Neiman Marcus Profits Cut in Half

NEW YORK – Upscale department store operator Neiman Marcus Group Inc. on Thursday posted a 54 percent drop in fiscal first-quarter net income as the weak U.S. economy prompted the retailer to resort to more markdowns and sales promotions to coax consumers into buying.

The owner of the Neiman Marcus and Bergdorf Goodman luxury department store chains said the current trend of discounts and markdowns, which includes both planned and unplanned promotional sales events, is likely to spill into its next fiscal quarter ending in January, further hurting margins.

For the current quarter, Neiman Marcus expects to post a mid-single digit percentage decline in sales at stores open at least a year, a key measure of retail performance.

"Clearly, the first quarter presented us with unusual challenges," President and Chief Executive Burton Tansky said in a written statement, adding that Neiman Marcus continues to reduce expenses and work with its vendors to improve inventory management.

Tansky said the company will intensify its marketing strategies for holiday and other promotions. As a result, he expects the second quarter, which ends in January, to be more promotional than the year-earlier period.

Along with heavy holiday promotions, Neiman Marcus is one of several U.S. luxury retailers that have struggled against a dismal U.S. economy that has worsened since the Sept. 11 attacks on the United States.

While Tansky argued that luxury retail has not completely been wiped out, it has become increasingly clear that budget- strapped consumers, faced with a U.S. recession and further corporate job cuts, are choosing to shop for value-priced products rather than for luxury goods.

Class A shares of Neiman Marcus closed down 59 cents, or about 1.92 percent, to $30.21 on the New York Stock Exchange Thursday. Over the past year, the stock has risen less than 1 percent, while the Standard & Poor's retail index has gained almost 7 percent.

The company said net income for the first quarter ended Oct. 27 dropped to $23 million, or 48 cents a diluted share, from $50 million, or $1.05 a share, a year earlier.

Six Wall Street analysts polled by research firm Thomson Financial/First Call had expected earnings of 45 cents to 50 cents a share, with a mean estimate of 47 cents.

"The business pivoted sharply with the unprecedented events of September 11th," Tansky said. "Our entire team worked aggressively to minimize the impact of the ensuing downturn in sales by staying focused on our strengths -- service, marketing and identifying key merchandise items and trends."

Sales fell 10 percent to $681.1 million from $757.2 million, while same-store sales declined 10.9 percent.

Revenues for the specialty retail store segment, which includes Neiman Marcus and Bergdorf Goodman stores, fell 11.3 percent to $561 million, including a 16.3 percent same-store sales drop at Bergdorf Goodman stores and a 10.6 percent decline at Neiman Marcus stores.

Sales at Neiman Marcus' direct-to-consumer segment, which includes catalog and electronic commerce, fell 6 percent to $97 million from $103 million a year earlier.

The company said merchandise categories that performed well during the quarter were designer jewelry, contemporary sportswear, bed and bath, and home furnishings.

Neiman Marcus also reported a 2.1 percent decline in November same-store sales, including an 0.8 percent dip for its retail store segment. Total revenues for November slipped to $255 million from $256 million.

Neiman said sales for the month benefited from an after-Thanksgiving sale, which was an added promotional event.

The strongest performers in November were Neiman's Northeast regional stores, with the exception of New York City's Bergdorf Goodman store. Women's designer and contemporary sportswear and men's sportswear were the top sellers.