DALLAS _ A jewel and luxury fashion industry leader for more than 110 years is once again looking for a suitor.
After reporting its sixth consecutive quarter of sales declines, Dallas-based Neiman Marcus said Tuesday that it's exploring all options, including a sale of the company. A sale has been rumored for some time.
Saddled with debt from two leveraged buyouts since 2005 and a consumer that's shifted her buying habits, the company hired investment banking firm Lazard Ltd. earlier this month.
The Dallas-based retailer said it's "undertaking a process to explore and evaluate potential strategic alternatives, which may include the sale of the company or other assets, or other initiatives to optimize its capital structure, as well as a number of other alternatives."
There's no timetable for evaluating its options, the company said.
Neiman Marcus has been bought and sold more times than most companies, even one as old as it is. It's an example of how private equity deals don't always work out, particularly in retailing, which is undergoing a big disruption as online shopping operations and shipping costs have added to the expenses of traditional brick-and-mortar stores. Neiman Marcus hasn't been a laggard in the online space. Online sales represented 31 percent of total revenue in the holiday quarter.
During a conference call Tuesday morning, CEO Karen Katz said while Neiman Marcus remains at the forefront of luxury shopping, people are shopping less. She also said Texas stores, which had been lagging behind with lower oil prices, are doing better.
"Customers are making fewer trips to the store and the mall and more trips to the web. They want newness, exclusivity and the best price," Katz said. "Driven by these expectations, and thanks to the information available to them on the web, more and more we are seeing our customers shop multiple stores or websites not just ours."
Also, ongoing problems with new systems, which included inventory tracking, resulted in some sales losses in the last six months, she said. Problems kept inventory from going to the right stores and miscounted items. That lack of transparency caused problems with its ability to pay vendors in a timely manner, Katz said. But she said the challenging implementation will start to yield benefits this year.
Katz, who has been with Neiman Marcus for more than 30 years, didn't take questions from analysts and didn't say whether the company has potential buyers. In the past, the name that's come up the most is Canada-based Hudson's Bay Co., which bought Saks Fifth Avenue in 2013. Earlier this year, the Wall Street Journal reported that Hudson's Bay had also approached Macy's about a potential takeover.
Hudson's Bay said in a statement Tuesday that as a matter of policy, it doesn't comment on rumors or market speculation. In addition, the statement said, "Generally speaking, as we have previously stated, we selectively evaluate opportunities to accelerate the company's strategic growth while maintaining or enhancing its credit profile."
Steven Dennis, a Dallas-based retail consultant and former Neiman Marcus senior vice president, said, "The brand's continuing struggles also underscore how luxury retail has hit the wall and how it now seems increasingly likely that the storied company may need to run into the arms of yet another owner."
Ares Management LLC and the Canada Pension Plan Investment Board paid $6 billion for Neiman Marcus in 2013. At the time many, believed that was too high at almost 10 times operating earnings. Other private equity buyers who would also leverage it to buy it are less likely to purchase it now, Dennis said.
There are other investment groups around the world who may want to own the prestigious brand and grow it outside the U.S. The company could sell some assets to pay down debt. Tuesday, Neiman Marcus said it has shifted some assets into unrestricted subsidiaries to give it more flexibility to pursue transactions. Those assets include the Munich-based operations of MyTheresa, properties located in San Antonio and Longview, Texas, and McLean, Va.
It's not clear what a buyer would pay for the company intact. But it would be more valuable to a strategic buyer like Hudson's Bay or Nordstrom because there would presumably be cost savings from combining like back office operations, Dennis said.
Neiman Marcus disclosed its plans with its fiscal second-quarter results released Tuesday morning. Sales during the holiday quarter fell 6.1 percent to $1.4 billion. In its second fiscal quarter, the company swung to a loss of $117.1 million compared with a profit of $7.9 million last year. The company also took a $153.8 million impairment charge to write down the value of its Neiman Marcus brand.
Neiman Marcus has reported quarterly sales declines since fall 2015. Neiman Marcus has $4.86 billion in debt from its 2013 leveraged buyout.
Last year, Neiman Marcus reported a loss of $406.1 million on sales of $4.95 billion. The company operates 43 Neiman Marcus stores, two Bergdorf Goodman, and 43 other stores, mostly Last Call clearance centers and five Cusp contemporary fashion stores targeting younger shoppers, one MyTheresa store in Munich and the Horchow home furnishings catalog.
A best-case scenario from the holiday quarter would have been a plateau versus more deterioration of the business. But analysts have been saying in recent months that the company's capital structure that includes $4.9 billion in debt was unsustainable.
It has to decide how it will make an interest payment by mid-April. It could choose to pay it with more debt to preserve cash. A deterioration in cash flow could cause a liquidity issue, but it's not in one now. The company said it has liquidity of more than $600 million, mostly from its revolving bank credit.
The company also reduced its capital spending in the quarter. Its public bonds don't come due until 2021.
Gimme Credit analyst Kim Noland said prior to Tuesday's announcement that earnings before interest, taxes and other items may continue to fall without causing a real liquidity issue in the short term. But the company "has way too much debt and an unsustainable capital structure over the long term," she said.
Past weakness "was largely viewed as emblematic, and we understood what was happening in the economy and Neiman Marcus turned it around," said Philip Emma, analyst at Debtwire. "They were able to ride out the storm. But this feels different."
The longer the business fails to recover, the more Neiman Marcus' inability to turn around may go beyond the reasons management has offered. Neiman Marcus' problems may be bigger than lower oil prices, a high dollar keeping foreign shoppers away and volatile global economy, Emma said.
