Neiman Marcus 2008 Annual Report Download - page 32

Table of Contents
stores and Direct Marketing operation and 2) the deleveraging of our fixed buying and occupancy costs on lower
revenues.
• Inventories—As a result of the significant decrease in customer demand we experienced during fiscal year 2009, our
inventory purchases and on-hand inventories were significantly in excess of actual demand. As a result, we generated a
lower level of full-price sales in both the Fall and Spring seasons and incurred significantly higher net markdowns and
sales promotions costs to liquidate inventories held in excess of customer demand. In response to the lower levels of
customer demand, we reduced our receipts in the Spring season of fiscal year 2009 by approximately 30% compared to
the prior year.
At August 1, 2009, on-hand inventories totaled $755.0 million, a 22.8% decrease from the prior fiscal year. Inventories
decreased by 25.1% on a comparable basis.
• Selling, general and administrative expenses (excluding depreciation)—Compared to fiscal year 2008, we reduced
SG&A by $162.7 million in fiscal year 2009. The lower levels of SG&A expenses primarily reflect 1) savings in
variable costs, primarily commissions, on lower revenues and 2) savings realized as a result of our on-going initiatives to
control our expenses.
Despite the lower levels of SG&A incurred, SG&A deleveraged in fiscal year 2009. SG&A represented 24.2% of
revenues in fiscal year 2009 and 22.7% of revenues in fiscal year 2008. The increases in SG&A as percentages of
revenues are primarily due to the deleveraging of payroll and certain benefits costs on the significant decreases in
revenues.
• Expense control initiatives— In addition to savings in variable costs, primarily commissions, on lower revenues, we
have implemented both short-term expense control initiatives and longer-term adjustments to our cost structure, which
initiatives include headcount and salary reductions and the centralization of various store and corporate job functions.
We believe we realized savings in our non-variable buying and occupancy costs and SG&A expenses aggregating
approximately $100 million in fiscal year 2009. We continue to review and evaluate additional initiatives to reduce our
cost structure.
• Impairment of long-lived assets— We tested our long-lived assets for recoverability and determined certain of our
property and equipment, tradenames and goodwill to be impaired and recorded non-cash impairment charges aggregating
$703.2 million in fiscal year 2009, as more fully described in Note 7 to the consolidated financial statements.
• Operating (loss) earnings—Total operating losses in fiscal year 2009 were $652.9 million, or 17.9% of revenues, which
included impairments of our long-lived assets of $703.2 million, or 19.3% of revenues. Excluding these impairment
charges, operating earnings were $50.3 million, or 1.4% of revenues, in fiscal year 2009. Total operating earnings in
fiscal year 2008 were $466.4 million, or 10.1% of revenues. Excluding the impairment charges in fiscal year 2009,
operating earnings margin decreased as a percentage of revenues, by 8.7% primarily due to:
• an increase in COGS by 5.8% of revenues as a result of 1) lower levels of full-price sales, primarily due to weak
customer demand, 2) higher net markdowns and higher promotional costs incurred to liquidate on-hand inventories
held in excess of sales trends and 3) the deleveraging of our buying and occupancy expenses on lower revenues; and
• increases in both SG&A expenses by 1.5% of revenues and depreciation and amortization expense by 1.3% of
revenues, primarily due to the deleveraging of these expenses on lower revenues.
• Liquidity—Cash provided by our operating activities was $210.8 million in fiscal year 2009, a decrease of $74.5 million
from the prior fiscal year as a result of lower revenues and earnings. Despite the decrease in cash provided by operating
activities, we held cash balances of $323.4 million at August 1, 2009 compared to $239.2 million at August 2, 2008. At
August 1, 2009, we had no borrowings outstanding under our Asset-Based Revolving Credit Facility, $32.8 million of
outstanding letters of credit and $468.5 million of unused borrowing availability. At October 3, 2009, we had $507.2
million of unused borrowing availability.
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