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

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Part 5
Nordstrom: a must-know guide to the high-end department store PART 5 OF 14

Nordstrom’s operating margin impacted by growth initiatives

Impact of investments

Department stores are implementing cost-reduction initiatives to offset the impact of declining same-store sales and improve margins. However, Nordstrom (JWN) does not expect its operating margin to expand over the next few years due to significant investments in store expansion and other growth initiatives.

The SPDR S&P 500 ETF (SPY) had 12.29% holdings in the consumer discretionary sector and 0.06% holdings in Nordstrom as of February 11, 2015.

Nordstrom&#8217;s operating margin impacted by growth initiatives

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Declining operating margin

Nordstrom’s operating margin fell from 11.5% in fiscal 2011 to 11.1% in fiscal 2012 and to 10.8% in fiscal 2013. The following activities impacted operating margin:

  • growth-oriented investments in the online business
  • accelerated expansion of Nordstrom Rack stores
  • entry into the Canadian market

Peer margins

Neiman Marcus’s fiscal 2013 operating margin of 9.89% was lower than Nordstrom’s. Also, Nordstrom’s margin was better than that of its peers in the mid-scale department store category. The fiscal 2013 operating margins for Macy’s (M), Kohl’s (KSS), and Dillard’s (DDS) were 9.59%, 9.15%, and 8.46%, respectively.

Why margins might continue to fall

Nordstrom expects double-digit increases in depreciation and rent to impact its near-term operating margin.

The company is aggressively expanding its presence in the US and is also planning to open five more stores in Canada. Nordstrom has also allocated substantial capital spending to technological infrastructure in the online channel as well as stores. Read the next article to learn more.

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