Neiman Marcus Group Ltd., faced with concerns ranging from dissipating tourist traffic and declining oil prices to excess inventories, disclosed a drop in fiscal first-quarter sales and earnings. And it expects its inventory problem to continue for at least another six months.
The Dallas-based retailer is also grappling with weak outerwear sales due to the warm weather, and the general decline in luxury transactions as consumers spend more on dining out, theater tickets, spas and other experiences, rather than fashion.
In addition, NMG contended with intermittent outages of neimanmarcus.com over Thanksgiving weekend, though officials said the company extended holiday offers and was able to recoup most of the demand. NMG does more than 20 percent of its annual revenues via the Internet.
For the period ended Oct. 31, total revenue fell 1.8 percent to $1.16 billion from $1.19 billion in the same period last year on same-store sales that dropped 5.6 percent. The comp decline was steeper than those experienced by competitors including Saks Fifth Avenue, which had a comp decline last quarter of 2.1 percent.
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“Business conditions were quite challenging in the quarter,” said Karen Katz, president and chief executive officer, during a conference call. “The strong dollar has had an impact on our business in two notable ways; we believe it has affected tourism and, therefore, store traffic in the key gateway markets of south Florida, New York City, Las Vegas, Washington, D.C., and Hawaii. And anecdotally, we have been hearing that some of our customers have been taking advantage of the strong U.S. dollar and are shopping abroad for luxury products.”
Katz also said many Neiman Marcus Group customers have direct or indirect oil and gas investments and that lower fuel prices are impacting their spending.
“We, like many other retailers, are experiencing several headwinds causing disruption in the market. We’ve experienced these cycles before and we know how to manage through them.”
Regarding last month’s Web site crash over Thanksgiving, Katz said, “Black Friday is not a critical shopping day” for NMG. She said the outages were caused by a “complex layering of different promotional offerings and traffic increases” and that most of the demand was recovered after the problem was fixed. A Black Friday promotion was extended. On Cyber Monday, the Web site ran a similar level of promotions and had the anticipated high traffic and did not experience any problems.
Katz said now, “the holiday season is in full swing. December is an important markdown month for us. But at the same time, we are receiving new resort and spring merchandise.” She listed some bestsellers as Loro Piana sportswear, Tom Ford’s James Bond merchandise and Neiman Marcus private label.
The net loss for the quarter came in at $10.5 million, which compares to net income of $196,000 in the prior year. Adjusted earnings declined 15.4 percent to $164.3 million from $194.3 million. Operating earnings also declined.
As first reported by WWD, Neiman’s had been considering an initial public offering earlier this year, but is said to have called off those plans amid the stock market turmoil in August and challenging business. Business at luxury stores such as Neiman’s and Saks Fifth Avenue are most directly impacted by stock market activity.
Regarding excess inventory, Katz said, “It will be a several quarter process to right size the inventory given the dislocation between revenue performance and the buys going into the quarter. It will probably be the end of April or end of July before we see inventory levels where we want them to be.”
Katz said inventories are bought six to nine months before they are sold to shoppers. The ceo said that around August and early September, the company detected a definite change in demand. Then the company started to get organized around what to do to reduce inventory levels.
Neiman’s will also be contending with the strong dollar for a while, Katz believes. “We’re not economists but everything is pointing to the dollar remaining strong.” Consequently, she suggested that Neiman’s will have to think about what tourism will look like going forward. The decline in tourist traffic, she said, is “not so specific about whether it’s [impacting] products selling at opening or aspirational price points or very high-end luxury price points.”
Among Neiman’s bigger projects in the works is opening Neiman Marcus stores next February in the Roosevelt Field mall on Long Island, and in Hudson Yards on the west side of Manhattan in 2018. Bergdorf Goodman is renovating its women’s store and adding space by relocating its offices just west of the flagship.