Neiman Marcus 2003 Annual Report Download - page 13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EXECUTIVE OVERVIEW
Company Profile
The Neiman Marcus Group, Inc., together with its operating divisions and subsidiaries, is a high-end specialty retailer. The
Company's operations include the Specialty Retail Stores segment and the Direct Marketing segment. The Specialty Retail Stores
segment consists primarily of Neiman Marcus and Bergdorf Goodman stores. The Direct Marketing segment conducts both print
catalog and online operations under the Neiman Marcus, Horchow, Chef's Catalog and Bergdorf Goodman (beginning in
September 2004) brand names.
The Company owns a 51 percent interest in Gurwitch Products, LLC, which distributes and markets the Laura Mercier cosmetic line,
and a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories. Gurwitch
Products, LLC and Kate Spade LLC are hereafter collectively referred to as the "Brand Development Companies."
The Company's fiscal year ends on the Saturday closest to July 31. All references to 2004 relate to the fifty-two weeks ended July 31,
2004; all references to 2003 relate to the fifty-two weeks ended August 2, 2003 and all references to 2002 relate to the fifty-three
weeks ended August 3, 2002. References to 2005 relate to the fifty-two weeks ending July 30, 2005.
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with
the Company's Consolidated Financial Statements and the related notes thereto contained in Item 15. Unless otherwise specified, the
meanings of all defined terms in MD&A are consistent with the meanings of such terms as defined in the Notes to the Company's
Consolidated Financial Statements.
Overview of the Company's Business
The Company believes that its unique product assortment of luxury, designer and fashion merchandise, coupled with its sales
promotion activities and its commitment to superior customer service, have been critical to the Company's success in the past. In
addition, the Company believes these factors are critical to the Company's future growth and success.
The Company conducts its selling activities in two primary selling seasons – Fall and Spring. The Fall Season is comprised of the
Company's first and second fiscal quarters and the Spring Season is comprised of the Company's third and fourth fiscal quarters.
The first quarter is generally characterized by a higher level of full-price selling with a focus on the initial introduction of Fall Season
fashions. Aggressive in-store marketing activities designed to stimulate customer buying, a lower level of markdowns and higher
margins are characteristic of this quarter. The second quarter is more focused on promotional activities related to the
December holiday season, the early introduction of resort season collections from certain designers and the sale of Fall Season goods
on a marked down basis. As a result, margins are typically lower in the second quarter. However, due to the seasonal increase in
sales that occurs during the holiday season, the second quarter is typically the quarter in which the Company's sales are the highest and
in which expenses are the lowest as a percentage of revenues. The Company's working capital requirements are also the greatest in
the first and second quarters as a result of higher seasonal levels of accounts receivables and inventory.
Similarly, the third quarter is generally characterized by a higher level of full-price selling with a focus on the initial introduction of
Spring Season fashions. Aggressive in-store marketing activities designed to stimulate customer buying, a lower level of markdowns
and higher margins are again characteristic of this quarter. Sales are generally the lowest in the fourth quarter and are focused on
promotional activities offering Spring Season goods to the customer on a marked down basis, resulting in lower margins during the
quarter.
A large percentage of the Company's merchandise assortment, particularly in the apparel, fashion accessories and shoe categories is
ordered months in advance of the introduction of such goods. For example, women's apparel, men's apparel and shoes are typically
ordered 6-9 months in advance of the products being offered for sale while
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