Fitch Ratings-New York-12 December 2025:

Fitch Ratings has affirmed Nordstrom, Inc.'s Long-Term Issuer Default Rating (IDR) at 'BB'. Fitch has also affirmed the company's ABL revolver at 'BBB-' with a Recovery Rating of 'RR1' and its secured notes at 'BB+'/'RR2'. The Outlook is Stable.

Nordstrom's ratings reflect its good position in the department store sector, its presence in high-traffic shopping centers, and its mix of digital and off-price sales along with full-price department stores. Nordstrom has struggled somewhat to convert these advantages into stable operating results, with projected 2025 EBITDA about 10% below 2019 levels. However, given some recent signs of stabilization, Fitch projects steady revenue around mid-$15 billion and EBITDA around $1.3 billion in the medium term, with EBITDAR leverage trending in the high 2x range and EBITDAR fixed charge coverage trending around 3x.

Key Rating Drivers

Recent Business Volatility: Nordstrom's business trends have been somewhat erratic since the onset of the pandemic, similar to those of other department stores and apparel and accessories retailers. The company has contended with shifts in consumer behavior and spending, supply chain challenges, and an evolving tariff policy. The company has also had execution challenges, particularly in its off-price Rack business. However, over the past 12 to 18 months Nordstrom's results have demonstrated some signs of improvement, including positive comparable store sales across its business and stabilizing margins.

Fitch historically viewed Nordstrom as able to benefit from its diversified operating model across full-line stores, Nordstrom Rack stores, and digital presence (36% of 2024 net sales). However, following Nordstrom's struggles to harness these advantages over the past five years, Fitch expects sales and EBITDA to remain flat over the medium term.

Strategic Initiatives: The company has outlined several strategic initiatives to drive sales growth. The company recently completed a merchandise transition at Nordstrom Rack (35% of 2024 net sales), and the division produced positive comparable store sales in 2024 and thus far in 2025. The company also plans to expand Nordstrom Rack through square footage, having opened 23 stores in 2024. Nordstrom forecasts opening around 20 Nordstrom Rack stores annually from its existing 280-unit base.

To support growth at its full-price department stores, Nordstrom launched a digital marketplace for third-party inventory, aims to improve merchandise assortment to drive traffic and conversion, and is investing in supply chain capabilities to reduce shipping times. Fitch acknowledges that these strategies, if executed effectively, could drive incremental sales. However, execution risk remains substantial given the company's recent history.

Credit-Neutral Buyout: In May 2025, the Nordstrom family and El Puerto de Liverpool, S.A.B.de C.V. (Liverpool) completed its buyout of Nordstrom in a credit-neutral transaction. Fitch anticipates no significant change in Nordstrom's operating strategy or prospects post-transaction, though some benefit may come from Liverpool's department store expertise. The credit profile could improve through deploying FCF toward reducing transaction-related debt, including a $450 million ABL draw, and addressing upcoming maturities, including $350 million and $300 million of unsecured notes due 2027 and 2028, respectively.

Challenged Department Store Segment: Fitch recognizes that department stores face longer-term secular challenges such as reduced time spent at malls, evolving apparel shopping behaviors, and increased competition from value-oriented and online channels. Stronger players can maintain market share and modestly grow revenue if they effectively differentiate themselves and maintain customer loyalty. While Nordstrom has the structural tools for market share stabilization, its results in result years have not demonstrated the ability to leverage these advantages.

Good Cash Flow: Nordstrom's ability to navigate economic cycles and sector challenges is bolstered by reasonable cash flow, enabling strategic investments in omnichannel infrastructure and store improvements. Fitch projects FCF of at least $400 million over the next three years, assuming about $500 million annually in capital expenditures for supply chain, digital enhancements, and Nordstrom Rack expansion. Nordstrom plans to use excess cash to repay debt, addressing transaction-related obligations and upcoming maturities.

Leverage Expected Below 3x: Fitch projects EBITDAR leverage to trend in the high 2x range with EBITDAR fixed-charge coverage near 3x, with stable EBITDA at around $1.3 billion and about $3.1 billion in debt as of the end of 2Q25. Leverage and coverage may modestly improve over the next two to three years as management plans to repay debt, though Nordstrom Rack's expansion could offset improvements by increasing rent expense.

Peer Analysis

Fitch's rated U.S. department store coverage includes Macy's Inc. (BBB-/Stable), Kohl's Corp. (BB-/Negative), Nordstrom, Inc. (BB/Stable), and Dillard's Inc. (BBB-/Positive). Each of these players is facing secular headwinds in the department store industry and is continually refining strategies to defend market share. Initiatives include investments in omnichannel models, portfolio reshaping to reduce exposure to weaker indoor malls, and efforts to strengthen merchandise assortments and service levels.

Structurally, Macy's, Kohl's, and Nordstrom should be best positioned to accelerate investment and transformation efforts given greater relative scale and cash flow generation. Kohl's should benefit from its off-mall real estate positioning while Nordstrom should benefit from its exposure to the off-price segment and the higher-end merchanded positioning of its full price locations. However, neither has demonstrated an ability to capitalize on fundamental advantages, which Fitch expects is somewhat due to execution challenges.

Pre-pandemic, the three national players maintained EBITDAR leverages below 3.5x (closer to mid-2x for Kohl's) to support investment-grade ratings. While EBITDA is below 2019, Macy's leverage remains similar due to proactive debt reduction. Dillard's has lower leverage than peers due to limited debt. EBITDAR leverage is expected to be around 3x and low 4x for Nordstrom and Kohl's, respectively.

Fitch’s Key Rating-Case Assumptions

--Fitch projects that Nordstrom's 2025 revenue could increase to $15.4 billion from $15.0 billion in 2024. This growth is expected in both the full price and Rack divisions, with positive comparable store sales and store openings at Rack. Starting in 2026, revenue is projected grow modestly, as some top-line initiatives and Rack square footage expansion are partially mitigated by secular headwinds;

--EBITDA, which stood at $1.2 billion in 2024, down from $1.5 billion in 2019, could trend toward $1.3 billion in 2025 given top-line growth and some margin expansion thus far in 1H25. EBITDA could remain around $1.3 billion beginning 2026, given limited sales growth and some cost pressures, including a full year of tariffs in 2026. Margins are projected around 8.4% in 2025 and the low 8% range after, a decrease from 9.5% recorded in 2019. This decline is attributed to lower sales, some general inflation across Nordstrom's cost structure and heightened selling investments;

--Annual FCF after dividends is projected in the $400 million to $500 million range over the next three years, assuming around $500 million to $550 million in capex and $75 million in dividends following the buyout transaction. The company has indicated it plans to prioritize debt repayment using FCF. It could address transaction-related debt and upcoming maturities, including $350 million and $300 million in unsecured notes due in March 2027 and March 2028, respectively;

--EBITDAR leverage, factoring in Nordstrom's balance sheet lease liabilities, could trend around the high 2x range beginning in 2025, similar to the 2023/2024 average. EBITDAR fixed-charge coverage could sustain around 3.0x, comparable to 2023;

--Nordstrom's capital structure consists primarily of unsecured debt with a fixed-interest rate structure. Pricing on the company's ABL is based on SOFR, with rates forecast to be in the 3.5% to 4.25% range over the medium term.

Recovery Analysis

Fitch does not employ a waterfall recovery analysis for issuers with assigned ratings in the 'BB' category. As ratings move further up the speculative grade continuum, the notching between the specific classes of issuances becomes more compressed. Nordstrom's $1.2 billion ABL is rated 'BBB-'/'RR1'. Nordstrom's secured notes are rated 'BB+'/'RR2'.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

-- A downgrade would result from weak operating trends which drove EBITDAR leverage toward 3.5x and EBITDAR fixed charge coverage below 2.75x.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

-- An upgrade to 'BB+' would result a combination of better-than-expected operating performance and debt reduction which drove EBITDAR leverage toward 2.5x and EBITDAR fixed charge coverage above 3x.

Liquidity and Debt Structure

As of Aug. 2, 2025, Nordstrom had a cash balance of $402 million and $450 million outstanding under its $1.2 billion ABL, which matures in May 2030. The ABL is backed by a borrowing base of inventory and receivables. In addition to the ABL draw, the company's capital structure includes $2.7 billion in secured notes. These notes were secured as part of the recent go-private transaction, which was funded with balance sheet cash, cash commitments from Liverpool and the $450 million ABL draw. The security package includes a second priority on ABL collateral and a first priority on other company assets excluding owned real estate.

Fitch projects the company will generate at least $400 million in FCF annually, which will support liquidity and allows some debt repayment following the transaction. The company plans to prioritize transaction-related debt, including the ABL draw, and could also use FCF to repay upcoming notes maturities including the $350 million due in March 2027.

Issuer Profile

Nordstrom is the one of the largest department store operators in the U.S. with approximately $15.3 billion in revenue across its digital businesses and retail portfolio, with 93 full-line department stores and 292 off-price Rack locations as of August 2025.

Summary of Financial Adjustments

Historical and projected EBITDA is adjusted to add back non-cash stock-based compensation and exclude non-recurring charges. Fitch uses the balance sheet reported lease liability as the capitalized lease value when computing lease-equivalent debt.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations

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Nordstrom, Inc.; Long Term Issuer Default Rating; Affirmed; BB; Rating Outlook Stable

----senior secured; Long Term Rating; Affirmed; BBB-

----senior secured; Long Term Rating; Affirmed; BB+

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Fitch Ratings, Inc.

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martha.rocha@fitchratings.com

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Corporate Monitoring & Forecasting Model (COMFORT Model), v8.2.0 (1)

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Fitch Affirms Nordstrom at 'BB'; Outlook Stable