Dive Brief:
- Neiman Marcus added another quarter of sales declines to a stretch of poor performance. On Tuesday the company reported third quarter sales had fallen 4.9% to $1.1 billion from the same period last year and comparable sales had decreased 4.9% during the quarter.
- The luxury department store retailer logged a net loss of $24.9 million in the quarter ended April 29, as compared to net earnings of $3.8 million in the year-ago period, according to a company press release. Adjusted interest, tax, depreciation and amortization (EBITDA) fell 21.5% from the year-ago period to $135.9 million in third quarter 2017.
- So far for the year Neiman’s sales stand at $3.6 billion, a 6.2% decrease from this time last year. Comparable sales for the year are down 6.6%. The dismal numbers follow news that the company recently took itself off the auction block after reported merger talks stalled with Saks Fifth Avenue parent Hudson’s Bay Co.
Dive Insight:
In a Tuesday conference call, CEO and President Karen Katz said the company was "prudently investing" in its stores and online business, and saw "positive signs" in the company's financials. Still, Neiman saw margins shrink during the quarter as it discounted merchandise in the face of competition and declining demand.
Neiman has reported sales declines every quarter for the year so far — a tough hand for a retailer weighed down by a $4.9 billion debt pile and is trying to find a path forward. For now, it seems Neiman is determined to forge that path alone, after a breakdown in acquisition talks with Hudson’s Bay, whose Saks stores frequently compete for the same customers. Katz said on Tuesday's conference call that any merger talks have been terminated.
Hudson’s Bay has found the price for Neiman too rich, especially given Neiman’s large debt load, which was also an issue, according to the Wall Street Journal. That debt goes back to the $6 billion leveraged buyout of Neiman in 2013, when private equity firm Ares Management and Canada Pension Plan Investment Board bought it from the private equity group that took the department store chain private in 2005.
The legacy of a leveraged buyout can turn a sales slump into a crisis, as it has with children’s retailer Gymboree — which recently filed for bankruptcy — and other companies purchased through huge debt-fueled transactions back when retail was fashionable on Wall Street.
"Neiman is a walking death march," Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive about its debt troubles. "That is what happens when private equity takes over. As long as you’ve got money you have the time to fix your problems, you have the luxury to fix things. If you don’t have money but have debt instead, you’re in the realm of divine intervention."
Despite mounting debt, however, Neiman Marcus doesn’t have any major debt maturity until October of 2020, Philip Emma, a retail analyst at Debtwire told Retail Dive, adding that the company isn't forced into making a decision on a sale in the near future. “The Neiman Marcus name still has value. It has deteriorated, but it’s still substantial,” Emma said. “There’s a revenue stream to buy at a discount — that’s an intriguing possibility. In a low growth environment for retail, the ability to add sales cheaply could be viewed as compelling.”
Talks between the two luxury retailers may reportedly be dead, but some analysts still see potential for a Hudson's Bay-Neiman Marcus mash-up. Cowen retail analyst Oliver Chen wrote in a note Tuesday that financial engineering around Hudson's Bay's real estate joint ventures could help finance and structure a potential deal with Neiman. "We believe Neiman Marcus would add greater vendor leverage, draw more loyal customers, unlock city specific real estate optimization strategies, and likely help rationalize competition," Chen wrote.
