Neiman Marcus Posts Challenging Quarter
The Neiman Marcus Group is confronting waning sales and grappling with excess inventories but remains confident in its overall strategy.
On Wednesday, the Dallas-based luxury retailer, in issuing some of its third fiscal quarter financial results, reported a 9 percent drop in revenues, and a 25 percent decline in earnings before interest, taxes, depreciation and amortization (EBITDA) to $124 million.
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However, the company also indicated that results indicate a “normalizing” of sales since the summer, relative to pre-COVID-19 levels, and were consistent with its expectations.
“Our business was significantly higher with our top customers,” Geoffroy van Raemdonck, chief executive officer, told WWD. “Our top 50 brands were up 39 percent compared to pre-COVID-19. We feel very strongly our strategy is working. We are seeing the affluent and most engaged luxury customers continuing to buy with strength, particularly in shoes, jewelry and men’s, and that is compensating for the deceleration with the more promotional and less engaged customer or online customer only. Those customers are more impacted by the macro environment.
“We continue to see real strength with our most valuable customers,” van Raemdonck stressed.
While declining to provide an outlook on business going forward, van Raemdonck did say, “We are very surgical in our actions and are distorting our efforts and spend toward customers that are already engaged in us. We are surgically looking at expenses. We remain really agile. We have lived in this uncertain environment for quite awhile and every month we double down on what’s really working.”
Van Raemdonck said NMG’s inventory is up compared to last year, but added, “We’re really making sure we enter the next fiscal year with our inventory much more aligned with the demand we have. There will be some pressure on margin in the fourth quarter,” which for NMG concludes at the end of July.
“We saw a deceleration in late October and have remained very consistent compared to pre-pandemic sales levels since then,” van Raemdonck said.
Neiman’s comparable sales rose 3 percent in its second quarter while declining in the third fiscal quarter this year, against the same two quarters a year ago, but the two periods combined were up 11 percent relative to pre-pandemic fiscal 2019.
In the year-ago quarter at NMG, comparable sales grew more than 30 percent, beating pre-COVID-19 levels, making comparisons to the last quarter difficult. Comparable gross merchandise value grew in the high 20 percent range compared to pre-pandemic 2019.
NMG’s results mirrors those of Saks, the e-commerce operation of the Saks Fifth Avenue brand. Saks saw an 8 percent slide in gross merchandise value in the first quarter ending April 29, though on a two-year stack, first quarter GMV was up 64 percent. (GMV refers to all the merchandise sold including owned goods, and those sold through leased shops, marketplace formats and drop shipping.)
Van Raemdonck said NMG’s negative year-over-year comps were due to “last year’s pent-up demand and record full-price selling across the luxury industry. In spring last year our sales were up significantly post-COVID-19 and started to normalize during the summer,” van Raemdonck said.
He indicated that gross margins “continue being pressured by a highly promotional environment,” adding, “Our own levels of excess inventory are also impacting margins, but this will be back in balance by the end of the fiscal year. This impact is being partially offset by strong cost management.”
In its last fiscal year ended July 31, NMG eclipsed $5 billion in revenues on a gross merchandise value basis, and generated $495 million in adjusted EBITDA. Liquidity remains above $1 billion, according to the company.
“We are growing in the right places amid a difficult macro backdrop as a result of our advantaged business model and strategies that we have implemented to drive high value customer growth,” van Raemdonck said Wednesday in a statement.
“We believe that our business model and focused strategies catered to the luxury customer put us in a position of strength to deliver long-term sustainable and profitable growth.
“While I don’t have a crystal ball and can’t predict exactly what demand will look like, we are setting up for a healthy inventory position focused on our core luxury brands and a disciplined cost structure heading into fiscal 2024,” the CEO said.
Since NMG is privately held by Davidson Kempner Capital Management, Sixth Street Partners and Pacific Investment Management Co., the retailer selectively releases only some of its financial results to the media. Eventually, the owners will want to cash in on their investment, possibly through a public offering of NMG or a sale of the company or parts of it to another retailer, or to private equity. The Neiman Marcus Group also operates the Bergdorf Goodman women’s and men’s stores.
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