By  on December 10, 2008

Neiman Marcus Group, continuing to suffer from the worsening economy and reduced consumer spending, reported Wednesday that fiscal first-quarter profits fell 83.6 percent on a comparable-store sales drop of 14.5 percent.

The company expects its second quarter to see higher markdowns than a year ago, and is still grappling with inventories outsized in relation to demand. Executives said they hope to reach the right balance by mid-2009.


For the quarter ended Nov. 1, Neiman’s reported that profits were $12.9 million, compared with $78.8 million in the year-ago period, when results were propped up by a $32.5 million pension gain.

Total sales for the three months dropped 12.9 percent to $985.8 million from $1.13 billion. Capital expenditures in the quarter fell to $33 million from $46 million a year earlier.

Considering that several other chains are reporting losses, Neiman’s appears to be managing itself through the tough environment relatively well. Liquidity remains healthy, and officials said they are getting the cooperation from vendors they need to reduce inventories. Neiman’s committed to spring orders well before the stock market decline.

Earlier this week, retailers complained that holiday shopping hasn’t begun in earnest yet and that consumers were taking advantage of ubiquitous bargains by buying for themselves. Burt Tansky, Neiman’s president and chief executive officer, had a slightly different take. “I am sure they are” shopping for gifts, he told WWD. “We are doing business, but the level of shopping is not where it has to be. People are still waiting.”

From a category perspective, “it’s very challenging across the board,” Tansky said, though “there are always bright spots — some things in jewelry, in shoes, some apparel. Some resort goods are selling early.”

He called promotions “the driving force” and added, “We are promoting out of character. We don’t like it.” But to get inventories in line and the company in a better position for spring and fall, Tansky stressed: “We are working very hard. The team is pulling together. We are all on the same page. I am very, very confident in our team and we will get through this and will be a stronger and more vibrant company than ever.”

Tansky also acknowledged that some “smaller and marginal vendors” are being dropped. It is a policy also being adopted by Neiman’s competitor Saks Fifth Avenue and others.

“Since our last earnings call in September, the economic environment has further deteriorated,” Tansky told analysts. “This was a challenging quarter. We responded aggressively to slowing consumer demand. As the quarter progressed, sales trends worsened along with the sharp declines in the stock market. We believe the actions we took have mitigated the overall impact.”

Tansky said the weakness at Neiman’s and Bergdorf Goodman and the Direct consumer division was felt across all geographic areas, merchandise categories and among both aspirational and affluent customers. Tansky said the company believes the affluent customer still has the wherewithal to shop. However, “this customer has become much more focused on what she is buying.…Our customer base is more resilient than most. It’s the last to be impacted and the first to return to a more regular level of spending.” He also said that two Neiman’s openings will be delayed, in Princeton, N.J., and Sarasota, Fla. “It’s not our fault,” he said. “Developers moved the openings.”

Also, the rollout of the Cusp contemporary division, which has been gradual, has been postponed. Further expansion is under evaluation. Two stores were opened this year.

“We remain very optimistic about the prospects for this concept,” Tansky told analysts. “We are adjusting the store-opening plan. We will not open any additional Cusp stores this year. We will be evaluating our plans for fiscal 2010 over the next two, three months.”

Still on schedule are Neiman’s openings in Bellevue, Wash., for next fall; Walnut Creek, Calif., in fall 2011, and San Jose, Calif., in 2012. A store in Oyster Bay, N.Y., is still planned but there is no firm opening date as the mall there has yet to be built.

The Sarasota unit has been delayed to fall 2011 from 2010, and the Princeton unit is now set a year later, too, to 2013.

Tansky said he was “very encouraged” by the recent opening in Topanga, Calif.

Major and minor remodeling plans are temporarily on hold, Tansky said, though the design plans for those projects are still in the works. He stressed that no stores are being closed.

Neiman’s began a strategic review project 12 months ago, covering every area. “We expect to implement additional changes over the next six to 12 months,” Tansky said.

“Every action we take insures that we are supporting the quality of our brand and maintains our reputation,” Tansky said. “I firmly believe we will emerge as a much stronger company” when the economy turns for the better.

During its first quarter, Neiman’s experienced a 380 basis-point decrease in gross margin due to higher markdowns that helped reduce inventories. SG&A declined $29 million, or 11 percent, with cuts taken in travel expenses, supplies and training, among other areas, and on a rate basis increased about 60 basis points due to declines in revenue. “We expect higher markdowns in the second quarter than last year, resulting in lower gross margins,” said James E. Skinner, executive vice president and chief financial officer.

Specialty retail sales decreased 15.8 percent in the quarter, and were down 10.8 percent at Bergdorf Goodman. Neiman Marcus Direct decreased 7 percent, with the Horchow unit being the weakest area.

Liquidity remains good, with $115 million in cash at the end of the quarter versus $81 million a year ago. “We effectively managed cash flow and did not borrow on the revolver,” Skinner said, adding that the company doesn’t anticipate borrowing on the revolver in its second quarter. “We remain very focused on liquidity. We are waiting for the financial markets to be more stable before making any additional debt payments. There are no covenants on our facility and no debt due for two years.”

Looking ahead, “We are approaching buying for fall very, very conservatively,” Tansky said. “If sales improve for the fall and we find we are in need, we will get the merchandise we need. You can chase sales. In the years you chase sales, you do the best. You have the greatest chance of getting results.”

In terms of spring commitments, “It was a very substantial adjustment we have made,” Tansky said. “Our vendor partners have been very, very sensitive to these issues. We have made good progress with our vendors.”

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