Dive Brief:
- Neiman Marcus is facing bankruptcy risk in the next year as high as 50%, according to a recent report from CreditRiskMonitor, which tracks the financial risks associated with companies with publicly traded stock or bonds. According to its promotional materials and executives, CreditRiskMonitor is 96% accurate in predicting bankruptcies.
- Neiman, along with Bon-Ton and Sears Holdings, is among the retailers with the highest near-term risk of filing for bankruptcy, according to CreditRiskMonitor. In determining risk, the service looks at stock volatility, credit agency ratings, key financial metrics and predictive data gathered from the use of its own platform. CEO Karen Katz noted in a November call with analysts that the retailer continues "to look at ways to manage the balance sheet," as its debt maturities come due (the first major loan matures in 2020).
- The report noted that the upscale department store retailer's debt-to-equity ratio more than doubled between October 2016 and October 2017, as did its liabilities-to-equities ratio. Neiman's total debt stood at $4.8 billion at the end of October 2017, according to CreditRiskMonitor, which also noted successive quarterly losses, adding up to $617.9 million, since first quarter 2017 (which ended Oct. 29 of 2016).
Dive Insight:
When Neiman Marcus' new CEO, former Ralph Lauren executive Geoffroy van Raemdonck, takes over for Karen Katz he'll have plenty of challenges right off the bat.
Neiman Marcus reported a much-needed top-line sales increase for the first quarter of fiscal 2018 (which ended in October) as well as the first comparable store sales increase since the fourth quarter 2015. Katz at the time attributed the increase to its new "digital first" strategy, which helped push growth in its online business to 14%.
But the retailer still lost a lot of money — to the tune of $26.2 million (a more than 11% year-over-year increase) — and it has been for some time. The first quarter showed the root of many of Neiman's troubles. Even as it raised its sales and operating profit, it had to pay $76.1 million in interest payments for the quarter.
Neiman still has a ton of debt, too. The retailer has already taken painful steps to try to become profitable again, as well as steps to increase sales. The department store cut 225 jobs in July, and has also decided to scale back its off-price footprint by about 25% and focus on its position as a luxury seller. The company talked with Hudson's Bay about a potential buyout, but walked away. And Neiman also floated a possible IPO, but then reversed course.
A Neiman spokesperson told Retail Dive last summer that the company had strong liquidity and was managing its debt load and business. (As of the end of October, the retailer had $650 million in liquidity.) "We believe we have sufficient resources to invest in long-term growth opportunities," the spokesperson said last year. "We are managing our debt load and are planning for debt maturities in 2020 and 2021."
To boost sales, Neiman unveiled its "Digital First" strategy last year in an effort to anticipate "customers' evolving behaviors and engaging them more deeply to drive traffic online and in stores."
But the company likely has more work to do. Fitch Ratings included Neiman Marcus on a secondary "loans of concern" list released in October, indicating some — though not necessarily imminent — default risk over a total outstanding loan balance of $2.8 billion.
In an October report, Philip Emma, a retail analyst with Debtwire, wrote of Neiman that "the next two quarters are crucial to assessing if the company is reaching a point where it will stop seeing declines in adjusted EBITDA and start to plateau." In a November interview, Emma pointed to the Q1 performance as an "important first step" for the retailer after two years of "absolutely awful numbers."
