two Canada full-line stores, Nordstromrack.com and HauteLook, and other retail channels including five Trunk Club showrooms and TrunkClub.com, our two Jeffrey boutiques and one clearance store that operates under the name “Last Chance.” Through these multiple retail channels, we strive to deliver the best customer experience possible. We offer an extensive selection of high-quality brand-name and private label merchandise focused on apparel, shoes, cosmetics and accessories. Our integrated Nordstrom full-line stores and online store allow us to provide our customers with a seamless shopping experience. In-store purchases are primarily fulfilled from that store’s inventory, but when inventory is unavailable at that store it may also be shipped to our customers from our fulfillment center in Cedar Rapids, Iowa, or from other Nordstrom full-line stores. Online purchases are primarily shipped to our customers from our Cedar Rapids fulfillment center, but may also be shipped from our Nordstrom full-line stores. Our customers can also pick up online orders in our Nordstrom full-line stores if inventory is available at one of our locations. These capabilities allow us to better serve customers across various channels and improve sales. Nordstrom Rack stores purchase high-quality brand-name merchandise primarily from the same vendors carried in Nordstrom full-line stores and also serve as outlets for clearance merchandise from our Nordstrom stores and other retail channels. During the year, we launched Nordstromrack.com and the associated mobile app. Nordstromrack.com combines the technology expertise of HauteLook with the merchant expertise of Nordstrom Rack. Nordstromrack.com and HauteLook offer limited-time sale events on fashion and lifestyle brands as well as a persistent selection of off-price, high-quality brand-name merchandise and are integrated with a single customer log-in, shared shopping cart and streamlined checkout process. Furthermore, we can accommodate returns from these sites by mail or at any Nordstrom Rack location.

Our Credit segment includes our wholly owned federal savings bank, Nordstrom fsb, through which we provide a private label credit card, two Nordstrom Visa credit cards and a debit card. The credit and debit cards feature a loyalty program designed to increase customer visits and spending. Although the primary purposes of our Credit segment are to foster greater customer loyalty and drive more sales, we also generate revenues from finance charges and other fees on these cards. In addition, we save on interchange fees that the Retail segment would incur if our customers used third-party cards.

For more information about our business and our reportable segments, see Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16: Segment Reporting in Item 8: Financial Statements and Supplementary Data.

FISCAL YEAR

We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31^st. References to 2014 and all years within this document are based on a 52-week fiscal year, except 2012, which is based on a 53-week fiscal year.

TRADEMARKS

We have 156 trademarks, each of which is the subject of one or more trademark registrations and/or trademark applications. Our most notable trademarks include Nordstrom, Nordstrom Rack, HauteLook, Halogen, BP., Zella, Caslon and Trunk Club. Each of our trademarks is renewable indefinitely, provided that it is still used in commerce at the time of the renewal.

RETURN POLICY

We have a fair and liberal approach to returns as part of our objective to provide high-quality customer service. We do not have a formal return policy at our Nordstrom full-line stores or online at Nordstrom.com. Our goal is to take care of our customers, which includes making returns and exchanges easy, whether in stores or online, where we offer free shipping and free returns. Our Nordstrom Rack stores generally accept returns up to 90 days from the date of purchase with the original price tag and sales receipt, and also accept returns of Nordstromrack.com and HauteLook merchandise. Nordstromrack.com and HauteLook generally accept returns of apparel, footwear and accessories within 90 days from the date of shipment.

SEASONALITY

Due to our Anniversary Sale in July and the holidays in December, our sales are typically higher in the second and fourth quarters than in the first and third quarters of the fiscal year.

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COMPETITIVE CONDITIONS

We operate in a highly competitive business environment. We compete with other national, regional, local and online retailers that may carry similar lines of merchandise, including department stores, specialty stores, off-price stores, boutiques and Internet businesses. Our specific competitors vary from market to market. We believe the keys to competing in our industry are providing great customer service and customer experiences in stores and online, which includes compelling price and value, fashion newness, quality of products, selection, convenience, technology, product fulfillment, personalization and appealing, relevant store environments in top locations.

INVENTORY

We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and receipts increase prior to our Anniversary Sale, which has historically extended over the last two weeks of July. We also purchase and receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through December). Beginning in 2012, we increased our investment in pack and hold inventory at Nordstrom Rack, which involves the strategic purchase of merchandise from some of our full-line stores’ top brands in advance of the upcoming selling seasons to take advantage of favorable buying opportunities. This inventory is typically held for six months on average and has contributed to the growth in our Nordstrom Rack business. We pay for our merchandise purchases under the terms established with our vendors.

In order to offer merchandise that our customers want, we purchase from a wide variety of high-quality suppliers, including domestic and foreign businesses. We also have arrangements with agents and contract manufacturers to produce our private label merchandise. We expect our suppliers to meet our “Nordstrom Partnership Guidelines,” which address our corporate social responsibility standards for matters such as legal and regulatory compliance, labor, health and safety and the environment, and are available on our website at Nordstrom.com.

EMPLOYEES

During 2014, we employed approximately 67,000 employees on a full- or part-time basis. Due to the seasonal nature of our business, employment increased to approximately 68,000 employees in July 2014 and 73,500 in December 2014. All of our employees are non-union. We believe our relationship with our employees is good.

CAUTIONARY STATEMENT

Certain statements in this Annual Report on Form 10-K contain or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial outlook for the fiscal year ending January 30, 2016, anticipated annual total and comparable sales rates, anticipated new store openings in existing, new and international markets, anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of the company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to:

•

successful execution of our customer strategy, including expansion into new markets, acquisitions, investments in our stores and online, our ability to realize the anticipated benefits from growth initiatives, our ability to provide a seamless experience across all channels, and the timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties,


•	our ability to manage the transformation of our business/financial model as we increase our investments in growth opportunities, including our online business and our ability to manage related organizational changes,


•	our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders,


•	effective inventory management, disruptions in our supply chain and our ability to control costs,


•	the impact of any systems 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 compliance with information security and privacy laws and regulations in the event of such an incident,


•	successful execution of our information technology strategy,


•	our ability to effectively utilize data in strategic planning and decision making,


•	efficient and proper allocation of our capital resources,


•	reviewing of options and structure for a financial partner in regards to a potential transaction related to our credit card receivables,


•	our ability to safeguard our reputation and maintain our vendor relationships,


•	the impact of economic and market conditions and the resultant impact on consumer spending patterns,


•	our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online,


•	the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry,


•	weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the resulting impact on consumer spending patterns,


•	our compliance with applicable banking-related laws and regulations impacting our ability to extend credit to our customers, employment laws and regulations, certain international laws and regulations, other laws and regulations applicable to us, including the outcome of claims and litigation and resolution of tax matters, and ethical standards,


•	impact of the current regulatory environment and financial system and health care reforms,

Nordstrom, Inc. and subsidiaries 5

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•	compliance with debt covenants, availability and cost of credit, changes in interest rates, and trends in debt repayment patterns, personal bankruptcies and bad debt write-offs, and


•	the timing and amounts of share repurchases by the company, if any, or any share issuances by the company, including issuances associated with option exercises or other matters.

These and other factors, including those factors described in Item 1A: Risk Factors, could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.

SEC FILINGS

We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”). All material we file with the SEC is publicly available at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

WEBSITE ACCESS

Our website address is Nordstrom.com. Our annual and quarterly reports on Form 10-K and Form 10-Q (including related filings in eXtensible Business Reporting Language (“XBRL”) format), current reports on Form 8-K, proxy statements, our executives’ statements of changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available for free on or through our website as soon as reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of quarterly earnings conference calls and other financial events through our website.

CORPORATE GOVERNANCE

We have a long-standing commitment to upholding a high level of ethical standards. In addition, as the listing standards of the New York Stock Exchange (“NYSE”) and the rules of the SEC require, we have adopted Codes of Business Conduct and Ethics for our employees, officers and directors (“Codes of Ethics”) and Corporate Governance Guidelines. Our Codes of Ethics, Corporate Governance Guidelines and Committee Charters for the Audit, Compensation, Corporate Governance and Nominating, Finance and Technology Committees are posted on our website. Any amendments to these documents, or waivers of the requirements they contain, will also be available on our website.

For printed versions of these items or any other inquiries, please contact:

Nordstrom Investor Relations

PO Box 2737

Seattle, Washington 98111

(206) 303-3200

invrelations@nordstrom.com

Item 1A. Risk Factors.

Our business faces many risks. We believe the risks described below outline the items of most concern to us.

RISKS DUE TO STRATEGIC AND OPERATIONAL FACTORS

Our customer strategy focuses on providing a seamless, cohesive and high-quality experience across all Nordstrom channels and failure to successfully execute our plans could negatively impact our current business and future profitability.

We are enhancing our customer shopping experience in our stores, online, and in mobile and social channels by pursuing a heightened focus on technology and ecommerce to fuel our growth. With the accelerated pace of change in the retail environment, we may not be able to meet our customers’ changing expectations in how they shop in stores or through ecommerce. If we target the wrong opportunities, fail to make investments at the right time or pace, fail to make the best investments in the right channels or make an investment commitment significantly above or below our needs, it may result in the loss of our competitive position. If these technologies and investments do not perform as expected or are not seamlessly integrated, our profitability and growth could be adversely affected. In addition, if we do not maintain our current systems, we may see interruptions to our business and increased costs in order to bring our systems up to date.

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We are continuing our plan to accelerate the number of new Nordstrom Rack store openings. New store openings both at the Rack and in our full-line stores involve certain risks, including the availability of suitable locations, constructing, furnishing and supplying a store in a timely and cost-effective manner and properly balancing our capital investments between new stores, remodels, technology and ecommerce. In addition, we may not accurately assess the demographic or retail environment for a particular location and sales at new, relocated or remodeled stores may not meet our projections, particularly in light of the changing trends between online and brick-and-mortar shopping channels, which could adversely affect our return on investment. We also intend to open stores in new and international markets, such as Canada, Puerto Rico and Manhattan, and expansion will require additional management attention and resources and may distract us from executing our core operations. In addition, competition from strong local competitors, compliance with foreign and local laws and regulatory requirements and potentially unfavorable tax consequences may cause our business to be adversely impacted.

As we execute our plans and continue to evolve and transform our strategy, we may not adequately manage the related organizational changes to align with our strategy or appropriately monitor, report or communicate the changes in an effective manner. In addition, we may not gather accurate and relevant data or effectively utilize that data, which may impact our strategic planning and decision making.

Our stores located in shopping malls may be adversely affected if the consumer traffic of malls decline.

Many of our stores are located in desirable locations within shopping malls and benefit from the abilities that we and other anchor tenants have to generate consumer traffic. A substantial decline in mall traffic, the development of new shopping malls, the availability of locations within existing or new shopping malls, the success of individual shopping malls and the success of other anchor tenants may negatively impact our ability to maintain or grow our sales in existing stores, as well as our ability to open new stores, which could have an adverse effect on our financial condition or results of operations.

Improvements to our merchandise buying processes and systems could adversely affect our business if not successfully executed.

We are making investments to improve our merchandise planning, procurement and allocation capabilities through changes in personnel, processes and technology over a period of several years. If we encounter challenges associated with change management, the ability to hire and retain key personnel involved in these efforts, implementation of associated information technology or adoption of new processes, our ability to continue to successfully execute our strategy or evolve our strategy as the retail environment changes could be adversely affected. As a result, we may not derive the expected benefits to our sales and profitability, or we may incur increased costs relative to our current expectations.

If we do not effectively design and implement our strategic and business planning processes to attract, retain, train and develop talent and future leaders, our business may suffer.

We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace, and the talents of our workforce to execute our business strategies and objectives. If unexpected turnover occurs without adequate succession plans, the loss of the services of any of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our business.

Even if we take appropriate measures to safeguard our information security and privacy environment from security breaches, our customers and our business could still be exposed to risk.

Our Retail and Credit segments involve the collection, storage and transmission of customers’ personal information, consumer preferences and credit card information. In addition, our operations involve the collection, storage and transmission of employee information and company financial and strategic data. Any measures we implement to prevent a security or cybersecurity threat may not be totally effective and may have the potential to harm relations with our customers or decrease activity on our websites by making them more difficult to use. In addition, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly demanding, with new and constantly changing requirements. Security breaches and cyber incidents and their remediation, whether at our company, our third-party providers or other retailers, could expose us to a risk of loss or misappropriation of this information, litigation, potential liability, reputation damage and loss of customers’ trust and business, which could adversely impact our sales. Any such breaches or incidents could subject us to investigation, notification and remediation costs, and if there is additional information that is later discovered related to such security breach or incident, there could be further loss of customers’ trust and business, based upon their reactions to this additional information. Additionally, as a credit card issuer, we could be subject to credit card fraud losses due to external credit card fraud.

If we fail to appropriately manage our capital, we may negatively impact our operations and shareholder return.

We utilize capital to finance our operations, make capital expenditures and acquisitions, manage our debt levels and return value to our shareholders through dividends and share repurchases. If our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted. Further, if we do not properly allocate our capital to maximize returns, our operations, cash flows and returns to shareholders could be adversely affected.

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Our customer and employee relationships could be negatively affected if we fail to maintain our corporate culture and reputation.

We have a well-recognized culture and reputation that consumers may associate with a high level of integrity, customer service and quality merchandise, and it is one of the reasons customers shop with us and employees choose us as a place of employment. Any significant damage to our reputation could negatively impact sales, diminish customer trust, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified employees.

The potential transaction related to our credit card receivables could adversely impact our business.

In May 2014, we announced that we are reviewing options for a financial partner for our credit card receivables. This review may not result in a consummated transaction, and further, could divert management’s attention away from our core Retail business, negatively impacting our execution on our customer strategy. If we do not successfully execute a transaction that meets our needs or fail to properly allocate our capital to maximize returns, our operations, cash flows and returns to shareholders could be adversely affected. Additionally, credit rating agencies may downgrade our business, which could adversely impact our operations and cash flows. Although we do not expect any change to the customer experience following a transaction, if such a transaction negatively impacts the customer service associated with our credit cards, this could harm our business and reputation, harming our competitive position.

The concentration of stock ownership in a small number of our shareholders could limit your ability to influence corporate matters.

We have regularly reported in our annual proxy statements the holdings of members of the Nordstrom family, including Bruce A. Nordstrom, our former Co-President and Chairman of the Board, his sister Anne E. Gittinger and members of the Nordstrom family within our Executive Team. In our proxy statement as of March 2, 2015, for the 2015 Annual Meeting of Shareholders, these individuals owned an aggregate of approximately 27% of our common stock. As a result, either individually or acting together, they may be able to exercise considerable influence over matters requiring shareholder approval. As reported in our periodic filings, our Board of Directors has from time to time authorized share repurchases. While these share repurchases may be offset in part by share issuances under our equity incentive plans and as consideration for acquisitions, the repurchases may nevertheless have the effect of increasing the overall percentage ownership held by these shareholders. The corporate law of the State of Washington, where the company is incorporated, provides that approval of a merger or similar significant corporate transaction requires the affirmative vote of two-thirds of a company’s outstanding shares. The beneficial ownership of these shareholders may have the effect of discouraging offers to acquire us, delay or otherwise prevent a significant corporate transaction because the consummation of any such transaction would likely require the approval of these shareholders. As a result, the market price of our common stock could be affected.

Investment and partnerships in new business strategies and acquisitions could disrupt our core business.

We have invested in or are pursuing strategic growth opportunities, which may include acquisitions of, or investments in, other businesses, as well as new technologies or other investments to provide a superior customer shopping experience in our stores and online. Additionally, our business model will continue to rely more on partnerships with third parties for certain strategic initiatives and technologies. If these investments, acquisitions or partnerships do not perform as expected or create operational difficulties, our profitability and growth could be adversely affected.

RISKS DUE TO ECONOMIC AND EXTERNAL MARKET FACTORS

A downturn in economic conditions could have a significant adverse effect on our business.

During economic downturns, fewer customers may shop for the high-quality items in our stores and on our websites as they may be seen as discretionary and those who do shop may limit the amount of their purchases. This reduced demand may lead to lower sales, higher markdowns and increased marketing and promotional spending.

Our business could suffer if we do not appropriately assess and react to competitive market forces and changes in customer behavior.

We compete with other national, regional, local and online retailers that may carry similar lines of merchandise, including department stores, specialty stores, off-price stores, boutiques and Internet businesses. The retail environment is rapidly evolving with customer shopping preferences continuing to shift online and we expect competition in the ecommerce market to intensify in the future as the Internet facilitates competitive entry and comparison shopping. We may lose market share to our competitors and our sales and profitability could suffer if we are unable to remain competitive in the key areas of price and value, fashion newness, quality of products, depth of selection, convenience, fulfillment, service and the shopping experience, including the online and store environment and store location. Our financial model is changing to match customer shopping preferences, but if we do not properly allocate our capital between the store and online environment, or adjust the effectiveness and efficiency of our stores, our overall sales and profitability could suffer.

Our Credit segment faces competition from other retailers who also offer credit card products with associated loyalty programs, large banks and other credit card companies, some of which have substantial financial resources. If we do not effectively anticipate or respond to the competitive banking and credit card environments, we could lose market share to our competitors.

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Our sales and customer relationships may be negatively impacted if we do not anticipate and respond to consumer preferences and fashion trends appropriately.

Our ability to predict or respond to constantly changing fashion trends, consumer preferences and spending patterns significantly impacts our sales and operating results. If we do not identify and respond to emerging trends in consumer spending and preferences quickly enough, we may harm our ability to retain our existing customers or attract new customers. If we purchase too much inventory, we may be forced to sell our merchandise at lower average margins, which could harm our business. Conversely, if we fail to purchase enough merchandise, we may lose opportunities for additional sales and damage our relationships with our customers.

The results of our Credit operations could be adversely affected by changes in market conditions.

Our credit card revenues and profitability are subject in large part to economic and market conditions that are beyond our control, including, but not limited to, interest rates, consumer credit availability, consumer debt levels, unemployment trends and other factors. These economic and market conditions could impair our credit card revenues and the profitability of our credit card business due to factors such as lower demand for credit, or could impair ability to assess the creditworthiness of our customers if the criteria and/or models we use to underwrite and manage our customers become less predictive of future losses, causing our losses to rise and have a negative impact on our results of operations. Deterioration of economic conditions and consumer confidence may also adversely affect our credit customers’ payment patterns and delinquency rates, increasing our bad debt expense.

Our business and operations could be materially and adversely affected by supply chain disruptions, port disruptions, severe weather patterns, natural disasters, widespread pandemics and other natural or man-made disruptions.

We derive a significant amount of our total sales from stores located on the west and east coasts of the United States, particularly in California, which increases our exposure to conditions in these regions. Similarly, merchandise received through west coast ports could be adversely impacted by labor disruptions. These disruptions could cause, among other things, a decrease in consumer spending that would negatively impact our sales, staffing shortages in our stores, distribution centers or corporate offices, interruptions in the flow of merchandise to our stores, disruptions in the operations of our merchandise vendors or property developers, increased costs, and a negative impact on our reputation and long-term growth plans.

RISKS DUE TO LEGAL AND REGULATORY FACTORS

We are subject to certain laws, litigation, regulatory matters and ethical standards, and our failure to comply with or adequately address developments as they arise could adversely affect our reputation and operations.

Our policies, procedures and practices and the technology we implement are designed to comply with federal, state, local and foreign laws, rules and regulations, including those imposed by the SEC and other regulatory agencies, the marketplace, the banking industry and foreign countries, as well as responsible business, social and environmental practices, all of which may change from time to time. Significant legislative changes, including those that relate to employment matters and health care reform, could impact our relationship with our workforce, which could increase our expenses and adversely affect our operations. In addition, if we fail to comply with applicable laws and regulations or implement responsible business, social, environmental and supply chain practices, we could be subject to damage to our reputation, class action lawsuits, legal and settlement costs, civil and criminal liability, increased cost of regulatory compliance, restatements of our financial statements, disruption of our business and loss of customers. Any required changes to our employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and harm to our business and results of operations. In addition, political and economic factors could lead to unfavorable changes in federal, state and foreign tax laws, which may increase our tax liabilities. An increase in our tax liabilities could adversely affect our results of operations. We are also regularly involved in various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our business and financial condition.

We continue to face uncertainties due to financial services industry regulation and supervision that could have an adverse affect on our operations.

Federal and state regulation and supervision of the financial industry has increased in recent years due to implementation of consumer protection and financial reform legislation such as the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“CARD Act”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Financial Reform Act”). The Financial Reform Act significantly restructured regulatory oversight and other aspects of the financial industry, created the Consumer Financial Protection Bureau (“CFPB”) to supervise and enforce consumer lending laws and regulations, and expanded state authority over consumer lending. The CARD Act included new and revised rules and restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. We anticipate more regulation and interpretations of the new rules to continue, and, depending on the nature and extent of these new regulations and interpretations, we may be required to make changes to our credit card practices and systems, which could adversely impact the revenues and profitability of our Credit segment. In addition, we operate in a regulated environment where financial supervisory agencies provide oversight over our activities. Compliance with applicable laws and regulations could limit or restrict our activities and the conduct of our business and enforcement actions by those agencies for failure to comply could have an adverse impact on us.

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Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The following table summarizes the number of retail stores we own or lease, and the percentage of total store square footage represented by each listed category as of January 31, 2015:



	Number of stores	% of total store square footage
Leased stores on leased land	195	38	%
Owned stores on leased land	61	40	%
Owned stores on owned land	35	21	%
Partly owned and partly leased store	1	1	%
Total	292	100	%

The following table summarizes our store activity during the last three years:



Fiscal year	2014		2013		2012
Number of stores, beginning of year	260		240		225
Stores opened	31		22		16
Stores acquired	4		—		—
Stores closed	(3	)	(2	)	(1	)
Number of stores, end of year	292		260		240

Nordstrom full-line stores - U.S.	116		117		117
Nordstrom Rack	167		140		119
Other¹	9		3		4

¹Other includes Jeffrey boutiques, Trunk Club showrooms, our Nordstrom Canada full-line store and Last Chance.

In 2014, we opened three Nordstrom full-line stores (The Woodlands, Texas; Calgary, Alberta; and Jacksonville, Florida) and 27 Nordstrom Rack stores (Palm Desert, California; San Francisco, California; Chicago, Illinois; Riverside, California; Skokie, Illinois; Tulsa, Oklahoma; Wauwatosa, Wisconsin; Brooklyn, New York; Columbus, Ohio; Houston, Texas; Manhassett, New York; Chicago, Illinois; Dayton, Ohio; Houston, Texas; Queens, New York; Brentwood, Tennessee; Greenville, South Carolina; Madison, Wisconsin; Tempe, Arizona; Brooklyn, New York; Livingston, New Jersey; West Palm Beach, Florida; Brandon, Florida; Columbia, South Carolina; Des Moines, Iowa; Philadelphia, Pennsylvania; and Summerlin, Nevada). As part of our purchase of Trunk Club in August 2014, we acquired four Trunk Club showrooms (Los Angeles, California; Chicago, Illinois; Dallas, Texas; and Washington D.C.) and opened one additional Trunk Club showroom (New York City, New York) in December 2014. Additionally, in 2014, we closed three Nordstrom full-line stores (Orlando, Florida; Vancouver, Washington; and Portland, Oregon).

To date in 2015, we have opened one Nordstrom full-line store in Ottawa, Ontario. During the remainder of 2015, we have announced the opening of four additional Nordstrom full-line stores (San Juan, Puerto Rico; Vancouver, British Columbia; Minneapolis, Minnesota; and Wauwatosa, Wisconsin) and the opening of 27 additional Nordstrom Rack stores (Bakersfield, California; Redlands, California; Reno, Nevada; Princeton, New Jersey; Westwood, Massachusetts; Webster, Texas; Laguna Niguel, California; Miami, Florida; Springfield, Virginia; St. Louis Park, Minnesota; Dublin, California; Albany, New York; Anchorage, Alaska; Baton Rouge, Louisiana; Buffalo, New York; Cerritos, California; Clearwater, Florida; Eatontown, New Jersey; Emeryville, California; Fort Collins, Colorado; Long Beach, California; Mount Pleasant, South Carolina; Newark, Delaware; Rockaway, New Jersey; Syracuse, New York; Thousand Oaks, California; and Wayne, New Jersey).

We also own six merchandise distribution centers (Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro, Maryland; and Gainesville, Florida) and we own one fulfillment center on leased land (Cedar Rapids, Iowa), all of which are utilized by our Retail segment. Trunk Club and HauteLook, which are included in our Retail segment, lease three administrative offices (Chicago, Illinois; Los Angeles, California and New York City, New York) and one fulfillment center (San Bernardino, California). We plan to open a third, owned fulfillment center (Elizabethtown, Pennsylvania) in the second half of 2015. We lease office buildings in Centennial, Colorado and Scottsdale, Arizona, both for use by our Credit segment. Our administrative offices in Seattle, Washington are a combination of leased and owned space. We also lease a data center in Centennial, Colorado.

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The following table lists our U.S. and Canada retail store count and facility square footage by state/province as of January 31, 2015:



Retail stores by channel	Nordstrom Full-Line Stores - U.S.		Nordstrom Rack and Other¹		Total
State/Province	Count	Square Footage (000’s)	Count	Square Footage (000’s)	Count	Square Footage (000’s)
Alabama	—	—	1	35	1	35
Alaska	1	97	—	—	1	97
Alberta	—	—	1	142	1	142
Arizona	2	384	7	262	9	646
California²	32	5,489	38	1,473	70	6,962
Colorado	3	559	4	148	7	707
Connecticut	1	189	1	36	2	225
Delaware	1	127	—	—	1	127
Florida²	9	1,389	12	414	21	1,803
Georgia	3	555	5	165	8	720
Hawaii	1	211	1	44	2	255
Idaho	—	—	1	37	1	37
Illinois	4	947	11	401	15	1,348
Indiana	1	134	1	35	2	169
Iowa	—	—	1	35	1	35
Kansas	1	219	1	35	2	254
Kentucky	—	—	1	33	1	33
Maine	—	—	1	30	1	30
Maryland	4	765	4	156	8	921
Massachusetts	4	595	5	193	9	788
Michigan	3	552	4	145	7	697
Minnesota	1	240	2	75	3	315
Missouri	2	342	2	69	4	411
Nevada	1	207	2	70	3	277
New Jersey	5	991	3	102	8	1,093
New York	2	460	10	307	12	767
North Carolina	2	300	2	74	4	374
Ohio	3	549	6	224	9	773
Oklahoma	—	—	2	67	2	67
Oregon	4	555	5	190	9	745
Pennsylvania	2	381	3	120	5	501
Rhode Island	1	206	1	38	2	244
South Carolina	—	—	2	67	2	67
Tennessee	1	145	1	36	2	181
Texas²	8	1,431	15	496	23	1,927
Utah	2	277	3	101	5	378
Virginia	5	894	5	201	10	1,095
Washington	7	1,392	7	276	14	1,668
Washington D.C.	—	—	3	80	3	80
Wisconsin	—	—	2	67	2	67
Total (38 states/1 province)	116	20,582	176	6,479	292	27,061

¹Other includes one Nordstrom Canada full-line store, five Trunk Club showrooms, one Last Chance clearance store and two Jeffrey boutiques.

²California, Texas and Florida had the highest square footage, with a combined 10,692 square feet, representing 40% of the total company square footage.

Nordstrom, Inc. and subsidiaries 11

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Item 3. 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 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 reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any 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 4. Mine Safety Disclosures.

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

MARKET, SHAREHOLDER AND DIVIDEND INFORMATION

Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of holders of common stock as of March 2, 2015 was 237,000 based upon the number of registered and beneficial shareholders and the number of employee shareholders in the Nordstrom 401(k) Plan and Profit Sharing Plan. On this date we had 190,405,729 shares of common stock outstanding.

The high and low prices of our common stock and dividends declared for each quarter of 2014 and 2013 are presented in the table below:



	Common Stock Price
	2014		2013		Dividends per Share
	High	Low	High	Low	2014	2013
1st Quarter	$64.19	$54.90	$58.42	$52.16	$0.33	$0.30
2nd Quarter	$70.71	$60.20	$63.34	$57.07	$0.33	$0.30
3rd Quarter	$73.74	$64.92	$62.16	$55.34	$0.33	$0.30
4th Quarter	$80.54	$70.21	$63.72	$56.57	$0.33	$0.30
Full Year	$80.54	$54.90	$63.72	$52.16	$1.32	$1.20

SHARE REPURCHASES

Dollar and share amounts in millions, except per share amounts

The following is a summary of our fourth quarter share repurchases:



	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs¹
November 2014 (November 2, 2014 to November 29, 2014)	0.1		$72.98	0.1		$1,121
December 2014 (November 30, 2014 to January 3, 2015)	0.5		$74.91	0.5		$1,084
January 2015 (January 4, 2015 to January 31, 2015)	0.1		$76.42	0.1		$1,075
Total	0.7		$74.80	0.7

¹ In February 2013, our Board of Directors authorized a program to repurchase up to $800 of our outstanding common stock, through March 1, 2015. In September 2014, our Board of Directors authorized a new program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2016, in addition to the remaining amount available for repurchase under the previously authorized program. During 2014, we repurchased 8.9 shares of our common stock for an aggregate purchase price of $595 and had $1,075 remaining in share repurchase capacity as of January 31, 2015. The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules.

Nordstrom, Inc. and subsidiaries 13

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STOCK PRICE PERFORMANCE

The following graph compares the cumulative total return of Nordstrom common stock, Standard & Poor’s Retail Index (“S&P Retail”) and Standard & Poor’s 500 Index (“S&P 500”) for each of the last five fiscal years, ending January 31, 2015. The Retail Index is composed of 31 retail companies, including Nordstrom, representing an industry group of the S&P 500 Index. The following graph assumes an initial investment of $100 each in Nordstrom common stock, the S&P Retail and the S&P 500 on January 30, 2010 and assumes reinvestment of dividends on the Nordstrom common stock as well as the S&P Retail and S&P 500 Indexes.



End of fiscal year	2009	2010	2011	2012	2013	2014
Nordstrom common stock	100	121	146	169	181	245
Standard & Poor’s Retail	100	127	144	183	230	283
Standard & Poor’s 500	100	121	128	150	181	211

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Item 6. Selected Financial Data.

Dollars in millions except per square foot and per share amounts

The following selected financial data are derived from the audited consolidated financial statements and should be read in conjunction with Item 1A: Risk Factors, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included in Item 8: Financial Statements and Supplementary Data of this Annual Report on Form 10-K.



Fiscal year	2014			2013			2012			2011			2010
Earnings Results
Net sales		$13,110			$12,166			$11,762			$10,497			$9,310
Credit card revenues	396			374			372			363			365
Gross profit¹	4,704			4,429			4,330			3,905			3,413
Selling, general and administrative (“SG&A”) expenses	(3,777		)	(3,453		)	(3,357		)	(3,019		)	(2,660		)
Earnings before interest and income taxes (“EBIT”)	1,323			1,350			1,345			1,249			1,118
Net earnings	720			734			735			683			613

Balance Sheet and Cash Flow Data
Cash and cash equivalents		$827			$1,194			$1,285			$1,877			$1,506
Accounts receivable, net	2,306			2,177			2,129			2,033			2,026
Merchandise inventories	1,733			1,531			1,360			1,148			977
Current assets	5,224			5,228			5,081			5,560			4,824
Land, property and equipment, net	3,340			2,949			2,579			2,469			2,318
Total assets	9,245			8,574			8,089			8,491			7,462
Current liabilities	2,800			2,541			2,226			2,575			1,879
Long-term debt, including current portion	3,131			3,113			3,131			3,647			2,781
Shareholders’ equity	2,440			2,080			1,913			1,956			2,021
Cash flow from operations	1,220			1,320			1,110			1,177			1,177

Performance Metrics
Comparable sales increase²	4.0		%	2.5		%	7.3		%	7.2		%	8.1		%
Gross profit % of net sales	35.9		%	36.4		%	36.8		%	37.2		%	36.7		%
Total SG&A % of net sales	28.8		%	28.4		%	28.5		%	28.8		%	28.6		%
EBIT % of net sales	10.1		%	11.1		%	11.4		%	11.9		%	12.0		%
Return on assets	8.1		%	8.7		%	8.9		%	8.7		%	8.6		%
Return on invested capital (“ROIC”)³	12.6		%	13.6		%	13.9		%	13.3		%	13.6		%
Sales per square foot⁴		$493			$474			$470			$431			$397
4-wall sales per square foot⁴		$413			$408			$417			$394			$372
Ending inventory per square foot⁵		$64.05			$58.84			$53.77			$46.41			$40.96
Inventory turnover rate⁶	4.67			5.07			5.37			5.56			5.56

Per Share Information
Earnings per diluted share		$3.72			$3.71			$3.56			$3.14			$2.75
Dividends declared per share	1.32			1.20			1.08			0.92			0.76

Store Information (at year-end)
Nordstrom full-line stores - U.S.	116			117			117			117			115
Nordstrom Rack and other stores⁷	176			143			123			108			89
Total square footage	27,061,000			26,017,000			25,290,000			24,745,000			23,838,000


¹	Gross profit is calculated as net sales less cost of sales and related buying and occupancy costs (for all segments).

Comparable sales include sales from stores that have been open at least one full year at the beginning of the year. We also include sales from our online channels (Nordstrom.com, Nordstromrack.com and HauteLook) in comparable sales because of the integration with our stores. Fiscal year 2012 includes an extra week (the 53^rd week) as a result of our 4-5-4 retail reporting calendar. The 53^rd week is not included in comparable sales calculations.


³	See ROIC (Non-GAAP financial measure) on page 26 for additional information and reconciliation to the most directly comparable GAAP financial measure.

⁴

Sales per square foot is calculated as net sales divided by weighted-average square footage. Weighted-average square footage includes a percentage of year-end square footage for new stores equal to the percentage of the year during which they were open. 4-wall sales per square foot is calculated as sales for Nordstrom U.S. full-line stores, Nordstrom Rack stores, Jeffrey boutiques, our Canada full-line store, Last Chance and Trunk Club showrooms divided by their weighted-average square footage.


⁵	Ending inventory includes pack and hold inventory of $222, $173, $125, $34 and $0 in 2014, 2013, 2012, 2011 and 2010, which represents strategic purchases of merchandise for upcoming selling seasons.


⁶	Inventory turnover rate is calculated as annual cost of sales and related buying and occupancy costs (for all segments) divided by 4-quarter average inventory. Retailers do not uniformly calculate inventory turnover as buying and occupancy costs may be included in selling, general and administrative expenses. As such, our inventory turnover rates may not be comparable to other retailers.

⁷Other stores include Jeffrey boutiques, Trunk Club showrooms, our Nordstrom Canada full-line store and Last Chance.

Nordstrom, Inc. and subsidiaries 15

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Dollar, share and square footage amounts in millions except percentages, per share and per square foot amounts

OVERVIEW

Nordstrom is a leading fashion specialty retailer offering apparel, shoes, cosmetics and accessories for women, men and children. We offer an extensive selection of high-quality brand-name and private label merchandise through our various channels: “Nordstrom” branded full-line stores and online store at Nordstrom.com, Nordstrom Rack stores, Nordstromrack.com and HauteLook and other retail channels, including Trunk Club showrooms and TrunkClub.com, our Jeffrey boutiques and our clearance store that operates under the name “Last Chance.” As of January 31, 2015, our stores are located in 38 states throughout the United States and in one province in Canada. In addition, we offer our customers a Nordstrom Rewards^™loyalty program along with a variety of payment products and services, including credit and debit cards.

We continue to see the ongoing evolution of retail, with increasing customer interaction between our stores and ecommerce. We are making progress to meet customer expectations of a personalized experience that merges the richness of stores with the convenience of online. Because the customer views us simply as Nordstrom, we believe there is tremendous value in strengthening our platform for the customer experience that encompasses full-price, off-price, in-store and online. While each channel represents a substantial growth opportunity, there are significant synergies across channels to create a unique customer experience to gain market share.

We considered 2014 a watershed year in our company history, with our successful entry into Canada, continued expansion of our Nordstrom Rack business through store growth, the launch of Nordstromrack.com and the acquisition of Trunk Club. Our performance in 2014 reflected continued progress in executing our customer strategy through investments to drive growth across channels. We achieved total net sales growth of 7.8%, adding nearly $1 billion to our top-line and delivering record sales and earnings per diluted share. Our financial position remains strong and this marked the sixth consecutive year we generated over $1 billion in cash flow from operations.

Our partnership with vendors and brands enhances our product offering. We offer Topshop merchandise at 53 full-line stores and online, with plans to reach over 80 stores in 2015. Our new partnership with Madewell in 2015, initially available at 15 of our stores and online, is another way to provide sought-after brands that appeal to new and existing customers.

In 2014, we opened our first full-line store in Canada in Calgary, Alberta, reflecting a multi-year effort from our team to address the unique challenges of crossing the border. With our store outperforming our expectations, we are encouraged with our customers’ response in this market. We are looking forward to opening stores in 2015 in Ottawa, Ontario and Vancouver, British Columbia. In the U.S. we increased our presence with two full-line stores in The Woodlands, Texas and Jacksonville, Florida. In 2015, we plan to open three full-line stores in Puerto Rico, Minneapolis, Minnesota and Milwaukee, Wisconsin.

At Nordstrom Rack, we offer customers great brands at great prices, with 48 of the top 50 full-line brands represented. We opened 27 Nordstrom Rack stores in 2014, a record number of openings, contributing to Nordstrom Rack’s total sales growth of 17%.

Our online businesses continue to be our fastest-growing channels. In the spring of 2014, we expanded our capabilities through the launch of Nordstromrack.com, providing a seamless integration with HauteLook. We more than doubled our merchandise selection, which accelerated growth in this channel in the second half of 2014. Demonstrating synergies across our businesses, we enabled customers to return purchases from HauteLook and Nordstromrack.com to any of our Nordstrom Rack stores, which drove nearly one million incremental trips to Nordstrom Rack stores.

Nordstrom.com finished its fifth consecutive year of approximately 20% or more comparable sales growth, with a key driver being increased merchandise selection. In 2015, we plan to open our third fulfillment center, located in Pennsylvania, which will enhance the customer experience through faster delivery. Furthermore, we have extended our full-price offering with our acquisition of Trunk Club, a high-growth business offering a new approach to personalized service.

Our credit business, through our Nordstrom Rewards program, continues to play an important role in attracting new customers and deepening our engagement with existing customers. The program contributes to our overall results, with members shopping more frequently and spending more on average than non-members. For the third consecutive year, we opened over one million new accounts. With over four million active members, 2014 sales from members represented approximately 40% of our sales.

We are confident in our ability to execute our customer strategy as we evolve with customers and continue to leverage capabilities across all channels to serve customers on their terms. To enhance the customer experience, we continue to make investments in our stores in new markets such as Canada, Puerto Rico and Manhattan, in our ecommerce and fulfillment capabilities and in technology to support growth across all channels. We believe these investments in our customer strategy will help us achieve long-term top-quartile shareholder returns through high single-digit total sales growth and mid-teens Return on Invested Capital.

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RESULTS OF OPERATIONS

Our reportable segments are Retail and Credit. Our Retail segment includes our U.S. Nordstrom branded full-line stores and online store, Nordstrom Rack stores, Nordstromrack.com and HauteLook and other retail channels, including Trunk Club, Jeffrey, our Canada store and our Last Chance clearance store. For purposes of discussion and analysis of our results of operations of our Retail Business, we combine our Retail segment results with revenues and expenses in the “Corporate/Other” column of Note 16: Segment Reporting in the Notes to Consolidated Financial Statements of Item 8: Financial Statements and Supplementary Data. We analyze our results of operations through earnings before interest and income taxes for our Retail Business and Credit, while interest expense and income taxes are discussed on a total company basis.

Similar to many other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of 2012 (the “53^rd week”). The analysis of our results of operations, liquidity and capital resources compares the 52 weeks in 2013 to the 53 weeks in 2012. However, the 53^rd week is not included in comparable sales calculations. In 2012, the 53^rd week contributed approximately $0.04 to earnings per diluted share.

RETAIL BUSINESS

Summary

The following table summarizes the results of our Retail Business for the past three years:



Fiscal year	2014					2013					2012
	Amount			% of net sales¹		Amount			% of net sales¹		Amount			% of net sales¹
Net sales		$13,110		100.0	%		$12,166		100.0	%		$11,762		100.0	%
Cost of sales and related buying and occupancy costs	(8,401		)	(64.1	%)	(7,732		)	(63.6	%)	(7,427		)	(63.1	%)
Gross profit	4,709			35.9	%	4,434			36.4	%	4,335			36.9	%
Selling, general and administrative expenses	(3,588		)	(27.4	%)	(3,272		)	(26.9	%)	(3,172		)	(27.0	%)
Earnings before interest and income taxes		$1,121		8.6	%		$1,162		9.6	%		$1,163		9.9	%

¹Subtotals and totals may not foot due to rounding.

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Retail Business Net Sales

In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our channels. While our customers may engage with us through multiple channels, we know they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. To provide additional transparency into our net sales by channel, we present the following summary of our Retail Business:



Fiscal year	2014			2013			2012
Net sales by channel:
Nordstrom full-line stores - U.S.		$7,682			$7,705			$7,964
Nordstrom.com	1,996			1,622			1,269
Nordstrom	9,678			9,327			9,233
Nordstrom Rack	3,215			2,738			2,445
Nordstromrack.com and HauteLook	360			295			236
Other retail¹	116			35			35
Total Retail segment	13,369			12,395			11,949
Corporate/Other	(259		)	(229		)	(187		)
Total net sales		$13,110			$12,166			$11,762

Net sales increase	7.8		%	3.4		%	12.1		%

Comparable sales increase (decrease) by channel²:
Nordstrom full-line stores - U.S.	(0.5		%)	(2.1		%)	3.9		%
Nordstrom.com	23.1		%	29.5		%	37.1		%
Nordstrom	3.6		%	2.3		%	7.5		%
Nordstrom Rack	3.8		%	2.7		%	7.4		%
Nordstromrack.com and HauteLook	22.1		%	27.3		%	—
Total company	4.0		%	2.5		%	7.3		%

Sales per square foot³:
Total sales per square foot		$493			$474			$470
4-wall sales per square foot	413			408			417
Full-line sales per square foot - U.S.	371			372			385
Nordstrom Rack sales per square foot	552			553			568

Percentage of net sales by merchandise category:
Women’s Apparel	30		%	31		%	31		%
Shoes	23		%	23		%	23		%
Men’s Apparel	16		%	16		%	16		%
Women’s Accessories	14		%	14		%	13		%
Cosmetics	11		%	11		%	11		%
Kids’ Apparel	4		%	3		%	3		%
Other	2		%	2		%	3		%
Total	100		%	100		%	100		%

¹Other retail includes our Jeffrey boutiques, Trunk Club and our Nordstrom Canada full-line store.

² Comparable sales include sales from stores that have been open at least one full year at the beginning of the year. We also include sales from our online channels (Nordstrom.com, Nordstromrack.com and HauteLook) in comparable sales because of the integration with our stores. Fiscal year 2012 includes an extra week (the 53^rd week) as a result of our 4-5-4 retail reporting calendar. The 53^rd week is not included in comparable sales calculations.

³ Sales per square foot is calculated as net sales divided by weighted-average square footage. Weighted-average square footage includes a percentage of year-end square footage for new stores equal to the percentage of the year during which they were open. 4-wall sales per square foot is calculated as sales for Nordstrom U.S. full-line stores, Nordstrom Rack stores, Jeffrey boutiques, our Canada full-line store, Last Chance and Trunk Club showrooms divided by their weighted-average square footage.

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Net Sales (2014 vs. 2013)

In 2014, total company net sales increased 7.8%, which was attributable to the comparable sales increase of 4.0%. During the year, we opened three Nordstrom full-line stores, including our first store in Canada, and 27 Nordstrom Rack stores. Additionally, as a result of the acquisition of Trunk Club, we acquired four Trunk Club showrooms and opened one additional Trunk Club showroom in 2014. These additions increased our square footage by 5.5% and represented 2.8% of our total net sales for 2014.

Nordstrom net sales, which consist of the U.S. full-line and Nordstrom.com businesses, were $9,678 in 2014, an increase of 3.8% compared with 2013, with comparable sales up 3.6%. These increases reflected continued momentum in our Nordstrom.com channel. Both the number of items sold and the average selling price increased on a comparable basis in 2014. Category highlights included Accessories, Cosmetics and Men’s Apparel.

U.S. full-line net sales for 2014 were $7,682, a decrease of 0.3% compared with 2013 and comparable sales decreased by 0.5%. The top-performing geographic regions for full-line stores were the Southeast and Southwest.

Our Nordstrom.com, Nordstromrack.com and HauteLook channels continued to experience outsized growth. Nordstrom.com net sales increased 23% and Nordstromrack.com and HauteLook net sales increased 22%, both driven by expanded merchandise selection and ongoing technology investments to enhance the customer experience.

Nordstrom Rack net sales increased $477, or 17%, compared with 2013, reflecting incremental volume from existing stores and the impact of 27 new stores since fiscal 2013. Comparable sales increased 3.8% for the year. Shoes and Accessories were the top-performing categories for the year. On a comparable basis, the average selling price of Nordstrom Rack merchandise increased while the number of items sold was flat.

Net Sales (2013 vs. 2012)

Net sales for 2013 increased 3.4% compared with 2012, driven by a comparable sales increase of 2.5%, attributable to growth at Nordstrom.com and Nordstrom Rack’s accelerated store expansion. During 2013, we opened 22 Nordstrom Rack stores and relocated one Nordstrom full-line store and two Nordstrom Rack stores. These additions represented 1.6% of our total net sales for 2013 and increased our square footage by 2.9%. The 53^rd week in 2012 contributed approximately $162 in additional net sales.

Nordstrom net sales for 2013 were $9,327, an increase of 1.0% compared with 2012, with comparable sales up 2.3%. Strong growth at Nordstrom.com was partially offset by sales decreases at our full-line stores. Both the average selling price and the number of items sold increased on a comparable basis in 2013 compared with 2012. Category highlights included Cosmetics, Men’s Shoes and Women’s Apparel.

Full-line net sales for 2013 were $7,705, a decrease of 3.3% compared with 2012, which was primarily driven by a comparable sales decrease of 2.1% for the year. The top-performing geographic regions for full-line stores for 2013 were the Southwest and Southeast. Nordstrom.com showed strong sales growth with net sales of $1,622, an increase of 28% compared with 2012, with comparable sales up 30% on a comparable 52-week basis. These increases were driven by expanded merchandise selection and ongoing technology investments to enhance the customer experience.

Nordstrom Rack net sales were $2,738, up 12.0% compared with 2012, primarily due to 37 new store openings in 2012 and 2013. Comparable sales increased 2.7% for the year. Cosmetics and Shoes were the strongest-performing categories for the year. Both the average selling price and the number of items sold increased on a comparable basis in 2013 compared with 2012.

Retail Business Gross Profit

The following table summarizes the Retail Business gross profit:



Fiscal year	2014			2013			2012
Retail gross profit¹		$4,709			$4,434			$4,335
Retail gross profit as a % of net sales	35.9		%	36.4		%	36.9		%
Ending inventory per square foot²		$64.05			$58.84			$53.77
Inventory turnover rate³	4.67			5.07			5.37


¹	Retailers do not uniformly record the costs of buying and occupancy and supply chain operations (freight, purchasing, receiving, distribution, etc.) between gross profit and selling, general and administrative expense. As such, our gross profit and selling, general and administrative expenses and rates may not be comparable to other retailers’ expenses and rates.


²	Ending inventory includes pack and hold inventory of $222, $173 and $125 in 2014, 2013 and 2012, which represents strategic purchases of merchandise for upcoming selling seasons.


³	Inventory turnover rate is calculated as annual cost of sales and related buying and occupancy costs (for all segments) divided by 4-quarter average inventory. Retailers do not uniformly calculate inventory turnover as buying and occupancy costs may be included in selling, general and administrative expenses. As such, our inventory turnover rates may not be comparable to other retailers.

Nordstrom, Inc. and subsidiaries 19

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Gross Profit (2014 vs. 2013)

Our Retail gross profit rate decreased 52 basis points compared with 2013 due to increased markdowns and Nordstrom Rack’s accelerated store expansion. The growth in Nordstrom Rack stores resulted in a higher occupancy expense as sales volume at new stores typically take several years to reach the average of our mature stores and also have substantial pre-opening costs. Retail gross profit increased $275 in 2014 due to an increase in net sales, partially offset by increased markdowns.

Our inventory turnover rate decreased to 4.67 times in 2014, from 5.07 times in 2013. Ending inventory per square foot increased 8.8% compared with the same period in 2013, which outpaced the total sales per square foot increase of 3.9% primarily due to planned inventory growth related to Nordstrom Rack and Nordstromrack.com and HauteLook.

Gross Profit (2013 vs. 2012)

Our Retail gross profit rate decreased 41 basis points compared with 2012 primarily due to higher expenses associated with the growth in the Nordstrom Rewards customer loyalty program and higher occupancy costs related to Nordstrom Rack’s accelerated store expansion. Retail gross profit increased $99 in 2013 compared with 2012 due to an increase in net sales at Nordstrom.com and Nordstrom Rack, which was partially offset by a decrease in full-line net sales and increased occupancy costs related to Nordstrom Rack’s accelerated store expansion.

Our inventory turnover rate decreased to 5.07 times in 2013, from 5.37 times in 2012. This was primarily due to our increased investment in pack and hold inventory at Nordstrom Rack, which helped fuel the growth in that channel. On a per square foot basis, we ended the year with a 9.4% increase in our ending inventory on a 0.8% increase in sales compared with 2012. The increase in ending inventory per square foot relative to the increase in sales per square foot was primarily due to the impact of the 53^rd week in 2012, which decreased inventory levels in our full-line stores and included an additional week of sales in 2012. In 2013, we also planned inventory increases in full-line stores to fuel growth in well-performing merchandise categories and increased our pack and hold inventory at Nordstrom Rack.

Retail Business Selling, General and Administrative Expenses

Retail Business selling, general and administrative expenses (“Retail SG&A”) are summarized in the following table:



Fiscal year	2014			2013			2012
Selling, general and administrative expenses		$3,588			$3,272			$3,172
Selling, general and administrative expenses as a % of net sales	27.4		%	26.9		%	27.0		%

Selling, General and Administrative Expenses (2014 vs. 2013)

Our Retail SG&A rate increased 48 basis points in 2014 compared with 2013 primarily due to expenses related to the acquisition of Trunk Club and ongoing fulfillment and technology investments. Our Retail SG&A increased $316 in 2014 due primarily to growth-related investments in fulfillment and technology.

Selling, General and Administrative Expenses (2013 vs. 2012)

Our Retail SG&A rate decreased 8 basis points in 2013 compared with 2012 due to expense leverage from increased sales volume. Our Retail SG&A expenses increased $100 in 2013 compared with 2012 due primarily to growth-related investments in our ecommerce business, Nordstrom Rack’s accelerated store expansion and Canada pre-opening expenses. The increase also reflected expenses associated with higher sales volume and the opening of 22 Nordstrom Rack stores in 2013.

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CREDIT SEGMENT

The Nordstrom credit and debit card products are designed to strengthen customer relationships and grow retail sales by providing loyalty benefits, valuable services and payment products. We believe our credit business allows us to build deeper relationships with our customers by fully integrating the Nordstrom Rewards program with our retail stores and providing better service, which in turn fosters greater customer loyalty. Our cardholders tend to visit our stores more frequently and spend more with us than non-cardholders. Our Nordstrom private label credit and debit cards can be used only at our Nordstrom full-line stores in the U.S., Nordstrom Rack stores and online at Nordstrom.com, Nordstromrack.com and HauteLook (“inside volume”), while our Nordstrom Visa credit cards also may be used for purchases outside of Nordstrom (“outside volume”). Cardholders participate in the Nordstrom Rewards program through which cardholders accumulate points for their purchases. Upon reaching a certain points threshold, cardholders receive Nordstrom Notes^®, which can be redeemed for goods or services at Nordstrom full-line stores in the U.S. and Canada, Nordstrom Rack stores and at Nordstrom.com. Nordstrom Rewards customers receive reimbursements for alterations, get Personal Triple Points days and have early access to sales events. With increased spending, they can receive additional amounts of these benefits as well as access to exclusive fashion and shopping events.

In May 2014, we announced our plan to review options for a potential financial partner for our credit card receivables portfolio. We intend to execute a transaction only if our strategic and financial requirements are met. In the event a transaction is finalized, we will classify the relevant credit card receivables as held for sale, which could result in a gain or loss upon reclassification.

Summary

The table below provides a detailed view of the operational results of our Credit segment, consistent with Note 16: Segment Reporting in the Notes to Consolidated Financial Statements of Item 8: Financial Statements and Supplementary Data. In order to better reflect the economic contribution of our credit and debit card program, intercompany merchant fees are also included in the table below, which represent the estimated costs that would be incurred if our cardholders used third-party cards instead of ours.

Interest expense at the Credit segment is equal to the amount of interest related to securitized debt plus an amount assigned to the Credit segment in proportion to the estimated debt and equity needed to fund our credit card receivables. Based on our research, debt as a percentage of credit card receivables for other credit card companies ranges from 70% to 90%. As such, we believe a mix of 80% debt and 20% equity is appropriate, and therefore assign interest expense to the Credit segment as if it carried debt of up to 80% of the credit card receivables. Our average credit card receivable investment metric below represents the remaining 20% to fund our credit card receivables.



Fiscal year	2014					2013					2012
	Amount			% of average credit card receivables¹		Amount			% of average credit card receivables¹		Amount			% of average credit card receivables¹
Credit card revenues		$396		18.2	%		$374		17.7	%		$372		17.9	%
Credit expenses	(194		)	(8.9	%)	(186		)	(8.8	%)	(190		)	(9.1	%)
Earnings before interest and income taxes²	202			9.3	%	188			8.9	%	182			8.8	%
Interest expense	(18		)	(0.8	%)	(24		)	(1.2	%)	(26		)	(1.2	%)
Intercompany merchant fees	108			5.0	%	97			4.6	%	89			4.3	%
Credit segment contribution, before income taxes		$292		13.5	%		$261		12.4	%		$245		11.8	%

Credit and debit card volume³:
Outside		$4,331					$4,273					$4,305
Inside	5,475					4,935					4,484
Total volume		$9,806					$9,208					$8,789

Average credit card receivables		$2,169					$2,108					$2,076
Average credit card receivable investment	434					422					415
Credit segment contribution⁴	40.9		%			38.2		%			36.6		%

¹Subtotals and totals may not foot due to rounding.

²As presented in Note 16: Segment Reporting in the Notes to Consolidated Financial Statements.

³Volume represents sales plus applicable taxes.

⁴Credit segment contribution, net of tax, calculated as a percentage of our average credit card receivable investment.

Nordstrom, Inc. and subsidiaries 21

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Credit Card Revenues

The following is a summary of our Credit card revenues:



Fiscal year	2014		2013		2012
Finance charge revenue		$253		$244		$246
Interchange — third-party	89		86		84
Late fees and other revenue	54		44		42
Total Credit card revenues		$396		$374		$372

Credit card revenues include finance charges, interchange fees, late fees and other revenue. Finance charges represent interest earned on unpaid balances while interchange fees are earned from the use of Nordstrom Visa credit cards at merchants outside of Nordstrom. Late fees are assessed when a credit card account becomes past due. We consider an account delinquent if the minimum payment is not received by the payment due date. Credit card revenues are recorded net of estimated uncollectible finance charges and fees.

Credit Card Revenues (2014 vs. 2013)

Credit card revenues increased $22 in 2014 compared with 2013 primarily due to an increase in the average accounts receivable balance, slightly decreased payment rates and a 6.5% increase in total volume during 2014.

Credit Card Revenues (2013 vs. 2012)

Credit card revenues were flat in 2013 compared with 2012. This was due to growth in total volume that was offset by continued improvement in cardholder payment rates.

Credit Expenses

Credit expenses are summarized in the following table:



Fiscal year	2014		2013		2012
Operational expenses		$148		$129		$143
Bad debt expense	41		52		42
Occupancy expenses	5		5		5
Total Credit expenses		$194		$186		$190

Credit Expenses (2014 vs. 2013)

Total Credit expenses increased $8 in 2014 compared with 2013, due to higher operational expenses resulting from increased volume in 2014 and lower operational expenses in 2013 resulting from the conversion of our Nordstrom Rewards travel benefits into Nordstrom Notes during that year. The increase in operational expenses was partially offset by a reduction in bad debt expense, which resulted in a reduction of our allowance for credit losses by $5 and recoveries from the sale of bad debt during 2014. We experienced continued improvement in our portfolio delinquencies and write-off results during 2014, which are further discussed below.

Credit Expenses (2013 vs. 2012)

Total Credit expenses decreased $4 in 2013 compared with 2012, due to lower operational and marketing expenses resulting primarily from the conversion of our Nordstrom Rewards travel benefit into Nordstrom Notes during 2013. Bad debt expense was lower in 2012 due to the $30 reduction of our allowance for credit losses in 2012 compared with a $5 reduction in 2013. We experienced continued improvement in our portfolio delinquencies and write-off results during 2013.

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Allowance for Credit Losses and Credit Trends

The following table illustrates activity in the allowance for credit losses:



Fiscal year	2014			2013			2012
Allowance at beginning of year		$80			$85			$115
Bad debt expense	41			52			42
Write-offs	(70		)	(80		)	(97		)
Recoveries	24			23			25
Allowance at end of year		$75			$80			$85

Net write-offs as a % of average credit card receivables	2.1		%	2.7		%	3.5		%
30 days or more delinquent as a % of ending credit card receivables	2.1		%	1.8		%	1.9		%
Allowance as a % of ending credit card receivables	3.3		%	3.7		%	4.0		%

Credit Trends

During 2014, our delinquency and net write-off results continued to improve. Net write-offs in 2014 were $46, compared with $57 in 2013 and $72 in 2012. As delinquencies and net write-offs improved in both 2014 and 2013, we reduced our allowance for credit losses by $5 in both 2014 and 2013.

Credit Quality

The quality of our credit card receivables at any time reflects, among other factors, general economic conditions, the creditworthiness of our cardholders and the success of our account management and collection activities. In general, credit quality tends to decline, and the risk of credit losses tends to increase, during periods of deteriorating economic conditions. Through our underwriting and risk management standards and practices, we seek to maintain a high-quality cardholder portfolio, thereby mitigating our exposure to credit losses. As of January 31, 2015, 79.0% of our credit card receivables were from cardholders with FICO scores of 660 or above (generally considered “prime” according to industry standards) compared with 78.1% as of February 1, 2014. See Note 3: Accounts Receivable in Item 8: Financial Statements and Supplementary Data for additional information.

Intercompany Merchant Fees

Intercompany merchant fees represent the estimated costs that would be incurred if our cardholders used third-party cards in our Nordstrom stores and online. In 2014, this estimate increased to $108 or 5.0% of average credit card receivables from $97 or 4.6% in 2013. This was primarily driven by the increased use of our credit and debit cards in store and online, as reflected by an increase in inside volume as a percent of total volume from 53.6% in 2013 to 55.8% in 2014.

TOTAL COMPANY RESULTS

Interest Expense, Net

Interest expense is summarized in the following table:



Fiscal year	2014			2013			2012
Interest on long-term debt and short-term borrowings		$156			$176			$167
Less:
Interest income	(1		)	(1		)	(2		)
Capitalized interest	(17		)	(14		)	(5		)
Interest expense, net		$138			$161			$160

Interest Expense, Net (2014 vs. 2013)

Interest expense, net decreased $23 in 2014 compared with 2013 due to a non-recurring charge of $14 in 2013 related to our debt refinancing, as well as lower average interest rates on our notes in 2014 driven by our fourth quarter 2013 debt transactions.

Interest Expense, Net (2013 vs. 2012)

Interest expense, net increased $1 in 2013 compared with 2012 due to $14 in non-recurring charges related to our debt refinancing, partially offset by an increase in capitalized interest resulting primarily from planned capital investments related to our Manhattan store and accelerated Nordstrom Rack growth.

Nordstrom, Inc. and subsidiaries 23

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Income Tax Expense

Income tax expense is summarized in the following table:



Fiscal year	2014			2013			2012
Income tax expense		$465			$455			$450
Effective tax rate	39.2		%	38.3		%	38.0		%

The following table illustrates the components of our effective tax rate:



Fiscal year	2014		2013		2012
Statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income taxes	3.8	%	3.6	%	3.6	%
Non-deductible acquisition-related items	0.9	%	—	%	—	%
Other, net	(0.5	%)	(0.3	%)	(0.6	%)
Effective tax rate	39.2	%	38.3	%	38.0	%

Income Tax Expense (2014 vs. 2013)

The increase in the effective tax rate for 2014 compared with 2013 was primarily due to tax adjustments associated with a reassessment of our deferred tax assets related to acquisitions.

Income Tax Expense (2013 vs. 2012)

The increase in the effective tax rate for 2013 compared with 2012 was primarily due to changes in our estimated state tax reserves.

Fourth Quarter Results

The following are our results for the fourth quarters of 2014 and 2013:



Quarter ended	January 31, 2015			February 1, 2014
Net sales		$3,938			$3,614
Credit card revenues	105			97
Gross profit¹	1,444			1,345
Gross profit (% of net sales)¹	36.7		%	37.2		%
Retail SG&A expenses	(1,032		)	(918		)
Retail SG&A (% of net sales)	(26.2		%)	(25.4		%)
Credit expenses	(54		)	(38		)
Net earnings	255			268
Earnings per diluted share		$1.32			$1.37

¹Gross profit is calculated as net sales less cost of sales and related buying and occupancy costs (for all segments).

Our fourth quarter sales trends were consistent with trends the company experienced throughout 2014. We continued to make progress executing our customer strategy through investments to drive growth across channels. Net earnings for the fourth quarter of 2014 were $255, or $1.32 per diluted share, compared with $268, or $1.37 per diluted share, in 2013. The Trunk Club acquisition reduced earnings before interest and taxes in the fourth quarter by $11.

Net Sales

Total net sales increased in the fourth quarter by 9.0%, driven by a comparable sales increase of 4.7% and 35 new stores in 2014.

Nordstrom net sales, which consist of the full-line stores in the U.S. and Nordstrom.com businesses, increased $141, or 5.0%, compared with the same period in 2013, while comparable sales increased 4.5%. Both the number of items sold and the average selling price of our merchandise increased on a comparable basis. Category highlights for the quarter were Cosmetics, Accessories and Men’s Apparel.

U.S. full-line net sales for the quarter increased $26, or 1.2%, compared with the same period in 2013, with an increase in comparable sales of 0.5%. The Southwest and Southeast were the top-performing geographic regions.

Nordstrom.com net sales increased $115, or 19%, on top of last year’s 30% increase for the same period. Nordstromrack.com and HauteLook net sales increased $24, or 28%, compared with the same period in 2013. Both were primarily driven by expanded merchandise selection and ongoing technology investments to enhance the customer experience.

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Nordstrom Rack net sales for the quarter increased $130, or 17%, reflecting 27 new Nordstrom Rack store openings since the fourth quarter of 2013, while comparable sales increased 3.2%. On a comparable basis, the average selling price of Nordstrom Rack merchandise increased while the number of items sold was flat. Shoes and Accessories were the category highlights for Nordstrom Rack.

Gross Profit

Our total company gross profit rate decreased 53 basis points compared with the same period in the prior year, primarily due to increased markdowns at Nordstrom Rack.

Retail Selling, General, and Administrative Expenses

Our Retail SG&A rate increased 80 basis points primarily due to expenses related to the acquisition of Trunk Club and ongoing technology and fulfillment expenses.

Credit Expenses

In the fourth quarter, expenses for our Credit segment of $54 increased from $38 in the prior year. The increase was primarily driven by higher operational expenses resulting from a 6% increase in credit volume during the fourth quarter of 2014. The fourth quarter of 2013 also included the impact of the conversion of our Nordstrom Rewards travel benefit into Nordstrom Notes, which decreased operational expenses in the prior year.

For further information on our quarterly results in 2014 and 2013, refer to Note 17: Selected Quarterly Data in the Notes to Consolidated Financial Statements in Item 8: Financial Statements and Supplementary Data.

2015 Outlook

Our expectations for 2015 are as follows:



Net sales	7 percent to 9 percent increase
Comparable sales	2 percent to 4 percent increase
Earnings per diluted share¹	$3.65 to $3.80

¹This outlook does not include the impact of any future share repurchases.

Capital expenditures, net of property incentives, of approximately $1.2 billion are expected in 2015, an increase from $751 in 2014. The increase relates to store expansion, including Canada and Manhattan, and ongoing investments to improve the customer experience through flagship store remodels and a third fulfillment center expected to open in the second half of the year. To date in 2015, we have opened our second full-line store in Canada. We plan to open 27 Nordstrom Rack stores, three additional Nordstrom full-line stores in the U.S. and another full-line store in Canada during 2015. Planned net store openings are expected to increase our retail square footage by approximately 6.1%.

Nordstrom, Inc. and subsidiaries 25

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Return on Invested Capital (“ROIC”) (Non-GAAP financial measure)

We believe that ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important component of shareholders’ return over the long term. In addition, we incorporate ROIC in our executive incentive compensation measures. For the 12 fiscal months ended January 31, 2015, our ROIC decreased to 12.6% compared with 13.6% for the 12 fiscal months ended February 1, 2014. Our ROIC decreased compared with the prior year primarily due to the acquisition of Trunk Club in addition to ongoing store expansion and increased technology investments.

ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures 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 ROIC is return on assets. The following is a reconciliation of the components of ROIC and return on assets:



	12 Fiscal months ended
	January 31, 2015			February 1, 2014			February 2, 2013			January 28, 2012			January 29, 2011
Net earnings		$720			$734			$735			$683			$613
Add: income tax expense	465			455			450			436			378
Add: interest expense	139			162			162			132			128
Earnings before interest and income tax expense	1,324			1,351			1,347			1,251			1,119

Add: rent expense	137			125			105			78			62
Less: estimated depreciation on capitalized operating leases¹	(74		)	(67		)	(56		)	(42		)	(32		)
Net operating profit	1,387			1,409			1,396			1,287			1,149

Less: estimated income tax expense²	(544		)	(539		)	(530		)	(501		)	(439		)
Net operating profit after tax		$843			$870			$866			$786			$710

Average total assets³		$8,860			$8,398			$8,274			$7,890			$7,091
Less: average non-interest-bearing current liabilities⁴	(2,730		)	(2,430		)	(2,262		)	(2,041		)	(1,796		)
Less: average deferred property incentives³	(502		)	(489		)	(494		)	(504		)	(487		)
Add: average estimated asset base of capitalized operating leases⁵	1,058			929			724			555			425
Average invested capital		$6,686			$6,408			$6,242			$5,900			$5,233

Return on assets	8.1		%	8.7		%	8.9		%	8.7		%	8.6		%
ROIC	12.6		%	13.6		%	13.9		%	13.3		%	13.6		%

¹Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property. Asset base is calculated as described in footnote 5 below.

²Based upon our effective tax rate multiplied by the net operating profit for the 12 fiscal months ended January 31, 2015, February 1, 2014, February 2, 2013, January 28, 2012 and January 29, 2011.

³Based upon the trailing 12-month average.

⁴Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other current liabilities.

⁵Based upon the trailing 12-month average of the monthly asset base. The asset base for each month is calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1.

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LIQUIDITY AND CAPITAL RESOURCES

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. We believe that our operating cash flows, available credit facilities and potential future borrowings are sufficient to finance our cash requirements for the next 12 months and beyond.

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, potential share repurchases and other future investments. We believe that as of January 31, 2015, our existing cash and cash equivalents on-hand of $827, available credit facilities of $800 and potential future operating cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives. Additionally, if an agreement is reached and a transaction is consummated in regards to our credit card receivables, it could result in additional cash flows to further support our capital requirements and strategic initiatives.

Operating Activities

Net cash provided by operating activities was $1,220 in 2014, $1,320 in 2013 and $1,110 in 2012. The majority of our operating cash inflows are derived from sales. We also receive cash payments for property incentives from developers. Our operating cash outflows generally consist of payments to our merchandise vendors (net of vendor allowances), payments to our employees for wages, salaries and other employee benefits and payments to our landlords for rent. Operating cash outflows also include payments for income taxes and interest payments on our short-term and long-term borrowings.

Cash provided by operating activities decreased in 2014 compared with 2013, which was primarily due to higher state tax payments made in 2014 compared with 2013, as well as changes in working capital in 2014.

Cash provided by operating activities increased in 2013 compared with 2012, resulting from less state tax payments made in 2013 due to additional payments made in 2012 as a result of the 53rd week, along with increased property incentives received from developers and changes in working capital.

Investing Activities

Net cash used in investing activities was $889 in 2014, $822 in 2013 and $369 in 2012. Our investing cash flows primarily consist of capital expenditures, changes in restricted cash accumulated for debt maturities and changes in credit card receivables associated with cardholder purchases outside of Nordstrom using our Nordstrom Visa credit cards.

Capital Expenditures

Our capital expenditures over the last three years totaled $2,177, with $861 in 2014, $803 in 2013 and $513 in 2012. Capital expenditures increased in 2014 compared with 2013 primarily due to ongoing store expansion and increased technology investments.

Capital expenditures increased in 2013 compared with 2012 as we continued to make progress executing our customer strategy through increased investments in technology, ecommerce, remodels and new stores, including Nordstrom Rack and our Manhattan full-line store.

The following table summarizes our store count and square footage activity:



	Store count						Square footage
Fiscal year	2014		2013		2012		2014		2013	2012
Total, beginning of year	260		240		225		26.0		25.3	24.7
Store openings:
Nordstrom full-line stores - U.S.	2		—		1		0.3		—	0.1
Nordstrom Rack and other stores¹	29		22		15		1.2		0.7	0.6
Stores acquired	4		—		—		—		—
Stores closed	(3	)	(2	)	(1	)	(0.4	)	—	(0.1	)
Total, end of year	292		260		240		27.1		26.0	25.3

¹Other stores include Jeffrey boutiques, Trunk Club showrooms, our Nordstrom Canada full-line store and Last Chance.

We had no store relocations in 2014, compared with one Nordstrom full-line store and two Nordstrom Rack relocations in 2013 and three Nordstrom Rack relocations in 2012. Our 2014 new store openings increased our square footage by 5.5%.

To date in 2015, we have opened our second full-line store in Canada. We plan to open 27 Nordstrom Rack stores, three additional Nordstrom full-line stores in the U.S. and another full-line store in Canada during 2015. Planned net store openings are expected to increase our retail square footage by approximately 6.1%.

Nordstrom, Inc. and subsidiaries 27

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We received property incentives from our developers of $110 in 2014, $89 in 2013 and $58 in 2012. These incentives are included in our cash provided by operations in our Consolidated Statements of Cash Flows in Item 8: Financial Statements and Supplementary Data. However, operationally we view these as an offset to our capital expenditures. Our capital expenditure percentages, net of property incentives, by category are summarized as follows:



Fiscal year	2,014	2,013