By and  on March 11, 2009

Writedowns of more than half a billion dollars led to a $509.3 million net loss in Neiman Marcus Inc.’s second quarter, and the retailer said Wednesday it would adjust assortments, return merchandise and seek greater markdown money as the economy continues to struggle.

The loss for the three months ended Jan. 31 compares with net profits of $44.3 million in the corresponding period a year earlier. Excluding $560.1 million in impairment charges, the company’s operating loss for the quarter was $32.6 million versus operating income of $134.3 million in the second quarter of last year. Adjusted earnings before interest, taxes, depreciation and amortization was $24.6 million, compared with $187.3 million the previous year.

The luxury retailer’s customers, hard hit by the economy, pushed sales down 21.4 percent to $1.08 billion from $1.37 billion in last year’s same period. Comp-store sales declined 22.8 percent.

Burton Tansky, chairman and chief executive officer of Neiman Marcus, divided customers into two categories. “The aspirational customer has a strong desire for luxury merchandise, but [her] financial capability is not as secure as it has been. A meaningful improvement in the economy will bring this customer back into stores, although she will be more discerning than before,” he said. “The core customers have seen their net worth diminish, some very substantially. They are heavily invested in the stock market and this has impacted their desire to spend.”

Tansky has been vigorously defending the luxury business model, but on Wednesday he acknowledged consumers might never regain the same robust taste for shopping they’ve had for a few years. “A meaningful improvement in the economy will bring [the aspirational] customer back into stores, although she will be more discerning than before,” he said. Once the economy improves, the core customer’s shopping will become more normal.”

Like other luxury retailers such as Saks Fifth Avenue, Neiman Marcus has seen demand wane as consumers become more reticent about spending. Tansky admitted Neiman’s was promotional during the holiday season and still was left with a surplus. “We will still be under pressure, which could create a challenge for us to get inventory in line for the spring season,” he said during a conference call with Wall Street analysts. “Our strategy is based on full-price selling. We believe in the long run that it’s critical to maintain pricing integrity. In the short term, we will continue to take appropriate actions to adjust our inventory conditions to get them more in line with demand.”

Those actions include canceling orders, returning merchandise and asking vendors for markdown money, Tansky admitted. At the same time, Neiman Marcus is rebalancing assortments or looking for a broader range of price points within individual brands. “We may now buy more in the middle third,” said James Skinner, executive vice president and chief financial officer of Neiman Marcus, in an interview.

“With each new season comes the opportunity to start fresh,” Tansky said. “As we develop our plans for the coming fall, we are carefully evaluating our merchandise assortment. The range of price points won’t change, however, we will analyze the opportunity of the allocation of price points. This will likely result in the elimination of many of our vendors.”

The criteria for elimination will, for the most part, be sales, said a spokeswoman. “They would have had to have been sort of marginal anyway. When business is really good you can have some marginal [lines]. However, if sales are marginal, but workmanship is terrific, a number of decisions will have to be made.”

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