Barneys New York was downgraded by Moody’s Investors Service late Thursday due to liquidity concerns, but the retailer quickly responded by stating it has taken several measures to put itself in a “stronger financial condition.”
“Barneys has responded aggressively in the midst of these challenging conditions in the luxury retail market,” a company spokeswoman said.
“Controllable operating expenses have been reduced by approximately 10 percent to 15 percent on an annualized basis, and capital spending has been reduced by 50 percent in comparison to last year. Inventory purchases have been reduced for fall 2009 and spring 2010 by over 20 percent.
“These measures will put Barneys in a stronger financial position, with anticipated better margins,” she continued. “Our sales trend is improving and we expect a stronger performance in the second half of 2009.”
Barneys said Moody’s action is primarily a reflection of its financial performance in the fourth quarter of 2008 and first quarter of 2009.
Moody’s downgraded Barneys’ credit two notches, to “Caa3” from “Caa1.” The move, which covers the corporate family rating as well as the probability of default rating and ratings on Barneys’ senior secured term loan, keeps the debt within the class carrying “very high credit risk.”
However, it places the retailer’s debt just one tick above a “Ca” rating, which is reserved for securities that “are likely in, or very near, default, with some prospect of recovery of principal and interest.”
This is Moody’s first rating action on Barneys since Nov. 4, when the corporate family rating was reduced to “Caa1” with a negative outlook.
Moody’s action on Thursday covers $270 million of rated debt securities.
“Moody’s remains concerned that in the aggregate, free cash flow will remain negative over the near term,” the company said. The combination of its 2007 acquisition by Istithmar PJSC from Jones Apparel Group Inc. and “significant declines in revenue and earnings that are consistent with the overall luxury retail segment” have left Barneys in “strained financial condition,” wrote Kendra Smith, managing director of the corporate finance group, and Michael Zuccaro, analyst in the group.
Free cash flow is expected to remain in negative territory. Excess availability on the firm’s $200 million asset-based revolving credit agreement is likely limited because the revolver has been used to fund recent cash-flow deficits.
Complicating matters, according to Moody’s, is a “springing financial covenant” if excess availability falls below $20 million. “Moody’s believes that the company would not meet this test, if required,” the ratings agency said. Moody’s doesn’t rate the $200 million revolver.
Moody’s also noted that retail spending, especially for luxury goods, is expected to continue to contract, “although at a declining rate,” in the near term.
Barneys has been experiencing double-digit declines of a magnitude comparable to competitors in the luxury sector, though store officials see signs the worst could be over. “Although sales and operating results continue to reflect the difficult economic operating environment, we experienced slight improvements in the sales trend beginning in May and the trend has continued into July,” the company told WWD. In the first quarter, total sales were down 26.3 percent and, on a comparable-store basis, were down 27.6 percent. However, from May to July 20, sales were down 14.6 percent, and 16 percent on a comp basis. Year-to-date sales are running negative 20.9 percent, and negative 22.1 percent on a comparable-store basis. Moody’s estimated that the retailer’s sales in the last 12 months are about $675 million.
Barneys did get a lift from its new Chicago flagship, which opened in April and is tracking 15 percent ahead of the store it replaced. Barneys also said its Web site is 32 percent ahead, year-to-date. The company is building a flagship store in Scottsdale, Ariz., scheduled to open in October. Barneys operates seven flagships, two regional stores, 19 Co-Ops and 13 outlets. The company also has two warehouse sale locations, in New York and Los Angeles.
The absence of a chief executive officer “also remains a concern in this difficult environment,” said Moody’s. Howard Socol left as ceo in July 2008. The company is being led by its tier of seven executive vice presidents.
Moody’s move follows by just over three months a downgrade from Standard & Poor’s, which cut its rating to “CCC” from “B-minus,” skipping over the “CCC-plus” grade.
Just one day after the Moody’s downgrade in April, Istithmar opted to pump another $25 million into Barneys, helping to ease concerns and ensure shipments.
In other news, Barneys executive vice president and chief financial officer, Steve Feldman, is resigning today, after 13 years with the company. He will be succeeded by Vince Phelan, treasurer and also a veteran of Barneys, having been at the firm for 14 years. Barneys said Feldman decided to leave to pursue other interests.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews