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Neiman’s Posts Gains in Challenging Quarter

Neiman Marcus Group Inc., weathering overstocks, a highly promotional season and the challenging economy, posted first-quarter earnings and sales gains.

Neiman Marcus Group Inc., weathering overstocks, a highly promotional season and the challenging economy, posted first-quarter earnings and sales gains.

For the fiscal first quarter of 2008 ended Oct. 27, Neiman’s net earnings reached $78.8 million versus $27.2 million a year ago, when the company was dragged down by losses from discontinued operations.

Adjusted operating earnings, which the luxury retailer believes reflect a more accurate measure of performance, rose 4 percent to $175.2 million compared with $168.1 million in the year-ago period.

On a non-adjusted basis, operating earnings were $189.7 million compared with $154.3 million a year ago, reflecting a $32.5 million onetime gain from freezing pension and retirement benefits as the chain implements a new plan for retirees.

Total revenues rose 9 percent to $1.13 billion versus $1.04 billion in the prior year, and same-store sales increased 6.5 percent. Sales a square foot averaged $647 in the past 12 months, compared with $613 the year before.

The Neiman Marcus chain posted a 5.4 percent comp gain, and Bergdorf Goodman had an 11.6 percent increase.

The company also reported November sales, which were up 5.8 percent on a comp basis, with the specialty retail sector up 6.1 percent, while the direct business grew 4.3 percent.

“We believe this is a good start to the [holiday] season,” said Burt Tansky, chairman, chief executive officer and president, in a conference call, adding, “The best of our merchandise continues to sell very well.”

In the quarter, the company was propelled by designer handbags, shoes, beauty, precious jewelry and men’s furnishings, where sales were strongest.

Among the disappointments: higher markdowns contributing to a gross margin decline of 50 basis points, some buying mistakes and tepid consumer reaction to European designer collections generally. Neiman’s boosted inventories 11.8 percent in the quarter, and 8.1 percent excluding new stores.

There were also higher costs associated with promoting the chain’s centennial and running more promotions to bring down inventories. Neiman’s said the gross margin rate also will be lower in the second quarter, but stressed inventories are moving more in line with sales and that the buying is more “conservative” for spring.

“New cruise-resort merchandise is getting very positive response from our stores right now,” Tansky said. But Neiman’s merchants “have to be more selective and highly focused on what we buy, and must continue to keep sight of the customer to see if she is slightly changing her buying trends.”

Regarding the first quarter, Tansky said, “We were a little more aggressive [in buying] than we normally are. It didn’t come together so we are going to get back into balance and we are moving quickly to do so….As the season progressed and sales did not materialize commensurate with the inventory levels we had planned, our merchants reacted quickly” by triggering markdowns and working with vendors to find a solution to overstocks.

“The issue is not the demand side,” Tansky said. “Customers continue to demand from us quality, and we are delivering it. The best of our merchandise continues to sell very well. As spring merchandise comes in, we’ll get that inventory managed the way we want it to be and the way it should be.”

Tansky said the bridge business is “OK” despite some reduced gains, contemporary sportswear is holding its own and jewelry and handbags are strong. Business in California seems to be “an industry-wide problem.”

Nationwide, “the environment has proven to be somewhat challenging this season,” Tansky said. “We were pleased with the results. It was a quarter of great reflection as we celebrated our 100th anniversary.”

The corporation will continue to invest in renovations and expansions, Tansky said. The Atlanta store is being redone, adding 50,000 square feet and seeing continued strong business remains during the remodeling. By early fiscal 2009, construction will be completed.

In a breakdown of sales, NM Direct was up 7.1 percent, including up 23 percent on the Internet. With the catalogue, “We continue to reduce circulation and are shifting sales to online,” Tansky said. He added the home segment of the Horchow direct business continues to be challenging.

Neiman’s intends to further spur online sales by adding more virtual trunk shows and new tools to increase interaction with customers, Tansky said.

Commenting on Cusp, Neiman’s new chain for contemporary goods and aspirational customers, Tansky said, “All four of [the stores] are doing quite well. We are constantly trying to understand more and more and fine-tune the assortments.” A decision on whether to roll out Cusp or pull the plug will be made early next year.