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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 (Reuters) - 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.
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.
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.”
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 much.
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, Swinand said.
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 Lewis)