NEW YORK — Affluent consumers willing to pay full price for high-end merchandise propelled Neiman Marcus Group Inc. to its first billion-dollar quarter of revenues while profits skyrocketed 82.2 percent.

The Dallas-based upscale retailer ended its second quarter with earnings of $59.2 million, or $1.21 a share. After excluding income from a tax settlement, earnings per share easily eclipsed the Wall Street consensus estimate by 4 cents.

Net revenue, which includes sales from the Neiman Marcus and Bergdorf Goodman stores, as well as the direct marketing business and some other streams, enjoyed a 12.3 percent climb to $1.05 billion. Moreover, same-store sales at the company’s namesake Neiman Marcus stores grew a healthy 9.2 percent.

“By any measure, our performance this quarter was outstanding,” said chief executive officer Burt M. Tansky on a conference call with analysts and investors. “This fall season exceeded our expectations on every level.I believe the success we enjoyed this quarter validates our long-term strategy of not trading down and of maintaining the highest standards for customer service, merchandise and fashion leadership.Very importantly, our continued focus on selling merchandise at regular price supported by innovative marketing and advertising programs are paying off. This emphasis enabled us, for example, to eliminate the after-Thanksgiving sale and allowed us to reduce the level of markdowns after Christmas.

“Of course, I must compliment our customers, who weren’t shy about indulging their taste for luxury,” added Tansky. “The affluent customer is currently shopping and buying with great enthusiasm.During the quarter we saw this enthusiasm throughout the country in our Neiman Marcus stores and at Bergdorf Goodman in New York City.”

Among the items snapped up by the better-off consumer at Neiman were contemporary women’s sportswear — Tansky said velour workoutwear was the must-have item last Christmas — as well as fine apparel led by European designers, luxury skin care cosmetics, fine jewelry, handbags and footwear.

However, as much as the those hot merchandise categories drove sales, Tansky stressed that the better bottom line was ultimately predicated on those areas over which management has the most control — notably gross margin and inventory control.

As for gross margin — that is, the difference between sales and cost of goods sold — standing firm on the markdown front allowed Neiman to push up its gross margin rate by a robust 172 basis points. Judicious inventory management also showed up on the bottom line. Flowing fresh, must-have merchandise into the stores not only helped justify those nonsale prices to customers, but also allowed Neiman to reduce total inventory year-stantially increasing turnover.“To keep our assortments exciting we work with our top vendors and designers, and in many cases arranged to have our spring deliveries shipped early,” said Tansky. “This enabled us to sell-through quickly and place reorders ahead of need and, most significantly, differentiate our stores.”

And as successful as the second quarter was for Neiman, the third quarter is already setting a torrid pace with February same-store sales growing an almost stratospheric 24.4 percent.

By business segment in the second quarter, Neiman stores’ revenues grew 9.6 percent while sales at Bergdorf Goodman shot up 20.5 percent. Taken together, the two retail operations amassed a total of $838 million in revenue, a 10.8 percent advance over last year. That allowed Neiman and Bergdorf stores combined to produce a 65.9 percent increase in operating profits to $73 million.

In the increasingly important direct-marketing segment, revenues gained 18.6 percent to $191 million while contributing operating profits of $25 million for a 38.9 percent improvement over last year.

First-half fiscal-year results were similarly strong, as Neiman said net income shot up 89.2 percent to $115.4 million on a 12.3 percent increase in revenues to $1.88 billion. Excluding an accounting change in the prior year, earnings would have grown 52.2 percent.

By the Numbers
Neiman Marcus Group Inc.
?
Most-Recent Qtr.
Prior-Year Qtr.
% Change
Sales
1,054.1
938.5
12.3
Net Income
59.2
32.5
82.2
EPS
$1.21
$0.68
77.9
?
Year-End Period
Year-Ago Period
% Change
Sales
1,879.0
1,672.6
12.3
Net Income
115.4
61.0
89.2
EPS
$2.37
$1.27
86.6
For period ended Jan. 31,2004. Figures are in millions, except for per share data. Net income andper share figures are exclusive of special items.

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