The Neiman Marcus Group, in another maneuver to fix its debt-laden capital structure and focus on core businesses, is considering selling Mytheresa, the Munich-based luxury web site purchased by the company four-and-a-half years ago.
The company also disclosed Tuesday in a filing that its string of comparable sales gains has been broken. For the company’s third quarter, which ended last Saturday, a 1.3 percent to 1.9 percent decline in comparable revenues is expected to be reported.
Neiman’s also expects to report a decline in adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, to $119 million to $129 million for third quarter of fiscal year. That compares to EBITDA of $143.1 million reported in the year-ago quarter.
The news on this season’s selling trend is disappointing considering Neiman’s second quarter marked the retailer’s sixth consecutive period of comparable sales increases, though the spring season for many retailers has been difficult due to the late Easter and cooler weather.
Regarding Mytheresa, Neiman’s disclosed that it has “commenced a process to explore and evaluate strategic alternatives,” but said no decision has been made to pursue any specific transaction or other strategic alternative. “There can be no assurance that the exploration of strategic alternatives will result in the completion of any transaction,” the company said.
Mytheresa, for the nine months ended March 31, had $311.5 million in sales and $17.4 million in operating EBITDA.
Neiman’s purchased the Mytheresa.com online luxury business in September 2014 from founders Christoph and Susanne Botschen and Acton Capital Partners. NMG also acquired the Mytheresa flagship store, located in the heart of Munich, from the Botschen family.
A deal would help Neiman’s shore up its balance sheet, and allow management to focus more and spend more on its Neiman Marcus, Bergdorf Goodman, Neiman Marcus Last Call and Horchow operations.
The filing indicated that the company has commenced its exchange offers and maturity extensions involving $960 million aggregate principal amount of existing unsecured 8 percent senior cash pay notes due 2021, and $655.7 million aggregate principal amount of existing unsecured 8.75 percent and 9.5 percent senior payment-in-kind toggle notes due 2021. In the exchange, new notes due 2024, at 8 percent to 8.75 percent interest rates, are being issued. Also, some of Neiman’s real estate is being used as collateral and some shares of an indirect holding company of Mytheresa are being issued to creditors. Unsecured noteholders would exchange $250 million in notes at par into $250 million of non-voting preferred equity of a U.S. holding company tied to NMG Germany, holding the Mytheresa business.
The agreement with lenders will give the Dallas-based retailer breathing room to improve its operations and support efforts to rev up its retail businesses and pay down debt. The “transaction support agreement” is expected to close in late May. The $5 billion NMG has $4.6 billion in debt, including a $2.8 billion term loan due in October 2020, and two sets of bonds and an asset-backed loan due in 2021. The agreement calls for extending the maturities to 2023 and 2024, instead of 2020 and 2021.
After the filing was released, Marble Ridge Capital said in a statement the Neiman’s sponsors potential sale of Mytheresa is a “scheme to place the valuable Mytheresa assets beyond the reach of Neiman’s creditors. This restructuring — underscored by Neiman’s poor financial performance and the pricing of credit default swaps — should place an even bigger sign on Neiman for all stakeholders to see that reads ‘beware,'” Marble Ridge said.
Two weeks ago, NMG revealed it made a minority investment in the Fashionphile, a 20-year-old business specializing in the buying and selling of used luxury handbags, jewelry and accessories. The purchase price and the percent of Fashionphile now owned by Neiman Marcus was not disclosed.
Fashionphile, founded by Sarah Davis, operates a web site as well as four physical showrooms, in New York on Madison Avenue near 75th Street; Beverly Hills; San Francisco, and Carlsbad, Calif., where customers can drop off their items and shop online. Fashionphile primarily sells via its web site, Fashionphile.com. Neiman’s will not be engaged in re-commerce, also referred to as resale, though certain Neiman Marcus stores will serve as drop-off points for Fashionphile.
“We believe this strategic partnership with Fashionphile will allow us to expand into the pre-owned luxury secondary market and provide our existing customers with a broader range of services and offerings,” Neiman’s said in its filing on Monday evening.
While there could be benefits from the Fashionphile investment, such as drawing greater traffic into Neiman Marcus stores, the corporation does not have a great track record taking stakes in other firms in the past two decades. The luxury retailer acquired a 56 percent stake in Kate Spade in 1999 for $33.6 million and expressed big plans for the brand, including store openings. However, in 2006, NMG sold Kate Spade for $124 million to Liz Claiborne Co. Inc.
NMG also once owned Gurwitch Products, the licensee of Laura Mercier. In 1998, Neiman’s bought a 51 percent stake in Gurwitch, but sold the company in 2006 to Alticor Inc. for an undisclosed amount.
NMG’s chief executive officer Geoffroy van Raemdonck has formulated a multiyear plan to transform NMG into a consumer-centric luxury platform. He has set new financial goals and aims to ramp up the firm’s cash flow to $700 million in EBITDA within four or five years, well above the $477 million reported for NMG’s last fiscal year.
Negotiations between NMG owners Ares Management and Canada Pension Plan Investment Board and debt holders went full-speed-ahead around mid-February, following on-and-off talks last year. Ares and CPPIB bought NMG from TPG Capital and Warburg Pincus in 2013 for $6 billion, putting the huge debt load on the books.
Neiman’s has been paying hundreds of millions of dollars annually to cover the interest costs on its debt, including $307 million during the most recent fiscal year, ended July 28.
In March, Neiman’s opened its first store in New York City, in Hudson Yards. It’s almost the company’s most innovative to date with such features as a 1,000-square-foot pavilion to host fashion shows, book signings and talks; a new concept called Cooks & Merchants for epicure and a demo kitchen, and lots of exclusive merchandise.