By and  on September 7, 2005

NEW YORK — The Neiman Marcus Group Inc. ended its last year as a public company on a record note.

The upscale specialty chain on Tuesday delivered one of its best quarters ever with earnings growth in the last months of the fiscal year of 66.8 percent on a revenue gain of 8.5 percent, and a same-store sales jump of 9.6 percent.

"We are very pleased with 2005. It was a record-breaking year, the second in a row," Burt Tansky, president and chief executive, said in an interview. "We overachieved our objectives. There was strength in virtually every category. Apparel was very strong, as well as accessories and shoes, and our men's business came up substantially.

Added Tansky: "The luxury boom continues. The demographics are in our favor. The wealth factor is growing. The transfer of wealth from parent to child will continue for the next 25 years. The desire for luxury is continuing. The cycle is not near its completion."

Tansky said that, since May 2003, the retailer has posted high-single to double-digit same-store sales increases. "The quality of our business continues to grow, and our level of service always continues to get better. We exceed our customers' expectations on their shopping experiences."

For the fourth quarter ended July 30, net income jumped to $34.3 million, or 69 cents a diluted share, from $20.6 million, or 42 cents, in the same year-ago quarter. After adjustments — such as the sale of the company's credit card portfolio to HSBC Retail Services and certain tax benefits in the current quarter, as well as adjustments in the year-ago period in connection with its Chef's Catalog trade name — earnings were $26 million, or 53 cents a diluted share, versus $23 million, or 47 cents, a year ago.

Revenues in the quarter rose to $851.4 million from $784.5 million. The company said sales at its specialty retail stores business — under the Neiman Marcus and Bergdorf Goodman nameplates — rose 8 percent to $687 million from $636 million.

Revenues at Neiman Marcus increased 7 percent, while those at Bergdorf Goodman gained 14.5 percent. Comps at Neiman Marcus stores were up 6.4 percent. The company did not provide same-store sales results at its Bergdorf's business. In its direct marketing segment, revenues rose 7.2 percent to $134 million from $125 million. The company's "other" category, which includes the operations of the Kate Spade and Laura Mercier brands, saw revenues spike 30.4 percent to $30 million from $23 million.For the year, earnings rose 21.4 percent to $248.8 million, or $5.02 a diluted share, from $204.8 million, or $4.19, in the year-ago period. On an adjusted basis, earnings were $251 million, or $5.06, compared with $200 million, or $4.09, last year.

Revenues were up by 8.4 percent to $3.82 billion from $3.52 billion, while comps gained 9.9 percent for the year.

The ceo said the retailer's Internet group delivered an "extraordinary" performance during the quarter. "The luxury customer is very much becoming an Internet customer," Tansky said.

Moreover, half of Neiman's Web site sales are from addresses outside the trading area of its stores. "That means that half of the customers shopping on the Internet are new customers. We think there is some multichannel activity and that's an ongoing opportunity," Tansky said.

As reported, the high-end firm said on May 2 that it will be sold for $5.1 billion to an investment group consisting of Texas Pacific Group and Warburg Pincus LLC. Under the terms of the purchase agreement, the two investment firms will acquire all of the outstanding Class A and Class B shares of the retailer for $100 a share in cash. Each of the investors will own equal stakes in the company upon completion of the transaction.

Tansky said in a statement that the "productivity of our business model continued to improve as we achieved a record operating margin and sales per square foot." The ceo attributed the firm's record results through the company's intense focus on "full-price selling, efficient inventory management and disciplined expense control."

To be sure, the new owners of Neiman Marcus could have a tough act to follow.

The planned acquisition by TPG and Warburg Pincus, expected to close by November, is triggering intense speculation about Neiman's future, and about other potential retail deals in a merger and acquisitions market that is ravenous.

Considering what is viewed as a premium price tag, there likely will be pressure on TPG and Warburg Pincus to grow the business faster to service the debt load and get a sufficient return. Tansky has said previously that overseas growth is not part of Neiman's agenda. With the operation already seemingly at top form, one option would be to develop new formats for growth in the U.S.As reported, the country's premier designer chain is expected to test next year a scaled-down version of its luxury stores in a few choice locations. Depending on the location, some stores could emphasize Neiman's top-priced designer goods; others might focus on contemporary labels, which are not as expensive as designer. An accessories-only store is another possibility.

Tansky said Neiman's has slated two store openings for the rest of 2005, one in San Antonio, Tex., on Sept. 16, and one in Boca Raton, Fla., in November.

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