By  on March 9, 2007

Neiman Marcus Group, citing a strong fall performance marked by increased full-price selling and improved margins, on Thursday reported net earnings in the fiscal second quarter ended Jan. 27 rose to $41 million, against just more than $3 million in the year-ago quarter.

Operating earnings in the second quarter rose to $127.8 million, compared with $69.7 million in the year-ago quarter. Adjusted operating earnings were $145.9 million, compared with $117.8 million, an increase of 23.9 percent. Neiman Marcus believes adjusted operating earnings, which exclude amortization, acquisition costs, non-cash charges and other income, is a truer representation of how the company is performing.

Neiman Marcus was bought by Texas Pacific Group and Warburg Pincus LLC in 2005 for $5.1 billion, taking the company private. The year-ago net was brought down by about $50 million in special charges stemming from the acquisition.

Total sales in the quarter rose 8.5 percent to $1.3 billion, compared with $1.2 billion in the prior year. Comp-store sales increased 6.8 percent. Sales per square foot rose to $624 from $597, and the company reported an operating margin of 11.3 percent.

By division, the Neiman Marcus chain had a 5.5 percent comp-store gain and Bergdorf Goodman rose a robust 17.7 percent, abetted by renovations and strong marketing.

Neiman's and Bergdorf's combined posted $121.5 million in operating earnings, an increase from $94.3 million, and adjusted operating earnings of $145.9 million, from $117.8 million.

"These are very gratifying results," said Burt Tansky, president and chief executive officer of the Neiman Marcus Group, on a conference call. "It was a great second quarter and fall season overall."

He added the company kept to its pricing plans, both full- and off-price, while some competitors appeared to adjust. Leading categories were women's designer apparel, handbags, precious jewelry, women's shoes and men's.

The momentum seems to be continuing into the current spring season, with same-store sales in February rising 8.2 percent to $305 million from $282 million a year earlier. "This spring, we believe there are several strong trends that will continue our growth," Tansky said, citing dresses, cropped jackets, flat shoes and statement rings. "Having just attended fall shows in Paris, New York and Milan, we were enthusiastic about what we saw on the runways."The company continues to reduce its debt, and in January made a $175 million optional principal payment on its senior secured term loan facility.

Neiman's opens an 80,000-square-foot store in Austin, Tex., today. If business proves strong there, the store could be expanded by 35,000 square feet. An 80,000-square-foot store in Charlotte, N.C., opened six months ago and has received "strong customer response," Tansky said.

Expansion plans call for a 100,000-square-foot unit in Natick, Mass., in the fall; a 120,000-square-foot unit in Topanga, West Los Angeles, in fall 2008; a 120,000-square-foot unit in Bellevue, Wash., and a 150,000-square-foot store in Oyster Bay, N.Y., on Long Island, both in fall 2009, and a 90,000-square-foot store in Princeton, N.J., in 2010.

Neiman Marcus Direct rose 6 percent in the quarter, though on a net basis, the results were less than expected due to a higher rate of customer returns. "We are actively reviewing our current return policy and will make changes as we think appropriate," Tansky said. "It may be too liberal for maintaining a sound business, or it may not be changed at all."

Internet sales rose to $156 million for the quarter, an increase of more than 16 percent from last year. The Web site now represents more than 70 percent of NM Direct and is considered one of the company's biggest growth opportunities.

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