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Nordstrom: a must-know guide to the high-end department store

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Part 8
Nordstrom: a must-know guide to the high-end department store PART 8 OF 14

Nordstrom’s debt levels are improving

Debt profile

Analyzing the debt profile of a company is important for having a clearer picture of that company’s financial health. Companies use borrowed money to finance growth prospects. However, a very high level of financial leverage amidst difficult business conditions can adversely impact earnings.

The debt levels of Nordstrom (JWN) are higher than those of its peers in the department store category. The SPDR S&P Retail ETF (XRT) has 6.33% holdings in department stores.

Nordstrom&#8217;s debt levels are improving

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Total debt-to-equity ratio

The total DE (or debt-to-equity) ratio indicates a company’s financial leverage and reflects the proportion of equity and debt used to finance the company’s assets. A lower ratio suggests lower financial risk.

Nordstrom’s debt levels have decreased over the past three years. The company’s DE ratio in fiscal 2013 was 1.50 compared to 1.64 in fiscal 2012. As the end of the third quarter of fiscal 2014, Nordstrom’s DE ratio stood at 1.38.

Macy’s (M), Dillard’s (DDS), and Kohl’s (KSS) had DE ratios of 1.15, 0.41, and 0.81, respectively, in fiscal 2013.

Improved ability to service debt

The debt-to-EBITDA (or earnings before interest, tax, depreciation, and amortization) ratio is a key indicator of a company’s ability to pay its debt. Nordstrom’s debt-to-EBITDA ratio improved from 1.76 in fiscal 2012 to 1.73 in fiscal 2013.

At the end of the third quarter of fiscal 2013, Nordstrom’s long-term debt was $3.1 billion. Standard & Poor’s has given Nordstrom an A- credit rating and Moody’s has assigned the company a Baa1 rating. Nordstrom’s available credit facilities and potential future borrowings are sufficient to finance its growth plans, which include aggressive expansion of Nordstrom Rack and the strengthening of the company’s online business.

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