Neiman Marcus considers sale to Saks Fifth Ave. owner

Nick Turner, Emma Orr and Lindsey Rupp
Bloomberg News

Neiman Marcus Group Ltd., the struggling department-store chain that scrapped plans in January for an initial public offering, is considering a sale of the company instead.

Neiman Marcus is in talks with Hudson’s Bay Co., the owner of Saks Fifth Avenue, about a buyout of the upscale retailer, according to the Wall Street Journal. The deal would exclude Neiman Marcus’s nearly $5 billion in debt, the newspaper reported.

The takeover speculation follows Neiman Marcus’s announcement Tuesday that it’s working with financial advisers on a review of its strategic options, which may include selling part or all of its business. The company also wrote down its brand and other assets by $153.8 million last quarter and rejiggered its corporate structure to give it more financial flexibility.

Hudson’s Bay has also held talks about acquiring Macy’s Inc., people familiar with matter said earlier this year. With Neiman Marcus now available, the suitor has redirected its attention, according to the Journal.

The chain is reeling from slower mall traffic and a broader consumer shift away from department stores. Sales at stores open for at least a year fell 6.8 percent in the second fiscal quarter, which ended Jan. 28. The company posted a net loss of $117.1 million in the period, dragged lower the writedown of its brand. It had reported a profit of $7.9 million in the year-earlier quarter.

The developments whipsawed Neiman Marcus’s debt, with its $960 million of 8 percent bonds due 2021 initially dropping to a record low and then rising as much as5.25 cents on the dollar to trade at 61 cents at 11:28 a.m. Tuesday, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

Junk rating

Neiman Marcus’s credit rating was cut deeper into junk territory last month by S&P Global Ratings, which said the retailer’s debt was unsustainable.

The company has about $4.9 billion of debt outstanding, some of it tied to its $6 billion acquisition in 2013 led by Ares Management LLC and the Canada Pension Plan Investment Board. They bought the chain from TPG Capital and Warburg Pincus LLC, which acquired Neiman Marcus for about $5 billion in a 2005 leveraged buyout.

Neiman Marcus’s customer base is aging, with many younger shoppers making more of their purchases online. But it’s attempting to freshen its image: Last year, Neiman Marcus teamed up with e-commerce startup Rent the Runway in a bid to attract more millennials. The company has been opening in-store boutiques that let customers rent clothes and accessories.

Boomer shoppers

Millennials currently account for 15 percent of Neiman Marcus’s shoppers, with 36 percent coming from Generation Xers. That means it’s still highly reliant on baby boomers for sales. The company also has been hit by a decline in tourism spending.

Neiman Marcus, based in Dallas, also owns the Bergdorf Goodman luxury stores and the off-price Last Call clearance centers.

Buying Neiman Marcus instead of Macy’s wouldn’t bring Hudson’s Bay as much real estate —an asset it typically craves when pursuing past deals. But Neiman Marcus’s high-end reputation could fit well with Saks.

Hudson’s Bay shares fell as much as 2.1 percent to C$11.64 on Tuesday.

The overall industry is coming off a difficult holiday season. Gordmans Stores Inc., a century-old department-store chain in the Midwest, filed for bankruptcy on Monday. It plans to liquidate its inventory and assets.