Neiman Marcus IPO Valuation

1. D I S C U S S I O N M A T E R I A L S
Neiman Marcus: What should
the IPO price at?
Andrew Boone, CFA

2. N E I M A N M A R C U S
1
What does Neiman Marcus do?
OVERVIEW
 Neiman Marcus owns 43 full-line namesake stores (high end), 2 Bergdorf Goodman
stores (ultra high end), 35 Neiman Marcus Last Call stores (discount), & 6 CUSP
stores (contemporary – middle tier)
 Neiman Marcus stores are a collection of high end luxury boutiques rather than a
traditional department store. This helps differentiate the customer experience
and allows for a higher price point
 Neiman operates ecommerce sites for Neiman Marcus, Bergdorf Goodman, Last
Call, CUSP, & Horchow and ships to 100+ countries
Neiman Marcus overview
Source: Company filings

3. N E I M A N M A R C U S
2
IPO
OVERVIEW
 On June 24th, Neiman filed an S-1 with the SEC
 On Aug. 6th, Reuter's reported that Credit Suisse, Bank of America, and JPMorgan
have been appointed to lead the possible IPO
 The company is currently owned by TPG Capital, Warburg Pincus, and Leonard
Green & Partners, who are now looking to exit
 TPG and Warbug Pincus took the company private in 2005
Neiman Marcus IPO
Source: Company filings, Reuter's

4. N E I M A N M A R C U S
3
OVERVIEW
Neiman Marcus SWOT
Weaknesses
 Neiman's brand portfolio provides
exclusivity which creates a network effect
 Neiman has a long standing relationship
with the wealthy. For example, Neiman
only began accepting Visa and MasterCard
in 2011, opening the store to mid-tier
shoppers (those without AmEx)
 The wealthy are recession resistant
shoppers with high discretionary spending
Strengths
ThreatsOpportunities
 Neiman has JV'd with a company to create a
Mandarin Neiman Marcus website. Luxury
goods are frequently counterfeited in
China, Neiman's entry in the market may
lead to additional Asian brick & mortar
stores and ecommerce sales
 Develop and cultivate CUSP for middle tier
shoppers using Neiman's relationship with
higher end designers
 Luxury/high end designers retailing their
clothing directly to consumers through
websites
 Increased counterfeit items are entering
the market, this degrades the value of high
end luxury brands
 Lack of middle market exposure creates a
business model dependent on the wealthy's
(predominantly women's) discretionary
spending
 Extremely low private label sales (~2% of
rev) pressures margins

5. N E I M A N M A R C U S
4
Benefits of targeting the wealthy
The rich continue to get richer: 1990-2010 US
household income at select percentiles
CUSTOMERS
2011 disposable income by household income
bracket
Neiman targets a growing and favorable customer base
Source: Company filings, Experian, US Census
 The North American luxury goods industry is expected to grow at an annual rate of
6.6% from 2012-2017
 The global luxury goods industry is expected to grow at an annual rate of 7.2%
from 2012-2017
 According to the Pew Research Center, the average net worth of households in the
upper 7% rose 28% from 2009 to 2011, while the remaining 93% experienced a fall
of 4%
0
50,000
100,000
150,000
200,000
1990 1995 2000 2005 2010
10th percentile 20th percentile 50th (median)
80th percentile 90th percentile 95th percentile
$5,590 $7,870
$12,800$14,400
$19,400
$30,200
$54,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000

6. N E I M A N M A R C U S
5
Neiman is an exclusive retailer
BRANDPORTFOLIO
Sales per square foot
Neiman's sustainable moat is its relationship with luxury
brand producers
Source: Company filings, Bloomberg
 The exclusivity of Neiman is driven by its brand portfolio
 Neiman's sustainable moat is its portfolio of high end brands. Neiman's portfolio
creates a network effect for high end brands. This causes new brands to strive to
be sold at Neiman's because of the perceived value that a Neiman's buyer places on
that brand by putting it amongst the other brands
 The higher price points are best exhibited by Neiman's higher sales per square foot
$438
$485
$545
$200
$250
$300
$350
$400
$450
$500
$550
$600
Saks Nordstroms Neiman

7. N E I M A N M A R C U S
6
Neiman has a relationship with high end customers because of the exclusivity of the brands they sell
BRANDPORTFOLIO ~40% of Neiman's brands cannot be found at Saks,
Nordstrom, nor Bloomingdales
*available at Saks; + available at Nordstrom; ^available at Bloomingdales
Source: Company filings, Company websites
1. Adam Lippes
2. Akris*
3. Akris punto*+
4. Alexander McQueen*+^
5. Alexander Wang+
6. Altuzarra
7. Aquilano.Rimondi
8. Armani Collezioni*+^
9. Belstaff
10. Bottega Veneta*+^
11. Brunello Cucinelli*
12. Burberry+^
13. Carolina Herrera*+^
14. Chado Ralph Rucci
15. Chloe*
16. Christopher Kane*+
17. Derek Lam*
18. Dolce & Gabbana*
19. Donna Karan*+^
20. Dsquared2+
21. Elie Saab+^
22. Emilio Pucci*+^
23. Erdem*+
24. Escada^
25. eskandar
26. Etro*+
27. Fendi*+^
28. Gareth Pugh
29. Giambattista Valli*
30. Giorgio Armani+^
31. Gucci*+^
32. Herve Leger*+
33. J. Mendel
34. Jason Wu*+
35. Jean Paul Gaultier*+^
36. Jil Sander*+
37. Jonathan Saunders
38. Kalinka
39. Karolina Zmarlak
40. Kaufman Franco
41. Lanvin+^
42. Lela Rose+
43. Loro Piana
44. Maison Martin Margiela*
45. Maison Rabih Kayrouz
46. Mantu
47. Marc Jacobs*+^
48. Marni*+^
49. Mary Katrantzou+
50. Michael Kors*+^
51. Missoni*+^
52. Moncler*+^
53. Monique Lhuillier
54. Naeem Khan+
55. Narciso Rodriguez+^
56. Nina Ricci*+
57. Oscar de la Renta*+^
58. Pamella Roland
59. Paule Ka
60. Peter Pilotto*
61. Piazza Sempione*+
62. Proenza Schouler*
63. Ralph Lauren+^
64. Reed Krakoff*+
65. Rick Owens*+
66. Roberto Cavalli*+^
67. Roland Mouret
68. Saint Laurent*+
69. St. John*
70. Stella McCartney*+^
71. Talbot Runhof
72. Thakoon*+
73. The Row*
74. Valentino*+^
75. Vera Wang+^
76. Versace+^
77. Wes Gordon
78. Yves Saint Laurent+^
79. Zac Posen*^

8. N E I M A N M A R C U S
7
The brick & mortar retail operation is the steady portion of the business
Number of Neiman and Bergdorf stores
RETAILSTORE
Brick and mortar revenue
Neiman's brick & mortar retail stores
Source: Company filings, Bloomberg
 The tailwind from the Great Recession has helped Neiman's same store sales and
operating margins grow
 There is less competition in high brick and mortar retail because of competitors'
push towards the middle market. Nordstrom plans to double its Rack stores, while
Saks already has 60% of its store portfolio in outlet formats.
 As online expands in Asia there may be future opportunity to build brick and
mortar stores in Asia (e.g., Hong Kong, Shanghai, Macau, etc.)
$420
$440
$460
$480
$500
$520
$540
$560
$2,000
$3,000
$4,000
2010 2011 2012
Specialty Retail Store Revenue Sales per square foot
41 42 43 43 44 43
0
5
10
15
20
25
30
35
40
45
2008 2009 2010 2011 2012 Apr-13

9. N E I M A N M A R C U S
8
Long term debt
Neiman's repayment schedule
CAPITALSTRUCTURE
Comparable co.'s long term debt to LTM EBITDA1
Neiman has an aggressive capital structure but has few
required payments until 2018
 Neiman has a debt to EBITDA ratio of 4.4x
 Neiman has a minor payment in 2016 but must refinance the majority of its long
term debt in 2018
 This is a very aggressive capital structure for a department store because of lease
payment obligations
 Proceeds from the IPO will be used to buyout existing shareholders, not to pay
down debt
0 0 0 20 0
2,560
122
0
500
1,000
1,500
2,000
2,500
3,000
2013 2014 2015 2016 2017 2018 2028
Asset based revolver Senior secured term loan
2028 debentures
0.7x
1.5x
1.7x
4.4x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
Saks Nordstroms Macy's Neiman
1As of 8/17/13
Source: Company filings, CapIQ

10. N E I M A N M A R C U S
9
What is Neiman worth?
COMPS
Neiman comp set1
 Neiman is the most elite luxury department store. A modest premium is applied to
median multiple of the comp group
 Saks is trading at a small premium because of the recent offer by Hudson Bay (a
4.5% premium to the close before the offer)
 The implied P/E multiple shows the consistency and validity of the comparables
analysis
Enterprise
Value Revenue EBIT EBITDA EV/Revenue EV/EBIT EV/EBITDA
Macy's $22,492 $27,878 $2,690 $3,730 0.81x 8.4x 6.0x
Nordstroms $13,036 $12,462 $1,359 $1,801 1.05x 9.6x 7.2x
Saks $2,610 $3,187 $145 $266 0.82x 18.0x 9.8x
Average 0.89x 12.0x 7.7x
Neiman $4,535 $428 $611
Implied Multiple 1.00x 10.5x 8.0x
Enterprise Value $4,535 $4,495 $4,886
Net Debt (2,633) (2,633) (2,633)
Market Cap $1,901 $1,862 $2,253
LTM Implied P/E 12.7x 12.4x 15.0x
Comps commentary
1As of 8/17/13
Source: Company filings, CapIQ

11. N E I M A N M A R C U S
10
Total revenue and online revenue
ONLINERETAIL
Online revenue as a percentage of total revenue
Internet sales will be an increasingly important part of
Neiman
Source: Company filings
0
1,000
2,000
3,000
4,000
5,000
2010 2011 2012 LTM
Total revenue Online revenue
16.0%
17.0%
18.0%
19.0%
20.0%
21.0%
22.0%
2010 2011 2012 LTM

12. N E I M A N M A R C U S
11
Recent ecommerce developments
 According to the WSJ, ecommerce represents 20-30% of Chinese retail sales. Among young
shoppers this can be up to 50%
 A PWC study found that more than 25% of consumers were driven online because they could not
find the desired goods in a brick and mortar location
 Frank Lavin, the founder of Export Now, a company that runs ecommerce stores in China for
foreign companies, wrote, "Foreign firms do extremely well in the premium space, where
quality oriented companies… can appeal to the more affluent customer."
ONLINERETAIL
 Neiman recently launched international shipping from its ecommerce site to over 100 countries
 In Q3 2012, Neiman invested $29.4mm in Glamour Sales Holding Limited, an off-price flash
sales website based in Hong Kong
 Recently, Neiman increased its ownership to 44% and partnered with the company to launch a
site in Mandarin targeting Chinese consumers
 Neiman has a team now based in Shanghai, providing it a "feet on the ground" perspective
Asian opportunity
Internet sales will benefit from Neiman's expansion into
China
Source: Company filings, WSJ

13. N E I M A N M A R C U S
12
What would Neiman be worth as an internet and brick &
mortar company?
SOTP
SOTP Multiples valuation
*Corporate expenses were allocated evenly between the two divisions
Source: Company filings, CapIQ
Operating Earnings 2010 2011 2012 LTM Multiple Total
Specialty Retail Stores 273 345 391 395
Amort of intangible assets & favorable leases (73) (63) (50) (48)
Corporate expenses (40) (66) (68) (30)
Adjusted brick & mortar op earnings 159 217 273 318 8.0x 2,542
Online 113 113 132 151
Equity in loss of foreign e-commerce retailer 0 0 (2) (10)
Corporate expenses (40) (66) (68) (30)
Adjusted online op earnings 73 47 63 110 25.0x 2,756
Total (EV value using EBIT multiples) 232 264 335 428 5,298
Net Debt (2,633)
Equity Value 2,665
Brick and Motrar Revenue 3,011 3,245 3,467 3,550
Online Revenue 682 757 879 984 2.0x 1,969
Total 3,693 4,002 4,345 4,535
Brick and mortar value 2,542
EV 4,511
Net Debt (2,633)
Equity Value 1,877

14. N E I M A N M A R C U S
13
What would Neiman be worth as an internet and brick &
mortar company?
INTERNETCOMPS
Internet Comp Set1
Internet Comp Set Commentary
 Using multiples that are at the low end of the range (25x EBIT or 2x sales) Neiman's
enterprise value is $4.5bn – $5.3bn
 These are not perfect comps for Neiman but they show the valuation premiums
that are being attached to ecommerce retailers
 While the retail side of the business receives a lower valuation, the premium that
is attached to the internet side of the business more than makes up the difference
($2.5bn for the brick & mortar business and $2.0bn to 2.8bn for online - depending
on the multiple - for a total of $4.5bn to $5.3bn)
EV Rev
1 year
Rev
Growth EBIT
EBIT
Margin EBITDA
EV/
Rev
EV/
EBIT
EV/
EBITDA
Amazon 125,709 66,848 23.0% 638 1.0% 2,924 1.9x 197.0x 43.0x
Groupon 5,212 2,417 17.9% 63 2.6% 133 2.2x 82.7x 39.2x
RetailMeNot 1,615 156 80.0% 50 32.3% 64 10.4x 32.1x 25.2x
Overstock 618 1,203 13.9% 21 1.7% 36 0.5x 29.9x 17.1x
Neiman
Online 984 17.2% 110 11.2%
1As of 8/17/13
Source: Company filings, CapIQ

15. N E I M A N M A R C U S
14
Discounted Cash Flow Model: $4.7bn
DCF
DCF Model
2010 2011 2012 2013 2014 2015 2016 2017 TV
Revenue 3,693 4,002 4,345 4,609 4,823 5,061 5,326 5,621 5,845
Growth 1.4% 8.4% 8.6% 6.1% 4.7% 4.9% 5.2% 5.5% 4.0%
Net credit card revenue 59 46 52 50 50 50 50 50 50
COGS (2,418) (2,589) (2,795) (2,978) (3,135) (3,290) (3,462) (3,653) (3,800)
Gross profit 1,334 1,459 1,602 1,681 1,738 1,821 1,914 2,017 2,096
SG&A (887) (934) (1,017) (1,083) (1,133) (1,189) (1,252) (1,321) (1,374)
D&A (215) (195) (180) (172) (167) (162) (156) (150) (90)
Operating profit 232 330 405 425 438 470 507 547 632
Operating margin 6.3% 8.2% 9.3% 9.2% 9.1% 9.3% 9.5% 9.7% 10.8%
Taxes 4 (18) (88) (116) (121) (133) (146) (161) (173)
Non levered earnings 235 312 317 309 317 338 360 386 460
Working capital delta (60) (28) (34) (33) (37) (41)
Depreciation 172 167 162 156 150 90
CapEx (135) (90) (90) (90) (90) (90)
Free cash flow 286 366 376 393 408
TV 6,219
Discount factor 90.1% 81.2% 73.1% 65.9% 59.3% 53.5%
Present value 258 297 275 259 242 3,325
Enterprise value 4,656

16. N E I M A N M A R C U S
15
DCF
Gross margin & cost of capital sensitivity analysis
Discounted Cash Flow Model: $4.7bn
 Sales per square foot annual increase: $5
 New Neiman/Bergdorf stores: 0
 Annual net new Last Call stores: 2
 Gross margin: 35%
 SG&A as % of rev: 23.5%
 Tax rate: 37%
 Terminal growth rate: 4.0%
 Cost of capital: 11%
 Days of inventory outstanding: 120 days
 Days payable outstanding: 42 days
Cost of Capital
13.0% 12.5% 12.0% 11.5% 11.0% 10.5%
32.0% 2,682 2,843 3,024 3,230 3,465 3,738
33.0% 2,984 3,164 3,367 3,598 3,862 4,168
34.0% 3,285 3,485 3,710 3,966 4,259 4,598
35.0% 3,586 3,806 4,053 4,334 4,656 5,028
36.0% 3,888 4,127 4,396 4,702 5,053 5,458
37.0% 4,189 4,448 4,739 5,070 5,450 5,888
38.0% 4,490 4,769 5,082 5,438 5,846 6,318
Grossmargin
Terminal growth & cost of capital sensitivity analysisAssumptions
Cost of Capital
13.0% 12.5% 12.0% 11.5% 11.0% 10.5%
2.50% 3,197 3,365 3,551 3,758 3,990 4,252
3.00% 3,314 3,496 3,700 3,927 4,184 4,476
3.50% 3,443 3,642 3,866 4,118 4,404 4,732
4.00% 3,586 3,806 4,053 4,334 4,656 5,028
4.50% 3,747 3,990 4,266 4,581 4,946 5,373
5.00% 3,928 4,198 4,508 4,867 5,285 5,781
5.50% 4,133 4,437 4,789 5,200 5,686 6,271
Terminalgrowth

17. N E I M A N M A R C U S
16
Range of enterprise values
VALUATION
Football field: EV
$3,806
$4,495
$4,511
$5,028
$4,886
$5,298
$2,000 $3,000 $4,000 $5,000 $6,000
DCF
Traditional Comps
SOTP Internet Comps

18. N E I M A N M A R C U S
17
Risks
RISKS
 Online retailers increasingly encroach on Neiman's business lowering margins and
reducing sales
 International shipping reduces margins (though the contribution margin would still
likely be positive)
 The exclusivity of Neiman's is tied to the exclusivity of the brands and designers
sold at Neiman. If brands become less exclusive this lessens the exclusivity and
allure of Neiman as well
 Neiman's buyers do a poor job of refreshing clothing offerings
 2018 debt payment is unable to be rolled over – this would bankrupt the company
Risks

19. N E I M A N M A R C U S
18
The IPO should price at $1.9bn
CONCLUSION
 Neiman should price at $1.9bn
 This value implies a price to earnings multiple of 12.7x, a EV to EBITDA multiple
of 10.6x, and a 1.0x revenue to EV multiple
 Neiman would trade at a slight premium to Nordstroms, Saks, and Macy's for
EV/EBITDA and EV/Revenue but would trade at a discount for P/E1
 The number of shares to be sold has not been released
Conclusion
1As of 8/17/13