Neiman Marcus pulls IPO plans
Struggling luxe department store Neiman Marcus withdrew the initial public offer filing it made in August 2015, according to a Jan. 6 letter to the Securities and Exchange Commission.
“The company has determined that it is not in its best interests to proceed with the initial public offering contemplated by the Registration Statement at this time,” the letter reads. “The Registration Statement has not been declared effective by the Commission, and the Company confirms that no securities have been sold in connection with the offering contemplated thereby.”
The department store’s same-store sales fell 8% during its latest quarter, net losses widened to $23.5 million, (compared to Q1 2016 net losses of $10.5 million), and total revenues fell 7.4% to $1.08 billion (from $1.16 billion in the year-ago period) amid dwindling traffic.
Neiman Marcus began preparations for an IPO in 2015, but as the dollar strengthened and oil prices tumbled, the upscale Texas-based chain appeared less ready for investors.
The department store seemed poised to return to Wall Street trading thanks to an omnichannel strategy that includes in-store pickup of online orders and an “innovation lab” to further blur the lines between its physical and digital channels. But its first quarter revenues were hit by a massive investment to convert its legacy merchandising and inventory systems into a single new tech-based system, dragging down business in the quarter to the tune of $30 million to $35 million and same-store sales by 270 basis points.
Perhaps the bigger problem, is that the new pace of fashion is simply getting the best of it. “The customer has changed the way they shop in several fundamental ways,” CEO Karen Katz said on a conference call last month. “One is driven by price transparency and the other is what we call ‘buy now, wear now.’ Besides being a treasure trove of merchandise, the internet gives customers greater access to information about price and promotion. They continue to shop for the best deal and the lowest price with less regard for loyalty, channel or brand.”
Neiman Marcus is also hobbled by debt and may find it difficult to turn things around, according to Neil Saunders, CEO of retail research agency and consulting firm Conlumino.
“In our view, such a debt burden is completely unsustainable for a company of Neiman Marcus’ scale,” Saunders said in a note emailed to Retail Dive. “Indeed, even if all interest was frozen and the entirety of operating profit was to be directed to the purpose of paying down the debt, it would take well over 40 years to remove it from the balance sheet. Such a position underlines the fragile nature of the company’s finances, something that hits home when the $72 million quarterly interest payments are appreciated. This acts as a major barrier to the company being sold and makes an IPO far less attractive. It also guarantees that without a significant rise in sales, the company will remain loss making.”
The current retail landscape is not a good setting for a department store that caters to the highly affluent, Saunders said. Plus, luxury brands that for decades enjoyed a mutually beneficial relationship with department stores are increasingly shunning them in favor of other channels.
“Generating that increase in sales will be extremely challenging given that there are host of pressures acting as a brake on retail growth,” Saunders said. “Weaker traffic in malls and weaker tourist spending are foremost among these, and both are likely to persist well into next year. The rise of direct selling by luxury brands is also a negative trend for Neiman Marcus and, longer term, has the potential to undermine its reason for existence as a destination for high-end product.”
- Neiman Marcus Group, Inc. letter to Securities and Exchange Commission
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