“We’ve had a terrific run but now we are in our most difficult period since 9/11.”
So Burt Tansky, president and chief executive officer of Neiman Marcus Inc., told WWD on Wednesday, just after the luxury chain disclosed disappointing results for the fiscal fourth quarter ended Aug. 2.
The net loss for the period more than doubled to $35.6 million, from $15.9 million in the year-ago quarter. Comparable-store sales dipped 1.4 percent, while total sales rose to $1.03 billion from $981.7 million.
On an operating basis, the retailer also had a loss, of $6.2 million, compared with profits of $32.2 million in the year-ago period.
For the year, net earnings rose to $142.8 million from $111.9 million, operating earnings dropped slightly to $466.4 million from $476.8 million, and comparable sales gained 1.7 percent. This was primarily due to increases at the Internet business; at stores in the New York area, particularly Bergdorf Goodman, and at the Last Call clearance centers. Total revenues increased to $4.6 billion from $4.4 billion.
Precious jewelry, cosmetics, fragrance, men’s and women’s shoes and designer handbags were the strongest categories last quarter.
Neiman’s has been pulled down by reduced full-price selling and increased markdowns and is under gross margin pressures amid the nation’s financial woes and decline in shopping. The retailer has experienced a deepening slowdown in consumer demand since last fall. As a result, the company is keeping a tight rein on expenses, remains highly liquid and is working hard to manage inventories, which have exceeded sales trends all year.
In the face of the challenges, the company maintains an eye on the long term by sticking to its program of capital expenditures, including store openings — six are set through the next three to four years. There are also two major renovations set for next year, and Neiman’s is planning to open four to six Cusp stores, which specialize in contemporary styles, over the next 12 to 15 months, on top of the five currently operating. Technology initiatives are in place, too, to strengthen systems and better manage the growing direct business. Neiman’s has a $500 million Internet business and a $200 million catalogue business.
“The important thing here is that we are taking every measure to keep going and keep profitability up,” Tansky said. “We are still expanding, growing and remodeling stores. These cycles come and go and we’ve been through them before, we came out of them and we’ll come out well again this time. This company is going to be around for a long, long time.”
Still, Tansky did express concerns about business in the New York City area, where Bergdorf Goodman and Neiman Marcus stores have been so far successfully weathering the economy. The local business, particularly Bergdorf’s, has been greatly buoyed by tourism, though the majority of customers are residents of the area.
Asked if these stores had seen a decline since last week’s Wall Street debacle, Tansky replied there’s been no dip. “These things take a little time to work through the psyche,” he said. “People are trying to sort out what it means to them personally. I think it’s going to have a reach. I think it will be a negative.”
Earlier, in a conference call, Tansky said, “We are anticipating the months ahead will be difficult. Our customers are heavily invested in the financial markets….I am concerned that fiscal year ’09 will again test our downside skills.”
Neiman’s was affected by Hurricane Ike in Houston, where stores were closed for five-and-a-half days. That should affect the current quarter’s results. “Hurricane Ike cost us a considerable amount of business,” Tansky said.
Through the year generally, California and Florida have been the most difficult markets for Neiman’s.
Tansky spoke about what has been a most noticeable switch over the last few seasons — a proliferation of promotions. “Looking back on the last nine months, most retailers, including ourselves, increased promotional activity,” Tansky said. “It is not something we take lightly. Our customers are interested in unique and special merchandise. She is not looking for a discounted experience.”
Tansky continued to speak at length about the retailer’s customers. “As expected, the aspirational shopper has been impacted most by the downturn. Aspirational shoppers include the customers that typically purchase at our opening price point level and the occasional shopper who has an interest in the specific area, such as shoes, handbags or jewelry. She is buying less during this time, but we are certain that she continues to have a strong desire for the quality of merchandise and level of customer service we offer. We believe this customer will return to a more normal pattern of shopping as the economy rebounds.
“As for our most loyal customer, we remain confident that she has not traded down. During difficult economic times, this pure luxury customer becomes more focused with her purchasing, which is what we believe we are experiencing this cycle. Market downturns create an uncertainty with this customer also and her desire to shop at the same frequency does diminish. However, this affluent customer is very resilient and will not waver in her desire for the highest level of merchandise quality and customer service.”
As for Christmas, Tansky said holiday is not being viewed as an opportunity for even deeper discounting, rather he’s hoping for greater full-price selling and significant self-purchasing along with gift shopping. He said cruise/resort merchandise, which goes on display at the beginning of November, is a “big motivator for those who do a lot of traveling in the later part of the year.” But he added, “If things don’t pan out the way we hope, obviously we will do things to move inventory.”
In addition, Neiman’s, like other retailers, has been canceling certain orders and returning certain goods to vendors to try to get inventories more in line with sales trends. The efforts did not completely counteract the effect of the economic downturn, but did mitigate the impact. With Neiman’s buyers in Milan and Paris this month, “We are in the process of completing our spring purchases. We are being conservative.
“Importantly, with the slowdown on the retail environment and the impact of opening new stores, which can be less productive in the first few years of operation, we did not lose ground from a productivity standpoint, especially in retail,” Tansky added. “Sales per square foot were relatively flat at $634 for the year, compared to $638 last year. We continue to hold an industry leading position in terms of productivity. If we exclude the three stores we have opened over the past two years, sales per square foot would have been $649.”