Lehman Brothers 2006 High Yield Bond & Syndicated Loan Conference. March 2006

Size: px

Start display at page:

Download "Lehman Brothers 2006 High Yield Bond & Syndicated Loan Conference. March 2006"

Dorothy Harrison
6 years ago
Views:

1 Lehman Brothers 2006 High Yield Bond & Syndicated Loan Conference March 2006

2 Forward Looking Statements Disclaimer The following information contains, or may be deemed to contain, forward-looking statements (as defined in the U.S. Private Securities Litigation Reform Act of 1995). By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The future results of the company may vary from the results expressed in, or implied by, the following forward-looking statements, possibly to a material degree. For a discussion of some of the important factors that could cause the company s results to differ from those expressed in, or implied by, the following forward-looking statements, please refer to the company s Offering Circular. The company undertakes no obligation to update or revise any forward-looking statements. 2

3 Transaction Overview In October 2005 Texas Pacific Group and Warburg Pincus acquired the Company for approximately $5.5 billion Acquisition was financed with: ($ in millions) Equity $ 1,467 Sr. Secured Term Loan 1,975 Sr. Unsecured Notes 700 Sr. Subordinated Notes 500 Excess Cash 813 $ 5,455 3

4 Company Overview High-end specialty retailer offering luxury apparel and accessories Revenue Composition Specialty Retail Bergdorf Goodman 11% Other 3% Neiman Marcus Direct 15% Neiman Marcus Direct Neiman Marcus Stores 71% 2005 Revenue: $3.8 Billion 4 Note: The Company s fiscal year ends on or about July 30.

5 Attractive Market and Customer Demographics (in millions) Growth of Target Demographic (U.S. Households Age with Annual Income > $200K) E CAGR E # of U.S. Households (total) % # of U.S. Households >$200K % as a % of >$200K HH 51% 54% 56% % E # of U.S. Households Age with Annual Income >$200K Source: Claritas Strong underlying demographics will benefit Neiman Marcus over the next decade 5

6 Competitively Well-Positioned Premier Luxury Retailer Value Proposition Customers Sales Focus Expansion Strategy Retail Locations Vendor Relationships Neiman Marcus Group Narrowly distributed brands Luxurious environment Superior customer service Lower price sensitivity and high brand loyalty Relationship-driven (professional sales associates) Prudent, disciplined approach to expansion Every store in an exclusive, premier location; high barriers to entry Long-standing, mutually beneficial partnerships Strategic importance to designers Traditional Department Stores Lack of differentiation The Wal-Mart effect Price sensitive with limited brand loyalty Transactional Aggressive expansion has led to overstoring Mixed portfolio of store locations Deflationary pressure as textile quotas end Not brand driven 6

7 Professional, Relationship-Focused Salesforce Focus on building long-term relationships, not just transactions Highly specialized sales associate selection, training, and development programs Sales Associate Turnover Sales Associate Productivity (3) 66% 63% 35% 16% Neiman Marcus (1) (2) Retail Average % of Associates Selling Over $500,000 % of Associates Selling Over $1 million (1) Includes all full-time and part-time sales associates for fiscal (2) Retail average turnover statistics are for full-time only sales staff provided by 2004 National Retail Federation Annual Compensation and Benefits Survey. (3) Represents fiscal 2005 revenues at Neiman Marcus full-line stores and Bergdorf Goodman only. Excludes associates with less than one year of service. 7

customers InCircle Rewards Program Revenues ($ in millions) 8% CAGR

8 Unique Customer Loyalty Program InCircle members are an attractive, affluent customer base Median age of 51, annual income greater than $285,000, net worth greater than $2.5 million Annual purchases are almost 20 times more than non-incircle customers InCircle Rewards Program Revenues ($ in millions) 8% CAGR $1,174 $880 40% $850 37% $894 $1,008 41% 43% 45% InCircle Sales % of Total Neiman Marcus Store Sales 8

9 Powerful Relationships With Diverse Group of Top Vendors 2005 Merchandise Mix (1), (2) No dependency on any one product category Home Furnishings and Décor Designer and Precious Jewelry 10% 10% Other 3% 34% Women s Apparel Men s Apparel and Shoes 12% 12% 19% Cosmetics and Fragrances Women s Shoes, Handbags and Accessories Neiman Marcus long-term relationships with leading designers and diverse merchandise base mitigates fashion / brand risk (1) Amounts exclude revenues from leased departments, shipping / delivery revenues, and revenue adjustments for returns reserves, etc. (2) Other Merchandise primarily includes Clearance Centers and Children's. 9

10 Disciplined Inventory Management Conservative Planning Merchandising Group Lockerstock Program Maximizing Sustainable Margins Product Reporting Full Price Selling 10

11 Specialty Retail Strategies Dominate Luxury Product Offering Increase Share of Wallet Grow the Customer Base Solid Foundation at Neiman Marcus and Bergdorf Goodman with Significant Upside Increase Return on Capital 11

12 Conservative and Prudent Approach to Expansion Conservative 2-3% annual square footage growth target Existing Store Remodels Strategy Drive incremental square footage growth Low risk investment Improve store financial performance Flexibility regarding timing of remodels New Store Openings Strategy Carefully selected markets and locations based on extensive demographic and lifestyle market research Each store is tailored to individual market Premier locations with favorable terms from key real estate developers and opportunities for future expansion 12

13 Focused Expansion Strategy STATE COMPLETION DATE SQ. FOOTAGE New Stores San Antonio Texas Fall 2005 (Opened) 120,000 Boca Raton Florida Fall 2005 (Opened) 136,000 Charlotte North Carolina Fall ,000 Austin Texas Spring ,000 Natick Massachusetts Fall ,000 Long Island New York Spring ,000 Topanga California Fall ,000 Remodels Houston Texas Spring 2006 Additional 15,000 San Francisco California Spring 2006 Additional 60,000 Atlanta Georgia Fall 2008 Additional 52,000 13

14 Neiman Marcus Direct

15 Expanding Brand Reach Through MultiChannels Retail Online Catalog Incremental and highly complementary to retail stores Focus on Brands, Not Channels 15

16 Direct Marketing Initiatives Bergdorfgoodman.com Vendor sitelets The Showroom Online clearance 16

17 Financial Overview

18 Historical Financial Performance Historical Financial Performance ($ in millions) 7% Revenue CAGR 10% EBIT CAGR $2,913 $2,580 $2,338 $2,042 $2,181 $1,888 $248 $150 $159 $183 $199 $183 $2,998 $203 $2,932 $174 $3,080 $223 $3,525 $349 $3,822 $ Fiscal Years Ending July Revenue EBIT Consistent growth through multiple business and economic cycles highlighted by 10-year Revenue and EBIT CAGRs of 7% and 10%, respectively Note: All information for 2000 and thereafter reflects the change in classification of revenues deferred in connection with the Company s loyalty programs. EBIT figures exclude nonrecurring items. 18

19 Financial Metrics Specialty Retail Revenue ($ in millions) ($ in millions) Specialty Retail EBIT 5% CAGR $2,850 $3,103 9% CAGR $311 $378 $2,442 $2,487 $2,417 $2,507 $ % $ % $ % $ % 10.9% 12.2% NMD Revenue ($ in millions) ($ in millions) EBIT EBIT Margin NMD EBIT 8% CAGR $494 $571 $ % CAGR $61 $75 $438 $444 $ $ % 10.7% $23 9.3% $11 $2 2.5% 5.1% Note: Specialty Retail revenue reflects the change in classification of revenues deferred in connection with the Company s loyalty programs. EBIT EBIT Margin 19

20 Superior Performance 2004 Sales per Square Foot $559 $346 $347 $134 $138 $150 $165 $187 Dillards S aks Department Stores JC Penney May Federated Saks Fifth Avenue 2004 Comparable Revenue Growth Nords trom Neiman Marc u s 13.7% 8.5% 10.8% -2.4% -1.0% 1.6% 2.6% 5.0% May Dillard s S aks Department Stores Federated JC Penney Nordstrom Saks Fifth Avenue Neiman Marc u s Note: NMG comparable revenue growth figures for reflect the change in classification of revenues deferred in connection with the Company s loyalty programs. NMG Sales per Square Foot figures represent Specialty Retail and exclude clearance centers. Saks Fifth Avenue, Saks Department Stores, Dillards and Federated Sales per Square Foot not disclosed, information calculated by dividing total revenue by average annual gross square footage. 20

21 Superior Performance NMG Sales per Square Foot $440 $452 $497 $511 $478 $472 $528 $577 $ LTM Q2 FY '06 NMG Comparable Revenue Growth 6.0% 2.6% 11.8% 2.3% 4.1% 14.4% 9.9% 8.0% -4.6% LTM Q2 FY '06 Note: NMG comparable revenue growth figures for reflect the change in classification of revenues deferred in connection with the Company s loyalty programs. NMG Sales per Square Foot figures represent Specialty Retail and exclude clearance centers. NMG LTM Q2 FY 06 figures are preliminary. Saks Fifth Avenue, Saks Department Stores, Dillards and Federated Sales per Square Foot not disclosed, information calculated by dividing total revenue by average annual gross square footage. 21

22 Recent Financial Results NMG Q1 FY 06 Q2 FY 06 Total Sales Growth 7.5% 9.0% Comparable Store Sales 8.4% 6.4% Specialty Retail Comparable Store Sales 8.8% 4.5% Neiman Marcus Direct Sales Growth 10.4% 13.2% 22

23 Reconciliation of Adjusted Operating Earnings Second Second Year Year Quarter Quarter to Date to Date Thirteen Thirteen Twenty-six Twenty-six weeks ended weeks ended weeks ended weeks ended January 28, January 29, January 28, January 29, (dollars in millions) (Successor) (Predecessor) (Combined) (Predecessor) OPERATING EARNINGS: Specialty Retail Stores $ 94 $ 99 $ 230 $ 219 Direct Marketing Other (1) Corporate expenses (13) (10) (22) (19) ADJUSTED OPERATING EARNINGS $ 122 $ 120 $ 262 $ 245 Amortization of intangible assets (19) - (24) - Non-cash charges related to other valuation adjustments made in connection with the acquisition (31) - (39) - Transaction and other costs - - (24) - Loss on disposition of Chef s Catalog (15) OPERATING EARNINGS $ 73 $ 120 $ 177 $ 230 Depreciation & Amortization Source The Neiman Marcus Group, Inc 10-Q (For the Quarterly period ended January 28, 2006). (1) Other includes the results of operations of Kate Spade LLC & and Gurwitch Products, LLC. 23

24 Historical Capital Expenditures Average gross capex spend of $150 million between 2001 and 2005 ($ millions) $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 $171.9 $131.1 $49.1 $129.6 $30.9 $28.2 $16.0 $28.2 $60.6 Historical Capital Expenditures $120.5 $36.7 $38.5 $48.1 $34.5 $202.5 $42.0 $41.6 $58.2 $56.0 $24.5 $39.1 $60.7 $34.0 $20.3 $ New Stores Major Remodels Information Technology Other Avg. Gross Capex $150 Million Note: Figures represent gross capital expenditures. 24

25 Capitalization (As of January 29, 2006) ($ in millions) Q2 FY '06 % of 1/28/2006 Cap. $600 Million Asset-Based Revolving Credit Facility $ % Senior Debentures due 2028 (7.125%) % Senior Secured Term Loan 1, % Other Senior Secured Debt % Total Senior Secured Debt $2, % Senior Unsecured Notes (9.00%) % Total Senior Debt $2, % Senior Subordinated Notes (10.375%) % Total Debt $3, % Equity 1, % Total Capitalization $4, % No maintenance covenants or mandatory amortization Senior Unsecured Notes Cash / PIK feature provides flexibility Excess liquidity from $600 million Asset-Based Revolver 25

26 Credit Ratings $125M Sr. Debentures $1,975M Term Loan $700M Sr. Uns. Notes $500M Sr. Sub Notes B1 B1 B2 B3 B+ B+ B- B-

27 Lehman Brothers 2006 High Yield Bond & Syndicated Loan Conference March 2006

JPMorgan High Yield Conference. February 2006

JPMorgan High Yield Conference February 2006 Forward Looking Statements Disclaimer The following information contains, or may be deemed to contain, forward-looking statements (as defined in the U.S. Private