Dive Brief:
- Neiman Marcus reported a much-needed top-line sales increase for its first quarter of fiscal 2018 as well as the first comparable store sales increase since the fourth quarter 2015, the luxury retailer said in a press release Tuesday. Neiman’s total revenue rose 3.8%, to $1.12 billion, compared to Q1 last year. Comparable revenue rose 4.2%, which the retailer attributed to its new "digital first" strategy, as well as new technology and marketing tools.
- At the same time, the company’s loss widened to $26.2 million, an 11.5% increase over the $23.5 million net loss in Q1 2017. Although Neiman’s operating profit increased from $25.3 million in the year-ago period to about $31 million in Q1 2018, it was still on the hook for $76.1 million in interest payments for the quarter (a 5.5% increase from the prior year).
- Neiman CEO Karen Katz said on a conference call Tuesday that company president John Koryl is leaving the company. Koryl, who joined the company in 2011 and oversaw Neiman Stores and online, will depart after Nov. 30. Once he does, Neva Hall, executive vice president of Neiman Marcus Stores, and Lindy Rawlinson, senior vice president of e-commerce and customer experience for Neiman Marcus, will report directly to Katz.
Dive Insight:
Neiman Marcus was in need of a sales win this quarter, and it got one — with substantial increases in both top-line and comparable sales. The quarter is an early sign that the retailer’s turnaround strategies are working. But the company still has a ton of debt, and it can’t lose money forever.
Katz gave much of the credit to the retailer’s e-commerce efforts. She said Tuesday that Neiman’s online business was up 14% in the quarter. As part of the company’s digital pivot, it’s now using software tools to improve the shopping experience and turn more customers into repeat shoppers, with more than half using the new tools so far becoming repeat buyers, Katz said. Neiman is also working to improve mobile conversion, site speed and personalization, she added.
These efforts follow other moves to boost profits and sales at the retailer. Neiman cut 225 jobs in July. It has also decided to scale back its off-price footprint by about 25% and focus on its position as a luxury seller. It unveiled its "Digital First" strategy earlier this year in an effort to anticipate "customers' evolving behaviors and engaging them more deeply to drive traffic online and in stores."
The retailer needed to take dramatic steps, and may have more work to do. Fitch Ratings included Neiman Marcus on a secondary "loans of concern" list released in October, indicating some — though not necessarily imminent — default risk over a total outstanding loan balance of $2.8 billion. The retailer’s total long-term liabilities stand at about $6.5 billion.
In an October report, Philip Emma, a retail analyst with Debtwire, wrote of Neiman that "the next two quarters are crucial to assessing if the company is reaching a point where it will stop seeing declines in adjusted EBITDA and start to plateau." In an interview Tuesday, Emma pointed to the Q1 performance as an "important first step" for the retailer after two years of "absolutely awful numbers."
Questions still hang over the company’s long-term financial health. For one, Neiman had to spend more to increase its sales, Emma said. Total incentive compensation increased year-over-year by $16 million in the period, executives said on Tuesday. In effect, some gains the company has made are "getting eaten up by management incentive packages," Emma said.
Ultimately, sales will either have to increase much more or costs will have to come down — or both — before Neiman can make significant headway in reducing its debt. The retailer has a $2.8 billion term loan due in 2020, with bonds due the next year, according to Emma. The company’s situation, he said, "is not as critical as it was, but it has a long way to go to get to a healthy business model."
