Published: February 01, 2011
Fitch Affirms Nordstrom's IDR at 'A-'; Outlook Stable
NEW YORK - (BUSINESS WIRE) - Fitch Ratings has affirmed its ratings on Nordstrom, Inc. (Nordstrom,
NYSE: JWN), including the Issuer Default Rating (IDR) at 'A-'. The
Rating Outlook is Stable. A full list of rating actions is shown below.
The ratings reflect Nordstrom's position as a market share consolidator
in the department store sector and strong execution via its
differentiated merchandise and a high level of customer service that
have enabled the company to enjoy strong customer loyalty and high
operating margins relative to its industry peers. Sales trends have
improved markedly since October 2009, with Nordstrom reporting the best
comparable store sales among Fitch rated department stores for the first
11 months of 2010, and the second highest after Kohl's on a two-year
stacked basis. This reflects the company's strong merchandise
presentation at sharper price points, the improved mix of regular priced
selling, as well as strong inventory management.
Fitch expects same-store sales for 2011-2012 to be in the 3% range, on
top of an anticipated 8% same-store sales increase for 2010. Overall
sales growth, including contribution from new stores, should be in the
mid-single digit range. This should enable Nordstrom to strengthen its
#5 market share position (of department store sales using NAICS codes
with 2010 estimated share of 4.9%, up approximately 60 basis points from
2009) as industry sales are expected grow in the plus/minus 1% over the
next two years.
As a result of improvements in same store-sales trends, better
full-priced selling and strong inventory control, operating EBIT dollars
in 2010 are expected to increase by 30% to $1.1 billion on EBIT margin
of 11.3% versus 9.7% in 2009 and 9% in 2008. Fitch expects operating
margins to continue to improve modestly from these levels over the next
two years, but still be shy of the 13% plus margins reported in 2007.
Fitch expects adjusted debt/EBITDAR for 2010 to come in at 2.4 times (x)
in 2010, slightly better than the 2.7x in 2009. Fitch notes that
Nordstrom and Target Corporation are the only two publicly rated
companies in its U.S. retail coverage that still own their credit card
receivables and these credit metrics are encumbered with the full amount
of debt associated with the more highly leveraged credit card business.
Assuming Nordstrom's credit card receivables are financed using a mix of
80% debt and 20% equity, core retail debt/EBITDAR is expected be 1.5x in
2010.
Going forward, Fitch expects the company to manage its capital structure
to its publicly stated target of 2.0x -2.5x consolidated adjusted
debt/EBITDAR leverage (using 8x rent expense net of property
incentives). This roughly equates to a leverage target of 2.25x -2.75x
using Fitch's methodology of using 8x gross rent expense. At these
levels, core retail credit metrics, excluding the more leveraged credit
card business, would be between 1.4x to 1.9x, which would be consistent
with its current ratings based on peer comparisons.
Fitch expects Nordstrom to end 2010 with strong cash balances of $1.3
billion given the expectation of free cash flow (after dividends) of
$450 million-$500 million and share buybacks of $150 million-$300
million. Fitch expects Nordstrom to generate annual free cash flow in
the $300 million range in 2011-2012. Upcoming debt maturities include
$500 million in secured notes in April 2012, which Fitch expects will
get refinanced.
The company's liquidity is also supported by a $650 million senior
unsecured revolving bank credit facility that is scheduled to mature in
August 2012. The company had no outstanding borrowings under the
revolver and has ample room under its leverage covenant of 4.0x adjusted
debt/EBITDAR (using 6x rent), and coverage covenant of 2.0x. The company
has a 364-day $300 million variable-funding facility backed by Nordstrom
private-label card receivables and a 90% interest in the co-branded
Nordstrom VISA credit card receivables, and this facility was recently
extended out to January 2012. In addition, the company has a 364-day
$100 million variable-funding facility backed by a 10% interest in the
co-branded receivables which is scheduled to mature in May 2011 which is
used to support the Nordstrom Bank. There were no outstanding borrowings
under these facilities at the end of third quarter.
Fitch has affirmed Nordstrom's ratings as follows with a Stable Outlook:
--Long-term Issuer Default Rating (IDR) at 'A-';
--$650 million bank credit facility at 'A-';
--Senior unsecured notes at 'A-';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
Additional information is available at www.fitchratings.com
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 16, 2010);
--'Short-Term Ratings Criteria for Corporate Finance' (Nov. 2, 2010);
--'2011 Outlook: U.S. Retailers to See Continued Slow Growth' (Nov. 17,
2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Short-Term Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
2011 Outlook: U.S. Retailers to See Continued Slow Growth
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=575965
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE.
Fitch Ratings
Primary Analyst
Monica Aggarwal, CFA,
+1-212-908-0282
Senior Director
Fitch, Inc.
One State
Street Plaza
New York, NY 10004
or
Secondary Analyst
Philip
M. Zahn, CFA, +1-312-606-2336
Senior Director
or
Committee
Chairperson
Jamie Rizzo, CFA, +1-212-908-0548
Senior Director
or
Media
Relations, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
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