Neiman Marcus

Neiman Marcus's earnings fell to $8.5 million from $12.9 million a year ago, but in better news, gross margins rose 118 basis points.

Continuing to operate under intense pressure, Neiman Marcus Inc. on Wednesday reported a 33.8 percent drop in net profits and a 13.7 percent comparable revenue decrease in its first quarter ended Oct. 31.

This story first appeared in the December 10, 2009 issue of WWD. Subscribe Today.

Earnings fell to $8.5 million from $12.9 million a year ago, while total revenues dropped 11.9 percent to $868.9 million from $985.8 million. Operating earnings were $74.8 million compared with $81.6 million for the first quarter of fiscal year 2009.

Though hardly jumping with joy over the results, executives said they were pleased the luxury chain made progress on several fronts: gross margins rose 118 basis points; cash grew by $200 million to $319 million; inventories were down 20.3 percent, and there was movement toward a normal markdown cadence with major designer price breaks post-Thanksgiving this year and a few weeks later than last year.

Also cited: a “bounceback” at Bergdorf Goodman, and stockouts across the group in ladies’ shoes and contemporary sportswear suggesting improved demand that’s outstripping merchandise levels.

But despite the encouraging signs, caution and uncertainty persist. “It’s much too early to read the season,” Burt Tansky, chairman and chief executive officer, told WWD. “December is a long month. We’re just getting started.”

Business is “absolutely” better. “The declines have started to diminish,” Tansky said. Among the best-selling trends that Tansky listed were over-the-knee boots, cashmere, contemporary sportswear, skinny jeans, leggings and new handbag shapes.

At Bergdorf’s, “loyal customers are starting to come back and we’re seeing an influx of foreign travelers” due to the exchange rate, he said. In Midtown Manhattan, “the streets are absolutely mobbed with people.”

On the other hand, Neiman’s stores in gateway cities such as Miami, Los Angeles and San Francisco haven’t seen great tourist traffic. “I’m not sure the Euro traveler stretches beyond New York yet,” Tansky said.

In an earlier conference call, the veteran luxury merchant’s comments were upbeat though tempered. “We see improvements and are pleased by that. But, like anything else, improvements are slow in coming. They can be tentative,” he said. “The customer is still facing the challenges of economic recovery. It’s hard to predict whether we have bottomed out. Hopefully we have. We saw more enthusiasm in November and December than we have all year.”

The company is “very focused on full-price selling” and has “confidence we have the liquidity to meet all financial goals.…We are well prepared to operate in the current environment,” Tansky said.

He also elaborated on Neiman’s evolving price strategy. “As I have said before, we have no intention of changing our business model or trading down. We continue to offer luxury and designer merchandise that customers want. Some of our best-selling merchandise is at the upper price ranges, but we are increasing our depth in the mid- and opening price points. It’s not our intention to bring in new brands. It’s our intention to work with our top vendors. It’s hardly a new strategy. We have always offered customers a range of price point options. This strategy takes time. We expect it to be more visible in the spring. So far the response has been positive.”

Neiman’s has beefed up its special events schedule, including trunk shows, designer appearances, private dinners and luncheons, and has intensified bonus loyalty points, gift-with-purchases and gift cards. “If we get customers into the store, the selling associates and assortments will get them to buy.…Even with all the changes over the past year, we have been successful improving customer levels based on our third-party surveys,” Tansky said.

The company may extend its Internet business overseas, as Nordstrom did recently. “We have done some preliminary studies,” Tansky said. “The barriers are capital investment, time, effort and whether there is the kind of international recognition of our brands that we expect. We want to make sure we are on solid ground before we move forward. We have to test both brands, Bergdorf Goodman and Neiman Marcus.”

With more shoppers seeking bargains, Tansky acknowledged the company’s Last Call outlets are outperforming the regular stores, and that the fleet of 28 outlets is likely to grow. “Our plan is to roll out more stores over the next four, five, six years and have them located closer to the consumer that has an interest in that category of business.…Let me assure you, we will do nothing to diminish the value of our brand and reputation in any way,” Tansky said.

Asked if Neiman’s was winning the battle to get people to shop more full price, Tansky replied: “It is clearly a work in progress. We won’t know the final results until we get through the remainder of the year.”