Neiman Marcus offers more Discounts to stay competitive

Luxury retailer reports wider net loss, falling sales

By guest author Aisha Al-Muslim, Aisha Al-Muslim is a reporter covering breaking news for The Wall Street Journal in New York. She is an award-winning journalist and Pulitzer Prize finalist. She was previously a towns reporter and a business reporter at Newsday on Long Island, N.Y.

Neiman Marcus Group Ltd. is offering more discounts to move luxury merchandise, even in one of the strongest U.S. economies, as it struggles to compete in a highly promotional retail environment.

Executives at the closely held Dallas-based company said it ramped up promotions in the quarter, but not all the moves were effective. And, they were among the reasons the company reported a 1.5 % decline in same-store sales in the latest quarter compared with a year earlier. The luxury retailer also reported a wider net loss and lower revenues.

“We introduced changes in our promotional offerings during the quarter; and while some of these activities were successful, we feel we can improve and incorporate learnings from this into our promotional strategy going forward,” Chief Executive Geoffroy van Raemdonck told analysts during an earnings conference call Tuesday.

Comparable sales were also weighed down by a slowdown in sales of some of its top 50 brands. In response, the company is adjusting its buys and selections, as well as diverting customer traffic into brands that are doing better, Mr. van Raemdonck said.

In the quarter, the company reported that total revenue dropped more than 9 % to USD 1.05 billion.

Online sales now represent just over 30 % of the company’s revenue. In the quarter, the company had online new-customer growth of 7.8 %.

Neiman Marcus recorded a net loss of $31.2 million, compared with a net loss of $19.9 million, a year earlier. Operating earnings fell more than 19% to $41.2 million.

“We are not satisfied with our Q3 results, but we believe that we are making the appropriate investments in the business now that will lead to long-term sustainable growth,” Mr. van Raemdonck said.

Neiman Marcus owns it namesake stores, as well as the Bergdorf Goodman, Last Call, Horchow, Cusp, and MyTheresa retail brand names. It has continued to invest in its business, integrating its e-commerce and store operations and opening a flagship store in New York City’s Hudson Yards development in March.

So far, the Hudson Yards location is one of its best performing stores in shoes and handbags sales. At that store, Neiman Marcus offers beauty and wellness and personalization, as well as a dining and entertainment options, Mr. van Raemdonck said.

“Hudson Yards is a testing ground for new experiences and services, and we are closely evaluating our success here and actively looking for ways to apply our learnings to other stores,” he said.

Neiman, like Hudson’s Bay Co. , Macy’s Inc., J.C. Penney Co. and other retailers, has struggled with the consumer shift toward online shopping and new competitors that make it hard to increase sales at its core department-store holdings.

On Monday June 10, a group of Hudson’s Bay Co. shareholders made an offer to take the company private. Hudson’s Bay owns Saks Fifth Avenue and Lord & Taylor.

Leading the offer is Hudson’s Bay Chairman Richard Baker, Rhône Capital LLC, WeWork Property Advisors and other shareholders that together control 57% of the shares outstanding. The offer values Hudson’s Bay at 9.45 Canadian dollars ($7.12) a share—a 48% premium to the company’s closing share price Friday.

Hudson’s Bay also held discussions in 2017 about acquiring Neiman Marcus, but it resulted in no deal.

Recently, Neiman Marcus has pushed its lenders into refinancing its debt load set to mature over the coming years. The retailer offered existing lenders a debt-exchange deal that would leave those that don’t participate more exposed to losses if the company files for bankruptcy down the road.

The completed deals will extend the company’s debt by three years to October 2023 and beyond, Chief Financial Officer Adam Orvos said during the earnings conference call.

In the recent quarter, ended April 27, the company’s adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, was USD 126.5 million, down from

USD 143.8 million a year ago, mostly due to the increased promotional activity. It had USD 4.46 billion in long-term debt.

Neiman Marcus accumulated its debt over two private-equity buyouts. Its current owners are Ares Management LLC and the Canada Pension Plan Investment Board.