Has Neiman’s hit an inflexion point?
The losses are still deep, the debt remains high and the Neiman Marcus Group had another tough year. But the luxury retailer managed to narrow its net loss, saw sales at stores stabilizing and is now “doubling down” on digital growth and online services through a new strategy called Digital First.
“Fiscal 2017 was challenging, but I’d like to stress two key points. First, we completed the implementation of our NMG One inventory management system and resolved all operational issues.…Second, with the fiscal year’s end, we are seeing improvements in our business and positive momentum for the future,” said Karen Katz, NMG’s president and chief executive officer. Improvement in sales trends in the current quarter “are all the more noteworthy given the impact of Harvey and Irma,” Katz said. “Texas and Florida are important to us. We expect some negative impact on operating results in Q1.”
Her comments came during a conference call Tuesday, after the luxury retailer reported a net loss of $366.3 million for its fourth quarter ended July 29, including non-cash impairment charges of $357 million primarily related to the Neiman Marcus and Bergdorf Goodman brands.
That compared to a net loss of $407.3 million in the year-ago period when $466.2 million in non-cash impairment charges were reported.
Adjusted earnings before interest, taxes, depreciation and amortization for the fourth quarter were $48.2 million, compared to $64.5 million in the prior year.
For the year, adjusted EBITDA came to $433.8 million compared to $584.9 million, while the net loss was $531.8 million, including non-cash impairment charges of $510.7 million.
Revenues last quarter dropped 0.5 percent on a comparable basis to $1.12 billion. For the year, revenues dropped 5.2 percent to $4.71 billion.
Katz cited as best-performing categories “strong selling for women’s ready-to-wear across all price points” as well as handbags, jewelry and shoes, especially sneakers.
Katz, along with Dale Stapleton, senior vice president and interim chief financial officer, made an effort to quell concerns about meeting debt obligations and the future Hudson Yards store in Manhattan and also discussed the general business climate and the NMG One merchandise system, which had a rocky first year with glitches impeding ordering and the flow of data. It took longer than expected to fix, Katz admitted.
“The good news is that it has already started delivering benefits by providing us with new data-driven insights into the business and allowing us to manage inventory through auto-replenishment and subsequently, merchandising in a more disciplined focused and nimble way.” NMG One provides visibility of all products so teams across channels can see each other’s inventory.
Katz said the company remains cautious about the overall business environment, but she cited the retailer’s small comp-sales decline, gross margins improving 30 basis points due to lower promotional costs and reduced inventory that’s better aligned with current sales trends. “Taken together, we believe these points showed improved performance over recent quarters,” she said.
In the fourth quarter, the online business rose 9 percent to $363 million, marking its biggest increase since the third quarter of fiscal 2015. Online sales for NMG, including Mytheresa.com, represent more than 30 percent of total revenues.
Capital expenses for fiscal 2018 will rise to $218 million from $208 million in fiscal 2017, with major portions earmarked to build the Neiman’s store in Hudson Yards, the mega mixed-use development on the west side of Manhattan. Katz said the store will open in March 2019 and that plans for the site were recently finalized. “The store will be one of our largest, at 190,000 square feet, approximately 10 percent less than we originally projected.”
The technology, art, design of the store and its merchandise will “surpass existing shopping experiences,” Katz promised. Typically, Neiman’s spends $400 to $500 a square foot to build a store. Hudson Yards, Katz said, is “definitely higher than the average spend,” though she wouldn’t specify the cost.
The company had interest expenses of $295.7 million last year, and has $4.4 billion in long-term debt on its books. The debt maturities don’t actually start until October 2020 and fully in 2021. Executives noted the company ended the year with “more than ample liquidity” including $651 million in cash and $88 million in cash equivalents, for a total of $739 million. The company also accelerated some PIK interest payments, but no refinancing of the debt was revealed.
Regarding the cap ex, “We have a few big store [renovations] on the docket to get done in the next couple of years and we are definitely spending more on our e-commerce platform. Hudson Yards is a significant part in fiscal 2018, and there are the shops-in-shop we build for our vendor partners,” the ceo said.
In addition, “We are doubling down on our e-commerce and digitally based businesses, and they will become a larger part of our business as the growth unfolds over the next few years,” Katz said. “Digital First will be a major driver of our success.”
In a separate interview, Carrie Tharp, NMG’s chief marketing officer, said the Digital First program has “three pillars”: to bolster luxury services online so they emulate the in-store experience; to replatform NMG’s web sites to deploy different kinds of software for greater flexibility interacting with customers, and to achieve greater product innovation and differentiation.
As part of Digital First, the company created NMVP, an invite-only program in beta testing since September for the best online customers, focused on creating online experiences that mirror Neiman’s superior in-store service. Here, Neiman’s is testing online concierges that do styling, provide early access to new product, send out outfits via text and help customers with deliveries and to purchase by text, to avoid switching over to the web site.
Earlier this year, Neiman’s said it had taken itself off the selling block, though more recently there were rumors that Hudson’s Bay Co. was still interested in buying the retailer. “We are running as an independent company and no other discussions of anything else are going on,” Katz said.
Other factors should help Neiman’s going forward. “The dollar weakening should over time help us with tourists, but there is a lag effect to that,” Katz explained. “We really have not seen tourists coming back yet oil prices have stabilized so Texas business has stabilized except for Houston where we were closed for a week in the aftermath of the hurricane.”
Katz also said there’s a better fall fashion offering, which is helping achieve “positive comps in the first quarter even with the [impact of the] hurricanes. They probably cost us for the quarter 150 basis points.” The company has business interruption insurance, which helps offset lost margin but doesn’t recover lost revenues.
As Tharp said, “We continue to see positive signs of momentum coming from several areas of the business.”