The Lasting Sheen on Luxury Goods


By Robert Berner Even as powerhouses such as Wal-Mart Stores (WMT) feel the bite of higher energy costs and weak job growth, one retail sector shows no signs of slowing: luxury goods. That point was underscored Sept. 7, when designer emporium Neiman Marcus Groups (NMGA) reported that its fiscal fourth-quarter profits tripled and handbag retailer Coach (COH) hiked its earnings guidance.

The discrepancy between the upper and lower ends of retail highlights how better-heeled consumers are faring quite well, thank you, in the tepid economic recovery. Moreover, analysts don't expect much to change through the remainder of the year -- including the crucial holiday-selling season. "Upper-end retailers are riding the same wave as many of their shoppers, who are almost immune to the business cycle, and ups and downs in the job market," says Richard Hastings, chief analyst at retailing research firm Bernard Sands LLC.

HIGHER EARNINGS TARGET. Neiman, which operates the Neiman Marcus and Bergdorf Goodman stores, reported net income for its fiscal fourth quarter ended in July of $21 million, or 42 cents a share. The result was 6 cents a share above Wall Street estimates and compares with profits of $7 million, or 15 cents a share, for the same period a year ago.

Total sales rose to $789 million from $703 million. The Dallas-based retailer said stronger-than-expected sales at stores open at least a year led to the surge in profits as its two specialty-store chains sold more goods at full price. Same-store sales rose 12.5% for the quarter, well above original guidance of 8% to 10%. In response, Merrill Lynch raised its earnings forecast for Neiman's fiscal year to $4.47 a share, up 5 cents. Neiman shares rose 31 cents on the news, and closed at $56.60 on Sept. 8.

Coach also cited robust sales in raising its earnings forecast for its first fiscal quarter, which ends in October, and for the fiscal year. It says it now expects first-quarter profits of at least 32 cents a share and annual earnings of at least $1.71 a share. That's up from the New York-based company's August forecast of at least 30 cents for the first quarter and at least $1.64 for the year. Investors welcomed the news, as Coach's shares were up 58 cents, closing at $44.09 on Sept. 8.

WHAT DISPOSABLE INCOME? Compare those results with Wal-Mart. On Sept. 2, it reported that its same-store sales rose just 0.5% in August. Wal-Mart pulled down its fiscal third-quarter earnings forecast to a range at the low end of 52 cents to 54 cents a share. Weak August sales results were echoed by other major retailers that target middle-market to lower-end consumers, from May Department Stores (MAY), whose August same-store sales declined 6.7%, to Kohl's (KSS), where same-store sales fell 0.7%.

Middle- to lower-end consumers are confronting a variety of less-than-friendly forces. They've benefited less proportionally from Washington's tax cuts, while at the same time their incomes are being buffeted by rising energy prices and higher costs for food, household items, and medical services. Sluggish job and personal-income growth hasn't helped this segment of the market also. You can expect those forces to continue to divide the retail landscape for the remainder of the year into the spenders and the spend-nots. Berner is a correspondent in BusinessWeek's Chicago bureau


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