The Neiman Marcus Group sees luxury outperforming retail overall despite tourism declines impacting flagships in major cities and a declining oil industry.
“Luxury vendors view the United States as a better place to invest their capital,” said Jim Skinner, NMG’s chief financial officer and chief operating officer, during a conference call Friday, after the retailer reported that it swung into the black during its third fiscal quarter and generated a 2.2 percent comparable sales gain.
“Longer term, people feel good that luxury is going to grow at a pace greater than other areas of retail,” Skinner said.
Neiman’s last quarter, which ended May 2, was boosted by strength in shoes, beauty and men’s. Executives also said the company is getting a good return on investments in store renovations including Bergdorf Goodman, information technology and omnichannel initiatives. The spending is generous, as capital expenditures climbed to $63.6 million in the quarter from $42.1 million in the prior year.
A year ago, the merchandising and planning for the Neiman Marcus stores and Web site were merged into one team. Also, the NMG One common merchandise system in mid-April launched the platform to manage supplier information, and last month implemented a merchandise financial planning tool. Both work in concert. NMG One enables locating and sharing inventory across channels to improve turn and better meet customer demand. Installing NMG One is a three to four-year process. Fine apparel, shoes and handbags are the first categories to make the shift.
Neiman’s executives on the call — who included Stacie Shirley, senior vice president of finance and treasurer, and Mark Anderson, director of finance, as well as Skinner — acknowledged the quarter was impacted by the harsh winter and a significant decline in international tourists, particularly those from Russia and Brazil.
In addition, the home, gifts, handbag and jewelry categories were weak, and the company was up against strong May 2014 sales when customers shopped earlier than normal to beat price increases that had been announced by luxury suppliers.
Neiman’s ended the quarter with inventories up 11.4 percent, or 7.2 percent excluding the Mytheresa luxury Web site, which was purchased last October.
“The quarter was not without issues,” Skinner said. “There seemed to be endless winter in many parts of the country. I believe there was snow on the ground in New York in March. Some of the tourism drop may be as much from oil price drops as it is from currency,” with the strong dollar deterring visitors from overseas from traveling to the U.S.
Skinner characterized inventories as “a little elevated and mostly a timing issue,” he explained. “When we look forward, we feel pretty good about where they will be by the end of the year.”
Neiman’s posted net income of $19.8 million, as compared to a loss of $8 million in the same period last year. Operating earnings jumped to $108 million from $63 million in the prior year. Earnings before interest, taxes, depreciation and amortization rose 25 percent to $185.7 million from $149.1 million.
Same-store sales rose 2.2 percent in the quarter, while total sales rose 5 percent to $1.22 billion from $1.16 billion. Sales per square foot for the trailing 12 months rose 3 percent to $589 from $574. Mytheresa’s quarterly sales came in at $80.6 million. NMG is pressured to accelerate revenues and productivity to manage its $4.5 billion in debt and make the required $260 million in interest payments annually. NMG is owned by an investor group led by Ares Management LLC and Canada Pension Plan Investment Board, which purchased the business for $6 billion in fall 2013.
On the renovation front, Bergdorf’s in early May opened half of its sixth floor. It has the feel of a modern luxury loft and emphasizes modern designer sportswear. Moncler, The Row, Burberry and Brunello Cucinelli are among the brands. The rest of the floor is expected to be complete in time for New York Fashion Week in September. The “Lab” to spotlight emerging designers is part of the project.
Bergdorf’s five-year plan renovation strategy, called BG 20/20, also involves the renovation of the main floor beginning this summer, with a dedicated entrance for precious jewelry on the 57th Street side of the store, “a grand hall” for leather goods off the Fifth Avenue entrance and flowing into designer salons extending back and north to the 58th Street entrance, and pumping up bergdorfgoodman.com. The merchandising of bergdorfgoodman.com is being transferred from Neiman Marcus Direct buyers, based in Dallas, to Bergdorf’s store buyers in New York. The Web presents an opportunity to broaden categories that are underplayed in NMG stores, such as children’s wear.