By  on May 3, 1994

NEW YORK -- The Neiman Marcus Group will close up to 50 underperforming Contempo Casuals stores and the entire 39-unit Pastille chain. Contempo currently has 288 stores.

To cover the restructuring and store closings, NMG will take a $48.4 million pre-tax charge in the third quarter ended April 30.

A spokesman said the company will close at least 25 Contempo Casuals doors and would like to close 50, but the precise number depends on lease buyouts. He said NMG would like to complete the closings by July 31, the end of the fiscal year. Contempo carries junior sportswear and Pastille focuses on contemporary sportswear, both moderately priced.

Contempo had been testing Pastille in 15 states to determine its viability as a national chain, but Robert J. Tarr, president and chief executive officer of The Neiman Marcus Group and its Chestnut Hill, Mass.-based parent, Harcourt General, said Pastille's sales performance last fall does not justify expansion. He also indicated it would not be feasible to continue operating the chain at its current size.

The closings and other restructuring will result in the elimination of up to 1,000 jobs within Contempo and Pastille, which currently employ 3,800. The positions being eliminated are primarily at Contempo's Los Angeles headquarters and distribution center and at the stores slated for closure. "They're cleaning up and stopping the hemorrhaging," said Edward Johnson of Johnson Redbook Service, referring to the poor results at Contempo and Pastille.

Together, these stores generated an operating loss of $14.1 million on revenues of $349.1 million in the fiscal year ended July 31, 1993. Pastille accounted for $10.5 million of the loss and $29.7 million of the revenues. For the year, NMG -- which includes Neiman Marcus Stores, the NM Direct mail order business and Bergdorf Goodman -- had operating earnings of $108.8 million, on revenues of $2.02 billion.

Tarr said the closings and the resulting writeoff were necessary because of continued disappointing results at Contempo Casuals, which he said has been hurt by lack of new fashion trends, reduced mall traffic and merchandising miscues.

"The elimination of Pastille, combined with expense reductions at Contempo...will significantly improve the profitability and cash flow outlook for this business," Tarr said. In addition to closing up to 50 of Contempo's 288 stores, the restructuring will involve narrowing the focus of its in-house production and product development operation, and closing the Hong-Kong buying office. Tarr said that NMG will use outside resources, both foreign and domestic, for a greater portion of Contempo's merchandise."Neiman has been struggling for a long time with deficient results at Contempo and Pastille, and it will be useful to management to be able to focus their money and resources on more productive areas," said Edward A. Weller, an analyst at Robertson Stephens.

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