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Nordstrom Sets the Department-Store Bar

The narrow-moat firm is the best-positioned department store in our coverage, as it capitalizes on its full- and off-price models.

Narrow-moat

Despite ongoing growth investments in its supply chain, technology, and marketing (which we think support its top-line growth), the firm saw its operating margins fall a mere 20 basis points to 4.4%, related to higher occupancy costs and pre-opening expenses that should subside. In addition, our model assumes Nordstrom continues to invest to prompt growth, but at a rate moderately lower than historical levels; this assumption remains intact after these results. As such, we don’t see a material change to our 6% average operating margin estimate over the next 10 years (from our current fiscal 2018 estimate of 5.7%), which is driven by near flat gross margins of 36% on average and nearly 30 basis points of benefit to its selling, general, and administrative expenses to average 30%.

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About the Author

John Brick

Equity Analyst

John Brick, CFA, is an equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers retail defensive names, including large general merchandise retailers, sporting good manufactures, and grocery/distribution names.

Before joining Morningstar in 2017, Brick worked at Arkansas-based Stephens Inc. where he covered various consumer companies. Prior to that, he worked at Chicago-based Vilas Capital, where he was a generalist on a long-short hedge fund. Brick began his career at Northern Trust as a private equity analyst.

Brick earned a bachelor’s degree in finance, with minors in economics and decision sciences, from Miami University’s Farmer School of Business. He holds the Chartered Financial Analyst® designation.

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