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Neiman places itself on market

Shares in the luxury retailer skyrocket. High end apparelmakers are expected to be bidders.

By MARK ALBRIGHT
Published March 16, 2005

They didn't put a tasteful sign in the elegant window display yet, but Neiman Marcus on Wednesday put itself up for sale.

The Dallas-based luxury retailer, which in recent months quietly has approached many retailers - foreign and domestic - and private equity firms, made it official on Wednesday. The company hired Goldman Sachs & Co. to explore a variety of ways to enrich its shareholders by becoming part of a larger company.

Neiman shares, which already had been trading at a steep premium, rocketed 15 percent to close at $86.04, up $11.29. Analysts estimate the stock may hit $99.

"At that kind of trophy price only an Arab sheik or some European (high fashion house armed) with the advantage of a favorable exchange rate could afford it," said Kurt Barnard, a retail consultant. "This is, after all, a high risk fashion business with very fickle customers."

That means big-name high end apparel manufacturers probably will join the bidding, just as Jones Apparel Group did in acquiring trendy Barney's New York for about $400-million in December. French luxury brand conglomerates LVMH Moet Hennessy Louis Vuitton and Pinault-Printemps-Redoute SA, which owns Gucci and Yves Saint Laurent, are considered probable suitors for Neiman.

Or Neiman may decide after all the wild offers fly not to sell anything to anybody.

Thus begins the next round of mergers and acquisitions to sweep through the retailing industry.

Federated Department Stores Inc. recently acquired May Department Stores Inc. Kmart and Sears are being combined by hedge fund manger Edward Lampert. Toys "R" Us Inc. is being auctioned off. Now Neiman is being priced as high as $5-billion for a company that generated sales of $3.5-billion in 2004.

One old rule of thumb among retailers suggests a company's full price equals its annual revenue.

The Neiman sale has far different root causes, however, than the other deals, which aim at reinvigorating the fortunes of fading chains. The luxury retailing business has been hot for the past two years so owners hope to cash in before it simmers down.

Neiman's biggest shareholders - the Boston Smith family that made its fortune owning General Cinema - once also controlled Neiman. Now they own about 12.7 percent of all outstanding shares and 32 percent of the shares that elect eight of the 11 directors. Family patriarch and Neiman chairman Richard A. Smith is now 81, and he has a son and son-in-law on the board.

Neiman has 35 full-line stores, including one at International Plaza in Tampa and four others in Florida, 14 Last Call outlet stores and two Bergdorf Goodman stores in New York. That's about half as many stores as its closest rival Saks Fifth Avenue. But the full-line stores, after generating a company record $555 per square foot in sales in 2004, reported same store sales rose a robust 10.4 percent gain during the most recent quarter. That was the sixth consecutive quarter of double-digit increases.

Neiman also owns the Horchow catalog, an online retail site and controlling interest in the Kate Spade accessories and Laurel Mercier cosmetics businesses. To clean up its books for the bids, Neiman ditched its money-losing Chef's Catalog in November for $14-million and wrote the venture off as a $15.3-million loss.

Neiman figures the store closings caused by the Federated/May and possibly the Sears/Kmart merger will open some space for its expansion. The company opens two stores in May's former Lord & Taylor locations this year, including one in Boca Raton.

"We see plenty of opportunity there, but we will be very disciplined about picking sites," said Burt Tansky, president and chief executive.

-- Mark Albright can be reached at albright@sptimes.com or 727 893-8252.

[Last modified March 16, 2005, 19:06:02]