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What Caused Contraction of Nordstrom’s First-Quarter Margin?

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Updated

What impacted Q1 margin?

Nordstrom’s (JWN) gross margin declined about 60 basis points on a year-over-year basis to 33.5% in the first quarter of fiscal 2019. Nordstrom’s gross margin was negatively impacted by the planned markdowns that the company took to realign its inventory to weak sales trends in the first quarter. Nordstrom’s gross margin was also hit by a deleverage in occupancy expenses on weak sales.

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Lower operating margin

Nordstrom’s operating margin declined to 2.3% in fiscal 2019’s first quarter from 4.4% in fiscal 2018’s first quarter. Nordstrom’s operating margin was adversely impacted by a deterioration in the SG&A (selling, general and administrative) expense rate due to deleverage of fixed expenses on lower sales volume.

Updated outlook

Nordstrom expects its operating margin in the range of 5.3% to 5.8% in fiscal 2019 compared to the previous expectation of 5.9% to 6.1%. Deleverage in fixed expenses due to lower sales is expected to be a drag on fiscal 2019 operating margin.

Nordstrom expects its gross margin to be flat in fiscal 2019 compared to fiscal 2018 as improved merchandise margin is expected to be offset by the deleverage in occupancy costs.

Nordstrom aims to improve its margins through efficiency initiatives, which include improvement in store operating model, reduction in discretionary spending, and driving productivity gains in technology and supply chain.

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