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Why Neiman Marcus Won’t Be the Next Kors

The century-old retailer is facing a few headwinds


Luxury retailer Neiman Marcus has filed for an IPO. And for the iconic company founded over a century ago — and which also owns Bergdorf Goodman — it’s been a long road to say the least.

During the height of the private equity boom in 2005, TPG Capital and Warburg Pincus took Neiman Marcus private in a $5.1 billion transaction. Since then, the company has undergone a tough restructuring as well as a refinancing of nearly all the outstanding debt. As should be no surprise, the impact of the financial crisis was brutal.

Luckily, the company has been regaining its footing. During the past three years, sales have climbed from $3.9 billion to $4.5 billion while adjusted EBITDA went from $527 million to $623 million.

As the company said in its S-1: “We have established ourselves as a leading fashion authority among luxury consumers and are a premier retail partner for many of the world’s most exclusive designers.”

Plus, a key part of Neiman Marcus’ strategy is digital, as e-commerce sales are nearly $1 billion and the growth rate has averaged about 14% per year since 2010. On a monthly basis, the retailer’s website attracts 6 million unique visitors, while the Bergdorf Goodman site adds on another million.

Still, the core of the company is its traditional retail footprint, which is substantial. Neiman Marcus currently operates 41 full-line stores, all in high-end locations. The product line spans brands like Chanel, Gucci (GUCG), Prada (PRDSY), David Yurman, Giorgio Armani, Akris, Brioni, Ermenegildo Zegna, Christian Louboutin, Van Cleef & Arpels and Tom Ford.

There are also 35 off-price, smaller format locations called Last Call. And to top it off, the company has been experimenting with a new concept, CUSP. It’s focus is on younger customers who want trendy fashion items.

All in all, luxury retailers have done fairly well over the past year too. Consider that Michael Kors (KORS) and Tiffany & Co. (TIF) have gained over 30% each.

However, Neiman Marcus has been growing at a slower rate than those names. More importantly, a big part of its customer base is the aspirational buyer — that is, those who are not wealthy but want to still buy luxury items.

Considering the recent volatility in the stock market and rising interest rates, that customer group may start to curb their purchases, which could put pressure on Neiman Marcus’ sales and mute the valuation of the IPO.

With that in mind, I’d be cautious about jumping into the high-end retailer. Chances are, it won’t boom onto the scene and double in its first year like Kors did.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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