Should You Buy the Neiman Marcus IPO?


Luxury department-store brand Neiman Marcus has filed an S-1 with the SEC to go public. The company, currently owned by private equity firms TPG and Warburg Pincus, has indicated an initial offering of $100 million, with proceeds headed to the private owners. Neiman will be entering the public markets at a great time for luxury department stores -- a segment that enjoyed outsized growth even while its lower-priced brethren have struggled to adapt to new trends in the industry. As with many IPOs, the determination whether you should invest or not lies in the details -- pricing, earnings projections, capital structure, and more.

The business
In its current iteration, Neiman Marcus consists of its namesake stores, Manhattan-icon Bergdorf Goodman, CUSP, and discounter Last Call.

The company was taken private back in 2005 at just over $5 billion. TPG and Warburg Pincus will be the sole recipients of the $100 million in proceeds.

Sales for the company rose 6.5% over the prior year's numbers to $4.5 billion, with adjusted EBITDA coming in at $623 million -- implying a margin of roughly 13.8%. For comparison, Nordstrom had a 2012 EBITDA margin of 14.26%, while Saks had 8.3%. So, at a glance, Neiman seems to be operating roughly on par with its closest competitors.

As mentioned in the SEC filing, tracking firm Euromonitor believes that luxury-goods spending will increase from $302 billion last year to $427 billion in 2017, probably driven by rising affluence in the East. Such growth represents a CAGR of 7.2%.

Both Neiman and Bergdorf attract a very wealthy, loyal clientele who enjoy plenty of attention while making their expensive clothing and accessories purchases. The hands-down winner for the company, though, is Bergdorf. Though only two locations, Bergdorf generates sales per square foot that is three times the company average. Its stores in New York City are as fabled as the city itself, representing the cream of the crop.

Similar story
Neiman's growth story is very similar to both Nordstrom and Saks, as well as many department-store players. Omni-channel retailing -- the du jour concept of connecting customers across multiple mediums, from store to tablet -- is the big driver going forward. Neiman management says that more than $1 billion in sales are already coming from the Internet.

Truthfully, this IPO will do little else than give investors another nice option in the luxury-goods market. As mentioned, proceeds aren't going to the operating business, so we aren't going to see any massive store additions on the horizon. This doesn't mean the stock wont do well, but investors need to know that the company isn't getting a large cash infusion on IPO day.

As details emerge, it will become clearer as to whether Neiman Marcus' stock is priced to move off the shelves. For now, though, this upcoming offering will benefit the private equity groups more than anyone else.

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