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Riding a Luxury Wave: Neiman Marcus Group Cracks $3B Sales Mark

Strong sell-throughs enabled Neiman Marcus to post nearly a 35 percent rise in fourth-quarter profits and crack $3 billion in sales for the year.

NEW YORK — At Neiman Marcus Group, better is getting better.

Strong sell-throughs of higher-end merchandise enabled the luxury retailer to post nearly a 35 percent increase in fourth-quarter profits and crack the $3 billion sales milestone for the year.

“Our customers are very loyal,” Burt Tansky, president and chief executive officer, told Wall Street analysts on a conference call. “We see no signs of them trading down.”

For the three months ended Aug. 2, income soared 34.9 percent to $7.2 million, or 15 cents a diluted share, from $5.3 million, or 11 cents, in the year-ago quarter. The company, which had forecast earnings per share of between 8 cents and 13 cents, bested the high end of its own forecast by 2 cents and Wall Street consensus expectations by 3 cents.

Excluding the impact of certain items, adjusted earnings for the fourth quarter of fiscal 2002 were $6 million, or 13 cents a diluted share. The adjustments included the closure of the Neiman Marcus Galleries store in Seattle last year, the write-off of the firm’s investment in weddingchannel.com and the write-down of fixed assets of three Kate Spade retail stores.

Revenues in the quarter grew 5.4 percent to $702.7 million from $666.4 million. Revenues for the specialty retail stores segment, comprising Neiman Marcus Stores and Bergdorf Goodman, were up 4.2 percent to $576 million from $553 million.

Comparable-store sales at Neiman Marcus rose 5.2 percent and, particularly gratifying as the second anniversary of the 9/11 terrorist attacks nears, 16.2 percent at Bergdorf Goodman. Revenues at Neiman Marcus Direct, which includes catalog and Internet sales under the Neiman Marcus, Horchow and Chef’s nameplates, were up by 9.4 percent, although online purchases were the primary driver over catalog sales.

The fourth quarter of 2002 included an extra 14th week, but comps were calculated on the basis of a 13-week quarter in both years.

NMG shares fell 2 cents, or 0.1 percent, to end Tuesday’s New York Stock Exchange session at $40.55, but that was a strong performance compared with the overall showing of apparel and retailing stocks, which were overtaken by selling pressures following a series of downgrades, most notably by Goldman Sachs, and a downward earnings revision by Russell Corp. While the Dow Jones Industrial Average declined 79.09 points, or 0.8 percent, at 9,507.20, with similar declines registered by the Standard & Poor’s 500 and the Nasdaq, the S&P Retail Index ended the day with a 3.1 percent falloff at 350.91.

Tansky told analysts that he was “very pleased” with the company’s results, achieved under conditions described as “erratic and challenging.”

In a reference to the need to continue to fine-tune operations to improve margins and expenses, however, he noted, “We will take the necessary actions to make a difference in our portfolio.” In a statement, he cited concentration on “sales growth, inventory management and expense control” as the keys to improvement in 2003 results.

Sales in the quarter, the ceo said, were driven by strong results in women’s designer and branded apparel. In the designer handbag category, Tansky said the firm has seen an increase in sales of bags with exotic skins and, in pumps and evening footwear, designer shoes. There also have been signs of improvement in men’s wear sales, he said.

Tansky said traffic in Bergdorf’s in Manhattan had shown signs of improvement, although some of it was attributed to the near completion of the remodeling of the first and second floors at the store, as well as the completed renovation of its shoe department last year. Bergdorf plans to concentrate on growth in key sales areas, including fine apparel, women’s shoes, handbags, contemporary sportswear and jewelry.

Both the Laura Mercier and Kate Spade businesses are doing well, Tansky said, with Kate Spade in particular exploring additional branding opportunities.

Improvements in Neiman’s online business helped it grow by 11 percent for the year. The company featured more trends in designer merchandise offerings online and “over half of Web sales are coming from outside of [our regular] trading areas,” Tansky said.

The retailer plans to renew its emphasis on marketing and prospecting of new customers and to allow consumers to monitor their accounts and purchase virtual gift cards online.

The company anticipates comps for the first quarter of fiscal year 2004 will increase in the midsingle-digit range.

So far this fall, demand for several signature better items, such as cashmere and alligator skins, has been strong. Contemporary sportswear continues to do well, with firms moving from velour and terry fabrications into cashmere.

The Dallas-based firm, which said it will open a new store in 2005 in San Antonio, is considering several other locations for expansion. There are currently 35 Neiman Marcus and two Bergdorf Goodman stores.

For the year, income rose 9.8 percent to $109.3 million, or $2.29 a diluted share, from $99.6 million, or $2.08, last year. Excluding nonrecurring items in both periods, earnings were $124 million, or $2.60, versus $97 million, or $2.02. Revenues gained 5.1 percent to $3.1 billion from $2.95 billion.

Goldman Sachs downgraded Federated to “in line” from “outperform,” and the department store retailer’s shares gave back $1.38, or 3.2 percent, to end the day at $42.44. May, downgraded to “underperform” from “in line,” saw its shares sink 4.3 percent to $25.20. Even shares of Nordstrom, upgraded to “outperform” from “in line,” dropped during the session, losing 0.5 percent to finish Tuesday’s trading at $25.10. Specialty retailers took similar shots to their valuations, although one of the biggest declines was Russell’s $3.14, or 16.3 percent, slip to $16.17.

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