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* Neiman Marcus was acquired for $5.1 billion in 2005
* Company currently valued at $4.6 billion
* Owners likely to gauge sales through holiday season
By Jessica Hall and Phil Wahba
PHILADELPHIA/NEW YORK, June 22 The return of
affluent shoppers and a flurry of IPOs by top European luxury
names will not be enough to spur high-end U.S. department store
chain Neiman Marcus Group to go public just yet, bankers said.
Neiman, which operates 41 namesake stores and the iconic
Bergdorf Goodman in Manhattan, has made large sales gains this
year, is profitable again after deep losses during the
recession, and recently got another debt-rating upgrade.
But Neiman, which was taken private by TPG [TPG.UL],
together with Warburg Pincus [WP.UL], in 2005 in a $5.1 billion
deal, still has work to do to command a valuation that would
help its private equity backers turn a profit.
Rumors of a Neiman Marcus IPO have circulated for months
given that buyout firms typically hold a company for only three
to five years and that Neiman's results are improving amid
luxury spending's comeback. But bankers said nothing is
currently in the works.
"They bought it during the P/E (private equity) bubble, so
they may be forced to hold on to it longer," said one retail
investment banker, who declined to be named because he was not
authorized to speak to the media. "Normally, I'd say it would
be ready to stand on its own two feet by now."
Another factor is that Neiman's chief executive, Karen
Katz, took the reins only last year and backers likely want to
give her more time to show her CEO acumen.
Representatives for Neiman, TPG and Warburg all declined to
comment for this article.
VALUED AT LESS THAN 2005 BUYOUT
In its most recently completed fiscal year, Neiman had
earnings excluding interest, taxes, depreciation and
amortization (EBITDA) of $446.9 million.
By one methodology that bankers said was typical, that made
Neiman worth at most about $4.6 billion, still not enough for
its owners to make a profit.
In the first nine months of the current fiscal year,
Neiman's EBITDA surpassed that, hitting $457.2 million on
revenue of $3.1 billion, suggesting that waiting will have
likely helped Neiman's sponsors command more when they do take
it public or sell the chain. The fiscal year ends July 31.
This spring, Moody's and S&P both upgraded its debt.
Despite the progress, Neiman's owners likely want to wait
to see how the company fares over the competitive Christmas
period, when it gets 30 percent of annual sales.
"They could wait another holiday season or even another
year before trying to unload it," said the retail banker.
Neiman, along with peers including Saks Inc SKS.N, Macy's
Inc's (M.N) Bloomingdale's chain and Nordstrom Inc (JWN.N), has
enjoyed sharply better sales. Last quarter, Neiman's same-store
sales rose 9.7 percent, and the Dallas-based retailer is on
pace to hit sales of about $4 billion for the fiscal year.
But that is still well below the $4.6 billion sales level
of fiscal 2008, before the financial crisis struck.
MUST DEMONSTRATE GROWTH
To entice suitors or IPO investors, Neiman has to show it
can still grow longer-term.
"Department store retailers can hit potholes," said
Morningstar analyst Paul Swinand, who covers several luxury
stocks. "Usually IPOs attract growth investors."
Luxury stocks like Saks, Coach, Tiffany (TIF.N) and Polo
Ralph Lauren (RL.N) have been on a tear as high-end spending
But Swinand said luxury's comeback has largely been priced
in, meaning Neiman shares in an IPO would have to be discounted
to offer attractive returns. And these companies are exposed to
any pullback by shoppers if the stock market stumbles too
Katz told the Reuters Global Luxury Summit last month that
the company had no plans for any significant expansion of its
department stores, preferring to rely on building out its Last
Call and Last Call Studio outlet chains and rising sales at
existing stores for growth.
But as domestic chains, Neiman and rivals Saks and
Nordstrom cannot tap the luxury boom in China, Russia, and
Brazil, unlike upscale brands Coach Inc (COH.N), Hermes
(HRMS.PA) and Tiffany, limiting potential upside.
"How is Neiman going to grow?" is the main question,
While the IPO market has been white-hot for tech companies
like LinkedIn LNKD.N, it has been mixed for luxury, adding to
the need for caution if Neiman chooses the IPO route.
Last week, Italian fashion house Prada floated at the low
end of its target price range. The next test comes next week
when Italian shoemaker Ferragamo's shares start trading.
Six years is a long time in the buyouts world, so the time
is nearing for Neiman's backers to sell it or take it public.
"Given the time frame in which they bought it, it makes
sense that the owners would be looking to exit that investment
either through a sale to another P/E firm or through an IPO,"
said a second investment banker, who could not be named because
he was not authorized to speak with the media.
"Neiman has gotten its financial house in order -- they've
done the heavy lifting," the second retail banker said.
(Reporting by Jessica Hall and Phil Wahba, additional
reporting by Megan Davies and Clare Baldwin, editing by Matthew