Market Overview

Nordstrom Reports Second Quarter 2018 Earnings, Raises Full Year Outlook

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Strong Top-line Growth; Digital Sales Up 23 Percent

Nordstrom, Inc. (NYSE:JWN) today reported earnings per diluted share
for the second quarter ended August 4, 2018 of $0.95, which exceeded
Company expectations, reflecting top-line growth across its Full-Price
and Off-Price businesses. Based on first half results, the Company
raised its full year earnings per diluted share expectations to $3.50 to
$3.65 from its prior outlook of $3.35 to $3.55.

Total Company net sales increased 7.1 percent for the second quarter
ended August 4, 2018 compared with the quarter ended July 29, 2017. This
reflected a favorable shift of approximately 100 basis points primarily
due to the impact of the new revenue recognition standard as it relates
to the timing of the Anniversary Sale. This impact is expected to fully
reverse in the third quarter. Comparable sales are reported on a
like-for-like basis with no impact from event shifts due to the 53-week
calendar in 2017 or revenue recognition. Comparable sales increased 4.0
percent in the second quarter, compared with the 13-week period ended
August 5, 2017.

Nordstrom's customer strategy is centered on three strategic pillars:
providing a compelling product offering, delivering outstanding services
and experiences and leveraging the strength of the Nordstrom brand.
During the quarter, the Company continued its progress in executing its
strategy and delivering on its long-term financial commitments for
higher returns to shareholders:

  • In executing its digital strategy, the Company increased digital sales
    by 23 percent in the second quarter, compared with 20 percent for the
    same period last year. Digital sales represented 34 percent of second
    quarter sales, up from 29 percent a year ago.
  • During the first day of its Anniversary Sale, Nordstrom achieved
    record digital demand, surpassing its previous peak by 80 percent.
  • In Off-Price, comparable sales increased 4.0 percent, exceeding
    expectations.

SECOND QUARTER SUMMARY

  • Second quarter net earnings were $162 million compared with $110
    million during the same period in fiscal 2017. The increase was driven
    primarily by higher sales volume, a lower effective tax rate and the
    impact of the new revenue recognition standard as it relates to the
    timing of the Anniversary Sale.
  • Earnings before interest and taxes ("EBIT") were $246 million, or 6.2
    percent of net sales, compared with $217 million, or 5.8 percent of
    net sales, during the same period in fiscal 2017. The increase in EBIT
    included a favorable shift of $30 million primarily due to the impact
    of the new revenue recognition standard as it relates to the timing of
    the Anniversary Sale, which is expected to fully reverse in the third
    quarter.
  • In Full-Price, comparable sales increased 4.1 percent. The top-ranking
    merchandise categories were Kids' Apparel and Beauty.
  • In Off-Price, comparable sales increased 4.0 percent.
  • Sales from Nordstrom Rewards customers represented 58 percent of
    second quarter sales, compared with 56 percent a year ago.
  • Gross profit, as a percentage of net sales, of 35.0 percent increased
    91 basis points compared with the same period in fiscal 2017. This
    increase included a favorable shift of $30 million due to the impact
    of the new revenue recognition standard as it relates to the timing of
    the Anniversary Sale, which is expected to fully reverse in the third
    quarter. In addition, the increase was driven by higher product
    margins from continued regular price selling trends and leverage on
    occupancy expenses.
  • The Company ended the second quarter with a positive spread between
    inventory and sales growth, in-line with expectations.
  • Selling, general and administrative expenses, as a percentage of net
    sales, of 31.0 percent increased 71 basis points compared with the
    same period in fiscal 2017, primarily due to higher supply chain
    expenses related to planned growth and the Anniversary Sale. The
    Company is on track to achieve its plan for mid-single-digit growth in
    selling, general and administrative expenses for the year.
  • During the six months ended August 4, 2018, the Company repurchased
    1.8 million shares of its common stock for $87 million. A total
    capacity of $327 million remains available under its existing share
    repurchase authorization. The actual timing, price, manner and amounts
    of future share repurchases, if any, will be subject to market and
    economic conditions and applicable Securities and Exchange Commission
    ("SEC") rules.

EXPANSION UPDATE

To date in fiscal 2018, the Company opened eight stores, closed two
stores and relocated one store.

       
Number of Stores August 4, 2018 July 29, 2017
Full-Price
U.S. - Nordstrom full-line 116 116
Canada - Nordstrom full-line 6 5
Canada - Nordstrom Rack 3
Other Full-Price1 9 10
Off-Price
U.S. - Nordstrom Rack 236 221
Last Chance clearance stores 2 2
Total 372 354
1 Other Full-Price includes Trunk Club clubhouses,
Jeffrey boutiques and a Nordstrom Local store in

California.

 
Gross square footage 30,412,000 29,803,000
 

FISCAL YEAR 2018 OUTLOOK

The Company raised its annual outlook expectations for sales and
earnings per diluted share to incorporate its first half results.
Nordstrom's current expectations for fiscal 2018 are as follows:

               
Prior Outlook             Current Outlook
Net sales $15.2 to $15.4 billion $15.4 to $15.5 billion
Credit card revenues Mid-teens growth Mid-teens growth
Comparable sales (percent) 0.5 to 1.5 1.5 to 2
EBIT $895 to $940 million $925 to $960 million
Earnings per diluted share (excluding the impact of any future share
repurchases)
$3.35 to $3.55 $3.50 to $3.65
 

The Company's updated full year outlook incorporated the following
assumptions:

  • For the second half of fiscal 2018, the Company expects the third
    quarter to contribute approximately 30 percent of EBIT and the fourth
    quarter to contribute approximately 70 percent of EBIT.
  • Third quarter EBIT margin is expected to deleverage on fixed expenses
    and reflect an unfavorable shift of $30 million. This represents the
    reversal of the second quarter benefit of the new revenue recognition
    standard as it relates to the timing of the Anniversary Sale.
  • Fourth quarter EBIT is expected to leverage from higher sales volume
    and reflect a favorable comparison of $16 million from a one-time
    employee investment associated with last year's tax reform. When
    normalizing for this one-time impact, fourth quarter's EBIT
    contribution to the second half is generally consistent with
    historical trends.

CONFERENCE CALL INFORMATION

The Company's senior management will host a conference call to discuss
second quarter 2018 results and fiscal 2018 outlook at 4:45 p.m. Eastern
Daylight Time today. To listen to the live call online and to view
conference call slides, which will be posted in advance of the call,
visit the Investor Relations section of the Company's corporate website
at http://investor.nordstrom.com
and go to Webcasts & Presentations. An archived webcast with the
speakers' prepared remarks and the conference call slides will be
available in the Quarterly Earnings section for at least one year.
Interested parties may also dial 201-689-8354. A telephone replay will
be available beginning approximately three hours after the conclusion of
the call by dialing 877-660-6853 or 201-612-7415 and entering Conference
ID 13682106, until the close of business on August 23, 2018.

ABOUT NORDSTROM

Nordstrom, Inc. is a leading fashion retailer based in the U.S. Founded
in 1901 as a shoe store in Seattle, today Nordstrom operates 372 stores
in 40 states, including 122 full-line stores in the United States,
Canada and Puerto Rico; 239 Nordstrom Rack stores; two Jeffrey
boutiques; two clearance stores; six Trunk Club clubhouses; and its
Nordstrom Local service concept. Additionally, customers are served
online through Nordstrom.com, Nordstromrack.com, HauteLook, and
TrunkClub.com. Nordstrom, Inc.'s common stock is publicly traded on the
NYSE under the symbol JWN.

Certain statements in this news release contain or may suggest
"forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995) that involve risks and uncertainties.
The
words "will," "may," "designed to," "outlook," "believes," "should,"
"anticipates," "plans," "expects," "intends," "estimates," "forecasts"
and similar expressions identify certain of these forward-looking
statements.
The Company also may provide forward-looking
statements in oral statements or other written materials released to the
public.
All statements contained or incorporated in this news
release or in any other public statements that address such future
events or expectations are forward-looking statements.
Factors
that could cause actual results to differ materially from these
forward-looking statements are discussed in the Company's Annual Report
on Form 10-K for the fiscal year ended February 3, 2018 and its Form
10-Q for the fiscal quarter ended May 5, 2018.
The Company
undertakes no obligation to update or revise any forward-looking
statements to reflect subsequent events, new information or future
circumstances, except as required by law.

 
NORDSTROM, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited; amounts in millions, except per share amounts)

 
    Quarter Ended     Six Months Ended
August 4, 2018     July 29, 2017     August 4, 2018     July 29, 2017
Net sales $ 3,980 $ 3,717     $ 7,450     $ 6,996
Credit card revenues, net 87   76       179       152  
Total revenues 4,067 3,793 7,629 7,148
Cost of sales and related buying and occupancy costs (2,589 ) (2,451 ) (4,877 ) (4,607 )
Selling, general and administrative expenses (1,232 ) (1,125 )     (2,353 )     (2,173 )
Earnings before interest and income taxes 246 217 399 368
Interest expense, net (28 ) (29 )     (56 )     (76 )
Earnings before income taxes 218 188 343 292
Income tax expense (56 ) (78 )     (94 )     (119 )
Net earnings $ 162   $ 110       $ 249       $ 173  
 
Earnings per share:
Basic $ 0.97 $ 0.66 $ 1.48 $ 1.04
Diluted $ 0.95 $ 0.65 $ 1.46 $ 1.02
 
Weighted-average shares outstanding:
Basic 167.8 166.4 167.8 166.8
Diluted 170.3 168.5 170.3 168.8
 
Percent of net sales:
Gross profit 35.0 % 34.0 % 34.5 % 34.2 %
Selling, general and administrative expenses 31.0 % 30.3 % 31.6 % 31.1 %
Earnings before interest and income taxes 6.2 % 5.8 % 5.4 % 5.3 %
 
 
NORDSTROM, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; amounts in millions)

 

    August 4, 2018     February 3, 2018     July 29, 2017
Assets
Current assets:
Cash and cash equivalents $ 1,343 $ 1,181 $ 919
Accounts receivable, net 200 145 320
Merchandise inventories 2,065 2,027 2,077
Prepaid expenses and other 439   150   157  
Total current assets 4,047 3,503 3,473
 
Land, property and equipment (net of accumulated depreciation of
$6,393, $6,105 and $5,866)
3,860 3,939 3,930
Goodwill 249 238 238
Other assets 334   435   520  
Total assets $ 8,490   $ 8,115   $ 8,161  
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,840 $ 1,409 $ 1,704
Accrued salaries, wages and related benefits 394 578 397
Other current liabilities 1,380 1,246 1,339
Current portion of long-term debt 54   56   11  
Total current liabilities 3,668 3,289 3,451
 
Long-term debt, net 2,680 2,681 2,729
Deferred property incentives, net 480 495 524
Other liabilities 522 673 672
 
Commitments and contingencies
 
Shareholders' equity:
Common stock, no par value: 1,000 shares authorized; 167.5, 167.0
and 166.2 shares issued and outstanding
2,899 2,816 2,757
Accumulated deficit (1,712 ) (1,810 ) (1,951 )
Accumulated other comprehensive loss (47 ) (29 ) (21 )
Total shareholders' equity 1,140   977   785  
Total liabilities and shareholders' equity $ 8,490   $ 8,115   $ 8,161  
 
 

NORDSTROM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; amounts in millions)

 

    Six Months Ended
August 4, 2018     July 29, 2017
Operating Activities
Net earnings $ 249 $ 173
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization expenses 338 320
Amortization of deferred property incentives and other, net (34 ) (48 )
Deferred income taxes, net (13 ) (71 )
Stock-based compensation expense 51 41
Change in operating assets and liabilities:
Accounts receivable (55 ) (120 )
Merchandise inventories (122 ) (141 )
Prepaid expenses and other assets (149 ) (24 )
Accounts payable 404 319
Accrued salaries, wages and related benefits (183 ) (58 )
Other current liabilities 76 117
Deferred property incentives 29 46
Other liabilities 3   20  
Net cash provided by operating activities 594   574  
 
Investing Activities
Capital expenditures (269 ) (341 )
Other, net (21 ) 33  
Net cash used in investing activities (290 ) (308 )
 
Financing Activities
Proceeds from long-term borrowings, net of discounts 635
Principal payments on long-term borrowings (5 ) (655 )
Increase in cash book overdrafts 63 6
Cash dividends paid (124 ) (124 )
Payments for repurchase of common stock (82 ) (211 )
Proceeds from issuances under stock compensation plans 49 14
Tax withholding on share-based awards (17 ) (6 )
Other, net (26 ) (13 )
Net cash used in financing activities (142 ) (354 )
 
Net increase (decrease) in cash and cash equivalents 162 (88 )
Cash and cash equivalents at beginning of period 1,181   1,007  
Cash and cash equivalents at end of period $ 1,343   $ 919  
 

NORDSTROM, INC.
SUMMARY OF NET SALES
(unaudited;
amounts in millions)

During the first quarter of 2018, we adopted the new revenue recognition
standard (Revenue Standard) using the modified retrospective adoption
method. Results beginning in the first quarter of 2018 are presented
under the new Revenue Standard, while prior period amounts are not
adjusted. Also beginning in 2018, we aligned our sales presentation with
how we view the results of our operations internally and how our
customers view us, by our Full-Price and Off-Price businesses.

Our Full-Price business includes our Nordstrom U.S. full-line stores,
Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local. Our
Off-Price business includes Nordstrom U.S. Rack stores,
Nordstromrack.com/HauteLook and Last Chance clearance stores. The
following table summarizes net sales and comparable sales within our
business for the quarter and six months ended August 4, 2018 compared
with the same periods in fiscal 2017:

       
Quarter Ended Six Months Ended
August 4, 2018     July 29, 2017 August 4, 2018     July 29, 2017
Net sales by business1:
Full-Price2 $ 2,707 $ 2,850 $ 4,948 $ 5,006
Off-Price3 1,273 1,189 2,502 2,341
Other   (322 )   (351 )
Total net sales4 $ 3,980   $ 3,717   $ 7,450   $ 6,996  
 
Comparable sales increase (decrease) by business:
Full-Price 4.1 % 1.4 % 2.6 % (0.4 %)
Off-Price 4.0 % 3.1 % 2.2 % 2.7 %
Total Company 4.0 % 1.7 % 2.4 % 0.6 %
 
Digital sales as % of total net sales5 34 % 29 % 31 % 27 %
1     We present our sales for 2018 and 2017 to align with how management
views our results internally, including presenting 2018 under the
new Revenue Standard and allocating our sales return reserve to
Full-Price and Off-Price. For 2017, Other primarily included
unallocated sales return, in-transit and loyalty related adjustments
necessary to reconcile sales by business to total net sales.
2 Full-Price net sales decreased 5.0% for the second quarter and 1.2%
for the six months ended August 4, 2018. This included a decrease of
approximately 900 basis points for the second quarter and 400 basis
points for the six months ended August 4, 2018, due primarily to the
sales return reserve allocation. We expect a corresponding increase
of approximately 800 basis points in the third quarter of 2018
primarily related to the sales return reserve allocation.
3 Off-Price net sales increased 7.0% for the second quarter and 6.9%
for the six months ended August 4, 2018. This included a decrease of
approximately 150 basis points for the second quarter and 50 basis
points for the six months ended August 4, 2018, primarily due to the
new Revenue Standard.
4 Total net sales increased 7.1% for the second quarter and 6.5% for
the six months ended August 4, 2018. This included an increase of
approximately 100 basis points in the second quarter and 200 basis
points for the six months ended August 4, 2018, primarily due to the
impact of the new Revenue Standard as it relates to the timing of
the Anniversary Sale. We expect a corresponding decrease of
approximately 100 basis points in the third quarter of 2018. We do
not expect the impact of adopting the new Revenue Standard to be
material for the year ended February 2, 2019, but expect the impact
of the 53rd week in 2017 to result in a decrease of approximately
100 basis points in 2018.
5 Digital sales are online sales and digitally assisted store sales
which include Buy Online, Pickup in Store ("BOPUS"), Reserve Online,
Try on in Store (Store Reserve) and Style Board, a digital selling
tool.
 

NORDSTROM, INC.
ADJUSTED RETURN ON
INVESTED CAPITAL ("ADJUSTED ROIC") (NON-GAAP FINANCIAL MEASURE)

(unaudited;
dollar amounts in millions)

We believe that Adjusted ROIC is a useful financial measure for
investors in evaluating the efficiency and effectiveness of the capital
we have invested in our business to generate returns. Adjusted ROIC
adjusts our operating leases as if they met the criteria for capital
leases or we had purchased the properties. This provides additional
supplemental information that reflects the investment in our off-balance
sheet operating leases, controls for differences in capital structure
between us and our competitors and provides investors and credit
agencies with another way to comparably evaluate the efficiency and
effectiveness of our capital investments over time. In addition, we
incorporate Adjusted ROIC into our executive incentive measures and it
is an important component of shareholders' return over the long term.

We define Adjusted ROIC as our adjusted net operating profit after tax
divided by our average invested capital using the trailing 12-month
average. Adjusted 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. Estimated depreciation
on capitalized operating leases and average estimated asset base of
capitalized operating leases are not calculated in accordance with, or
an alternative for, GAAP and should not be considered in isolation or as
a substitution of our results as reported under GAAP. The financial
measure calculated under GAAP which is most directly comparable to
Adjusted ROIC is return on assets.

For the 12 fiscal months ended August 4, 2018, our Adjusted ROIC
increased to 10.8% compared with 8.9% for the 12 fiscal months ended
July 29, 2017. Results for the prior period were negatively impacted by
approximately 310 basis points due to the Trunk Club non-cash goodwill
impairment charge in the third quarter of 2016.

The following is a reconciliation of the components of Adjusted ROIC and
return on assets:

   
12 Fiscal Months Ended
August 4, 2018     July 29, 2017
Net earnings $ 513 $ 364
Add: income tax expense1 329 346
Add: interest expense 124   139  
Earnings before interest and income tax expense 966 849
 
Add: rent expense, net 249 230
Less: estimated depreciation on capitalized operating leases2 (133 ) (123 )
Adjusted net operating profit 1,082 956
 
Less: estimated income tax expense (422 ) (438 )
Adjusted net operating profit after tax $ 660   $ 518  
 
Average total assets $ 8,175 $ 8,018
Less: average non-interest-bearing current liabilities3 (3,371 ) (3,173 )
Less: average deferred property incentives and deferred rent
liability3
(635 ) (646 )
Add: average estimated asset base of capitalized operating leases2 1,962   1,636  
Average invested capital $ 6,131   $ 5,835  
 
Return on assets4 6.3 % 4.5 %
Adjusted ROIC4 10.8 % 8.9 %
1     Results for the 12 fiscal months ended August 4, 2018 include a $42
unfavorable impact related to the Tax Cuts and Jobs Act.
2 Capitalized 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. The asset base is calculated based 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.
3 Balances associated with our deferred rent liability have been
classified as long-term liabilities as of January 28, 2017.
4 Results for the 12 fiscal months ended July 29, 2017 include the
$197 impact of the Trunk Club non-cash goodwill impairment charge in
the third quarter of 2016, which negatively impacted the prior
period return on assets by approximately 230 basis points and
Adjusted ROIC by approximately 310 basis points.
 

NORDSTROM, INC.
ADJUSTED DEBT TO
EBITDAR (NON-GAAP FINANCIAL MEASURE)

(unaudited; dollar
amounts in millions)

Adjusted Debt to earnings before interest, income taxes, depreciation,
amortization and rent ("EBITDAR") is one of our key financial metrics,
and we believe that our debt levels are best analyzed using this
measure. Our goal is to manage debt levels to maintain an
investment-grade credit rating and operate with an efficient capital
structure. In evaluating our debt levels, this measure provides a
reflection of our credit worthiness that could impact our credit rating
and borrowing costs. We also have a debt covenant that requires an
adjusted debt to EBITDAR leverage ratio of no more than four times. As
of August 4, 2018, our Adjusted Debt to EBITDAR was 2.5, and as of
July 29, 2017, it was 2.4.

Adjusted Debt to EBITDAR is not a measure of financial performance under
GAAP and should be considered in addition to, and not as a substitute
for, debt to net earnings, net earnings, debt 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 Adjusted Debt to EBITDAR is debt to net earnings. The
following is a reconciliation of the components of Adjusted Debt to
EBITDAR and debt to net earnings:

       
20181 20171
Debt $ 2,734 $ 2,740
Add: estimated capitalized operating lease liability2 1,993 1,841
Adjusted Debt $ 4,727 $ 4,581
 
Net earnings $ 513 $ 364
Add: income tax expense3 329 346
Add: interest expense, net 115 136
Earnings before interest and income taxes 957 846
 
Add: depreciation and amortization expenses 683 646
Add: rent expense, net 249 230
Add: non-cash acquisition-related charges4 1 204
Adjusted EBITDAR $ 1,890 $ 1,926
 
Debt to Net Earnings5 5.3 7.5
Adjusted Debt to EBITDAR 2.5 2.4
1     The components of Adjusted Debt are as of August 4, 2018 and July
29, 2017, while the components of Adjusted EBITDAR are for the 12
months ended August 4, 2018 and July 29, 2017.
2 Based upon the estimated lease liability as of the end of the
period, 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 debt 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.
3 Results for the 12 fiscal months ended August 4, 2018 include a $42
unfavorable impact related to the Tax Cuts and Jobs Act.
4 Non-cash acquisition-related charges for the 12 months ended July
29, 2017 include the goodwill impairment charge of $197 related to
Trunk Club.
5 Results for the period ended July 29, 2017 include the $197 impact
of the Trunk Club goodwill impairment charge, which approximates 260
basis points.
 

NORDSTROM, INC.
FREE CASH FLOW
(NON-GAAP FINANCIAL MEASURE)

(unaudited; amounts in
millions)

Free Cash Flow is one of our key liquidity measures, and when used in
conjunction with GAAP measures, provides investors with a meaningful
analysis of our ability to generate cash from our business. For the six
months ended August 4, 2018, we had Free Cash Flow of $388 compared with
$239 for the six months ended July 29, 2017.

Beginning in the first quarter of fiscal 2018, we no longer adjust free
cash flow for cash dividends paid. We believe that no longer reducing
free cash flow by dividends paid is more reflective of our operating
performance and more consistent with the way we manage our business, how
our peers calculate free cash flows and prevailing industry practice.
Prior period Free Cash Flow financial measures have been recast to
conform with current period presentation.

Free Cash Flow is not a measure of financial performance under GAAP and
should be considered in addition to, and not as a substitute for,
operating cash flows 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 Free Cash Flow is net cash
provided by operating activities. The following is a reconciliation of
net cash provided by operating activities to Free Cash Flow:

   
Six Months Ended
August 4, 2018     July 29, 2017
Net cash provided by operating activities $ 594 $ 574
Less: capital expenditures (269 ) (341 )
Add: change in cash book overdrafts 63   6  
Free Cash Flow $ 388   $ 239  
 

NORDSTROM, INC.
ADJUSTED EBITDA
(NON-GAAP FINANCIAL MEASURE)

(unaudited; amounts in
millions)

Adjusted earnings before interest, income taxes, depreciation and
amortization ("EBITDA") is our key financial metric to reflect our view
of cash flow from net earnings. Adjusted EBITDA excludes significant
items which are non-operating in nature in order to evaluate our core
operating performance against prior periods and increase comparability
with our peers. The financial measure calculated under GAAP which is
most directly comparable to Adjusted EBITDA is net earnings. As of
August 4, 2018 and July 29, 2017, Adjusted EBITDA was $697 and $650.

Adjusted EBITDA is not a measure of financial performance under GAAP and
should be considered in addition to, and not as a substitute for net
earnings, overall change in cash or liquidity of the business as a
whole. 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 following is a reconciliation of net
earnings to Adjusted EBITDA:

   
Six Months Ended
August 4, 2018     July 29, 2017
Net earnings $ 249 $ 173
Add: income tax expense 94 119
Add: interest expense, net 56   76  
Earnings before interest and income taxes 399 368
 
Add: depreciation and amortization expenses 338 320
Less: amortization of deferred property incentives (40 ) (38 )
Adjusted EBITDA $ 697   $ 650  
 

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