Neiman’s IPO to drive greater growth of discount format

Sak’s and Nordstrom have aggressively expanded their off price formats in recent years and now Neiman Marcus wants a bigger piece of the action.

The upscale department store retailer plans a public stock offering and in its registration statement filed with the Securities and Exchange Commission indicated a desire to more rapidly expand small format concepts branded as Last Call and CUSP. There are currently 35 Last Call stores locations and six standalone CUSP locations, compared to the company’s 41 full line Neiman Marcus department stores and two Bergdorf Goodman stores. Rivals Nordstrom and Sak’s both operates a larger number of off price locations than full line stores. Nordstrom operates 117 full line stores and 127 Rack locations while Saks operates 43 full line locations and 66 Off Fifth locations.

"We believe Last Call represents a meaningful growth opportunity relative to the number of the off-price retail locations of other luxury and premium multi-branded U.S. retailers," the company indicated in its registration statement. "Over the next five years, we believe there is an opportunity to approximately double our Last Call store count. Combined with, we believe there is an opportunity to enhance our existing, nationwide, omni-channel experience for the aspirational, price-sensitive yet fashion-minded customer."

As for CUSP, the company said there is an opportunity to further leverage the brand that would result in expansion that was said to be significant, but was unspecified in the filing.

"We believe this expansion will enable us to enhance our omni-channel experience for the younger customer focused on contemporary fashion while also taking advantage of the attractive market trends in the U.S. women's contemporary apparel market, which we estimate to be approximately $10 billion in size," according to the filing.

In addition to growing Last Call and CUSP stores, the company’s growth strategy includes building out its multichannel capabilities and improving online sales, especially internationally.

"Our international online business represents a significant opportunity, which we intend to exploit by implementing focused marketing programs to build global brand awareness and by focusing on key geographies with strong affluent customer demographics," according to the company.

The company also contends it can improve sales and profits by increasing the penetration rate of proprietary merchandise in existing and new categories. Proprietary product sales currently account for only 2% of the company’s total.

The company’s planned public offering comes amid a solid operating performance and three consecutive years of same store sales growth. During the twelve month period ended April 27, 2013, Neiman Marcus generated revenues of $4.5 billion, which was an increase of 6.5% from the twelve month period ended April 28, 2012, operating earnings of $428 million, or 9.4% of revenues, and adjusted operating profit of $623 million, or 13.7% of revenues.

The company won’t realize any of the proceeds from the offering as the selling shareholders are the private equity funds who acquired the company in October 2005. Neiman Marcus is owned by TPG Capital, L.P. and Warburg Pincus LLC.


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