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 Inc (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, Inc. (NYSE:JWN) doing well.
Where Neiman Marcus falls
Examining the current spectrum of publicly traded department stores, the businesses run from J.C. Penney Company, Inc. (NYSE:JCP) on the low end up to Nordstrom, Inc. (NYSE:JWN) 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, Inc. (NYSE:JWN) 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 Inc (NYSE:SKS).
Saks increased year-over-year comparable-store sales by 5.9% in its last quarter, but only managed a 7% operating income margin. Saks Inc (NYSE:SKS) 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.