Neiman Marcus Group may have called off exploring a possible sale and saw further losses in the third quarter — but executives insist the luxury retailer is doing better.
This story first appeared in the June 14, 2017 issue of WWD. Subscribe Today.
On Tuesday, Neiman’s president and chief executive officer Karen Katz said the company has put a halt to any negotiations to sell all or part of the group; earlier this year it had shelved an initial public offering plan. Hudson’s Bay Co. had been trying to buy the company but price was an issue as well as Neiman’s separating three stores and Mytheresa.com from the main business, complicating any transaction.
“At this time any conversations regarding a partial or full sale of the company have terminated,” Katz told investors.
She declined to address a WWD report that Neiman’s is in talks with Majid Al-Futtaim in Dubai about a possible leasing agreement in the region.
But in the conference call and a following interview, Katz made it clear the retailer is pushing on several fronts to try to improve operations, including stabilizing its much-troubled and costly NMG One common merchandising system.
These moves come as Neiman’s reported a net loss of $24.9 million for the third quarter ended April 29, compared to net earnings of $3.8 million for the year-ago quarter, marking its fourth straight quarterly loss. Neiman’s has been grappling with reduced traffic and sales, and a debt load stemming from the $6 billion acquisition of the company by the Canada Pension Plan Investment Board and Ares Management in 2013.
Earnings before interest, taxes, depreciation and amortization declined to $135.9 million compared to $173.2 million in the prior year.
Total revenues in the last quarter reached $1.11 billion, representing a 4.9 percent decrease compared to total revenues of $1.17 billion for the year-ago period. And comparable revenues decreased 4.9 percent.
Nevertheless, according to Katz, traffic trends, though down in the mid-single digits, have improved from the fall; the online business continues to grow; fine apparel has perked up, and the Texas and Florida stores are performing better.
Later, in an interview with WWD, Katz said the company is more aggressively developing exclusives, launches and other special offers from designers and vendors. “We have been very focused in the last two years in really developing exclusives through our ‘only at NM’ program. Those particular products have outperformed the rest of sell-throughs,” Katz said. “We are doubling down on ‘only at NM.'”
She cited success with two recent product initiatives, putting Chanel’s Gabrielle bag online from April 3 to April 10 and launching the Riccardo Tisci NikeLab Dunk Lux Chukka x RT sneaker.
“We are developing more things that are one-off, with not a lot of products but really unique experiences,” Katz said. “To support all of this we have made fundamental changes to our digital marketing. It’s more highly segmented, more personalized,” to drill down to customers who will have most interest in the exclusives. “Everybody is looking for a way to do more regular priced business in this highly charged promotional business climate.”
Neiman’s has lined up several exclusives for fall including Gucci bags and shoes and a men’s capsule collection from Brunello Cucinelli. “We are going to continue to work on these drops, if you will,” the ceo told WWD.
But Neiman’s has a way to go to reverse the negative trends. Last fall, NMG’s comparable-store sales were down 7.3 percent, with a 4.9 percent drop in the third fiscal quarter. “Traffic is still running down in our stores, in low-single digits, but we don’t measure traffic in all of our stores,” Katz explained. “It’s a sub-sample. Traffic counts are a little less important to us because we are driving a lot of business via our iSell app, texting and e-mailing. Sometimes customers just don’t make a trip to the stores because they have a close connection with our sales associates” sustained through digital communications.
Last quarter, jewelry, handbags and men’s were the best performing categories. As of late, “We are seeing this quarter better business in fine apparel,” Katz said. “We actually have not seen good trends there in a while. Our fine apparel business is starting to improve.” Sneakers are also a key category, accounting for more than 50 percent of the men’s shoe business. “Sneakers continue to grow in importance for women’s shoes as well,” Katz said.
She tied improvement at Neiman’s Texas stores to the price of oil going up, while in Florida “just generally the traffic got a little better.” With international tourism around the country, Neiman’s has not noticed significant change yet. Katz said that’s tied to the strength of the dollar.
She did speak highly of Neiman’s Mytheresa.com business, saying it’s doing well in Europe and “seeing strong business in China, which we attribute to a robust marketing and social media influencers.”
“We are seeing positive signs in terms of our performance,” which improved in May, Katz said. “Online traffic is improving as well.” E-commerce accounts for more than 30 percent of NMG’s revenues.
Other “core strengths” cited by Katz include Neiman’s ability “to deliver a highly personalized shopping experience in all channels, its deep knowledge of customers’ shopping behavior and preferences through advanced data, and exclusives.”
But she tempered her remarks, noting, “We realize many challenges remain. There is substantial work to be done to drive growth and profitability.” That includes further reducing inventories to be more aligned with demand. “The promotional environment remains intense and markdowns will continue to affect margins.”
Neiman’s executives also said its NMG One system, which went live last August, has been “stabilized” after suffering for months from serious glitches that caused vendors to miss sales data and impaired ordering and replenishments. The NMG One system is geared for better planning, markdown optimization and maximizing the efficiency of inventory across channels.
With NMG One, “We are gleaning new and deeper levels of insights into the business. We have significantly improved inventory accuracy and visibility, managing buys, pricing and controlling inventory levels and margins.” With the system stabilized, Neiman’s can better serve customers both in-store and online with improved ordering, Katz said. “The flow-through from warehouse to our stores is now virtually seamless and most importantly almost 100 percent accurate.”
She said vendors remained supportive through the implementation of NMG One. NMG One issues cost Neiman’s $800,000 in temporary labor and overtime last quarter and took a toll on revenues that couldn’t be quantified. “There are still certain things that have to be fixed over the next few weeks. They are not major. I do believe we will start to see real benefits of NMG one as we go into fiscal 2018,” Katz said. “Clearly one of the primary reasons we went through this project was to have better efficiencies with inventory and working capital. We are through the worst of it.”