Eight years ago, when the world was bright and cheerful, Neiman Marcus was purchased for a cool $5.1 billion by TPG Capital. At the time, the deal was seen as an anomaly due to Neiman's strength. The business was clipping along nicely, as Saks (NYSE: SKS) seemed to be when it was sold off last month. Now, Neiman is planning its triumphant return to the market, and has hired just about every bank in the world to help it make the relaunch successful.
The reentry will give investors both a new way to get into the shrinking department store sector and a new path into luxury goods. For Neiman, now seems like the perfect time to reenter the public world, with interest in luxury retailers back on the rise, and competitors like Nordstrom (NYSE: JWN) doing well.
Where Neiman Marcus falls
Examining the current spectrum of publicly traded department stores, the businesses run from J.C. Penney (NYSE: JCP) on the low end up to Nordstrom at the top. Neiman is firmly entrenched in the upper echelons of the list. Last quarter, it reported revenue of $1.1 billion, up from $1.06 billion the year before. Additionally, the company managed a 13.7% operating margin, which compares well against its competition. Nordstrom turned in a 10.4% operating margin last quarter, though it had more than twice the total revenue. J.C. Penney decided not to do operating income last quarter, losing $486 million instead.
Neiman also increased comparable sales by 3.6% over the same period in the previous year, while Nordstrom only managed a 2.7% increase. That combination of sales and margin puts Neiman in a class almost by itself. The only company that could possibly challenge it at the top would be Saks.
Saks increased year-over-year comparable-store sales by 5.9% in its last quarter, but only managed a 7% operating income margin. Saks operates a number of weaker locations, and the biggest win that the company eked out of its recent acquisition may be that it can convert some of those lower-performing stores into Lord & Taylor businesses.
The value in Neiman Marcus
With a clear shot at being the sector leader, Neiman has a lot to offer investors. The company has 41 locations under the Neiman Marcus name and operates two Bergdorf Goodman locations in New York City. The business clearly has the potential for more locations, and its product mix offers investors all sorts of growth options as well.
Last year, Neiman only earned 12% of its revenue from men's clothing and accessories. The vast majority of the business was dedicated to women. Between cosmetics, accessories, and apparel sales, a full 70% of Neiman's revenue came from women.
Other luxury businesses have been happy to turn to men recently in order to expand their businesses. Coach (NYSE: COH), for all its shortfalls, has done well with its men's product lines. Over its last fiscal year, Coach grew its men's business by almost 50% to $600 million in revenue. That may have distracted management from its core business, but a better plan could have prevented the fall that Coach experienced.
Neiman may have that plan in place. CEO Karen Katz has moved quickly up Neiman's internal ladder, going from a store manager in 1994 to CEO in 2010. Her insight into what happens on the front lines of the business and the small scale of Neiman's operation may give the business a leg up in the management of its future growth.
Of course, the real test for investors will be the company's valuation when it comes to market. Nordstrom is currently valued at 16 times its earnings over the last 12 months, while Saks sold for more than 45 times its trailing earnings. If Neiman hits the market closer to the Nordstrom mark, investors could be in for a treat.
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