Neiman Marcus 2003 Annual Report Download - page 19

Income taxes. The Company's effective income tax rate was 36.7 percent for 2004 and 38.5 percent for 2003. In the second quarter of
2004, the Company recognized a net income tax benefit of $7.5 million related to favorable settlements associated with previous state
tax filings. Excluding this benefit, the effective tax rate was 39.0 percent for 2004 and 38.5 percent for 2003. This increase in the
effective tax rate was primarily due to higher state income taxes.
Fiscal Year 2003 Compared to Fiscal Year 2002
Revenues. Revenues for 2003 of $3.10 billion increased $149.8 million, or 5.1 percent, from $2.95 billion in the prior year period.
The increase in revenues was primarily attributable to both an increase in comparable revenues and revenues generated by new stores.
Total revenues for 2002 included revenues of approximately $36.6 million for the fifty-third week of 2002.
Comparable revenues in 2003 increased 3.8 percent for the fifty-two weeks ended August 2, 2003 compared to the fifty-two weeks
ended July 27, 2002. Comparable revenues increased 1.8 percent for Specialty Retail Stores and 12.5 percent for Direct Marketing for
the fifty-two weeks ended August 2, 2003 compared to the fifty-two weeks ended July 27, 2002. Changes in comparable revenues by
quarter (thirteen weeks 2003 compared to thirteen weeks 2002) for the Specialty Retail Stores and Direct Marketing segments are as
follows:
2003 2002
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Specialty Retail Stores 6.4% (0.3)% (2.1)% 4.8% (3.1)% (2.6)% (3.3)% (12.1)%
Direct Marketing 15.8% 10.8% 11.7% 12.3% 0.7% 1.3% 1.2% (2.8)%
Total 8.5% 1.5% 0.5% 5.8% (2.8)% (1.9)% (3.0)% (10.9)%
For 2003, the increase in comparable revenues for Specialty Retail Stores was primarily due to increased revenues for both Neiman
Marcus Stores and Bergdorf Goodman, particularly during the fourth quarter. The increase in comparable revenues for Direct
Marketing for 2003 was attributable to increased revenue growth in the Neiman Marcus and Horchow brands, primarily the online
businesses, offset, in part, by a decrease in the Chef's Catalog brand.
Comparable revenues for the Brand Development Companies increased in 2003, with an increase for both Gurwitch Products, LLC
and Kate Spade LLC.
In the first quarter of 2003, the Company opened two new Neiman Marcus stores in Coral Gables, Florida (September 2002) and
Orlando, Florida (October 2002). In the second quarter of 2003, the Company opened a new clearance store in the Denver, Colorado
area (November 2002) and completed a 71,000 square foot expansion and remodel of the Las Vegas Neiman Marcus store. In the
fourth quarter of 2003, the Company opened another new clearance center in Miami, Florida (May 2003). Sales derived from new
stores for 2003 were $79.6 million.
Gross margin. Gross margin was 33.1 percent of revenues in 2003 compared to 32.3 percent in the prior year period. The increase in
gross margin was primarily due to a decrease in markdowns.
Net markdowns decreased as a percentage of revenues by 0.5 percent in 2003 compared to the prior year period. The Company
incurred a lower level of markdowns in the first and second quarters of 2003 compared to the prior year periods as higher markdowns
were required in the first and second quarters of 2002 in connection with additional and more aggressive promotional events necessary
to clear inventories in response to declines in retail sales in 2002. However, markdowns increased as a percentage of revenues for the
third quarter and fourth quarters of 2003 compared to the prior year period. Higher markdowns were necessary in both the third and
fourth quarters of 2003 to reduce a build-up of inventories in certain merchandise categories that occurred in the third quarter as a
result of lower than anticipated sales. The Company believes that sales in the third quarter of 2003, particularly the earlier weeks,
were negatively impacted by economic uncertainties due, in part, to the conflict in Iraq as well as adverse weather conditions in a
number of markets in which the Company operates.
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