DBRS Morningstar Comments on Nordstrom, Inc.’s Announcement of Winding Down Its Canadian Business

DBRS Limited (DBRS Morningstar) notes Nordstrom, Inc.’s (Nordstrom or the Company; rated BB with a Stable trend by DBRS Morningstar) announcement that the Company intends to close its six Nordstrom and seven Nordstrom Rack stores across Canada, as well as its Canadian e-commerce platform (the Closures) over the coming months. The Company expects the Closures to result in an approximately $400 million decline in sales and a $35 million improvement in total Company EBIT, excluding approximately $300 million to $350 million of pre-tax charges related to the Closures.

On February 28, 2023, DBRS Morningstar changed the trend on Nordstrom’s rating to Stable from Positive and confirmed its Issuer Rating at BB. The trend change to Stable from Positive reflected Nordstrom’s softer-than-expected operating performance over the last two quarters, especially during the crucial holiday season, and DBRS Morningstar’s weakened earnings outlook for the Company amid a challenging macroeconomic backdrop because of decreased consumer purchasing power. That said, the rating confirmation at BB, combined with the Stable trend, reflected DBRS Morningstar’s expectation that the Company will be able to navigate this environment within the context of the current rating category.

DBRS Morningstar acknowledges the positive effects the Closures have on profitability and operating efficiency and the negative effects the Closures have on Nordstrom’s geographic diversification and, to a lesser extent, on market position and size. That said, in aggregate, the Closures do not have a material effect on Nordstrom’s overall credit risk assessment because of the relatively small size of the Canadian operations, which account for less than 3% of total sales.

Nordstrom’s rating continues to be supported by its well-established reputation for customer service, size, market position in its core market, and leading digital capabilities as well as its increasingly diverse customer base and retail channels. The rating also considers Nordstrom’s exposure to intensifying competition, economic cycles shifting consumer trends, and operational execution risks.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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