For the Neiman Marcus Group, the luxury malaise, higher markdowns and non-cash impairment charges made for a tough fourth quarter and fiscal 2016.
Evolutionary changes in the fashion industry ranging from technology demands to changes in consumer demands and buying habits, and the impact of fast fashion also affected the Dallas-based luxury retailer.
“We were confronted with challenges in almost every phase of the business,” Karen Katz, president and chief executive officer of the Neiman Marcus Group, said Monday after the company reported a fourth-quarter net loss of $407.3 million including non-cash impairment charges of $466.2 million, while adjusted earnings before interest, taxes, depreciation and amortization came to $64.5 million. That compared to a net loss of $32.9 million and adjusted EBITDA of $107.9 million for the fourth quarter of fiscal year 2015.
In the latest quarter ending July 30, Neiman’s total revenues came to $1.13 billion, representing a decrease of 3.3 percent compared to total revenues of $1.17 billion for the year-ago period. Comparable revenues fell 4.1 percent.
Fourth quarter non-cash impairment charges of $466.2 million consisted of a $199.2 million impairment charge related to the writedown to fair value of goodwill; a $228.9 million impairment charge related to the writedown to fair value of the net carrying value of trade names, and a $38.1 million impairment charge related to the writedown to fair value of the net carrying value of certain long-lived assets.
There’s heightened interest in Neiman’s performance due to mounting speculation that its owners Ares Management and the Canada Pension Plan Investment Board are eager to sell the business and that Hudson’s Bay Co. would be the most likely buyer. Richard Baker, HBC’s governor and executive chairman, has made no secret of his desire to one day buy Neiman’s, and HBC would be a strategic buyer since it already owns Saks Fifth Avenue. There has been recent speculation that HBC has been in the capital markets lining up the financing to buy Neiman’s, but sources said no deal is in the works right now.
In her review of the year during a conference call with investors and analysts Monday morning, Katz cited terrorism; the strength of the dollar and declining tourist spending, particularly in southeast Florida, New York City, Las Vegas and Hawaii, and the “persistently” low price of oil hurting Texas stores where Neiman’s has a strong presence as affecting the retail landscape and consumers’ willingness to shop luxury. “It all exerted pressure on our performance,” Katz said.
“The fashion cycle is out of sync with the customer — by the time merchandise ships, newness and excitement has worn off and in many cases. The customer has moved on,” the ceo added.
Her team has been responding to the challenges. “We worked aggressively to bring inventories in line with the soft demand,” Katz said, noting that inventories are in good shape for fall.
She said Neiman’s is working to drive “true and sustainable changes to the fashion cycle” and that the industry is clearly responding. She singled out recent efforts by Tom Ford and Burberry for providing see-now-wear-now opportunities for consumers.
Katz also said technology and the Internet are impacting retail and that online sales now accounted for 30 percent of NMG’s total business. The company is “focused on strengthening the connection between marketing our web site and our store selling team,” she said.
Last month, the Dallas-based retailer launched the final phase of its NMG One common merchandise system for better planning, markdown optimization and maximizing the efficiency of inventory across channels. With NMG One, “We became fully live at the end of August” and growing pains are being experienced, Katz acknowledged. “We continue to resolve them without significant disruptions to the business.”
Recently, NMG sent a letter to vendors apologizing for glitches at NMG One. Said one source: “There are shipping issues — trouble getting receipt invoices accepted. Also, brands are having issues receiving selling performance.”
The letter, signed by Jim Gold, NMG’s president and chief merchandising officer, and Joshua Schulman, president of Bergdorf Goodman, indicated that NMG One “has been a very complex undertaking as we essentially consolidated three legacy, stand-alone inventory management systems. It is not unexpected that we are experiencing normal growing pains. The teams at Neiman Marcus, Bergdorf Goodman and Last Call are working through issues related to purchase orders, merchandising processing and logistics. We know that you haven’t had as much visibility to your business as we usually provide.”
Katz said the growing pains didn’t have any impact on financial results last year, but “will be reflected in our first-quarter performance.” The final phase of NMG One was launched Aug. 28. “Its real purpose was to improve working capital efficiency. It’s not about saving money, but really trying to make our inventories work harder. We should start seeing results of that in our fiscal 2018,” said Katz.
Providing updates on other projects, Katz said the Neiman Marcus store in Manhattan’s Hudson Yards is on schedule to open in 2018. “Vendors and customers are very excited about our entry into the market.” It will be Neiman’s first New York City store.
In another major project, Bergdorf’s women’s store is expanding to 4 West 58th street, adjacent to the store, to free up space for women’s. The eighth floor will unveil new selling space in 2018, and there will be additional space added subsequently. BG has not revealed what categories will be sold within the new selling space.
NMG overall for the rest of this year will be operating with less inventory and fewer promotions, and striving to push harder at differentiating the merchandise with exclusives and getting additional receipts from hot brands, Katz said, citing Gucci, Chloé and Gianvito Rossi, among others.
Neiman’s, on its main floors for holiday will set up a gift-giving area called “Love To Give” for “accessible” gifts and a “Fun To Give” area for Millennial-focused gifts.
“Even though business remains challenging, we continue to look to the future,” Katz stated. “Even as we evolve we strive to offer the finest luxury and fashion. Our constant is a commitment to serving our customers.”
On the financial side, officials said NMG still has more than ample liquidity to meet its debt obligations and ended the year with inventory down 2.6 percent. Factoring out the new Roosevelt Field, Garden City, N.Y., store, inventory was down 3.7 percent on a comp basis. Cash flow was up 35 percent for the year, partly driven by reduction in inventory. The paydown on a long-term loan for the year was about $30 million.
Regarding fast fashion, Katz explained that it really wasn’t a case of Neiman’s luxury customers defecting to stores like H&M or Zara. “I think it’s kind of the state of the nation in what’s happening in apparel retailing today…It’s impacting now more from the perspective of consumers seeing runway shows, and by the time the goods get to the stores, customers are a little bored.”
Katz also said the average age of Neiman’s customers “hasn’t changed materially over the decade. It’s about a 50 to 51-year-old woman…We are bringing in enough Millennials to kind of balance out what our average age is.”
For the entire fiscal year, Neiman’s reported a net loss of $406.1 million including non-cash impairment charges compared to net earnings of $14.9 million in the prior year. Adjusted EBITDA decreased to $584.9 million from $710.6 million in the prior year.
For the year, the company reported total revenues of $4.95 billion, a decrease of 2.9 percent decrease compared to total revenues of $5.1 billion in the prior year. Comparable revenues decreased 4.1 percent.
Neiman Marcus Group operates Neiman Marcus, Bergdorf Goodman, Mytheresa, Cusp, Horchow and Last Call.