Neiman Marcus Group Reports Comp Gains Off Lower Inventory
The Neiman Marcus Group wrapped up its fiscal year on a positive note and is “prepared” to meet the demand for holiday shopping and confront the headwinds challenging the industry.
So said Geoffroy van Raemdonck, chief executive officer of the Neiman Marcus Group, which on Tuesday privately disclosed its fiscal fourth-quarter financial figures to lenders and investors, and selectively shared some of them to WWD. It’s been a year since Neiman Marcus emerged from bankruptcy with new owners and a lot less debt, and since then Neiman’s CEO has been vocal about a recovery.
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“We had a very strong quarter that surpassed our expectations,” van Raemdonck told WWD. “There was 6 percent comp growth in revenues on a 21 percent decline in inventory, compared to the fourth quarter in 2019. There was true full-price selling, which resulted in margin expansion of 800 basis points, and ultimately, adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] was 10 percent of revenues.”
Being a privately owned business, “We don’t share revenues [publicly] but what we are sharing is that compared to 2019, we are growing and we were extremely profitable in that quarter,” said van Raemdonck. No dollar figures were provided during the interview, only percentages. Neiman’s fourth quarter ends on July 31.
Neiman’s CEO acknowledged the company benefited in its fourth quarter by “macro tailwinds” as the economy and social life began “reopening” last spring, as people got vaccinated against COVID-19. But he added that the Dallas-based luxury omnichannel retailer also benefited from “deliberate actions taken earlier in the year. We bought into categories, particularly handbags, shoes and men’s, which have been in high demand. We focused on full-price selling, reduced drastically the number of promotions and pushed markdowns later in the season to expand the full-price selling window.”
The Neiman Marcus Group went bankrupt in May 2020 and emerged from the Chapter 11 proceedings on Sept. 25, 2020 with its senior lenders — Pacific Investment Management Company LLC, called PIMCO, Davidson Kempner Capital Management LP and Sixth Street Partners LLC — swapping debt for equity and becoming the new owners. The reorganization plan eliminated $4.6 billion of debt Neiman’s had on its books, and about $200 million to $300 million in annual interest payments. As of the end of last July, there was about $1.1 billion in debt on the books, and the new capital structure brought the annual interest expense down to around $80 million annually.
Van Raemdonck, a former Ralph Lauren and Louis Vuitton executive who became Neiman’s CEO in February 2018, has been adamant that Neiman’s debt burden was what drove the business into bankruptcy last year, and that the underlying business has all along been healthy, though the business has been dogged by speculation of declining support from certain vendors curbing wholesale distribution, switching to concession business models, and being outperformed by competitors.
Since March 2020, Neiman Marcus and its leaders have been emphasizing efforts to further a full-price positioning after several seasons of pumped up promoting. A year ago, Neiman’s completed its exit from the off-price business. Twenty-two Last Call stores were closed, and only five remain open, though those are just for clearance, not for off-price merchandise. “We’re focused on the higher-priced luxury customer,” van Raemdonck stressed.
He also said that during the fiscal fourth quarter, the average order value (which is another way of saying average basket size) improved 13 percent compared to the third quarter, due to customers shopping more at full price and more expensive items as well.
“When you look at our top 20 brands, they were up 50 percent compared to [the fourth quarter of] 2019. There has really being an acceleration of the top luxury brands with our customers.” Chanel, Louis Vuitton and Gucci would be among the top brands at Neiman Marcus Group.
Van Raemdonck did not discuss any comparisons to 2020, other than saying the comparisons are “really super high” but aren’t meaningful indications of how Neiman’s is performing since 2020 was severely impacted by the pandemic, which forced temporary store closings.
“What is so encouraging is that we are capturing the rebound in demand in luxury,’ said van Raemdonck.
He cited men’s wear, specifically men’s designer and contemporary areas, as performing best at Neiman Marcus during its fiscal fourth quarter, followed by women’s shoes, handbags and jewelry. He also said the sneaker business was “extremely strong.”
On the softer side was women’s apparel. “Broadly defined, it’s seen sequential improvement.…More occasion and social-driven fashion is accelerating the most. Wear-to-work is improving but the business there is not at the pre-COVID-19 levels, he said. “Loungewear continues to be strong but not to the level of what it was during the pandemic, he added.
Neiman’s started its holiday campaign on Tuesday with the launch of its Neiman Marcus Christmas Book. While many retailers have been starting holiday campaigns earlier this year, “we always launch the last week of October or the first week of November,” said van Raemdonck. “What we feel this year is that people have been longing to celebrate the holidays for almost two years. My sense is the customer are really ready and eager.”
He said it is difficult to predict how the holiday will turn out, though he added, “I feel encouraged by the consumer demand. I recognize there is some volatility in the environment, with the supply chain and labor market tightness. But we are very prepared. We are not seeing cancellations and significant delays. We have undertaken a lot of actions to minimize those impacts. Sales associates are engaging with customers early, holiday shops are in the stores and our holiday campaign is rolling out today.
“The exciting thing is to see comp growth with much less inventory, and full-price sales driven by new and existing customers,” said van Raemdonck. “New customers are buying more at full price and they come back at an accelerated rate.”
Previously, one in six new customers would return to shop within three months. Now one in five come back within three months, he said. “When we capture them, they come back faster than pre-COVID-19.”
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