TPG Capital, Warburg Said to Explore Neiman Marcus Exit

Photographer: David Paul Morris/Bloomberg

A pedestrian carries Neiman Marcus Group Inc. shopping bags on Market Street in San Francisco. The company hasn’t recovered all of the sales volume it lost during the U.S. economic slump because so-called aspirational shoppers have been slow to return to the store. Close

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Photographer: David Paul Morris/Bloomberg

A pedestrian carries Neiman Marcus Group Inc. shopping bags on Market Street in San Francisco. The company hasn’t recovered all of the sales volume it lost during the U.S. economic slump because so-called aspirational shoppers have been slow to return to the store.

TPG Capital and Warburg Pincus LLC are exploring a sale or public offering of Neiman Marcus Group Inc. eight years after acquiring the luxury retailer, according to two people familiar with the matter.

The private-equity firms, which bought Dallas-based Neiman Marcus in 2005 for $5.1 billion, have interviewed banks and are close to hiring Credit Suisse Group AG to run the dual-track process, said the people, who asked not to be named because the process is private. The owners may seek about $8 billion for the company, which has about 40 namesake department stores and owns Bergdorf Goodman’s two stores in New York.

The firms, which have held their investment 60 percent longer than is typical in the industry, are considering exit options after the chain increased in-store and online sales. Neiman Marcus Chief Executive Officer Karen Katz has been working to recapture the sales volume the luxury retailer enjoyed before the U.S. recession while carrying the debt the chain assumed when it was taken private in 2005.

Neiman Marcus’s owners are in the early stages of exploring their options, the people said. If TPG and Warburg don’t find a buyer and demand for an IPO is weak, they may consider a dividend recapitalization, one of the people said.

Fund Returns

Officials for Warburg, TPG, Credit Suisse and Neiman Marcus declined to comment.

TPG and Warburg Pincus bought Neiman Marcus shortly before the 2007-2009 financial crisis sapped retail sales. The median time for buyout funds to sell holdings is about five years, according to Seattle-based research firm PitchBook Data Inc. Holding investments longer hurts the rate of fund returns, a key metric the firms use to market new funds to potential investors.

Warburg Pincus is currently seeking $12 billion for a new buyout fund and had closed on $7 billion as of January, a person familiar with the process said at the time. The New York-based firm’s current pool, which gathered $15 billion in 2008, was generating a 1.15-times multiple on invested capital and a 5.5 percent net internal rate of return as of Sept. 30, according to performance data by Oregon Public Employees’ Retirement Fund, an investor in the fund.

Wealth Effect

Luxury retailers like Neiman Marcus, Saks Inc. (SKS) and Nordstrom Inc. (JWN) have fared better during the economic recovery than lower-priced retailers like Target Corp. (TGT) Surging stock markets give the wealthy the confidence to shop, Saks CEO Stephen Sadove said at an investor conference last week.

Katz has been trying to lure a younger customer by adding Cusp departments into the main stores. The Cusp name -- meant to evoke emerging, cutting-edge fashion trends -- was applied to the company’s contemporary women’s departments to better serve customers in their 30s to 50s who shop at the boutiques where the brand started.

Neiman Marcus first introduced the Cusp boutique concept in 2006. That chain, which has its own website, sells brands such as Theory, Rag & Bone and Alice + Olivia.

In its first international foray, Neiman Marcus also developed a new namesake e-commerce website with Hong Kong-based Glamour Sales Holding. Neiman Marcus debuted the site last year.

The company hasn’t recovered all of the sales volume it lost during the U.S. economic slump because so-called aspirational shoppers have been slow to return to the store. The retailer reported revenue of $4.35 billion in its most recent full fiscal year, which ended in July, down from its peak of $4.6 billion four years earlier.

Neiman Marcus’s fiscal second-quarter net income gained 0.9 percent to $40.4 million as sales advanced 6.5 percent to $1.36 billion. The company is carrying debt of $2.71 billion, according to data compiled by Bloomberg.

To contact the reporters on this story: Cristina Alesci in New York at calesci2@bloomberg.net; David Welch in New York at dwelch12@bloomberg.net; Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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