The Neiman Marcus Group will put a glow on its business with Friday’s opening of its big Manhattan flagship in Hudson Yards, yet there’s still work to be done to lift profitability and escape the specter of looming debt maturities.
Acknowledging riding an up-and-down holiday season, NMG on Tuesday reported a net loss of $29 million in the fiscal second quarter ended Jan. 26, compared with net earnings of $372.5 million in the second quarter of 2018. However, the year-ago period included a $387 million tax benefit.
Adjusted earnings before interest, taxes, depreciation and amortization were down somewhat at $134.4 million, compared to adjusted EBITDA of $154.8 million for the second quarter a year ago.
Excluding the Mytheresa luxury web site owned by Neiman’s, adjusted EBITDA for the second quarter was $134.4 million, compared to $147.5 million for the second quarter a year ago. NMG also owns Bergdorf Goodman and Horchow.
Comparable sales rose 0.7 percent, while total revenues reached $1.39 billion, down from $1.49 billion in the year-ago period.
Priorities for the Dallas-based luxury retailer include furthering its transformation into what NMG’s chief executive officer Geoffroy van Raemdonck characterizes as a “consumer-centric luxury platform,” sustaining the string of positive comparable sales results, and restructuring the $4.5 billion in debt, which begins to mature in 2020.
Van Raemdonck said during a conference call that the Christmas trend was erratic, strong for the Black Friday and Cyber Monday periods and for the week preceding Christmas, but weak during the days in between.
“We had a successful start for holiday with a robust Black Friday and record-setting Cyber Monday. However, as the season progressed we saw a continued shift with heavier shopping taking place in the beginning and end of the season rather than consistent shopping,” van Raemdonck said. “We experienced a higher intensity of promotions from luxury retail competitors. They went deeper and earlier with holiday promotions. We will not completely shy away from promotional activity, but our primary focus remains in driving full-price selling.”
Nevertheless, Neiman’s ceo was generally positive about the last quarter, indicating that the results reflect “our sixth consecutive quarter of comparable sales increases. The stabilization of our business continues as we work deliberately to transform Neiman Marcus Group into a luxury customer platform, fueled by technology, innovation, and supported by seasoned and talented executives who are laser-focused on this mission.” He also said he was pleased with the company’s overall performance through the fall and the 1.6 percent comparable sales gain. During the fall, margin growth for Neiman’s U.S. operations was flat, despite what van Raemdonck termed as an “increasingly aggressive promotional environment.”
Neiman’s “customer-centric model,” van Raemdonck explained, involves building deeper customer relationships, a seamless experience across shopping channels, and “creating magic” for customers.
On March 1, NMG disclosed it reached a preliminary agreement with lenders on an extension and amendment of its debt maturities. NMG’s $4.5 billion in debt encompasses a $2.8 billion term loan due in October 2020, and two sets of bonds and an asset-backed loan due in 2021. Neiman’s has been paying hundreds of millions annually to cover the interest costs, including $307 million during the most recent fiscal year, ended July 28. It’s been a drain on profitability.
WWD learned that Neiman’s had lenders of about $2 billion of its debt agree in principle to the deal and that the retailer was working to get more on board. The proposed deal would extend maturities out three years. Also, unsecured noteholders would exchange $250 million in notes at par into $250 million of Mytheresa preferred equity and unsecured noteholders would get new securities with potential claims against the value of Mytheresa and with collateral from Neiman’s.
Providing a short update on the talks with lenders, Adam Orvos, executive vice president, chief financial officer and chief operating officer, said the discussions are “ongoing” and that the company has made “significant progress towards a final agreement. We view these negotiations as a process that will likely take time.”
Despite the significant interest payments, executives say the company has ample liquidity to sustain operations and continue to invest. They said NMG ended the quarter with over $700 million in liquidity.
There was no word on the status of a lawsuit filed by Marble Ridge Capital against Neiman Marcus. Last year Marble Ridge filed a complaint against NMG in the District Court of Dallas County in Texas alleging a “fraudulent transfer” of the Mytheresa assets to Ares Management and the Canada Pension Plan Investment Board, owners of NMG. Marble Ridge complained that the reshuffling put Mytheresa assets beyond the reach of Neiman’s creditors “to hinder and delay creditor recovery” and wants 100 percent of the Mytheresa assets returned to NMG.
But Neiman’s response was: “The distribution of Mytheresa was expressly permitted by our debt documents.”
As reported, Neiman’s will open its first store in New York City on Friday, a three-level, 188,000-square-foot flagship anchoring The Shops & Restaurants at Hudson Yards. It’s the retailer’s most innovative and experimental store and is loaded up with new types of services, amenities and experiences.
Van Raemdonck sounded confident that the new store will perform well, noting NMG’s “long and successful history in New York City with Bergdorf Goodman, a Fifth Avenue luxury shopping stable since the Twenties.” He also noted that Neiman Marcus generates annual online sales of over $100 million from New York City residents.
Located in a “vibrant and emerging neighborhood,” Manhattan’s far West Side, van Raemdonck said that new store is digitally empowered and filled with unique services, the latest designer collections, new categories such as epicure, and private events.
The company also reported capital expenditures of $74 million in the quarter, up from $54 million in the year-ago quarter, which was related to building the Hudson Yards store and remodeling others. Interest expense was $81 million, up from $76.5 million a year ago and driven by higher variable rates.