For the Neiman Marcus Group, the third quarter was marked by top and bottom line declines, but there’s a “comprehensive program of initiatives” to improve the performance.
And Neiman’s no longer has immediate worries over the large and looming debt maturities. They’ve been extended three and four years into the future through an agreement with creditors and that means the retailer has breathing room to sustain operations and hopefully enhance its business.
That’s direct from Geoffroy van Raemdonck, NMG’s chief executive officer, who on Tuesday called fiscal 2019 “an investment year” for the Neiman Marcus Group, stating, “We believe we are making appropriate investments that will lead to growth.”
NMG reported a net loss of $31.2 million for its third fiscal quarter ended April 27, compared with a net loss of $19.9 million for the year-ago period. Adjusted earnings before interest, taxes, depreciation and amortization were $126.5 million, compared to $143.8 million a year ago.
There was a decrease in comparable sales of 1.5 percent, though some categories showed life, particularly men’s wear and beauty, which did best.
In an interview with WWD, van Raemdonck spelled out key investments over the past year to improve performance including spending on technology to become “data-driven”; taking a minority stake in Fashionphile, which specializes in the buying and selling of used luxury handbags, jewelry and accessories; opening Neiman’s first New York City store in March at Hudson Yards, and adding digital stylists for greater service and a human touch to online shopping.
There’s also been a big influx of talent remaking Neiman’s management, and most of the individuals came from digital and customer-centric orientations. Among the additions over the past year: Darcy Penick, former head of ShopBop, now president of Bergdorf Goodman; Stefanie Tsen, senior vice president, omnichannel customer experiences, formerly Sephora’s vice president of omnichannel experience, and Katie Mullen, chief transformation officer, who was a partner and managing director at the Boston Consulting Group.
Van Raemdonck said NMG’s transformation to a “customer-centric luxury platform is going to happen, first and foremost, through people — and there are more to come. The labor of their work comes to fruition next year,” when better results are expected.
Van Raemdonck characterized NMG as getting “data-driven” and benefiting from the NMG One systems integration. It had a rocky start but now it enables Neiman’s to capture more information on brands, customers and categories, and as a result, van Raemdonck said, “We are able to physically buy products with highest fully loaded margins and can work with brands to identify white space in our assortments or where they can develop products,” including exclusive capsule collections.
Neiman’s can also determine customers who may not be buying certain brands but have the potential to given their profiles come up like those who do shop the brands.
As a result of being data-driven, “Brands are responding very well. They’ve very eager to know what’s working and with who and how to capture more business with the customer. We will see margin expansion next year and brands view us more and more as a marketing conduit to customers,” van Raemdonck said.
Neiman’s has rolled out digital stylists, from seven last year to 60 this year. “They provide assisted selling online,” explained van Raemdonck. “Shoppers get the benefits of human advising and curation. We have tremendous results in repeat frequency, higher average transaction value, and customers truly spending more time with us because they are getting the advice.”
While last quarter was disappointing for the Dallas-based luxury chain, it was tough for many retailers. They were hurt by unseasonable weather, headwinds in shopper traffic and excessive inventories leading to stepped up markdowns. As van Raemdonck observed, “It’s a highly promotional industry environment. Luxury continues to get more promotional.” He said he’s seen an increase in the number and duration of promotions over the last couple of quarters.
During his conference call, van Raemdonck cited a “slowdown in the fashion cycle” with some of Neiman’s top 50 brands that had seen accelerating sales at the retailer over the past several seasons. “It’s not to say we are not selling them. It’s just to say the exponential growth is not there,” van Raemdonck said. “We experienced that shift more in Q3 than in the prior quarter. We are actively managing this issue and adjusting our buys going forward.”
Regarding Hudson Yards, where Neiman’s opened its first New York City store last March, van Raemdonck said, “We feel good about the store. We are very pleased about the traffic and pleased to attract both existing and new customers. We are exceeding our plans for now. Our stores take about three years to mature.”
He said the store is attracting “a nice blend of local New Yorkers and tourists, customers who have shopped with us in the past and some truly new to the brand. The store will have a halo effect on customers across the country and to our online business.”
About 20 percent of the traffic is engaging in experiences at the store, in wellness, beauty, food and beverage.
Early in the day, Neiman’s revealed that it completed its transaction support agreement with creditors. The agreement calls for extending the maturities to 2023 and 2024, instead of 2020 and 2021, and gives the company breathing room to sustain operations and support efforts to rev up its retail businesses and pay down debt.
The $5 billion NMG has about $4.6 billion in debt.
“It’s really nice to have this process behind us,” van Raemdonck said. “There was a lot of negative news, which is now behind us and allows us to focus on what’s really important: developing the customer centric luxury platform. We are all relieved now that the conversation and focus is back on the customer.”
Last week, as expected, the company accepted tenders and consents from holders of roughly $1.5 billion in notes, which were exchanged for $730,534,000 principal amount of new 8 percent third lien notes due 2024, $497,849,150 principal amount of new 8.75 percent third lien notes due 2024, and 250,000,000 shares of Series A preferred stock of MYT Holding Co., which is a newly formed U.S. holding company for NMG Germany, which operates Mytheresa.
About $137.3 million aggregate principal amount of the existing notes remain outstanding.
In addition, NMG amended its existing term loan facility so it has an extended maturity date of Oct. 25, 2023, representing about 99.5 percent of the total outstanding principal amount of existing term loans. Including a partial prepayment, about $2.25 billion of extended term loans and about $12.7 million of existing term loans remain outstanding under the agreement.
Regarding Mytheresa, van Raemdonck said the company is researching “a whole gamut of strategic opportunities.” He didn’t specify any. Possibilities might include a public offering, or some other kind of sale, or swapping more debt for equity building upon what occurred in the new agreement with creditors.
Mytheresa, now reported separately from NMG, saw its EBITDA rise to $4.4 million in the last quarter from $0.7 million in the year-ago quarter. Revenues rose 23.6 percent to $110.7 million, partly due to growth beyond Europe.
“It’s an extremely valuable asset and growing very fast,” van Raemdonck said. “We see a lot of interest.”