The Neiman Marcus deal is done.
On Friday, Ares Management LLC and Canada Pension Plan Investment Board said they completed the acquisition of Neiman Marcus Group Ltd. Inc. for $6 billion from TPG and Warburg Pincus, confirming a WWD report the night before that the closing was imminent.
Now the industry awaits the closing of Hudson’s Bay Co.’s $2.9 billion deal to buy Saks Fifth Avenue from the shareholders. That could happen in a matter of days or a few weeks, following shareholder approval. The shareholders are expected to approve the deal on Wednesday at a special meeting in New York.
“We are very pleased with the successful outcome of this transaction,” commented Karen Katz, the president and chief executive officer of Neiman Marcus Group. “We look forward to partnering with Ares Management and CPPIB. We believe the future for Neiman Marcus Group is bright.”
Neiman’s comes out of the deal highly leveraged, boosting its debt to a projected $4.6 billion from $2.7 billion. That will pressure the team to generate increased revenues to support the increased debt and force Neiman’s to sharpen its already strong luxury game and develop new growth strategies. Under the buyout plan, Ares and the pension fund planned to cover a quarter of the purchase price themselves, selling roughly $1.56 billion in bonds, and take out a term loan of just under $3 billion. The retailer is also taking on an $800 million senior secured asset-based revolving credit facility to maintain liquidity. Ares is a global alternative asset manager and an investment adviser based in Los Angeles.
The owners have already said that priorities involve investing in the stores as well as technology, and Katz, Neiman’s ceo since October 2009, backed that up by saying they were keen on investing in long-term growth strategies. Since taking the reins, Katz has demonstrated a willingness to test new waters in technology, service and on other fronts and has cited the possibility of opening more Last Call outlets. Neiman’s has 35 outlets, though its most direct competitors, Saks Inc. and Nordstrom, both operate many more outlets. Neiman’s previously set $135 million in capital expenditures for 2013, largely for renovating the Michigan Avenue store in Chicago, as well as renovations at Bergdorf Goodman and a few other Neiman’s locations.
International expansion needs to be explored since, with 41 full-line Neiman’s stores across the country as well as two Bergdorf Goodman stores in Manhattan, virtually all domestic store-growth opportunities have been tapped. However, a store in the Roosevelt Field mall in Garden City, N.Y., is planned. Most Neiman’s stores are highly productive and deliver strong service but not all. The Orlando, Fla., and Natick, Mass., units are said to be among the weaker locations.
While no overseas stores are in the works, Neiman’s does conduct business online in China, and has a 44 percent stake in Glamour Sales Holdings, an Asian-based e-commerce site specializing in flash sales. Glamour helped Neiman’s launch neimanmarcus.com.cn and is helping migrate shoppers to the Neiman’s site. Neiman’s also ships products to other countries, though the retailer hit some road bumps in China and decided to downsize the team there and ship from its U.S. inventories rather than holding inventory in Chinese warehouses.
Another possibility is to roll out Cusp specialty stores for contemporary sportswear and accessories. There are only six operating, though Neiman’s planted a bigger stake in the contemporary market by recently rolling out Cusp contemporary departments inside its stores.
Neiman’s had a good year, reporting net earnings of $163.7 million, versus $140.1 million in fiscal 2012. Comparable revenues increased 4.9 percent. Tightened expenses and good inventory management fueled the results.