Neiman Marcus: Company Analysis

Professor: Lowell DSouza

Ray Cheng
Table of Contents
Business Overview

Direct Marketing

Specialty Retail Stores

Distribution

Competitive Landscape

Growth Strategy

Risks

Recent Developments

Financials

Financial Statements and Statistics

7
9
3

11

Neiman Marcus: Business Overview

Neiman Marcus is a privately held luxury retailer that offers men and women's apparel, designer
jewelry, cosmetics and fragrances, home furnishings and decor, and other luxury items through
its retail and direct marketing channels.
Neiman Marcus' operations are divided into two segments, Specialty Retail Stores and Direct
Marketing.

Specialty Retail Stores

Neiman Marcus Stores
Neiman Marcus stores offer luxury merchandise, including women's couture and designer
apparel, contemporary sportswear, handbags, fashion accessories, shoes, cosmetics, men's
clothing and furnishings, precious and designer jewelry, decorative home accessories, fine
china, crystal and silver, children's apparel, and gift items.

Bergdorf Goodman Stores

Bergdorf Goodman is an upscale retailer that offers couture merchandise such as high-end
apparel, fashion accessories, shoes, traditional and contemporary decorative home
accessories, precious and designer jewelry, cosmetics, and gift items.

Last Call Stores

Through the Last Call outlets, the company sells end-of-season and other clearance items such
as apparel, shoes, jewelry, handbags, luggage, and furniture at discount prices.

CUSP Stores
Neiman Marcus operates 6 stores under the CUSP brand. CUSP stores have a smaller format
(6,000-11,000 sq. ft.) and target a younger customer base. Beginning in 2012, Neiman Marcus
began to rebrand the contemporary departments within Neiman Marcus stores as CUSP.

Horchow Finale Stores

Horchow is a furniture and home decor brand owned by Neiman Marcus. Horchow items are
sold at Horchow stores and in some Neiman Marcus locations.

Neiman Marcus Direct Marketing

The Direct Marketing segment of Neiman Marcus operates e-commerce sites under the Neiman
Marcus, Bergdorf Goodman, Horchow, Last Call and CUSP brands. In addition, Neiman Marcus
offers direct-to-consumer sales through its catalogs for the Neiman Marcus and Horchow brands.
The Direct Marketing operation significantly improves the ability of the company to extend its
reach, as approximately 40% of online and catalog customers were located outside the trade
areas of Neiman Marcus' existing retail locations.
Notable vendors include: Chanel, Gucci, Prada, Giorgio Armani, St. John, Akris, Escada,
Christian Louboutin, Manolo Blahnik, Tory Burch, Balenciaga, La Mer, Sisley, Bobbi Brown, La
Prairie, Estee Lauder, Laura Mercier, Brioni, Tom Ford, Loro Piana, Ferragamo, Stefano Ricci,
David Yurman, John Hardy, and Cartier.
In addition to the company's traditional offerings of luxury apparel and merchandise, the
company also offers "fantasy gifts" through its catalogs, which have included a custom-made
library from Assoluine, Johnny Walker Scotch tasting parties and bespoke Ferrari cars.

Distribution
The majority of the Neiman Marcus merchandise is received from vendors as finished goods.
Merchandise is manufactured in Europe and the United States and, to a lesser extent, China,
Mexico, and South America.
The majority of the company's merchandise is initially received at one of several centralized
distribution facilities. To support the Specialty Retail Stores segment, Neiman Marcus utilizes a
primary distribution facility in Longview, Texas, a regional distribution facility in Dayton, New
Jersey and four regional service centers. Neiman Marcus also operates two distribution facilities
in the Dallas-Fort Worth area to support the Direct Marketing operation.

Competitive Landscape
The specialty retail industry is highly competitive and fragmented. Neiman Marcus competes
with other specialty retailers including Saks Fifth Avenue, Barney's New York, as well as high-end
department stores including Nordstrom and Bloomingdales. Additionally, the company
competes with national apparel chains, vendor-owned proprietary boutiques and direct
marketing firms.

Neiman Marcus competes primarily on product quality and fashion and in an increasingly
fragmented luxury apparel market, product pricing and shipping costs.

Growth Strategy
Domestic Expansion
The opportunity for domestic expansion is limited because Neiman Marcus already operates
stores in the most affluent communities in the U.S. that are able to support the luxury retailer.
However, the company opened three Last Call stores in strip centers and power centers in 2012.
In addition, the company plans to open a 100,000 square foot store in Garden City, NY. The Long
Island location will be the company's first and it is expected to open in 2015.

International Expansion
In March 2012, Neiman Marcus purchased a non-controlling stake in Glamour Sales Holdings, an
Asia-based e-commerce company which operates flash sales websites in Asia including the
leading flash sales e-commerce site in Japan. Through this strategic stake, Neiman Marcus
intends to launch a full-price luxury e-commerce website in China. While the flash sales site and
luxury e-commerce site will remain separate, Neiman Marcus hopes to capitalize on Glamour
Holdings' existing base of more than 1 million active customers.
Both China and Japan represent an attractive market for Neiman Marcus given their large
population, growing middle class, luxury appetite and affinity for foreign brands. By developing
its brand internationally, Neiman Marcus also hopes to make Chinese and Japanese consumers
more aware of Neiman Marcus when they travel overseas.
At the end of 2012, Neiman Marcus announced that it would grow its online reach
internationally to 100 countries through a partnership with FiftyOne Global Ecommerce, a
technology company that helps retailers transact online with customers outside the United
States.

New Product Offerings

In late 2011, Neiman Marcus launched NM on the Go, in-store boutiques that offer active wear
including active tops, bottoms and jackets, fleece wear, swimsuits, and sports bras. In addition to
apparel under the Neiman Marcus label, the company offers fashionable workout clothing from
Payne, Aryn Glasser, Splits 59 and Zobha, among other vendors.

Neiman Marcus has also expanded its product range in its contemporary department, which
the company has rebranded as CUSP, the sub-brand used for its smaller-format stores.

Innovative Marketing
In 2012, Neiman Marcus launched its NM Service location-aware application that alerts sales
associates when customers enter the store, giving the associates instant access to their
customers' shopping history. As consumers are increasingly willing to share personal information
including purchase history, biometric fit and style choices, sales associates are better able to
tailor the product range they present to shoppers.

New Payment Methods

Following turbulent years of recession and a disappointing recovery, Neiman Marcus CEO Karen
Katz announced in October 2011 that Neiman Marcus would be accepting Master Card and
Visa. Formerly accepting only cash, American Express, and the Neiman Marcus credit card, the
luxury retailer stated that many customers had persistently requested for a wider credit card
acceptance. In July 2012, the company also began accepting Discover cards.
The acceptance of new credit cards has paralleled similar efforts the company has recently
taken to appeal to a less affluent customer base, especially to younger shoppers.

Target + Neiman Marcus Partnership

For the 2012 Christmas season, Neiman Marcus partnered with Target, a discount retailer, to
launch the Target + Neiman Marcus Holiday Collection. Neiman Marcus and Target worked with
24 designers from the Council of Fashion Designers of America to offer a collection of men's,
women's, and children's apparel and accessories at all Neiman Marcus and Target stores. The
collection also included sporting goods, home decor, pet accessories, and electronics
accessories. Participating designers included Carolina Herrera, Derek Lam, Diane von
Furstenberg, Jason Wu, Marc Jacobs, Oscar de la Renta, and Tory Burch.

Risks
Economic Downturn
As a retailer of luxury and discretionary goods, Neiman Marcus' growth is highly dependent on
the level of consumer spending, especially among its affluent customer base. The economic
downturn beginning in 2008 significantly impacted Neiman Marcus, experiencing a decline in
revenues of more than 20% over 2009. While revenues and profits recovered a little since then,

Neiman Marcus still remains vulnerable to a continuation or worsening of global economic

conditions.

Debt Obligations
As a result of the 2005 leveraged buyout, Neiman Marcus' capital structure is highly leveraged.
By the end of the company's fiscal 2012, Neiman Marcus maintained debt obligations in excess
of $2.8 billion. While Neiman Marcus has begun to recover from a significant decline in revenues
arising from the 2008 economic downturn, the company must maintain this sales growth to
continuously service its debt and avoid restrictive covenants and borrowing conditions.

Recent Developments
Dividend Payment
On March 30, 2012, Neiman Marcus issued a $442.6 million dividend to a small group of
shareholders including TPG Capital, Warburg Pincus, and fewer than 50 current and former
executives. Neiman Marcus financed the dividend with $150 million in borrowings from its assetbased revolving credit facility, while the rest was paid with cash on hand. The payment of a
dividend signals that the company's equity partners are eager to profit from their investment.

Potential IPO
Neiman Marcus' multi-faceted and aggressive growth strategy and recent financial growth
have led to rumors that the company is exploring a potential IPO. Neiman Marcus' private equity
owners, Warburg Pincus and TPG Capital, are looking for an exit strategy after acquiring Neiman
for $5.1 billion in 2005. Neiman was estimated to be worth around $4 billion at the end of 2012.
An acquisition is unlikely since competing retailers passed over the opportunity in 2005. Private
equity firms have not expressed interest either. Starting in August 2012, Neiman's owners have
been looking at an IPO to cash out.
Following poor performance during the economic downturn, Neiman's financial performance
has improved. Revenue grew in 2012 in large part due to improving economic conditions as well
as growth in e-commerce revenue streams. Neiman Marcus has also moved towards younger
and less wealthy markets to expand revenue. Additionally, Neiman has succeeded in paying
down some of its debt from its 2005 leveraged buyout.

Michigan Ave. Renovation Efforts

On October 12, 2012, Neiman Marcus announced that its flagship Michigan Avenue location
would be undergoing a two-year multimillion-dollar renovation that will dramatically change the

29-year-old store's layout and bring in new designers. This renovation was originally scheduled for
2008, but stalled due to worsening economic conditions. The renovation will be ongoing until
June 2014, with various sections of each of the four floors undergoing construction while the
store remains open. The main function of the renovation is for the company to add twelve new
designer shops to the third floor, to consolidate the men's product section, and to make more
efficient use of its existing retail space.

2012 Holiday Partnership with Target Stores

For the 2012 holiday season, Neiman Marcus partnered with mass-market department store
chain Target to offer a special apparel and accessories collection from two dozen leading
fashion designers, offered exclusively at both chains. The two companies invested in a large
marketing campaign with an aura of exclusivity, and limited each shopper to just five items
each. However, the sales results proved disappointing.
Immediately following the Christmas holiday, Target began cutting prices by 50 percent on
many of the products from designers like Marc Jacobs, Proenza Schouler, and Diane von
Furstenberg, and the cap on items per shopper was quietly lifted. The partnership is unlikely to be
repeated.

FTC Settlement Over Faux Fur

In early 2013, Neiman Marcus agreed to settle with the FTC over claims that the company was
falsely advertising certain products as including faux fur when in fact real animal fur was
included. The agreement did not require any fees, but any subsequent violations could carry
fees from $10,000 to $20,000.

Chinese Scale Back

In late May of 2013, Neiman Marcus scaled back its physical presence in China by closing their
warehouse, after quietly launching there late in 2012. This was a change of strategy, particularly
after their March 2012 investment in Chinese website, Glamour Sales. The Neiman Marcus
Chinese website itself however, was kept online, although all orders were shipped out of the U.S.

Financials
2014

2013

2012

2011

2010

1.65

1.66

1.58

1.97

2.05

0.4

0.34

0.28

0.7

0.86

0.15

2.64

2.3

1.18

0.98

$553,091

$509,271

$418,506

$640,541

$697,579

3.2

3.23

4.52

2.7

3.11

0.52

0.51

0.53

0.5

0.52

4.52

4.56

4.62

4.77

4.67

$293,293

$296,067

$275,024

$257,431

$256,442

3.37%

6.59%

4.99%

5.08%

4.84%

Gross Profit Margin

32.87%

35.56%

35.69%

35.30%

34.53%

Profit Margin

-3.04%

3.52%

3.22%

0.79%

-0.05%

Return on Assets

-1.68%

3.09%

2.69%

0.59%

-0.03%

Return on Equity

-10.27%

19.70%

22.76%

3.18%

-0.20%

Liquidity Analysis:
Current Ratio
Quick Ratio
Interest Coverage Ratio
Working Capital (thousand)

Financing Analysis:
Debt to Equity Ratio
Debt Ratio

Activity Analysis:
Inventory Turnover Ratio
Productivity (Revenue/Employees)

Performance Analysis:
Cash Return on Assets

Liquidity Analysis
Based on the current ratios, Neiman Marcus has the ability to pay off its short-term liabilities with
its short-term assets. We can assume that Neiman Marcus has an efficient operating cycle. The
current ratio was above industry average from 2010 to 2011 and declined until 2012. The current
ratio drops substantially in 2012. This could be due to some obstacles that the company had to
overcome during that year. We see a similar trend with the quick ratio. The quick ratio is above
industry average until 2012 with a substantial drop in 2012. The interest coverage ratio increased
consistently until the most recent year. This could be due to increased debt financing for
domestic expansion. By looking at working capital, we can see that Neiman Marcus has

improved its operational efficiency over the past few years. In 2010, Neiman Marcus may not
have been investing its excess cash. In 2012 the company ran into some obstacles and from
2012 to 2014, the operational efficiency has increased.

Financing Analysis
From the debt to equity ratio, we can see that Neiman Marcus has been very aggressive in
financing its growth with debt. Because of this, earnings over the last five years have been
relatively volatile; however, in 3 out of the five years, Neiman Marcus has seen increasing profits.
In these years, more earnings are spread among the same amount of shareholders. From the
debt ratio, we see that Neiman Marcus has less debt than assets.

Activity Analysis
Neiman Marcus has a healthy inventory turnover ratio; however, it is below the industry average
and it has been decreasing slightly since 2011. The companys productivity is more than double
the industry average and has been increasing since 2010.

Performance Analysis
From the gross profit margin, we see that Neiman Marcus marks up its products around 50%. We
also see that the company has an adequate ability to pay its operating and other expenses and
build for the future. The gross profit margin has also been relatively stable which shows that
Neiman Marcus has not implemented any drastic changes to pricing policies or anything that
affects cost of goods sold. From the profit margin, we see that Neiman Marcus controlled its
costs of goods sold effectively from 2011 to 2013. We also see that Neiman Marcus incurred
significantly more debt financing in the years 2010 and 2014. In regards to the return on assets,
Neiman Marcus could be doing a better job. Management should implement strategies to earn
more money on less investment. In regards to return on equity, the returns are volatile with years
2012 and 2013 having significant returns and negative returns in 2010 and 2014. This volatility can
be a result of the high debt to equity ratios.

10

Neiman Marcus: Financial Statements and Statistics

Income Statement
Revenues ["Sales / Turnover"]
Cost of Goods Sold (Cost of
Sales)
Gross Profit
Selling, General & Administrative
Expenses
Income from Credit Card
Program

2014

2013

2012

2011

2010

4,839,331,000

4,648,249,000

4,345,374,000

4,002,272,000

3,692,768,000

3,248,681,000

2,995,363,000

2,794,713,000

2,589,294,000

2,417,613,000

1,547,341,000

1,412,853,000

1,273,223,000
885,406,000

1,106,997,000

1,057,796,000

1,013,582,000

934,177,000

-55,325,000

-53,373,000

-51,571,000

-46,022,000

Depreciation & Amortization

Equity in Loss of Foreign Ecommerce Retailer

307,919,000

188,951,000

180,242,000

194,981,000

215,098,000

13,125,000

1,514,000

Other Operating Expenses

190,092,000

11,514,000

23,125,000

1,549,683,000

1,206,499,000

1,143,767,000

1,083,136,000

1,041,428,000

40,967,000

446,387,000

403,574,000

329,717,000

231,795,000

348,886,000

635,300,000

583,800,000

524,700,000

446,900,000

175,237,000

280,453,000

237,108,000

Total Operating Expenses

Operating Income (Loss)
EBITDA
Non-Operating Income Expense
Net Interest Income
Income Before Income Taxes
(Loss)

-270,054,000

-168,955,000

-175,237,000

-280,453,000

-237,108,000

-229,087,000

277,432,000

228,337,000

49,264,000

-5,313,000

Provision for Income Taxes

Income from Continuing
Operations (Loss)

-81,906,000

113,733,000

88,251,000

17,641,000

-3,475,000

62,640,000

31,623,000

-1,838,000

Net Income (Loss) [Profits]

-147,181,000

163,699,000

140,086,000

31,623,000

-1,838,000

2014

2013

2012

2011

2010

1,409,774,000

1,285,977,000

1,143,735,000

1,302,741,000

1,360,122,000

196,476,000

136,676,000

49,253,000

321,591,000

421,007,000

1,069,632,000

1,018,839,000

939,817,000

839,334,000

790,516,000

39,049,000

27,645,000

22,484,000

20,445,000

30,755,000

104,617,000

102,817,000

154,665,000

141,816,000

117,844,000

Non-Current Assets

7,351,952,000

4,014,264,000

4,058,120,000

4,062,028,000

4,172,160,000

Property, Plant and Equipment

1,390,266,000

901,844,000

894,478,000

873,199,000

905,826,000

Intangible Assets

5,801,611,000

3,045,581,000

3,093,017,000

2,767,332,000

2,812,002,000

Neiman Marcus Balance Sheet

Current Assets
Cash and Cash Equivalents
Inventory
Deferred Income Taxes - Current
Other Current Assets

Other Non-Current Assets

160,075,000

66,839,000

70,625,000

421,497,000

454,332,000

8,761,726,000

5,300,241,000

5,201,855,000

5,364,769,000

5,532,282,000

Current Liabilities

856,683,000

776,706,000

725,229,000

662,200,000

662,543,000

Accounts Payable
Current Portion of Long Term
Debt

375,085,000

386,538,000

331,408,000

662,200,000

632,234,000

Other Current Liabilities

452,172,000

390,168,000

393,821,000

Non-Current Liabilities

6,472,449,000

3,692,497,000

3,861,083,000

3,708,272,000

3,944,366,000

Long Term Debt

4,580,521,000

2,697,077,000

2,781,882,000

2,681,687,000

2,879,700,000

2,681,687,000

2,879,672,000

Total Assets

Capital Lease Obligations

29,426,000
30,309,000

11

Deferred Non-Current Liability

Charges (See Note: 1)
Deferred Long Term Liability
Charges (See Note: 2)

1,540,076,000

639,381,000

626,605,000

4,460,000

104,366,000

107,787,000

99,991,000

96,093,000

347,392,000

251,673,000

344,809,000

242,686,000

299,954,000

Total Liabilities

7,329,132,000

4,469,203,000

4,586,312,000

4,370,472,000

4,606,909,000

Stockholders Equity

1,432,594,000

831,038,000

615,543,000

994,297,000

925,373,000

2014

2013

2011

2010

295,696,000

349,359,000

2012
259,810,000
(See Note: 3)

272,384,000

268,038,000

50,318,000

-54,202,000

Other Non-Current Liabilities

Minority Interest
Neiman Marcus Cash Flow
Statement
Cash Flow From Operating
Activities
Increase in Working Capital
(Decrease)
Depreciation and Amortization
Deferred Income Taxes
Cash Flow From Investing
Activities
Payments for Property and
Equipment

327,502,000

197,355,000

188,699,000

209,642,000

233,795,000

-124,200,000

-19,439,000

-10,094,000

3,967,000

-39,643,000

-3,527,551,000

-156,505,000

-182,259,000

-94,181,000

-58,693,000

173,966,000

146,505,000

152,838,000

94,181,000

58,693,000

3,291,655,000

-105,431,000

-349,889,000

-277,619,000

-111,763,000

Purchase of Investments
Purchases and Payments for
Investments
Disposal of Investments
Cash Flow From Financing
Activities
Increase in Debt (Decrease)

-243,672,000

Income Taxes Paid

111,085,000

78,854,000

22,458,000

15,930,000

Cash Interest Expense

Total Cash Flow (Net Change in
Cash)
Cash & Cash Equivalents End of
Year
Cash & Cash Equivalents
Beginning of Year
Neiman Marcus Employee
Figures

153,131,000

164,700,000

195,543,000

200,676,000

59,800,000

87,423,000

-272,338,000

-99,416,000

97,582,000

312,600,000

136,676,000

49,253,000

321,591,000

421,007,000

252,800,000

49,253,000

321,591,000

421,007,000

323,425,000

2014

2013

2012

2011

2010

16,500

15,700

15,800

15,547

14,400

12,500

11,800

11,600

1,100

1,100

1,000

1,700

1,500

1,300

500

500

500

Total Employees
Neiman Marcus, Last Call &
Cusp Store Employees
Bergdorf Goodman Store
Employees
Direct Marketing Employees
Neiman Marcus Group
Employees
Productivity
(Revenue/Employee)
Neiman Marcus Location
Statistics

293,293

296,067

275,024

257,431

256,442

2013

2012

2011

2010

2009

99

81

79

77

77

2014

2013

2012

2011

2010

1,148,503,000

1,031,311,000

878,740,000

757,100,000

573,924,000

2014

2013

2012

2011

2010

Specialty Retail Stores

76.30%

77.80%

79.78%

81.08%

81.53%

Direct Marketing
Neiman Marcus Revenues by
Merchandise Category (as % of

23.70%

22.20%

20.22%

18.92%

18.47%

2014

2013

2012

2011

2010

Total Locations
Neiman Marcus Revenues
Breakdown
Online Revenues
Neiman Marcus Revenues by
Segment (as % of Total
Revenues)

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Total Revenues)
Women's Apparel
Women's Shoes, Handbags, and
Accessories

30%

31%

34%

35%

36%

28%

27%

25%

24%

22%

Men's Apparel and Shoes

12%

12%

12%

12%

11%

Cosmetics & Fragrances

11%

11%

11%

10%

11%

Designer & Precious Jewelry

11%

12%

11%

11%

11%

Home Furnishings & Decor

6%

5%

6%

6%

7%

Other

2%

2%

1%

2%

2%

2013

2012

2011

2010

2014
U.S. Retail Revenues

4,648,000,000

Retail Revenues

4,648,000,000

Notes
(*) The Neiman Marcus Group, Inc. fiscal year end: 07/31
(Note 1) Deferred income taxes
(Note 2) Deferred real estate credits
(Note 3) Through Q3 April 28, 2012

13

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