Neiman Marcus Q1 Profit Nearly Flat on Costs, Cautious Spending

In Reports, What's New, Industry News by Jeff Prine

Dallas—Neiman Marcus Inc. reported Wednesday that its first quarter profit was almost flat compared to last year due to inconsistent sales and higher expenses.

For the quarter ended Oct. 27, the luxury retailer said its net profit rose 2.5% to $49.6 million compared with a profit of $48.4 million in same quarter last year.

Total net sales increased 6.5% to $1.07 billion. Comparable store sales increased 5.4%. Its specialty retail stores division, which encompasses the vast majority of sales, saw sales rise 4.9%. Online sales were up 14%. Gross margin widened to 39.6% from 39.4%.

Sales were strongest in its stores in the Southeast and Texas, the company reported. “Business on our seven Florida stores continues to be a highlight as the region continued to enjoy an influx of tourism,” said Karen Katz, chairman, during a conference call with analysts.

“Although our sales were strong for the quarter, they were not as robust or as consistent as we would have liked and the cadence of business throughout the quarter was a little choppy,” Karen Katz, chairman, said. “Business started slowly in August and picked up as the quarter progressed. We attributed those to the broader economy and its effects on our customer.”

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The retailer was hit with some expenses due to its quest to make sure every sales associate has an iPhone in his or her hands. Greater markdowns and a decline in revenue from its Neiman Marcus private label credit card also hurt profits.

To capitalize on its growing online business, where profits were stronger, Neiman Marcus plans to launch an Internet business in China where it invested in an e-commerce company earlier this year. Also, the number of international customer transactions is increasing in a separate partnership with FiftyOne Global Ecommerce begun in October.

Katz said the company is focused on motivating holiday shoppers and the excitement surrounding the joint holiday gifts with Target that launch this week.

Affluent shoppers are being cautious, Katz said, due to the impact of the fiscal cliff negotiations in Washington, which likely may result in higher taxes for the country’s upper income citizens.

Earlier this month, Neiman Marcus said it would refinance its $500 million of 8% senior subordinated notes due 2015 with a new term loan since interest rates are so low.

The company ended the quarter with long-term debt of $2.68 billion, virtually unchanged from a year earlier. The debt load is the legacy of the company’s leveraged buyout in 2005 by its owners, private-equity investors TPG Capital and Warburg Pincus LLC.

The Wall Street Journal recently reported that TPG and Warburg Pincus have been looking to exit their investment after holding onto it longer than expected.

The private-equity firms paid $5.1 billion during the credit boom for Neiman Marcus, a company retail analysts have said currently is unlikely worth much more than $4 billion.



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