Neiman Marcus’ State of Transition The company said it has room to work on its $4.5 billion debt load.
The Neiman Marcus Group sees plenty of runway ahead as it sorts out its balance sheet and looks to transform.
Even with $4.5 billion in debt lingering over the business, chief executive officer Geoffroy van Raemdonck said the company is ready to gain altitude — and is rolling, with a 2.8 percent comparable sales gain for the first quarter.
But the company's balance sheet will ultimately need to be reconfigured before the luxury retailer can really soar.
“Neiman Marcus Group has been in discussions with our lenders and
investors to improve our balance sheet and strengthen NMG as a company,” van Raemdonck said Thursday on a call for investors. “We view these negotiations as an ongoing process that will likely take time. We commenced this process early and believe we have ample runway to address our debt. We believe a mutually beneficial solution can be reached and intend to continue to seek a result that will benefit the company and its stakeholders.”
Neiman Marcus detailed its recent talks with creditors in a regulatory filing last week, which showed a complicated process triangulating between the company, its term loan lenders and its bondholders. The retailer was essentially asking for more time, offering to put up more collateral (leases it says are worth $1.9 billion) while promising annual earnings before interest, taxes, depreciation and amortization of $700 million in five years. That's a big increase from the recent run rate, which has adjusted EBITDA at about $490 million.
Neiman Marcus has been making progress on that score. Adjusted EBITDA rose to $135.3 million in the first quarter from $122.3 million a year ago.
But the company's debt hangs over everything. With interest expense to manage that debt totaling $80.5 million in the quarter, net losses widened to $28.2 million from $26.2 million a year earlier.
Net sales for the three months ended Oct. 27 slipped slightly, to $1.093 billion from $1.096 billion a year ago. Comparable revenues rose 2.8 percent. (The company moved its MyTheresa business into a separate subsidiary in September, distancing it from creditors and pulling that business' results out of the financial figures it reports publicly).
Van Raemdonck told WWD: “We are pleased to deliver our fifth consecutive quarter of comparable revenue growth, demonstrating our continued ability to drive operational improvement and customer growth. Our stores are performing well, our online business is growing, and we continue to attract new customers. We also had a strong start to the holiday season, with great results on Black Friday and a record-setting Cyber Monday.
“We are making incremental investments to execute our transformation plan to deepen our customer relationships, build a seamless experience and create the magic for our customers. We are pleased with our progress to date as we build a solid foundation for future growth.”
Much of that growth will come from the web, which saw sales increase 8.9 percent in the quarter. Neiman Marcus' e-commerce business draws $1.3 billion in sales annually and logs 24 million visits a month.
But in addition to wrestling with its own debt and seeking to improve its operations and grow its e-commerce business, Neiman Marcus has to square off with competitor Saks Fifth Avenue, e-tailers like Net-a-porter and online platform Farfetch and others in the highend market.
“The luxury retail industry continues to adopt an increasingly promotional approach to attract customers that includes expanded existing promotions and additional promotions,” van Raemdonck said on the call. “During the first quarter, we responded to the industry shift by increasing our competitiveness with promotional activity, while maintaining healthy margin control through our efforts in markdown optimization.”
And while touting Cyber Monday sales, the company is also treading carefully.
“In a promotional retail environment, we are being deliberate in which promotional opportunities we pursue, that make sense for both us and our brand partners,” van Raemdonck said. “We are balancing these promotions with tight controls on margins and maximizing traffic and conversion for our online businesses.”
Neiman Marcus' inventories in the U.S. were down 4.6 percent at the end of the quarter versus a year earlier, as it sought to increase efficiency in its operations.
Efficiency is something that's been in the air at the retailer, which is owned by Ares Management LLC and the Canada Pension Plan Investment Board.
The company was in talks this summer to buy Saks Fifth Avenue and combine the businesses, according to sources. The move would be a bold bet of doubling down on luxury department store retailing. It's a combination that's been talked about and contemplated repeatedly over the years, often frightening luxury brands that now make a living playing one off the other.
A combination between two competitors that have repeatedly circled each other requires some change in the dynamic — a push — to make it finally happen. If, as many expect, there is an economic slowdown in the U.S. in 2019, causing Saks' business to suffer and complicating Neiman's refinancing, that could be enough to force just such a change.
“Neither NMG nor its owners comment on market speculation or actions they may or may not be contemplating,” said an Ares spokesman.
“Neiman Marcus Group has been in discussions with our lenders and investors to improve our balance sheet and strengthen NMG as a company. We view these negotiations as an ongoing process that will likely take time.”
GEOFFROY VAN RAEMDONCK, NEIMAN MARCUS GROUP