10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

ý         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 30, 2004

OR

o           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file no. 1-9659

The Neiman Marcus Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware	95-4119509
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One Marcus Square
1618 Main Street
Dallas, Texas 75201
(Address of principal executive offices)
(214) 741-6911
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ý          NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES ý          NO o

As of December 1, 2004, the number of outstanding shares of each of the issuer’s classes of common stock was:

Class	Outstanding Shares
Class A Common Stock, $.01 Par Value	29,372,487
Class B Common Stock, $.01 Par Value	19,422,379

THE NEIMAN MARCUS GROUP, INC.

INDEX

Part I.	Financial Information
Item 1.	Condensed Consolidated Balance Sheets as of October 30, 2004, July 31, 2004 and November 1, 2003
	Condensed Consolidated Statements of Earnings for the Thirteen Weeks Ended October 30, 2004 and November 1, 2003
	Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended October 30, 2004 and November 1, 2003
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II.	Other Information
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity and Use of Proceeds
Item 6.	Exhibits
Signatures

THE NEIMAN MARCUS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)	October 30, 2004			July 31, 2004			November 1, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	258,367		$	368,367		$	127,524
Undivided interests in NMG Credit Card Master Trust	—			—			314,138
Accounts receivable, net of allowance of $11,132, $10,078 and $432	641,236			551,687			33,075
Merchandise inventories	881,266			720,277			830,319
Other current assets	72,429			65,835			73,345
Total current assets	1,853,298			1,706,166			1,378,401
Property and equipment, net	706,078			693,772			674,970
Other assets	128,112			145,812			112,655
Total assets	$	2,687,488		$	2,545,750		$	2,166,026
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	293,344		$	289,282		$	266,889
Accrued liabilities	347,232			286,833			323,188
Notes payable and current maturities of long-term liabilities	4,200			1,563			2,252
Current portion of borrowings under Credit Card Facility	225,000			150,000			—
Total current liabilities	869,776			727,678			592,329
Long-term liabilities:
Notes and debentures	249,762			249,757			249,739
Borrowings under Credit Card Facility	—			75,000			—
Other long-term liabilities	115,469			112,455			114,463
Total long-term liabilities	365,231			437,212			364,202
Minority interest	11,474			10,298			9,700
Common stocks	496			492			488
Additional paid-in capital	505,573			491,849			471,328
Accumulated other comprehensive loss	(3,068		)	(4,536		)	(25,642		)
Retained earnings	963,431			905,330			775,667
Treasury stock, at cost (764,631 shares, 710,227 shares and 699,777 shares)	(25,425		)	(22,573		)	(22,046		)
Total shareholders’ equity	1,441,007			1,370,562			1,199,795
Total liabilities and shareholders’ equity	$	2,687,488		$	2,545,750		$	2,166,026

See Notes to Condensed Consolidated Financial Statements.

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THE NEIMAN MARCUS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

	Thirteen Weeks Ended
(in thousands, except per share data)	October 30, 2004			November 1, 2003
Revenues	$	907,936		$	818,769
Cost of goods sold including buying and occupancy costs	554,710			510,350
Selling, general and administrative expenses	227,963			211,130
Loss on disposition of Chef’s Catalog	15,348			—
Operating earnings	109,915			97,289
Interest expense, net	4,037			3,462
Earnings before income taxes and minority interest	105,878			93,827
Income taxes	40,975			36,592
Earnings before minority interest	64,903			57,235
Minority interest in net earnings of subsidiaries	(787		)	(1,010		)
Net earnings	$	64,116		$	56,225
Weighted average number of common and common equivalent shares outstanding:
Basic	48,226			47,624
Diluted	49,133			48,396
Earnings per share:
Basic	$	1.33		$	1.18
Diluted	$	1.30		$	1.16

See Notes to Condensed Consolidated Financial Statements.

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THE NEIMAN MARCUS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)	Thirteen Weeks Ended
	October 30, 2004			November 1, 2003
CASH FLOWS - OPERATING ACTIVITIES
Net earnings	$	64,116		$	56,225
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
Depreciation	23,075			21,288
Loss on disposition of Chef’s Catalog	15,348			—
Minority interest	787			1,010
Other - primarily costs related to defined benefit pension and other long-term benefit plans	8,230			8,645
	111,556			87,168
Changes in operating assets and liabilities:
Increase in accounts receivable	(89,549		)	(10,480		)
Increase in merchandise inventories	(160,989		)	(143,257		)
Increase in accounts payable and accrued liabilities	65,401			61,566
Other	(1,377		)	13,118
Net cash (used for) provided by operating activities	(74,958		)	8,115
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	(35,381		)	(22,073		)
Transactions related to undivided interests in NMG Credit Card Master Trust:
Purchases of held-to-maturity securities	—			(303,326		)
Maturities of held-to-maturity securities	—			231,753
Net cash used for investing activities	(35,381		)	(93,646		)
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from borrowings	2,750			1,000
Acquisitions of treasury stock	(2,851		)	(7,026		)
Proceeds from stock-based compensation awards	6,864			12,293
Cash dividends paid	(6,314		)	—
Distribution paid	(110		)	(162		)
Net cash provided by financing activities	339			6,105
CASH AND CASH EQUIVALENTS
Decrease during the period	(110,000		)	(79,426		)
Beginning balance	368,367			206,950
Ending balance	$	258,367		$	127,524
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	1,170		$	174
Income taxes	$	2,311		$	586

See Notes to Condensed Consolidated Financial Statements.

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THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.     Basis of Presentation

We have prepared the Condensed Consolidated Financial Statements of The Neiman Marcus Group, Inc. and its subsidiaries in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 31, 2004.

Our fiscal year ends on the Saturday closest to July 31.  All references to the first quarter of 2005 relate to the thirteen weeks ended October 30, 2004 and all references to the first quarter of 2004 relate to the thirteen weeks ended November 1, 2003.  All references to 2005 relate to the fifty-two weeks ending July 30, 2005.

In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows for the applicable interim periods.  The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year as a whole.

We are required to make estimates and assumptions about future events in preparing financial statements in conformity with generally accepted accounting principles.  These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the Condensed Consolidated Financial Statements.  We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances.  We make adjustments to our assumptions and judgments when facts and circumstances dictate.  Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying Condensed Consolidated Financial Statements.

We believe the following critical accounting policies, among others, encompass the more significant judgments and estimates used in the preparation of our financial statements:

•Revenue recognition;

•Valuation of merchandise inventories, including determination of original retail values, recognition of markdowns and vendor allowances, estimation of inventory shrinkage, and determination of cost of goods sold;

•Recognition of income and expenses related to our securitization program;

•Determination of impairment of long-lived assets;

•Recognition of advertising and catalog costs;

•Measurement of liabilities related to our loyalty programs;

•Recognition of income taxes; and

•Measurement of accruals for litigation, general liability, workers’ compensation and health insurance, short-term disability, pension and postretirement health care benefits.

A description of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2004.

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Stock-Based Compensation.  We account for stock-based compensation awards to employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, we have recognized no compensation expense for stock options since all options granted had an exercise price equal to the market value of our common stock on the grant date.

The following table illustrates the effect on net earnings and earnings per share as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation using the Black-Scholes option-pricing model for the first quarter of 2005 and 2004:

(in thousands, except per share data)	Thirteen Weeks Ended
	October 30, 2004			November 1, 2003
Net earnings:
As reported	$	64,116		$	56,225
Less: stock-based employee compensation expense determined under fair value based method, net of related taxes	(1,962		)	(2,042		)
Pro forma	$	62,154		$	54,183
Basic earnings per share:
As reported	$	1.33		$	1.18
Pro forma	$	1.29		$	1.14
Diluted earnings per share:
As reported	$	1.30		$	1.16
Pro forma	$	1.27		$	1.12

The effects on pro forma net earnings and earnings per share of expensing the estimated fair value of stock options are not necessarily representative of the effects on reported net earnings for future periods due to such factors as the vesting periods of stock options and the potential issuance of additional stock options in future years.  In addition, the Black-Scholes option-pricing model has inherent limitations in calculating the fair value of stock options for which no active market exists since the model does not consider the inability to sell or transfer options, vesting requirements and a reduced exercise period upon termination of employment - all of which would reduce the fair value of the options.

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Reclassification.  A substantial portion of the points earned by customers in connection with our loyalty programs are redeemed for gift cards.  At the time the qualifying sales giving rise to the loyalty program points are made, we defer the portion of the revenues on the qualifying sales transactions equal to our estimate of the retail value of the gift cards to be issued upon conversion of the points to gift cards.  Beginning in the first quarter of 2005, we began to record the deferral of revenues related to gift cards awards under our loyalty programs as a reduction of revenues. Previously, we charged such amounts to selling, general and administrative expenses (SG&A).  In addition, we now charge the cost of all other awards under our loyalty programs to cost of goods sold (COGS) rather than SG&A.  These changes in classification do not impact the previously reported operating earnings, net income or earnings per share amounts.

The following table presents quarterly and annual information giving recognition to the changes in classification related to our loyalty programs:

(in thousands)	Revenues		COGS		SG&A
Fiscal Year 2004:
First quarter	$	818,769	$	510,350	$	211,130
Second quarter	1,048,367		718,985		239,381
Third quarter	873,167		544,663		208,909
Fourth quarter	784,468		553,231		189,033
Total	$	3,524,771	$	2,327,229	$	848,453
Fiscal Year 2003:
First quarter	$	727,832	$	455,307	$	197,281
Second quarter	934,844		655,459		220,981
Third quarter	718,557		465,160		181,565
Fourth quarter	699,120		502,510		179,981
Total	$	3,080,353	$	2,078,436	$	779,808

2.Loss on Disposition of Chef’s Catalog

In November 2004, we sold our Chef’s Catalog direct marketing business to a private equity firm.  Chef’s Catalog is a multi-channel retailer of professional-quality kitchenware with revenues in 2004 of approximately $73 million.  At October 30, 2004, Chef’s Catalog had net tangible assets, primarily inventory, of $12.5 million and net intangible assets of $17.2 million.  We received proceeds, net of selling costs, of $14.4 million from the sale.  As the carrying value of the Chef’s Catalog assets exceeded the fair value of such assets as determined by the sale, we incurred a pre-tax loss of $15.3 million in the first quarter of 2005 related to the disposition of Chef’s Catalog.

3.Operating Segments

We have identified two reportable segments: Specialty Retail Stores and Direct Marketing.  The Specialty Retail Stores segment includes all of our Neiman Marcus and Bergdorf Goodman retail stores, including Neiman Marcus clearance stores.  The Direct Marketing segment conducts both print catalog and online operations under the Neiman Marcus, Horchow and Bergdorf Goodman brand names.  Other includes the operations of Kate Spade LLC and Gurwitch Products, LLC (the Brand Development Companies) and corporate expenses.

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The following table sets forth the information for our reportable segments:

(in thousands)	Thirteen Weeks Ended
	October 30,  2004			November 1, 2003
REVENUES:
Specialty Retail Stores	$	736,890		$	664,474
Direct Marketing	139,799			128,006
Other	31,247			26,289
Total	$	907,936		$	818,769
OPERATING EARNINGS:
Specialty Retail Stores	$	120,189		$	91,109
Direct Marketing	11,358			10,624
Other	(6,284		)	(4,444		)
Loss on disposition of Chef’s Catalog	(15,348		)	—
Total	$	109,915		$	97,289

4.     Stock Repurchase Program

In prior years, our Board of Directors authorized various stock repurchase programs and increases in the number of shares subject to repurchase.  In the first quarter of 2005, we repurchased 54,404 shares at an average purchase price of $52.40.  As of October 30, 2004, approximately 1.2 million shares remain available for repurchase under our stock repurchase programs.

5.     Earnings per Share

The weighted average shares used in computing basic and diluted earnings per share (EPS) are presented in the table below.  We made no adjustments to net earnings for the computations of basic and diluted EPS during the periods presented.

(in thousands of shares)	Thirteen Weeks Ended
	October 30, 2004		November 1, 2003
Weighted average shares outstanding	48,730		48,078
Less: shares of non-vested restricted stock	(504	)	(454	)
Shares for computation of basic EPS	48,226		47,624
Effect of dilutive stock options and restricted stock	907		772
Shares for computation of diluted EPS	49,133		48,396
Shares represented by antidilutive stock options	569		28

We did not include antidilutive stock options in the computation of diluted EPS because the exercise price of those options was greater than the average market price of the common shares.

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6.     Undivided Interests in NMG Credit Card Master Trust

Pursuant to a revolving credit card securitization program (the Credit Card Facility), we transfer substantially all of our credit card receivables to a wholly-owned subsidiary, Neiman Marcus Funding Corporation, which in turn sells such receivables to the Neiman Marcus Credit Card Master Trust (Trust).  At the inception of the Credit Card Facility in September 2000, the Trust issued certificates representing undivided interests in the credit card receivables to third-party investors in the face amount of $225 million (Sold Interests).  We hold certificates representing interests in the credit card portfolio equal to the excess of the balance of the credit card portfolio over $225 million (Retained Interests).  In order to maintain the committed level of securitized assets, the Trust uses cash collections on the securitized receivables to purchase new credit card balances from us in accordance with the terms of the Credit Card Facility.

From the inception of the Credit Card Facility until December 2003, our transfers and sales of credit card receivables pursuant to the terms of the Credit Card Facility were accounted for as sales (Off-Balance Sheet Accounting).  As a result, we removed $225 million of credit card receivables from our balance sheet at the inception of the Credit Card Facility and our $225 million repayment obligation to the holders of the certificates representing the Sold Interests was not required to be shown as a liability on our consolidated balance sheet.  During the period the transfers and sales qualified for Off-Balance Sheet Accounting, our Retained Interests were shown as “Undivided interests in NMG Credit Card Master Trust” on our consolidated balance sheets.

Beginning in December 2003, our transfers to the Trust ceased to qualify for Off-Balance Sheet Accounting.  Rather, credit card receivables transferred to the Trust after November 2003 remain on our balance sheet and are recorded as secured borrowings (Financing Accounting).  The transition period from Off-Balance Sheet Accounting to Financing Accounting (Transition Period) lasted approximately four months (December 2003 to March 2004).  During the Transition Period, we allocated cash collections on our credit card receivables to the previous Sold Interests and Retained Interests until such time as those balances were reduced to zero and we recorded a liability for our repayment obligation to the holders of the $225 million of certificates representing the Sold Interests.

A reconciliation of the outstanding balance of our accounts receivable to the balances recorded at October 30, 2004 and November 1, 2003 is as follows:

(in millions)	October 30, 2004		November 1, 2003
Credit card receivables, net	$	602.9	$	539.1
Other receivables	38.3		33.1
	641.2		572.2
Less: Sold Interests originally qualifying for Off-Balance Sheet Accounting	—		(225.0		)
Net balance	$	641.2	$	347.2
Amounts reflected in the balance sheet:
Undivided interests in NMG Credit Card Master Trust	$	—	$	314.1
Accounts receivable, net	641.2		33.1
	$	641.2	$	347.2
Current portion of borrowings under Credit Card Facility	$	225.0	$	—

After the Transition Period, our entire credit card portfolio is included in accounts receivable in our consolidated balance sheet and the $225 million repayment obligation is shown as a liability.

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7.     Employee Benefit Plans

Description of Benefit Plans.  We sponsor a defined benefit pension plan (Pension Plan) covering substantially all full-time employees.  We also sponsor an unfunded supplemental executive retirement plan (SERP Plan) that provides additional pension benefits to certain employees.  Benefits under both plans are based on the employees’ years of service and compensation over defined periods of employment.  Pension Plan assets consist primarily of equity and fixed income securities.

Retirees and active employees hired prior to March 1, 1989 are eligible to participate in a plan providing certain limited postretirement health care benefits (Postretirement Plan) if they have met certain service and minimum age requirements.

Costs of Benefits.  The components of the expenses incurred under our Pension Plan, SERP Plan and Postretirement Plan are as follows:

(in thousands)	Thirteen Weeks Ended
	October 30, 2004			November 1, 2003
Pension Plan:
Service cost	$	3,196		$	3,168
Interest cost	4,636			4,823
Expected return on plan assets	(4,712		)	(4,835		)
Net amortization of losses and prior service costs	1,208			933
Pension Plan expense	$	4,328		$	4,089
SERP Plan:
Service cost	$	361		$	340
Interest cost	1,014			974
Net amortization of losses and prior service costs	384			366
SERP Plan expense	$	1,759		$	1,680
Postretirement Plan:
Service cost	$	15		$	20
Interest cost	318			384
Net amortization of losses	26			110
Postretirement expense	$	359		$	514

Funding Policy and Plan Assets.  Our policy is to fund the Pension Plan at or above the minimum required by law.  In 2004, we made voluntary contributions of $30.0 million in the second quarter and $15.0 million in the fourth quarter for the plan year ended July 31, 2003.  Based upon currently available information, we will not be required to make contributions to the Pension Plan for either the 2004 or 2005 plan years.

8.     Commitments and Contingencies

We are involved in various suits and claims in the ordinary course of business.  We do not believe that the disposition of any such suits or claims will have a material adverse effect upon our consolidated results of operations, cash flows or financial position.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Company Profile

The Neiman Marcus Group, Inc., together with its operating divisions and subsidiaries, is a high-end specialty retailer.  Our operations include the Specialty Retail Stores segment and the Direct Marketing segment.  Our Specialty Retail Stores segment consists primarily of Neiman Marcus and Bergdorf Goodman stores.  Our Direct Marketing segment conducts both print catalog and online operations under the brand names of Neiman Marcus, Horchow and Bergdorf Goodman (beginning in September 2004).  We recently sold our Chef’s Catalog operations, as more fully described in Note 2 to the Condensed Consolidated Financial Statements.

We own a 51 percent interest in Gurwitch Products, LLC, which distributes and markets the Laura Mercier cosmetic line, and a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories.  Gurwitch Products, LLC and Kate Spade LLC are hereafter referred to collectively as the “Brand Development Companies.”

Our fiscal year ends on the Saturday closest to July 31.  All references to the first quarter of 2005 relate to the thirteen weeks ended October 30, 2004 and all references to the first quarter of 2004 relate to the thirteen weeks ended November 1, 2003.  All references to 2005 relate to the fifty-two weeks ending July 30, 2005.

The information contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 31, 2004.  Unless otherwise specified, the meanings of all defined terms in MD&A are consistent with the meanings of such terms as defined in the Notes to the Condensed Consolidated Financial Statements.

Overview of the Business

We believe that our unique product assortment of luxury, designer and fashion merchandise, coupled with our sales promotion activities and our commitment to superior customer service, have been critical to our success in the past.  In addition, we believe these factors are critical to our future growth and success.

We conduct our selling activities in two primary selling seasons, Fall and Spring.  Sales and margins increase and decrease during each selling season due to the results of in-store marketing towards the beginning of each season, sales on a marked down basis towards the end of each season and the effects of the December holiday season.  As a result of the seasonality of our selling activities, inventory management is critical to our success.

Inherent in the successful execution of our business plans, particularly our inventory management strategy, 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.  Accordingly, 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 for the fashion goods offered or a higher than anticipated level of consumer spending.  Conversely, in the event we buy fashion goods that are not accepted by our 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 help to minimize the inherent risk in predicting fashion trends and related demand.

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First Quarter Fiscal Year 2005 Highlights

Diluted earnings per share for the first quarter of 2005 increased 12.1 percent to $1.30 from $1.16 in the prior year period.  Other significant highlights for the first quarter of 2005 include:

•Revenues – Our revenues for the first quarter of 2005 were $907.9 million compared to $818.8 million in the prior year period.  Total revenues increased 10.9 percent in the first quarter of 2005 while comparable revenues increased 11.4 percent.  We have experienced double digit percentage increases in comparable store sales in the last five consecutive quarters.

•Margins – Margins increased to 38.9 percent of revenues in the first quarter of 2005 from 37.7 percent in the first quarter of 2004.  This increase is reflective of the high level of acceptance and demand for the fashion goods we offer as well as our purchasing efforts that resulted in the close alignment of purchases to customer demand.  These factors resulted in a lower level of markdowns in the current quarter.

•Selling, general and administrative expenses – Selling, general and administrative (SG&A) expenses decreased to 25.1 percent of revenues from 25.8 percent in the first quarter 2004.  This decrease was attributable to both the leveraging of fixed expenses over the higher revenue base and the control and containment of variable expenses.

•Loss on disposition of Chef’s Catalog – In the first quarter of 2005, we incurred a pre-tax loss of  $15.3 million related to the sale of our Chef’s Catalog direct marketing business.

•Operating earnings – Operating earnings increased 13.0 percent in the first quarter of 2005, representing 12.1 percent of our revenues compared to 11.9 percent in first quarter of 2004.  Excluding the loss on disposition of Chef’s Catalog, operating earnings were 13.8 percent of our revenues for the first quarter of 2005.  Operating earnings were 16.3 percent of revenues for our Specialty Retail Stores and 8.1 percent of revenues for Direct Marketing.

OPERATING RESULTS

Performance Summary

The following table sets forth certain items expressed as percentages of net sales for the periods indicated.

	Thirteen Weeks Ended
	October 30, 2004		November 1, 2003
Revenues	100.0	%	100.0	%
Cost of goods sold including buying and occupancy costs	61.1		62.3
Selling, general and administrative expenses	25.1		25.8
Loss on disposition of Chef’s Catalog	1.7		—
Operating earnings	12.1		11.9
Interest expense, net	0.4		0.4
Earnings before income taxes, minority interest and change in accounting principle	11.7		11.5
Income taxes	4.5		4.5
Earnings before minority interest	7.2		7.0
Minority interest in net earnings of subsidiaries	(0.1	)	(0.1	)
Net earnings	7.1	%	6.9	%

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Set forth in the following table is certain summary information with respect to our operations for the periods indicated.

(dollars in millions)	Thirteen Weeks Ended
	October 30, 2004			November 1, 2003
REVENUES
Specialty Retail Stores	$	736.9		$	664.5
Direct Marketing	139.8			128.0
Other (1)	31.2			26.3
Total	$	907.9		$	818.8
OPERATING EARNINGS
Specialty Retail Stores	$	120.2		$	91.1
Direct Marketing	11.3			10.6
Other (1)	(6.3		)	(4.4		)
Loss on disposition of Chef’s Catalog	(15.3		)	—
Total	$	109.9		$	97.3
OPERATING PROFIT MARGIN
Specialty Retail Stores	16.3		%	13.7		%
Direct Marketing	8.1		%	8.3		%
Total	12.1		%	11.9		%
COMPARABLE REVENUES (2)
Specialty Retail Stores (3)	11.1		%	9.6		%
Direct Marketing (4)	13.1		%	13.2		%
Total (3), (4)	11.4		%	10.9		%
STORE COUNT
Neiman Marcus and Bergdorf Goodman stores:
Open at beginning of period	37			37
Opened during the period	—			—
Open at end of period	37			37
Clearance centers:
Open at beginning of period	14			14
Opened during the period	—			—
Open at end of period	14			14

(1)Other includes the operations of the Brand Development Companies and corporate expenses.

(2)Comparable revenues include 1) revenues derived from our retail stores open for more than 52 weeks, including stores that have been relocated or expanded, 2) revenues from our Direct Marketing operations and 3) revenues from our Brand Development Companies.

(3)The calculation of the changes in comparable revenues has been adjusted to give recognition to the change in classification of revenues deferred in connection with our loyalty programs, as more fully described in Note 1 to the Condensed Consolidated Financial Statements.

(4)The calculation of the changes in comparable revenues has been adjusted to exclude the revenues of Chef’s Catalog for all periods prior to our sale of these operations in November 2004, as more fully described in Note 2 to the Condensed Consolidated Financial Statements.

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Thirteen Weeks Ended October 30, 2004 Compared to Thirteen Weeks Ended November 1, 2003

Revenues.Our revenues for the first quarter of 2005 of $907.9 million increased $89.1 million, or 10.9 percent, from $818.8 million in the first quarter of 2004.

Comparable revenues in the first quarter of 2005 increased 11.4 percent compared to the prior year period.  Comparable revenues increased 11.1 percent for Specialty Retail Stores and 13.1 percent for Direct Marketing.  Comparable revenues in the first quarter of 2004 increased by 10.9 percent.

Revenues increased in the first quarter of 2005 compared to the prior year at all our operating companies, consistent with a higher level of consumer spending, in general, with a higher increase coming from the affluent luxury customer served by the company.  In addition, we believe the increases in comparable revenues were driven by sales events conducted by our Specialty Retail Stores and by the growth of internet sales for Direct Marketing.  In the first quarter of 2005, internet sales by Direct Marketing, excluding Chef’s Catalog, were $60.7 million, an increase of 42.7 percent from the first quarter of 2004.

Gross margin.  Gross margin was 38.9 percent of revenues for the first quarter of  2005 compared to 37.7 percent in the prior year period.  The increase in gross margin was primarily due to higher product margins and a decrease in buying and occupancy costs as a percentage of revenues.

We incurred a lower level of net markdowns at both our Specialty Retail Stores and Direct Marketing during the first quarter of 2005 resulting in higher product margins.  Net markdowns decreased as a percentage of revenues by 0.2 percent in the first quarter of 2005 compared to the prior year period.  For Specialty Retail Stores, full-price sales increased in the first quarter of 2005 compared to the prior year period.  We believe the lower level of markdowns was due to the higher level of sales generated during the quarter and our continued emphasis on both inventory management and full-price selling.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale.  We receive certain allowances to reimburse us for markdowns taken and/or to support the gross margins earned in connection with the sales of the vendor’s merchandise.  We recognize these allowances as an increase to gross margin when the allowances are earned and approved by the vendor.  Other allowances we receive represent reductions to the amounts paid to acquire the merchandise.  We recognize these allowances as a reduction in the cost of the acquired merchandise resulting in an increase to gross margin at the time the goods are sold.  The amount of vendor reimbursements we received did not have a significant impact on the year-over-year change in gross margin in the first quarter of 2005.

A significant portion of our buying and occupancy costs are fixed in nature.  Buying and occupancy costs decreased as a percentage of revenues during the first quarter of 2005 compared to the prior year period primarily due to the leveraging of fixed expenses, including payroll expenses, depreciation, rent and related occupancy expenses over the higher level of revenues we generated during the first quarter of 2005.

Selling, general and administrative expenses.  SG&A expenses were 25.1 percent of revenues in the first quarter of 2005 compared to 25.8 percent of revenues in the prior year period.

The net decrease in SG&A expenses as a percentage of revenues in the first quarter of 2005 was primarily due to 1) productivity improvements for our Specialty Retail Stores in various expense categories, including payroll and advertising, as a result of the higher level of revenues in the first quarter of 2005, as well as the control and containment of variable expenses, 2) lower costs for incentive compensation compared to the prior year period, 3) a lower level of bad debt expense related to our credit card portfolio and 4) lower costs related to store remodels.

The decreases in SG&A expenses as a percentage of revenues were partially offset by 1) higher catalog and other marketing costs incurred by our Direct Marketing operations in connection with the planned increase in catalog circulation and web-based marketing prior to the holiday season and 2) higher professional fees.

Loss on disposition of Chef’s Catalog.  In November 2004, we sold our Chef’s Catalog direct marketing business to a private equity firm.  Chef’s Catalog is a multi-channel retailer of professional-quality kitchenware with revenues in 2004 of approximately $73 million.  At October 30, 2004, Chef’s Catalog had net tangible assets, primarily inventory, of $12.5 million and net intangible assets of $17.2 million.  We received proceeds, net of selling costs, of $14.4 million from the sale. As the carrying value of the Chef’s Catalog assets exceeded the fair value of such assets as determined by the sale, we incurred a pre-tax loss of $15.3 million in the first quarter of 2005 related to the disposition of Chef’s Catalog.

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Segment operating earnings.  Operating earnings for our Specialty Retail Stores segment were $120.2 million for the first quarter of 2005 compared to $91.1 million for the prior year period.  This 31.9 percent increase was primarily the result of increased sales, reduced markdowns and net decreases in both buying and occupancy expenses and SG&A expenses as percentages of revenues.

Operating earnings for Direct Marketing increased to $11.3 million in the first quarter of 2005 from $10.6 million for the prior year period, primarily as a result of increased revenues, reduced markdowns and net decreases in buying and occupancy costs as a percentage of revenues offset, in part, by higher SG&A expenses as a percentage of revenues primarily related to higher catalog production and web-based marketing costs.

Interest expense, net.  Net interest expense was $4.0 million in the first quarter of 2005 and $3.5 million for the prior year period.

Income taxes.  Our effective income tax rate was 38.7 percent for the first quarter of 2005 and 39.0 percent for the prior year period.

Outlook

Based on current estimates, we anticipate percentage increases in comparable store revenues of 8 to 10 percent for our second quarter ending January 29, 2005.  The accuracy of our assumptions and forecasts is subject to uncertainties and circumstances beyond our control.  Consequently, actual results could differ materially from the forecasted results.  See “Factors That May Affect Future Results” for a discussion of items and events that could cause our actual results to vary from our expectations.

Inflation and Deflation

We believe changes in revenues and net earnings that have resulted from inflation or deflation have not been material during the periods presented.  In recent years, we have experienced certain inflationary conditions related to 1) increases in product costs due primarily to changes in foreign currency exchange rates that have reduced the purchasing power of the U.S. dollar and 2) increases in SG&A.  We attempt to offset the effects of inflation through control of expenses and price increases, although our ability to increase prices may be limited by competitive factors.  We attempt to offset the effects of merchandise deflation, which has occurred on a limited basis in recent years, through control of expenses.  There is no assurance, however, that inflation or deflation will not materially affect our operations in the future.

LIQUIDITY AND CAPITAL RESOURCES

Our cash requirements consist principally of 1) the funding of our accounts receivable and merchandise purchases, 2) capital expenditures for new store growth, store renovations and upgrades of our management information systems, 3) debt service requirements and 4) obligations related to our Pension Plan.  Our working capital requirements fluctuate during the year, increasing substantially during the first and second quarters of each fiscal year as a result of higher seasonal levels of accounts receivable and inventory.  We typically finance the increases in working capital needs during the first and second fiscal quarters with cash flows from operations, cash provided from the Credit Card Facility and borrowings under the Credit Agreement.

Our primary sources of short-term liquidity are comprised of cash on hand and availability under our $350 million unsecured revolving credit agreement.  As of October 30, 2004, we had cash and cash equivalents of $258.4 million and no outstanding borrowings under our credit agreement.  Our cash and cash equivalents consisted principally of invested cash and store operating cash.  At November 1, 2003, we had cash and cash equivalents of $127.5 million and no outstanding borrowings under a previous $300 million unsecured revolving credit facility.  The amount of cash on hand and borrowings under the credit facility are influenced by a number of factors, including revenues, accounts receivable and inventory levels, vendor terms, the level of capital expenditures, cash requirements related to financing instruments, Pension Plan funding obligations and tax payment obligations, among others.

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We believe that operating cash flows, currently available vendor financing and amounts available pursuant to our credit agreement and our $225 million Credit Card Facility should be sufficient to fund our operations, debt service, Pension Plan funding requirements, contractual obligations and commitments and currently anticipated capital expenditure requirements through the end of 2005.  In addition, we anticipate negotiating a new credit card facility to replace the Credit Card Facility prior to the final payoff of our borrowings in September 2005.

We generated cash from operations (net earnings as adjusted for non-cash charges) of $111.6 million in the first quarter of 2005 compared to $87.2 million in prior year period.  However, we used cash of $75.0 million in conducting our operating activities in the first quarter of 2005, primarily in funding the seasonal increase in our accounts receivable and merchandise inventories.  Both accounts receivable and inventories were higher at the end of the first quarter of 2005 compared to 2004 consistent with our higher sales levels.  As shown in the condensed consolidated statement of cash flows, we generated cash of $8.1 million in connection with our operating activities in the first quarter of 2004.  The determination of operating cash flows for the prior year was impacted by the Off-Balance Sheet Accounting for the credit card securitization program, whereby the $71.6 million increase in the Retained Interests during the first quarter of 2004 impacted cash flows from investing activities rather than operating activities.  As adjusted for the change in Retained Interests, cash used for operating activities was $63.5 million in the first quarter of 2004.

Net cash used for investing activities was $35.4 million in the first quarter of 2005 compared to $93.6 million in the prior year period.  The decrease in cash used for investing activities in the first quarter of 2005 was primarily due to the impact of the discontinuance of Off-Balance Sheet Accounting, offset by a higher level of capital expenditures.

Capital expenditures were $35.4 million in the first quarter of 2005 and $22.1 million in the prior year period.  We currently project capital expenditures for 2005 to be approximately $160 million to $170 million primarily for new store construction, store renovations and upgrades to information systems, including warehousing systems to support our Direct Marketing operation and a new human capital management system.  We are currently remodeling our stores in Newport Beach, Los Angeles, San Francisco and Houston.  We expect to complete the expansion and renovation of the Newport Beach and Los Angeles stores in the spring of fiscal year 2005 and the San Francisco and Houston stores in the spring of fiscal 2006.

Financing Structure

Our major sources of funds are comprised of vendor financing, the $350 million credit agreement, the $225 million Credit Card Facility, $125 million senior unsecured notes, $125 million senior unsecured debentures, operating leases and capital leases.

At October 30, 2004, we had $225.0 million borrowings under our Credit Card Facility.  Repayment of this obligation begins in April 2005 in six monthly installments of $37.5 million.  Borrowings pursuant to the Credit Card Facility bear interest at the contractually-defined rate of one month LIBOR plus 0.27 percent (2.14 percent at October 30, 2004) and are payable monthly to the holders of the Class A Certificates.  We anticipate negotiating a new credit card facility to replace the Credit Card Facility prior to the final payoff of our borrowings in September 2005.

In the second quarter of 2004, our Board of Directors initiated a quarterly cash dividend of $0.13 per share.  We declared dividends on October 30, 2004 aggregating $6.4 million.  These dividends were paid in November 2004.

In prior years, our Board of Directors authorized various stock repurchase programs and increases in the number of shares subject to repurchase.  In the first quarter of 2005, we repurchased 54,404 shares at an average purchase price of $52.40.  As of October 30, 2004, approximately 1.2 million shares remain available for repurchase under the stock repurchase programs.

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Off-Balance Sheet Arrangements

Pursuant to a revolving credit card securitization program, we transfer substantially all of our credit card receivables to a wholly-owned subsidiary, Neiman Marcus Funding Corporation, which in turn sells such receivables to the Neiman Marcus Credit Card Master Trust (Trust).  At the inception of the Credit Card Facility in September 2000, the Trust issued certificates representing undivided interests in the credit card receivables to third-party investors in the face amount of $225 million (Sold Interests).  We hold certificates representing interests in the credit card portfolio equal to the excess of the balance of the credit card portfolio over $225 million (Retained Interests).  In order to maintain the committed level of securitized assets, the Trust uses cash collections on the securitized receivables to purchase new credit card balances from us in accordance with the terms of the Credit Card Facility.  Beginning in April 2005, cash collections will be used by the Trust to repay the $225 million principal balance of the Class A Certificates in six monthly installments of $37.5 million.

From the inception of the Credit Card Facility until December 2003, our transfers and sales of credit card receivables pursuant to the terms of the Credit Card Facility were accounted for as sales (Off-Balance Sheet Accounting).  As a result, we removed the $225 million of credit card receivables sold from our balance sheet at the inception of the Credit Card Facility and our $225 million repayment obligation to the holders of the certificates representing the Sold Interests was not required to be shown as a liability on our consolidated balance sheet.  During the period the transfers and sales qualified for Off-Balance Sheet Accounting, the Retained Interests were shown as “Undivided interests in NMG Credit Card Master Trust” on the consolidated balance sheets.

Beginning in December 2003, our transfers to the Trust ceased to qualify for Off-Balance Sheet Accounting.  Rather, credit card receivables transferred to the Trust after November 2003 remain on our balance sheet and are recorded as secured borrowings (Financing Accounting).  As of October 30, our entire credit card portfolio is included in accounts receivable and the $225 million of outstanding borrowings under the Credit Card Facility are shown as a liability in the condensed consolidated balance sheet.

Our securitization of credit card receivables is more fully described in Note 6 of the Notes to Condensed Consolidated Financial Statements.

OTHER MATTERS

Factors That May Affect Future Results

Matters discussed in MD&A include forward-looking statements.  We make these forward-looking statements based on our expectations and beliefs concerning future events, as well as currently available data.  These forward-looking statements involve a number of risks and uncertainties and, therefore, are not guarantees of future performance.  A variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in our forward-looking statements.  Factors that could affect future performance include, but are not limited, to:

Political and General Economic Conditions

•current political and general economic conditions or changes in such conditions;

•terrorist activities in the United States;

•political, social, economic, or other events resulting in the short or long-term disruption in business at our stores, distribution centers or offices;

Customer Demographic Issues

•changes in the demographic or retail environment;

•changes in consumer confidence resulting in a reduction of discretionary spending on goods that are, or are perceived to be, “luxuries”;

•changes in consumer preferences or fashion trends;

•changes in our relationships with key customers;

•changes in our proprietary credit card arrangement that adversely impact our ability to provide consumer credit;

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Merchandise Procurement and Supply Chain Considerations

•changes in our relationships with designers, vendors and other sources of merchandise, including adverse changes in their financial viability;

•delays in receipt of merchandise ordered due to work stoppages and/or other causes of delay in connection with either the manufacture or shipment of such merchandise;

•changes in foreign currency exchange rates;

•significant increases in paper, printing and postage costs;

Industry and Competitive Factors

•competitive responses to our marketing, merchandising and promotional efforts and/or inventory liquidations by vendors or other retailers;

•seasonality of the retail business;

•adverse weather conditions or natural disasters, particularly during peak selling seasons;

•delays in anticipated store openings and renovations;

Employee Considerations

•changes in key management personnel;

•changes in our relationships with certain of our key sales associates;

Legal and Regulatory Issues

•changes in government or regulatory requirements increasing our costs of operations;

•litigation that may have an adverse effect on our financial results or reputation;

Other Factors

•impact of funding requirements related to our noncontributory defined benefit pension plan;

•the design and implementation of new information systems as well as enhancements of existing systems.

We undertake no obligation to update or revise (publicly or otherwise) any forward-looking statements to reflect subsequent events, new information or future circumstances.

Critical Accounting Policies

The preparation of condensed financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions about future events.  These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the Condensed Consolidated Financial Statements.  Our current estimates are subject to change if different assumptions as to the outcome of future events were made.  We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances.  We make adjustments to our assumptions and judgments when facts and circumstances dictate.  Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates we used in preparing the accompanying Condensed Consolidated Financial Statements.

See Note 1 of the Notes to Condensed Consolidated Financial Statements in Item 1 for a summary of our critical accounting policies.  A complete description of our critical accounting policies is included in our Annual Report to Shareholders on Form 10-K for the fiscal year ended July 31, 2004.

We have changed the basis of presentation of certain prior year amounts and calculations presented in this quarterly report to conform to the current year presentation.

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Reclassification.  As more fully described in Note 1, a substantial portion of the points earned by customers in connection with our loyalty programs are redeemed for gift cards.  At the time the qualifying sales giving rise to the loyalty program points are made, we defer the portion of the revenues on the qualifying sales transactions equal to our estimate of the retail value of the gift cards to be issued upon conversion of the points to gift cards.  Beginning in the first quarter of 2005, we began to record the deferral of revenues related to gift cards awards under our loyalty programs as a reduction of revenues. Previously, we charged such amounts to selling, general and administrative expenses.  In addition, we now charge the cost of all other awards under our loyalty programs to cost of goods sold rather than SG&A.  These changes in classification do not impact the previously reported operating earnings, net income or earnings per share amounts.

Changes in Comparable Revenues.  As more fully described in Note 2, we have sold our Chef’s Catalog operations.  The changes in comparable revenues have been adjusted 1) to exclude the revenues of Chef’s Catalog operations for all periods prior to the sale and 2) to give recognition to the change in classification of revenues deferred in connection with our loyalty programs and are summarized below:

	Total		Specialty Retail  Stores		Direct Marketing
Fiscal Year 2004:
First quarter	10.9	%	9.6	%	13.2	%
Second quarter	12.7	%	10.2	%	25.7	%
Third quarter	22.0	%	22.2	%	14.4	%
Fourth quarter	12.6	%	11.3	%	21.7	%
Fiscal year 2004	14.4	%	13.1	%	19.2	%
Fiscal Year 2003:
First quarter	6.3	%	5.0	%	15.7	%
Second quarter	0.9	%	(2.1	)%	18.7	%
Third quarter	1.6	%	(0.6	)%	14.8	%
Fourth quarter	9.0	%	6.3	%	22.3	%
Fiscal year 2003	4.1	%	1.8	%	17.8	%

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ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in interest rates and foreign currency exchange rates.  We do not enter into derivative financial instruments for trading purposes.  We seek to manage exposure to adverse interest rate changes through our normal operating and financing activities. We are exposed to interest rate risk through our securitization and borrowing activities, which are described in Notes 2 and 5 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 31, 2004.

As of October 30, 2004, we had no borrowings outstanding under our revolving credit agreement.  Future borrowings under our revolving credit agreement, to the extent of outstanding borrowings, would be affected by interest rate changes.

Our outstanding long-term debt as of October 30, 2004 is at fixed interest rates and would not be affected by interest rate changes.  Based upon quoted prices, the fair value of our senior notes and debentures (face value of $250 million) was $278.9 million as of October 30, 2004.

Pursuant to our proprietary credit card securitization program that begins to expire in September 2005, we have sold substantially all of our credit card receivables through a subsidiary in exchange for certificates representing undivided interests in such receivables.  We sold the Class A Certificates, which have an aggregate principal value of $225 million, to investors. The holders of the Class A Certificates are entitled to monthly interest distributions from the Trust at the contractually-defined rate of one month LIBOR plus 0.27 percent annually.  The distributions to the Class A Certificate holders are payable from the finance charge income generated by the credit card receivables held by the Trust.  At October 30, 2004, we estimate a 100 basis point increase in LIBOR would result in an approximate annual increase of $2.25 million in the interest distributions to the Class A Certificate Holders.

We use derivative financial instruments to manage foreign currency risk related to the procurement of merchandise inventories from foreign sources.  We enter into foreign currency contracts denominated in the euro and British pound. We had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $31.5 million as of October 30, 2004.  The market risk inherent in these instruments was not material to our consolidated financial position, results of operations or cash flows in the first quarter of 2005.

The effects of changes in the U.S. equity and bond markets serve to increase or decrease the value of Pension Plan assets, resulting in an increase or decrease in our cash funding obligation.  We seek to manage exposure to adverse equity and bond returns by maintaining diversified investment portfolios and utilizing professional investment managers.

Based on a review of our financial instruments outstanding at October 30, 2004 that are sensitive to market risks, we have determined that there was no material market risk exposure to our consolidated financial position, results of operations, or cash flows as of such date.

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ITEM 4.CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, as well as other key members of our management, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide reasonable assurance that information we are required to disclose in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

In the ordinary course of business, we routinely enhance our information systems by either upgrading our current systems or implementing new systems.  No change in our internal controls occured during the quarter ended October 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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THE NEIMAN MARCUS GROUP, INC.

PART II

ITEM 1.                  LEGAL PROCEEDINGS

Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference as if fully restated herein.  Note 8 contains forward-looking statements that are subject to the risks and uncertainties discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect Future Results.”

ITEM 2.                  UNREGISTERD SALES OF EQUITY AND SECURITIES AND USE OF PROCEEDS

The following table indicates our stock repurchases of equity securities in the first quarter of 2005:

First Quarter 2005	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs
August 2004
(8/1/04 to 8/28/04)	15,100	$	49.52	—	1,199,273
September 2004 (8/29/04 to 10/2/04)	18,954	$	52.11	—	1,180,319
October 2004 (10/3/04 to 10/30/04)	20,350	$	54.70	—	1,159,969

ITEM 6.                  EXHIBITS

3.1	Restated Certificate of Incorporation of the Company, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 26, 2002.
3.2	Bylaws of the Company, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 2, 2003.
4.1	Certificates of Designation with respect to Series A Junior Participating Preferred Stock, Series B Junior Participating Preferred Stock and Series C Junior Participating Preferred Stock, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
4.2	Indenture, dated as of May 27, 1998, between the Company and The Bank of New York, as trustee (the “Indenture”), incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
4.3	Form of 6.65 percent Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to the Indenture, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.

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4.4	Form of 7.125 percent Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to the Indenture, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
4.5	Amended and Restated Rights Agreement, dated as of August 8, 2002, between the Company and Mellon Investor Services LLC, as Rights Agent, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.1*	The Neiman Marcus Group, Inc. 1987 Stock Incentive Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.2*	The Neiman Marcus Group, Inc. 1997 Incentive Plan, as amended, incorporated herein by reference to the Company’s Form S-8 dated Mary 28, 2003.
10.3*	Employment Agreement between the Company and Burton M. Tansky, effective as of August 3, 2003, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2003.
10.4*	Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Phillip L. Maxwell dated November 20, 2002, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.5*	Supplemental Executive Retirement Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.6*	Description of the Company’s Executive Life Insurance Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.7*	Supplementary Executive Medical Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.8*	Key Employee Deferred Compensation Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.9*	Deferred Compensation Plan for Non-Employee Directors, as amended, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.10*	Confidentiality, Non-Competition and Termination Benefits Agreement between Bergdorf Goodman, Inc. and James J. Gold dated May 3, 2004, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.11*	Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Karen W. Katz dated November 20, 2002, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.12	Credit Agreement dated as of June 9, 2004 among the Company, the Lenders parties thereof, Bank of America, N.A., as Syndication Agent, Wachovia Bank, N.A., Wells Fargo Bank National Association, and BNP Paribas, as Documentation Agents, and JPMorgan Chase Bank, as Administrative Agent, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.13	Neiman Marcus Group Credit Card Master Trust Series 2000-1 Class A Purchase Agreement, dated July 12, 2000, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.14	Receivables Purchase Agreement dated as of July 2, 2000 between Bergdorf Goodman, Inc. and Neiman Marcus Funding Corporation, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.

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10.15	Receivables Purchase Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 between the Company and Neiman Marcus Funding Corporation, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.16	Pooling and Servicing Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 between Neiman Marcus Funding Corporation, the Company, and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.17	Series 2000-1 Supplement, dated as of July 2, 2000, to the Pooling and Servicing Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 among Neiman Marcus Funding Corporation, the Company, and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.18	Trustee Resignation and Agent Appointment Agreement dated as of July 2, 2000 by and among the Company, Neiman Marcus Funding Corporation, The Chase Manhattan Bank, and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.19	Amended and Restated Agreement and Plan of Merger, dated as of July 1, 1999, among The Neiman Marcus Group, Inc., Harcourt General, Inc., and Spring Merger Corporation, incorporated herein by reference to the Company’s Definitive Schedule 14A dated August 10, 1999.
10.20	Amended and Restated Distribution Agreement, dated as of July 1, 1999, between Harcourt General, Inc. and The Neiman Marcus Group, Inc., incorporated herein by reference to the Company’s Definitive Schedule 14A dated August 10, 1999.
10.21	Agreement, dated as of September 1, 1999, among the Company and certain holders of the Company’s Class B Common Stock, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 1999.
10.22*	Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Nelson A. Bangs dated May 21, 2003, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 2, 2003.
10.23*	Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and James E. Skinner dated November 20, 2002, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.24*	Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Marita O’Dea dated November 20, 2002, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.25*	Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Brendan L. Hoffman dated January 29, 2003, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.
10.26*	Description of Director Compensation.  (1)
10.27*	Form of 2002 Purchased Restricted Stock Unit Agreement, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.28*	Form of 2003 Purchased Restricted Stock Unit Agreement, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.29*	Form of 2002 Restricted Stock Unit Agreement, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.30*	Form of 2003 Restricted Stock Unit Agreement, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.

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10.31*	Form of Non-Qualified Stock Option Agreement, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.32*	Form of Regular Restricted Stock Agreement, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.33*	Form of Retention Restricted Stock Agreement, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.34*	Form of Purchased Restricted Stock Agreement, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.35*	Form of Non-Qualified Stock Option Agreement with incremental vesting, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.36*	Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Steven P. Dennis dated September 9, 2004, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.37*	Description of annual incentives set by the Compensation Committee of the Board of Directors for the 2005 fiscal year, incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 24, 2004.
10.38*	The Neiman Marcus Group, Inc. Key Employee Bonus Plan, incorporated herein by reference to the Company’s Current Report on Form 8-K for dated September 24, 2004.
10.39*	Form of Restricted Stock Unit Agreement. (1)
10.40*	Form of Matching Restricted Stock Unit Agreement.  (1)
12.1	Computation of Ratio of Earnings to Fixed Charges (Unaudited), incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
14.1	The Neiman Marcus Group, Inc. Code of Ethics and Conduct, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
14.2	The Neiman Marcus Group, Inc. Code of Ethics for Financial Professionals, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 2, 2003.
18.1	Letter regarding Change in Accounting Principle, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 1999.
21.1	Subsidiaries of the Company, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
23.1	Consent of Deloitte & Touche LLP, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  (1)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  (1)
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  (1)
(1)	Filed herewith
*	Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

THE NEIMAN MARCUS GROUP, INC.

(Registrant)

Signature	Title	Date
/s/ T. Dale Stapleton	Vice President and Controller	December 6, 2004
T. Dale Stapleton	and Duly Authorized Officer
	(principal accounting officer)

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EX-10.26

Exhibit 10.26

Director Compensation

The Company’s senior management assists the Compensation Committee on a biennial basis in assessing the compensation of the Company’s directors measured against comparable companies.

Director Compensation

Employee directors, including the President and Chief Executive Officer, receive no compensation for their service as Board members.  Compensation for independent directors is a mix of cash and equity-based compensation. Independent directors do not receive consulting, advisory or other compensatory fees from the Company.

Our Chairman of the Board receives no compensation, cash or stock, for his service as a Board member, committee chairman, or for his service as Chairman of the Board.  Each Vice Co-Chairman of the Board receives $200,000 annually for their services as Co-Vice Chairmen of the Board, plus reimbursement for travel and incidental expenses.  The Co-Vice Chairmen of the Board do not receive any stock-based compensation.

Each of the other independent directors is paid an annual retainer fee of $60,000. The chairman of the Audit Committee receives an additional $20,000 per year, and other committee chairs each receive an additional $15,000 per year.  They are also entitled to receive $60,000 of stock-based units. The number of stock-based units is calculated quarterly by dividing $15,000 by the trailing five-day average of the high and low price of the Class A Common Stock at the end of each fiscal quarter. Dividend equivalents in the form of additional units representing Class A Common Stock are credited to each independent directors’ account on each dividend payment date equal to (i) the per-share cash dividend divided by the average of the high and low price of the Company’s Class A Common Stock on the dividend payment date, multiplied by (ii) the number of units reflected in the independent director’s account on the day before the dividend payment date. The value of each of the independent director’s stock-based units will be payable only in cash when the independent director ceases to serve as a member of the Board of Directors of the Company. The stock-based units will be valued for payment by multiplying the applicable number of units by the average of the high and low price of the Company’s Class A Common Stock during the last ten trading days before the date on which the value of the units is to be paid. These stock-based units do not carry voting or dispositive rights.

Independent directors are offered the right to elect to receive all or a part of the cash portion of their fees on a deferred basis. If the deferred basis is elected, it may be in the form of cash with interest calculated at a rate equal to the average of the top rates paid by major New York banks on three-month negotiable certificates of deposit as quoted in the Wall Street Journal on the last business day of the fiscal quarter, or in the form of stock-based units, calculated on the basis of the trailing five-day average of the average of the high and low price of the Class A Common stock at the end of each fiscal quarter. Plan participants must irrevocably elect to receive the deferred funds either in a lump sum or in equal installments (not to exceed 10). Each cash installment (other than the first) shall accrue interest from the date of the first installment to the date on which such installment is paid, compounded quarterly.

EX-10.39

Exhibit 10.39

THE NEIMAN MARCUS GROUP, INC.

RESTRICTED STOCK UNIT AGREEMENT

ISSUED PURSUANT TO 1997 INCENTIVE PLAN

THIS AGREEMENT is made as of the                day of                      , 20     , by and between THE NEIMAN MARCUS GROUP, INC., a Delaware corporation (the “Corporation”), and                                                                      , an employee of the Corporation or one of its affiliates (the “Employee”).

Recitals:

1.On January 17, 1997, the Corporation adopted for the benefit of key employees The Neiman Marcus Group, Inc. 1997 Incentive Plan (the “Plan”), and the Plan was approved by its stockholders on that date.

2.The Plan is administered by the Compensation Committee (the “Committee”) of the Corporation’s Board of Directors (the “Board”).

3.The Committee has selected the Employee to participate in the Plan by the grant of Restricted Stock Units, each of which represents a fictional interest in a share of Class A Common Stock of the Corporation, par value $.01 per share (“Common Stock”), that shall be subject to the vesting, distribution and other provisions specified herein.

Agreement:

For and in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, it is agreed as follows:

1.Grant of Restricted Stock Units.  The Corporation hereby grants to the Employee                         Restricted Stock Units (the “Award”), subject to the vesting schedule described in Section 4 and the requirement that the Restricted Stock Units may be forfeited to the Corporation under the circumstances set forth in that Section.

2.No Rights as Equity Owner.  This Award shall not entitle the Employee to any voting rights, rights upon liquidation or other rights of owners of the Corporation with respect to any Restricted Stock Units or Dividend Units unless and until shares of Common Stock are issued to the Employee in respect of such Units as provided herein.

3.Dividend Units.  In the event a cash dividend is paid on the Common Stock while the Employee holds undistributed Restricted Stock Units pursuant to this Award that have not been

forfeited, whether or not then vested, the Corporation shall credit to the account of the Employee an additional fractional unit representing a fictional interest in a share of Common Stock (a “Dividend Unit”) with respect to each such Restricted Stock Unit, with a numerator equal to the amount of the per share cash dividend declared on the Common Stock and a denominator equal to the closing price of a share of Common Stock on the New York Stock Exchange on the date the cash dividend is paid. Dividend Units shall be subject to all other terms and conditions of this Agreement, provided that no additional Dividend Units shall be credited with respect to outstanding Dividend Units.

4.Vesting of Restricted Stock Units and Dividend Units and Distribution of Common Stock; Separation from Service; Death; Disability; or Retirement.

(a)The Restricted Stock Units granted hereunder and all Dividend Units with respect thereto shall vest on the third anniversary of the date of this Agreement (the “Vesting Date”) if and only if the Employee remains an employee of the Corporation or one of its affiliates through the Vesting Date.  On the Vesting Date, the Corporation shall issue to the Employee a certificate representing a number of shares of Common Stock equal to the number of Restricted Stock Units and Dividend Units then subject to this Award; provided, however, that pursuant to the irrevocable election made by the Employee prior to the execution of this Agreement, distribution of                     % of the shares of Common Stock otherwise issuable to the Employee on the Vesting Date (rounded down to the nearest whole share) shall be deferred beyond the Vesting Date for distribution on                               , 20       (the “Deferred Distribution Date”) or, if earlier, as soon as practicable following the date of the Employee’s death after the Vesting Date, or six months following the Employee’s separation from service with the Corporation and all of its affiliates for any reason after the Vesting Date, at which time the Corporation shall issue a certificate representing the number of shares of Common Stock subject to such deferral election.

(b)Subject to the provisions of Sections 4(c), 4(d) and 4(e), upon the Employee’s separation from service with the Corporation and all of its affiliates at a time when the Restricted Stock Units and Dividend Units have not vested, (i) the Employee shall have no rights whatsoever in and to any of the Restricted Stock Units or Dividend Units; (ii) all the Restricted Stock Units and Dividend Units shall be forfeited to the Corporation and shall no longer be outstanding as of the date of such separation from service; and (iii) neither the Employee nor any of his or her heirs, beneficiaries, executors, administrators or other personal representatives shall have any rights with respect thereto.

(c)If the Employee dies while in the employ of the Corporation or any of its affiliates, the Restricted Stock Units and Dividend Units then subject to this Award shall vest if not yet vested. The person or persons to whom the Employee’s rights under this Agreement are transferred by will or the laws of descent and distribution (collectively, the “Transferee”) shall be entitled to receive, within 30 days after presentation to the Secretary of the Corporation of documentation acceptable to the Secretary establishing the Transferee’s legal rights, a certificate representing a number of shares of Common Stock equal to the number of Restricted Stock Units and Dividend Units then subject to this Award.

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(d)If while in the employ of the Corporation or any of its affiliates the Employee shall become permanently disabled such that the Employee will be unable to return to his or her employment with the Corporation or its affiliates (as shall be conclusively determined by the Employee Benefits Committee of the Corporation), the Restricted Stock Units and Dividend Units then subject to this Award shall vest if not yet vested.  The Corporation shall issue to the Employee a certificate representing a number of shares of Common Stock equal to the number of Restricted Stock Units and Dividend Units then subject to this Award six months following the Employee’s separation from service with the Corporation and all of its affiliates on account of disability or, if earlier, the Vesting Date or the Deferred Distribution Date, whichever is applicable.

(e)In the event of the Employee’s separation from service with the Corporation and all of its affiliates prior to the Vesting Date on account of his or her Eligible Retirement, then a portion of the Restricted Stock Units and Dividend Units then subject to this Award shall vest, with the number to be determined by multiplying the number of Restricted Stock Units and Dividend Units then subject to this Award by a fraction, the numerator of which is the number of completed months from the date of this Agreement through the date of Eligible Retirement and the denominator of which is 36.  Six months following the date of such separation from service, the Corporation shall issue to the Employee a certificate representing a number of shares of Common Stock equal to such number of vested Restricted Stock Units and vested Dividend Units.  The remaining Restricted Stock Units and Dividend Units subject to this Agreement shall be treated in the same manner as unvested Restricted Stock Units and unvested Dividend Units subject to the provisions of Section 4(b).  For purposes of this Agreement, “Eligible Retirement” shall mean the Employee’s separation from service with the Corporation and all of its affiliates on or after the date as of which the Employee (i) is eligible for a normal retirement benefit on account of reaching normal retirement age under the terms of The Neiman Marcus Group, Inc. Retirement Plan (or a successor plan); or (ii) is not less than age 55 and has not less than 20 years of vesting or credited service under the terms of The Neiman Marcus Group, Inc. Retirement Plan (or a successor plan); provided, however, that the Employee’s separation from service shall not be an “Eligible Retirement” if the Committee shall find that the Employee was terminated on account of “Cause.”  For purposes of this Agreement, “Cause” shall mean, in the Committee’s reasonable judgment, (i) a breach of duty by the Employee in the course of his or her employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty, or moral turpitude; (ii) conduct that is materially detrimental to the Corporation or any of its affiliates, monetarily or otherwise, or reflects unfavorably on the Corporation or any of its affiliates or the Employee; (iii) the Employee’s failure to comply with or enforce the Corporation’s or any of its affiliates’ policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (iv) the Employee’s repeated insubordination or failure to comply with or enforce other personnel policies of the Corporation or any of its affiliates; (v) the Employee’s failure to devote his or her full working time and best efforts to the performance of his or her responsibilities to the Corporation or its affiliates; or (vi) the Employee’s conviction of or entry of a plea agreement

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or consent decree or similar arrangement with respect to, a felony, other serious criminal offense, or any violation of federal or state securities laws; provided, however, that with respect to items (iv) and (v), the Employee has been provided prior written notice of the failure and afforded a reasonable opportunity to correct.

5.No Guarantee of Employment.  Nothing in the Plan or in this Agreement shall (i) confer on the Employee any right to continue in the employ of the Corporation or any of its affiliates; (ii) affect the right of the Employee or the Corporation or any of its affiliates to terminate the employment relationship at any time; (iii) be deemed a waiver or modification of any provision contained in any agreement between the Employee and the Corporation or any of its affiliates; (iv) be construed as part of the Employee’s entitlement to remuneration or benefit pursuant to a contract of employment or otherwise or as compensation for past services rendered; (v) afford the Employee any rights or additional rights to compensation or damages as a consequence of the loss or termination of his or her office; or (vi) entitle the Employee to any compensation or damages for any loss or potential loss he or she may suffer by reason of being or becoming unable to vest in the Restricted Stock Units and any Dividend Units attributable thereto as a consequence of the loss or termination of his or her office, employment, or service with the Corporation or any of its affiliates.  A cessation of the Employee’s employment by reason of a leave of absence of not more than six months approved by the Corporation shall not be deemed a separation from service.

6.Changes in Common Stock.  In the event of any reorganization, recapitalization, stock split, stock dividend, merger, consolidation, combination of shares or other change affecting the Common Stock, the Committee shall make such adjustments as it may deem appropriate with respect to the Restricted Stock Units and Dividend Units.

7.Fractional Units; Optional Issuance in Book-Entry Form.  Notwithstanding the foregoing, (i) any fractional Restricted Stock Unit or Dividend Unit will be paid in cash in lieu of Common Stock, with the amount of such payment to be based on the closing price of a share of Common Stock on the New York Stock Exchange on the last trading day prior to the date the payment amount is calculated; and (ii) any shares of Common Stock that under the terms of this Agreement are issuable in the form of a stock certificate may instead be issued in book-entry form if the person in whose name the certificate would otherwise be issued so requests in writing.

8.Tax Withholding.  The Corporation shall take any steps it deems necessary or desirable to satisfy any obligations imposed by a Federal, state, local or other governmental entity to withhold taxes; provided, however, that in furtherance of satisfying such withholding obligations, the Employee shall have the right (by delivering written notice to the Secretary of the Corporation no less than 30 days nor more than 60 days prior to the date of distribution) to have a number of whole shares of Common Stock withheld by the Corporation from the shares to be issued upon distribution, or to tender to the Corporation other whole shares of Common Stock, with a value not to exceed the statutory minimum tax withholding obligation.  In addition, the Employee and/or his or her beneficiary (including his or her estate) shall bear all taxes on amounts paid under the Plan to the extent no taxes are withheld, irrespective of whether withholding is required.

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9.Interpretation of Plan and this Agreement.  This Agreement is being entered into pursuant to the Plan and shall be governed in all respects by the terms and provisions of the Plan, which are incorporated herein by this reference.  In the case of any inconsistency between the Plan and this Agreement, the Plan provisions shall control.  Capitalized terms used and not defined in this Agreement shall have the respective meanings given them in the Plan.  As used herein (i) the term “employee” shall mean an employee of the Corporation or of any affiliate of the Corporation; (ii) the term “affiliate” as used with respect to the Corporation shall mean any corporation or other entity in which the Corporation or any such other corporation or entity owns, directly or indirectly, 50% or more of the outstanding capital stock (determined by aggregate voting rights) or other voting interests, or that is considered to be under common control with the Corporation pursuant to Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended (the “Code”); and (iii) the phrase “separation from service” shall be interpreted in a manner consistent with the distribution requirements of Section 409A of the Code.  In all respects, questions of interpretation and application of the Plan and of this Agreement shall be determined by a majority of the Committee, as it may from time to time be constituted, and the determinations of such majority shall be final and binding upon all persons.

10.Choice of Law; Exclusive Forum; Consent to Jurisdiction; Waiver of Right to Contest Removal and to Jury Trial.  The validity, performance and enforceability of this Agreement shall be determined and governed by the laws of the State of Texas, without regard to its conflict of laws principles. The exclusive forum for any action concerning this Agreement or the transactions contemplated hereby shall be in a court of competent jurisdiction in Dallas County, Texas, with respect to a state court, or the Dallas Division of the United States District Court for the Northern District of Texas, with respect to a federal court.  THE EMPLOYEE HEREBY CONSENTS TO THE EXERCISE OF JURISDICTION OF A COURT IN THE EXCLUSIVE FORUM AND WAIVES ANY RIGHT HE OR SHE MAY HAVE TO CHALLENGE OR CONTEST THE REMOVAL AT ANY TIME BY THE CORPORATION OR ANY OF ITS AFFILIATES TO FEDERAL COURT OF ANY SUCH ACTION HE OR SHE MAY BRING AGAINST IT IN STATE COURT.  THE EMPLOYEE AND THE CORPORATION FURTHER HEREBY MUTUALLY WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY ACTION CONCERNING THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY.

EXECUTED at Dallas, Texas, as of the date appearing in the first paragraph of this Agreement.

THE NEIMAN MARCUS GROUP, INC.
By
	Nelson A. Bangs,
	Senior Vice President & General Counsel
		, Employee

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EX-10.40

Exhibit 10.40

THE NEIMAN MARCUS GROUP, INC.

Matching Restricted Stock Unit Agreement

Issued Pursuant to 1997 Incentive Plan

THIS AGREEMENT is made as of the          day of                , 20     , by and between THE NEIMAN MARCUS GROUP, INC., a Delaware corporation (the “Corporation”), and                                         , an employee of the Corporation or one of its affiliates (the “Employee”).

Recitals:

1.             On January 17, 1997, the Corporation adopted for the benefit of key employees The Neiman Marcus Group, Inc. 1997 Incentive Plan (the “Plan”), and the Plan was approved by its stockholders on that date.

2.             The Plan is administered by the Compensation Committee (the “Committee”) of the Corporation’s Board of Directors (the “Board”).

3.             The Committee has selected the Employee to participate in the Plan by the grant of Matching Restricted Stock Units, each of which represents a fictional interest in a share of Class A Common Stock of the Corporation, par value $.01 per share (“Common Stock”), that shall be subject to the vesting, distribution and other provisions specified herein.  The Employee was required to purchase at fair market value one share of Common Stock (the “Matched Common Stock”) for each Matching Restricted Stock Unit.

Agreement:

For and in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, it is agreed as follows:

1.             Grant of Matching Restricted Stock Units.  The Corporation hereby grants to the Employee              Matching Restricted Stock Units (the “Award”), subject to the vesting schedule described in Section 4 and the requirement that the Matching Restricted Stock Units may be forfeited to the Corporation under the circumstances set forth in that Section.

2.             No Rights as Equity Owner.  This Award shall not entitle the Employee to any voting rights, rights upon liquidation or other rights of owners of the Corporation with respect to any Matching Restricted Stock Units or Dividend Units unless and until shares of Common Stock are issued to the Employee in respect of such Units as provided herein.

3.             Dividend Units.  In the event a cash dividend is paid on the Common Stock while the Employee holds undistributed Matching Restricted Stock Units pursuant to this Award that have not been forfeited, whether or not then vested, the Corporation shall credit to the account of the Employee an additional fractional unit representing a fictional interest in a share of Common Stock (a “Dividend Unit”) with respect to each such Matching Restricted Stock Unit, with a numerator equal to the amount of the per share cash dividend declared on the Common Stock and a denominator equal to the closing price of a share of Common Stock on the New York Stock Exchange on the date the cash dividend is paid. Dividend Units shall be subject to all other terms and conditions of this Agreement, provided that no additional Dividend Units shall be credited with respect to outstanding Dividend Units.

4.             Vesting of Matching Restricted Stock Units and Dividend Units and Distribution of Common Stock; Separation from Service; Death; Disability; or Retirement.

(a)           The Matching Restricted Stock Units granted hereunder and all Dividend Units with respect thereto shall vest on the third anniversary of the date of this Agreement (the “Vesting Date”) if and only if the Employee remains an employee of the Corporation or one of its affiliates through the Vesting Date, and only to the extent that the Matching Restricted Stock Units and Dividend Units have not been forfeited pursuant to Section 4(b).  On the Vesting Date, the Corporation shall issue to the Employee a certificate representing a number of shares of Common Stock equal to the number of Matching Restricted Stock Units and Dividend Units then subject to this Award; provided, however, that pursuant to the irrevocable election made by the Employee prior to the execution of this Agreement, distribution of                % of the shares of Common Stock otherwise issuable to the Employee on the Vesting Date (rounded down to the nearest whole share) shall be deferred beyond the Vesting Date for distribution on                     , 20       (the “Deferred Distribution Date”) or, if earlier, as soon as practicable following the date of the Employee’s death after the Vesting Date, or six months following the Employee’s separation from service with the Corporation and all of its affiliates for any reason after the Vesting Date, at which time the Corporation shall issue a certificate representing the number of shares of Common Stock subject to such deferral election.  The certificate representing the shares of Matched Common Stock held by the Corporation pursuant to Section 4(b) shall be delivered to the Employee as soon as practicable following the Vesting Date.

(b)           In connection with the Employee’s purchase of the shares of Matched Common Stock, the Corporation will direct its registrar and transfer agent, Mellon Investor Services LLC, to issue in the Employee’s name a certificate representing the shares of Matched Common Stock.  The retention by the Employee of the Matched Common Stock throughout the period ending on the Vesting Date is a requirement for vesting in the Matching Restricted Stock Units and Dividend Units and, to satisfy such requirement, the Employee may not sell, convey, pledge, assign or otherwise transfer any interest in the Matched Common Stock prior to the Vesting Date.  In order to enforce this requirement, the certificate representing the Matched Common Stock shall be held by the Corporation on behalf of the Employee until the Vesting Date or the Employee’s earlier death or separation

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from service with the Corporation and all of its affiliates, unless prior to such time the Employee requests delivery of any or all of the Matched Common Stock, which the Employee shall be entitled to do for any reason.  Even though the certificate is held by the Corporation, the Employee is and shall be for all purposes the record and beneficial owner of the shares of Matched Common Stock and shall be entitled to vote the shares of Matched Common Stock and to receive and retain all dividends that may be paid with respect thereto; provided, however, that in the event of any reorganization, recapitalization, stock split, stock dividend, merger, consolidation, combination of shares or other change affecting the Common Stock, the Corporation shall hold the certificates representing any and all shares resulting from such event that arise from the Matched Common Stock and such shares shall be subject to the provisions hereof relating to the retention of Matched Common Stock.  If the Employee requests and receives delivery from the Corporation (either in the form of a certificate or in book-entry form) of any or all of the shares of Matched Common Stock prior to the Vesting Date, the Employee shall immediately forfeit a fraction of the number of Matching Restricted Stock Units and a fraction of the number of Dividend Units then subject to this Agreement, which fraction will have a numerator equal to the number of shares of Matched Common Stock delivered to the Employee and a denominator equal to the total number of shares of Matched Common Stock held by the Corporation prior to such delivery, with the result that such forfeited Units shall no longer be outstanding and no longer be subject to this Agreement, and neither the Employee nor any of the Employee’s heirs, beneficiaries, executors, administrators or other personal representatives shall have any rights with respect thereto.  The provisions of this Agreement shall continue to apply to all Matching Restricted Stock Units and Dividend Units that have not been so forfeited.

(c)           Subject to the provisions of Sections 4(d), 4(e) and 4(f), upon the Employee’s separation from service with the Corporation and all of its affiliates at a time when the Matching Restricted Stock Units and Dividend Units have not vested, (i) the Employee shall have no rights whatsoever in and to any of the Matching Restricted Stock Units or Dividend Units; (ii) all the Matching Restricted Stock Units and Dividend Units shall be forfeited to the Corporation and shall no longer be outstanding as of the date of such separation from service; and (iii) neither the Employee nor any of his or her heirs, beneficiaries, executors, administrators or other personal representatives shall have any rights with respect thereto.  The certificate representing the shares of Matched Common Stock held by the Corporation pursuant to Section 4(b) shall be delivered to the Employee as soon as practicable following such separation from service.

(d)           If the Employee dies while in the employ of the Corporation or any of its affiliates, the Matching Restricted Stock Units and Dividend Units then subject to this Award shall vest if not yet vested and the retention requirements applicable to shares of Matched Common Stock in Section 4(b) shall cease to apply. The person or persons to whom the Employee’s rights under this Agreement are transferred by will or the laws of descent and distribution (collectively, the “Transferee”) shall be entitled to receive, within 30 days after presentation to the Secretary of the Corporation of documentation acceptable to the Secretary establishing the Transferee’s legal rights, a certificate representing a number of shares of

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Common Stock equal to the number of Matching Restricted Stock Units and Dividend Units then subject to this Award.  The certificate representing the shares of Matched Common Stock held by the Corporation pursuant to Section 4(b) shall be delivered to the Employee’s estate as soon as practicable following the Employee’s death.

(e)           If while in the employ of the Corporation or any of its affiliates the Employee shall become permanently disabled such that the Employee will be unable to return to his or her employment with the Corporation or its affiliates (as shall be conclusively determined by the Employee Benefits Committee of the Corporation), the Matching Restricted Stock Units and Dividend Units then subject to this Award shall vest if not yet vested and the retention requirements applicable to shares of Matched Common Stock in Section 4(b) shall cease to apply.  The Corporation shall issue to the Employee a certificate representing a number of shares of Common Stock equal to the number of Matching Restricted Stock Units and Dividend Units then subject to this Award six months following the Employee’s separation from service with the Corporation and all of its affiliates on account of disability or, if earlier, the Vesting Date or the Deferred Distribution Date, whichever is applicable.  The certificate representing the shares of Matched Common Stock held by the Corporation pursuant to Section 4(b) shall be delivered to the Employee as soon as practicable following such determination of permanent disability.

(f)            In the event of the Employee’s separation from service with the Corporation and all of its affiliates prior to the Vesting Date on account of his or her Eligible Retirement, then a portion of the Matching Restricted Stock Units and Dividend Units then subject to this Award shall vest, with the number to be determined by multiplying the number of Matching Restricted Stock Units and Dividend Units then subject to this Award by a fraction, the numerator of which is the number of completed months from the date of this Agreement through the date of Eligible Retirement and the denominator of which is 36, and the retention requirements applicable to shares of Matched Common Stock in Section 4(b) shall cease to apply.  Six months following the date of such separation from service, the Corporation shall issue to the Employee a certificate representing a number of shares of Common Stock equal to such number of vested Matching Restricted Stock Units and vested Dividend Units.  The remaining Matching Restricted Stock Units and Dividend Units subject to this Agreement shall be treated in the same manner as unvested Matching Restricted Stock Units and unvested Dividend Units subject to the provisions of Section 4(c).  The certificate representing the shares of Matched Common Stock held by the Corporation pursuant to Section 4(b) shall be delivered to the Employee as soon as practicable following such Eligible Retirement.  For purposes of this Agreement, “Eligible Retirement” shall mean the Employee’s separation from service with the Corporation and all of its affiliates on or after the date as of which the Employee (i) is eligible for a normal retirement benefit on account of reaching normal retirement age under the terms of The Neiman Marcus Group, Inc. Retirement Plan (or a successor plan); or (ii) is not less than age 55 and has not less than 20 years of vesting or credited service under the terms of The Neiman Marcus Group, Inc. Retirement Plan (or a successor plan); provided, however, that the Employee’s separation from service shall not be an “Eligible Retirement” if the Committee shall find that the

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Employee was terminated on account of “Cause.”  For purposes of this Agreement, “Cause” shall mean, in the Committee’s reasonable judgment, (i) a breach of duty by the Employee in the course of his or her employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty, or moral turpitude; (ii) conduct that is materially detrimental to the Corporation or any of its affiliates, monetarily or otherwise, or reflects unfavorably on the Corporation or any of its affiliates or the Employee; (iii) the Employee’s failure to comply with or enforce the Corporation’s or any of its affiliates’ policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (iv) the Employee’s repeated insubordination or failure to comply with or enforce other personnel policies of the Corporation or any of its affiliates; (v) the Employee’s failure to devote his or her full working time and best efforts to the performance of his or her responsibilities to the Corporation or its affiliates; or (vi) the Employee’s conviction of or entry of a plea agreement or consent decree or similar arrangement with respect to, a felony, other serious criminal offense, or any violation of federal or state securities laws; provided, however, that with respect to items (iv) and (v), the Employee has been provided prior written notice of the failure and afforded a reasonable opportunity to correct.

(g)           Notwithstanding the provisions of Section 4(b), the Employee may pledge any or all of the Matched Common Stock at any time prior to the Vesting Date without forfeiting the related Matching Restricted Stock Units or Dividend Units so long as the pledge is effected in accordance with the following provisions:  (i) the Employee shall provide to the Corporation (A) written instructions to deliver a certificate (the “Pledged Share Certificate”), representing a specified number of shares of Matched Common Stock (the “Pledged Shares”), to the lender to which the Pledged Shares have been pledged (the “Pledgee”), (B) copies of the related note and pledge agreement, and (C) the Employee’s signed written direction to the Pledgee, in a form satisfactory to the Corporation, that if prior to the Vesting Date the Pledged Shares are sold or the Pledged Share Certificate is returned to the Employee, the Pledgee shall promptly notify the Corporation in writing, which written direction to the Pledgee shall be sent by the Corporation directly to the Pledgee; (ii) if prior to the Vesting Date the Pledgee returns the Pledged Share Certificate to the Employee, the Employee shall promptly deliver the certificate to the Corporation, which shall hold it pursuant to the provisions of Section 4(b); and (iii) on or after the Vesting Date, or on or after such earlier date as vesting of the Matching Restricted Stock Units may occur pursuant to Section 4(d), 4(e) or 4(f), the Employee shall demonstrate to the Corporation that he or she owned the Pledged Shares on the Vesting Date or such earlier date by presenting to the Corporation (A) the Pledged Share Certificate (which must have the same certificate number as the Pledged Share Certificate the Corporation sent to the Pledgee), or (B) such other evidence of continued ownership of the Matched Common Stock as the Corporation may deem satisfactory.

5.             No Guarantee of Employment.  Nothing in the Plan or in this Agreement shall (i) confer on the Employee any right to continue in the employ of the Corporation or any of its affiliates; (ii) affect the right of the Employee or the Corporation or any of its affiliates to terminate the employment relationship at any time; (iii) be deemed a waiver or modification of any provision

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contained in any agreement between the Employee and the Corporation or any of its affiliates; (iv) be construed as part of the Employee’s entitlement to remuneration or benefit pursuant to a contract of employment or otherwise or as compensation for past services rendered; (v) afford the Employee any rights or additional rights to compensation or damages as a consequence of the loss or termination of his or her office; or (vi) entitle the Employee to any compensation or damages for any loss or potential loss he or she may suffer by reason of being or becoming unable to vest in the Matching Restricted Stock Units and any Dividend Units attributable thereto as a consequence of the loss or termination of his or her office, employment, or service with the Corporation or any of its affiliates.  A cessation of the Employee’s employment by reason of a leave of absence of not more than six months approved by the Corporation shall not be deemed a separation from service.

6.             Changes in Common Stock.  In the event of any reorganization, recapitalization, stock split, stock dividend, merger, consolidation, combination of shares or other change affecting the Common Stock, the Committee shall make such adjustments as it may deem appropriate with respect to the Matching Restricted Stock Units and Dividend Units.

7.             Fractional Units; Optional Issuance in Book-Entry Form.  Notwithstanding the foregoing, (i) any fractional Matching Restricted Stock Unit or Dividend Unit will be paid in cash in lieu of Common Stock, with the amount of such payment to be based on the closing price of a share of Common Stock on the New York Stock Exchange on the last trading day prior to the date the payment amount is calculated; and (ii) any shares of Common Stock that under the terms of this Agreement are issuable in the form of a stock certificate may instead be issued in book-entry form if (a) the Corporation elects to hold Matched Common Stock in that form instead of holding a certificate as provided in Section 4(b); or (b) the person in whose name the certificate would otherwise be issued so requests in writing.

8.             Tax Withholding.  The Corporation shall take any steps it deems necessary or desirable to satisfy any obligations imposed by a Federal, state, local or other governmental entity to withhold taxes; provided, however, that in furtherance of satisfying such withholding obligations, the Employee shall have the right (by delivering written notice to the Secretary of the Corporation no less than 30 days nor more than 60 days prior to the date of distribution) to have a number of whole shares of Common Stock withheld by the Corporation from the shares to be issued upon distribution, or to tender to the Corporation other whole shares of Common Stock, with a value not to exceed the statutory minimum tax withholding obligation.  In addition, the Employee and/or his or her beneficiary (including his or her estate) shall bear all taxes on amounts paid under the Plan to the extent no taxes are withheld, irrespective of whether withholding is required.

9.             Interpretation of Plan and this Agreement.  This Agreement is being entered into pursuant to the Plan and shall be governed in all respects by the terms and provisions of the Plan, which are incorporated herein by this reference.  In the case of any inconsistency between the Plan and this Agreement, the Plan provisions shall control.  Capitalized terms used and not defined in this Agreement shall have the respective meanings given them in the Plan.  As used herein (i) the term “employee” shall mean an employee of the Corporation or of any affiliate of the Corporation; (ii) the term “affiliate” as used with respect to the Corporation shall mean any corporation or other entity in

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which the Corporation or any such other corporation or entity owns, directly or indirectly, 50% or more of the outstanding capital stock (determined by aggregate voting rights) or other voting interests, or that is considered to be under common control with the Corporation pursuant to Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended (the “Code”); and (iii) the phrase “separation from service” shall be interpreted in a manner consistent with the distribution requirements of Section 409A of the Code.  In all respects, questions of interpretation and application of the Plan and of this Agreement shall be determined by a majority of the Committee, as it may from time to time be constituted, and the determinations of such majority shall be final and binding upon all persons.

10.           Choice of Law; Exclusive Forum; Consent to Jurisdiction; Waiver of Right to Contest Removal and to Jury Trial.  The validity, performance and enforceability of this Agreement shall be determined and governed by the laws of the State of Texas, without regard to its conflict of laws principles. The exclusive forum for any action concerning this Agreement or the transactions contemplated hereby shall be in a court of competent jurisdiction in Dallas County, Texas, with respect to a state court, or the Dallas Division of the United States District Court for the Northern District of Texas, with respect to a federal court.  THE EMPLOYEE HEREBY CONSENTS TO THE EXERCISE OF JURISDICTION OF A COURT IN THE EXCLUSIVE FORUM AND WAIVES ANY RIGHT HE OR SHE MAY HAVE TO CHALLENGE OR CONTEST THE REMOVAL AT ANY TIME BY THE CORPORATION OR ANY OF ITS AFFILIATES TO FEDERAL COURT OF ANY SUCH ACTION HE OR SHE MAY BRING AGAINST IT IN STATE COURT.  THE EMPLOYEE AND THE CORPORATION FURTHER HEREBY MUTUALLY WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY ACTION CONCERNING THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY.

EXECUTED at Dallas, Texas, as of the date appearing in the first paragraph of this Agreement.

THE NEIMAN MARCUS GROUP, INC.
By
	Nelson A. Bangs,
	Senior Vice President & General Counsel
		, Employee

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EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Burton M. Tansky, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of The Neiman Marcus Group, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 6, 2004

 /s/   BURTON M. TANSKY

Burton M. Tansky
President and Chief Executive Officer

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EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James E. Skinner, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of The Neiman Marcus Group, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 6, 2004

/s/    JAMES E. SKINNER

James E. Skinner
Senior Vice President and Chief Financial Officer

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EX-32

EXHIBIT 32

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the following certifications are being made to accompany the Registrant’s quarterly report on Form 10-Q for the fiscal quarter ended October 30, 2004:

Certification of Chief Executive Officer(1)

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Neiman Marcus Group, Inc. (the Company) hereby certifies, to such officer’s knowledge, that:

(i) the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended October 30, 2004 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 6, 2004	/s/    BURTON M. TANSKY
	Burton M. Tansky President and Chief Executive Officer

Certification of Chief Financial Officer(1)

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Neiman Marcus Group, Inc. (the Company) hereby certifies, to such officer’s knowledge, that:

(i) the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended October 30, 2004 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 6, 2004	/s/    JAMES E. SKINNER
	James E. Skinner Senior Vice President and Chief Financial Officer

(1) A signed original for this written statement required by Section 906 has been provided to The Neiman Marcus Group, Inc. and will be retained by The Neiman Marcus Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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