New Neiman Marcus CEO faces US$4.8B debt load

Chain suffers heavy losses in slowdown

Geoffroy van Raemdonck has spent his career at global fashion companies such as Ralph Lauren and Louis Vuitton.

But it will take more than an eye for style to fix the problems at Neiman Marcus Group Ltd. Van Raemdonck, who becomes chief executive next month, is taking over a retailer facing heavy losses, an industrywide traffic slowdown and — worse — nearly US$5 billion in debt.

The pressure means the executive won’t have much of a honeymoon after taking the job on Feb. 12. Neiman Marcus needs to stem the red ink and hammer out a deal with creditors to restructure debt, all while navigating the broader travails of brick-and-mortar retail. Though Neiman Marcus has shown signs of reviving sales growth — and generating more revenue from e-commerce — it’s unclear if the just-ended holiday season was kind to department stores.

“As the rising tide lifts all, the sinking tide sinks all as well,” said Noel Hebert at Bloomberg Intelligence.

In hiring van Raemdonck, Neiman Marcus picked a leader who spent much of his career at big fashion brands. He headed up Ralph Lauren’s operations in Europe, the Middle East and Africa, and held roles at Louis Vuitton. He also ran St. John Knits International Inc.

Current CEO Karen Katz, in contrast, has spent decades at the luxury chain, including seven in the top job. But it’s unclear how an outside perspective will help with Neiman Marcus’s financial woes.

The firm is contending with a common plight in the retail industry: the hangover of leveraged buyouts. The nearly 110-year-old business was bought for US$6 billion in 2013 by Ares Management and the Canada Pension Plan Investment Board.

The chain was poised for an initial public offering, but management scrapped those plans in January 2017. That was followed by speculation that Hudson’s Bay Co., the owner of Saks Fifth Avenue, would make a bid. Those hopes fizzled last summer when Katz said bluntly: “Any conversations regarding any kind of transactions are terminated.”

That left the company to fix its problems on its own, and it has made some progress. Same-store sales — a key measure — rose 4.2 per cent last quarter. That was the first increase in more than two years. Still, the retailer reported a loss of US$26.2 million in the period.

And even though this Christmas season was probably one of the best in a decade, that’s no guarantee Neiman Marcus reaped an outsized share of those benefits. Two other department-store chains, Macy’s and J.C. Penney, underwhelmed investors with their preliminary holiday numbers.

Even if Neiman Marcus gets a nice bump from the holidays, the company’s total sales are still declining — and below the level required to maintain a roughly US$4.8-billion debt load.

That means it will need to renegotiate its terms in the next year, said S&P analyst Mathew Christy.

Groups of Neiman Marcus lenders and bondholders have already banded together. They’ve also hired lawyers and advisers to assist in the talks.

Neiman Marcus does have one advantage at a time when retailers are closing hundreds of underperforming locations: It only operates about 40 physical stores, and they’re generally in desirable areas.

Van Raemdonck will have to find ways to generate money from remaining assets, like real estate and subsidiaries such as the site MyTheresa, Hebert said. With its current debt levels, an outright sale — either to another private equity buyer or to a strategic partner — seems unlikely.

“I don’t think there are a ton of buyers, honestly, unless they do something miraculous,” Hebert said.