NEIMAN MARCUS GROUP NET FALLS 3.2% IN SECOND QUARTER

Byline: Jennifer Weitzman

NEW YORK — A strong buying trend in January could neither carry into February nor overcome the effects of a slow holiday season, Neiman Marcus Group said Wednesday in reporting a 3.2 percent decline in second-quarter earnings.
But given the current economic uncertainty and lagging consumer confidence, the luxury retailer’s outlook for the rest of the year was guarded. The company said the third quarter is off to a slow start, with February comps trending downward.
Burt Tansky, president and chief operating officer, explained on a conference call, over the last few weeks, NMG has seen a drop in traffic and has experienced a slowdown in both regular-price and clearance sales.
“We were encouraged to find apparel in January had very strong increases, but it has tailed off in February,” he said, reiterating his confidence in the company’s strategy to increase business in fine apparel.
As reported, Tansky Tuesday was named chief executive officer of NMG, effective May 15. He will succeed co-ceo’s Robert A. Smith and Brian J. Knez, who will become vice chairmen of the board. Tansky will continue as NMG’s president and chief operating officer as the interim chairman and ceo at Neiman Marcus Stores.
Smith said that, given the current environment, NMG is now planning for a 3 to 5 percent comparable revenue growth rate for the balance of the year, as opposed to a mid-single digit gain. Gains in earnings per share for the year should fall into the high teens, however, he said.
“Looking ahead to the second half, we continue to be affected by external factors that affect our customers,” Tansky said on a conference call. While stability in the White House, lower interest rates and tax relief could help, he said the current retail environment remains challenging, as do February 2000 same-store gains of 11.2, 11.6 and 19.5 percent at the company overall, Neiman Marcus division and Bergdorf Goodman, respectively.
The Chestnut Hill, Mass.-based upscale retailer reported a 3.2 percent drop in profit, to $39.9 million for the three months ended Jan. 27. That compares with earnings of $41.3 million in the year-ago period. Due to fewer shares outstanding, earnings per diluted share were flat, at 84 cents for both periods, matching Wall Street’s estimates.
Sales improved 2.6 percent, to $900.8 million from a restated $878.1 million. Comparable-store sales rose 1.5 percent
Brian J. Knez, co-chief executive, told analysts on a conference call, “after a tremendous run in fiscal 2000 and a strong first quarter, this was obviously a disappointing holiday season for us.”
The company warned when it released its first-quarter results on Nov. 21 that it expected the quarter to be affected by the “surprisingly slow start to November,” which coincided with the contested presidential election, a slumping U.S. economy and declines in consumer confidence and sales.
Although the trends do not look good this month, ING Baring’s Christine Kilton Augustine said she is waiting to see March results, which include the bulk of the Butterfly Game full-price sales event, to determine if the company can still draw customers.
If the trends don’t pick up, she would conclude it is more of an economic symptom that is affecting customers, she said. She pointed out that January’s strong results came as the stock market was rebounding, but fell when those gains were wiped out in February. “Even the most high-end customer may take a pause,” she said.
In addition, she said there is no major spring fashion trend in the stores to improve traffic. She said the “ladylike trend” that was so successful in the fall had no spring follow-up.
“If the business continues to operate below, we will be under some pressure,” Tansky said. “But we hope to stem some of that with strong working partnerships with most of our key vendors, and that interaction is intensifying. We are certain we will find solutions.”
The firm’s specialty retail store revenues — including Neiman Marcus and Bergdorf Goodman — rose 0.6 percent in the quarter. Neiman’s comps were down 0.6 percent and Bergdorf’s up 1.9 percent. Fine apparel, furs, men’s shoes and sportswear had double-digit gains. Neiman Marcus Direct’s revenues were up 9.1 percent.
Tansky said the weak November sales and a disappointing holiday season led to a 14 percent increase in inventory, to $614 million. In addition, he said a planned earlier shift in merchandise receipts, including for its new Palm Beach location, increased inventory.
The firm said 60 percent of its inventory is current, with apparel running higher because of its strategic decision to move the spring and cruise lines into the January selling period and take advantage of the earlier buying trend.
To help NMG combat any economic uncertainty and accommodate a more fickle consumer, Tansky said the company is relying on initiatives designed to lift the bottom and top lines. Those include better management and maintenance of merchandise; service that sets it apart from other department stores; continuing to grow its fine apparel; increasing its men’s sportswear; narrowly focusing its beauty brands; building its gift and accessory business; improving customer outreach programs and reducing expenses.
“We are working with our vendors to reduce the level of receipts to be in line with current trends of business,” he said. “We continue to be more selective with our vendor mix and continue to pull back on the marginal ones who are less profitable.”
Tansky said that, although the company has seen some of these initiatives pay off in the second quarter, he expects greater benefits in the second half.
Top-performing categories include women’s designer apparel, gifts, precious jewelry, cosmetics and fragrances, intimate apparel, men’s shoes and sportswear and designer jewelry. Weaknesses were seen in its bridge lines, eveningwear, women’s shoes and men’s clothing.
Tansky said Kate Spade and Laura Mercier, in which NMG owns a majority stake, continue to perform well. Asked if the company was looking to make similar investments, Tansky said there are several opportunities the company is examining now, but had nothing new to announce.
According to Smith, NMG’s long-term expectations are for annualized earnings per share growth in the mid-teens, driven by 3 to 4 percent square-foot growth and a mid-single digit comp growth rate.
Tansky noted that the company has hired a search firm to fill H.W. “Hugh” Mullins’s job as chairman and chief executive of Neiman Marcus Stores. “There is no pressure to do something prematurely, since there is an outstanding team in place and it is operating well,” he said.
For the six months profits improved 14.3 percent to $89.9 million, or $1.85 a diluted share, from $78.7 million, or $1.60. Sales improved 6.1 percent to $1.64 billion from $1.55 billion.

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