S&P Global Ratings revised the debt ratings outlook on Nordstrom to positive, citing the department store’s 2025 operating performance exceeding expectations, with same-store sales growing 5 percent at the Nordstrom banner and 8.5 percent at Nordstrom Rack.

S&P also noted that Nordstrom fully repaid the incremental debt used to fund its acquisition by the Nordstrom family and Mexican retailer El Puerto de Liverpool S.A.B. de C.V. In March 2025, Nordstrom became a private company in a buyout deal valued at $6.25 billion from Nordstrom’s founding family and Mexican retailer El Puerto de Liverpool.

S&P forecasts a S&P Global Ratings-adjusted leverage for Nordstrom of high-2x for fiscal 2026, assuming minimal dividends to its owners.

S&P also affirmed its ‘BB’ issuer credit rating on Nordstrom, as well as its ‘BB+’ issue-level rating and ‘2’ recovery rating on the existing secured notes.

The positive outlook reflects the possibility that the rating could be raised if Nordstrom demonstrates a financial policy that maintains S&P Global Ratings-adjusted leverage below 3x.

S&P said in its analysis, “Nordstrom fully repaid its incremental go-private debt at the end of fiscal 2025 (ended Jan 2026). S&P Global Ratings-adjusted debt-to-EBITDA was 2.8x at the end of fiscal 2025 (down from the low-3x at close), better than our initial forecast, as Nordstrom repaid more debt in a shorter timeframe. We expected funded debt to increase by $1 billion to $3.6 billion for the 2025 go-private transaction, including a $581 million SPV loan and a $450 million ABL draw. At close, more cash was used to fund the transaction and the SPV loan was lowered to $367 million.

“At the end of 2025, the ABL balance was completely repaid, after the initial draw and an additional intrayear draw to fully repay the SPV loan. We now forecast leverage of high-2x for fiscal 2026 as profitability levels and cash flow metrics remain consistent.

“Nordstrom has not established a clear financial policy under its new ownership. Liverpool, an investment-grade issuer with a 49.9 percent ownership stake, manages its own balance sheet prudently with leverage under 1.5x. Under the company’s new ownership structure, it repaid all incremental debt taken on for the go-private transaction, and we expect Nordstrom’s secured debt will be repaid as it becomes due.

“However, it is still early in its ownership. Nordstrom has yet to establish a formal track record of financial policy that maintains leverage under 3x, and we apply a one-notch comparable ratings adjustment to incorporate this risk.

“We forecast leverage will remain below 3x in fiscal 2026, maintaining its EBITDA level and generating about $360 million in free operating cash flow (FOCF). We also assume dividends to the owners remain flat at $75 million a year. Given our forecast for FOCF in 2026, dividend payments could increase, which would decrease net cash and thus increase leverage.

“The Nordstrom and Nordstrom Rack brands are growing. Key demographics continue to spend on discretionary items such as women’s apparel, activewear and footwear. Nordstrom grew net sales 1.8 percent, with comparable-store sales increasing 5 percent in fiscal 2025. Nordstrom Rack grew net sales 11 percent, with comparable store sales increasing 8.5 percent. Revenue growth was supported by 22 new stores and a 7.1 percent increase in gross merchandise value for the year as the company focuses on lean inventory and less promotional selling. The company plans to open approximately 30 new Nordstrom Rack locations in 2026 as it continues to be the fastest-growing banner.

“Performance at both banners for fiscal 2025 outpaced the rest of the department store landscape but is similar to Bloomingdale’s (comparable store sales growth of 7.4 percent). We believe both Nordstrom Inc. and Bloomingdale’s are benefiting from the Saks Global bankruptcy, which made luxury inventory available to both. Furthermore, the Nordstrom Rack banner is benefiting from a trade-down from the higher-income cohorts, as well as providing an entry point for middle-income demographics.

“We forecast revenue growth of mid-2 percent for 2026 as macroeconomic and geopolitical pressure weigh on consumer sentiment. While consumers have remained resilient over the last few years, particularly at the income levels that both brands cater to, another year of inflation could cause discretionary spending to decline.

“Cash flow generation supports Nordstrom Rack expansion efforts. Nordstrom generated $1.3 billion in cash flow from operations (CFO) in fiscal 2025, similar to 2024. The company continues to spend meaningfully on capital expenditures (capex), primarily to open new Nordstrom Rack stores, renovate and maintain existing stores, and invest in technology.

“Our FOCF forecast incorporates $525 million-$550 million of annual capex. Moreover, we forecast annual FOCF of at least $350 million, the majority of which will likely fund an annual dividend to its owners of at least $75 million, as well as repay debt. Upcoming debt maturities include $350 million of notes in fiscal 2027 and $300 million in 2028. We forecast the debt will be paid upon maturity, permanently reducing its debt burden.

“Department stores remain vulnerable to economic conditions, such as weakening consumer sentiment and persistent inflation. In addition, long-term changes in consumer apparel-buying habits will be difficult to navigate, which increases the potential for operational missteps. Other long-term risks for the wider department store space are declining physical store traffic, shifting category preferences, and online price transparency.

“While Nordstrom still leads the industry in omnichannel capabilities, a continued shift to online shopping and competition from off-price players could pressure traffic at brick-and-mortar locations and margins.

“The positive outlook reflects that we could raise the ratings over the next 12 months if Nordstrom maintains EBITDA and generates strong cash flow, leading to leverage sustained below 3x. In this scenario, Nordstrom will have demonstrated a track record and commitment to sustaining leverage below 3x.” 

Image courtesy Nordstrom