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Luxe's Winning Strategy: Neiman Marcus Profits Climb 19.3% in Quarter

Neiman Marcus Group saw second-quarter profits rise 19 percent to $70.6 million, as sales gained 7.7 percent to $1.13 billion from $1.05 billion.

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Photo By WWD Staff

Burt Tansky

Burt Tansky

Photo By WWD Staff

NEW YORK — Whatever intrigue is going on behind the scenes at Neiman Marcus Group, its bottom line just keeps looking better and better.

The luxury retailer said Wednesday that income for the quarter ended Jan. 29 jumped 19.3 percent to $70.6 million, or $1.43 a diluted share, from $59.2 million, or $1.21, in the year-ago quarter. Excluding a $7.5 million impact of favorable settlements associated with previous state tax filings in the second quarter of 2004, adjusted earnings per diluted share were $1.06 in the quarter. Revenues for the three months gained 7.7 percent to $1.13 billion from $1.05 billion.

“Luxury is alive and well, and there’s not a better place to find it than at The Neiman Marcus Group,” boasted Burt Tansky, Neiman’s president and chief executive officer, in a conference call with Wall Street analysts.

The results come as speculation continues to swirl that something is going on with Neiman Marcus and its controlling shareholders, the Smith family. While speculation last month was that Neiman’s might be snapped up by Federated Department Stores or another investor, the current feeling is that the Smiths more likely are preparing a secondary offering or other financial maneuver involving their shareholding to capitalize on Neiman’s soaring stock price and engage in a form of estate planning.

By division, revenues at specialty retail stores — Neiman Marcus and Bergdorf Goodman — increased 9.6 percent to $912 million from $832 million. Same-store sales for the segment rose 9.6 percent, while sales for Neiman Marcus Stores gained 9 percent and Bergdorf Goodman rose 14.5 percent. In the direct-marketing group, sales inched down by 1.6 percent to $188 million from $191 million. Excluding Chef’s Catalog, which was sold last year, revenues for the quarter were $162 million. In its “other” category, which includes Kate Spade and Laura Mercier, sales rose 16 percent to $29 million from $25 million.

Shares of Neiman Marcus gained 82 cents in trading on Wednesday to close at $74.07 on the New York Stock Exchange. The shares hit a new 52-week high in intraday trading at $74.90.

Addressing the major shift in the retail landscape this week with the $17 billion deal for Federated to buy May Department Stores Co., Tansky told analysts that Neiman’s was keeping tabs on the merger.
“The May-Federated merger is in its infancy. We are watching it with great intensity to see if there’s any opportunity that will surface. We [would be] interested in the most important sites….We have a very disciplined, very thought-out expansion plan,” the ceo said.

As for Neiman’s business, Tansky said strong sellers in the quarter were women’s handbags, “driven by an explosion of color.” He added that contemporary sportswear, complimented by denim and embellished jeans, did well. On the accessories front, ponchos and designer jewelry did well, too.

The ceo said he is “very encouraged by early sales performance of resort merchandise.”

The company said separately that February revenues rose 6.5 percent to $275 million from $258 million, with comps up 7.7 percent to $273 million from $254 million. Based on early response to spring merchandise, Tansky said that third-quarter comps are expected to increase by 3 to 5 percent.

“We are confident that our customers find our merchandise very inviting,” Tansky said.

Significant trends for spring so far include dangle bracelets, espadrille shoes, sandals and high heels, as well as gypsy and bohemian looks in sportswear, the ceo noted.

On the operational side, the company has implemented a locker-stock inventory program that keeps key items in a central location. The point is to be able to ship merchandise directly to the consumer if it is unavailable in the store, which will improve customer service as well as inventory turns.

For the six months, income rose by 16.7 percent to $134.7 million, or $2.73 a diluted share, from $115.4 million, or $2.37, in the comparable year-ago period. Excluding the loss on the disposition of Chef’s Catalog in the first quarter of fiscal 2005 and the $7.5 million tax impact in the second quarter of 2004, adjusted earnings were $2.92 a diluted share. Revenues increased by 9.1 percent to $2.04 billion from $1.87 billion.

Analysts pondered what the changes at Barneys New York, which was bought by Jones Apparel Group last year, and Federated might mean for Neiman’s. According to Tansky, “Our position won’t change at all. We are at the very top, the most affluent customer, that’s our niche. It will have no impact on us. We are a very intense observer of the scene and are very interested in how all that will play out.”
For now, Neiman’s is keeping busy opening new stores, with units coming in San Antonio, Tex., and Boca Raton, Fla., this year. In fall 2006, the company is set to open in Charlotte, N.C., and Austin, Tex. The company also plans to open a store in a western suburb of Boston in 2007.

As for the direct-marketing operation, the company plans more designer boutiques on its Web site. Referred to as sitelets, the company already operates two, Ferragamo and David Yurman. The purpose of increasing the sitelets is to provide advertising for both Neiman Marcus and its vendor partners, Tansky said.

Tansky didn’t say much about the company’s smaller-brand segments. Laura Mercier has “improved this quarter,” while Kate Spade is focused on expanding the brand through new licensing opportunities, he explained. The Kate Spade operation had distribution issues in the quarter, which negatively impacted quarterly results, Tansky told analysts, but added that management at Kate Spade believed they’ve resolved the issues. He added that so far there’s been “positive response to spring merchandise.”

“We are off to a great start,” said Tansky, who one flattering analyst noted on the call should be called “Mr. Luxury.”