Neiman Marcus 2006 Annual Report Download - page 31

Seasonality
We conduct our selling activities in two primary selling seasons—Fall and Spring. The Fall season is comprised of our first and
second fiscal quarters and the Spring season is comprised of our third and fourth fiscal quarters.
Our first fiscal 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 fiscal 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 fiscal quarter. However, due to the seasonal increase in sales
that occurs during the holiday season, the second fiscal quarter is typically the quarter in which our revenues are the highest and in which
expenses as a percentage of revenues are the lowest. Our working capital requirements are also the greatest in the first and second fiscal
quarters as a result of higher seasonal requirements.
Similarly, the third fiscal 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. Revenues are generally the lowest in the fourth fiscal quarter with
a focus on promotional activities offering Spring season goods to the customer on a marked down basis, resulting in lower margins during
the quarter. Our working capital requirements are typically lower in the third and fourth fiscal quarters than in the other quarters.
A large percentage of our 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 six to
nine months in advance of the products being offered for sale while handbags, jewelry and other categories are typically ordered three to
six months in advance. As a result, inherent in the successful execution of our business plans is our ability both to predict the fashion
trends that will be of interest to our customers and to anticipate future spending patterns of our customer base.
We monitor the sales performance of our inventories throughout each season. We seek to order additional goods to supplement
our original purchasing decisions when the level of customer demand is higher than originally anticipated. However, in certain
merchandise categories, particularly fashion apparel, our ability to purchase additional goods can be limited. This can result in lost sales
in the event of higher than anticipated demand of the fashion goods we offer or a higher than anticipated level of consumer spending.
Conversely, in the event we buy fashion goods that are not accepted by the customer or the level of consumer spending is less than we
anticipated, we typically incur a higher than anticipated level of markdowns, net of vendor allowances, to sell the goods that remain at the
end of the season, resulting in lower operating profits. We believe that the experience of our merchandising and selling organizations
helps to minimize the inherent risk in predicting fashion trends.
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