Neiman Mar­cus’ State of Tran­si­tion The com­pany said it has room to work on its $4.5 bil­lion debt load.

WWD Digital Daily - - Front Page - BY EVAN CLARK

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

Neiman Mar­cus is push­ing ahead with its trans­for­ma­tion as it seeks to re­struc­ture its debt.

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