Neiman Marcus Execs Make the Case for Profitability
Despite the volatile economy and shaky stock market, Neiman Marcus Group executives are making the case for sustained profitability.
“We believe that in good economies, we’ve been able to demonstrate accelerated growth and profitability. And in economies that are more volatile, we can demonstrate continued growth and resilience,” maintained Geoffroy van Raemdonck, chief executive officer of the Neiman Marcus Group, during his presentation to investors gathered Tuesday at the ICR Conference in Orlando, Florida.
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“We are lucky to operate in the world of luxury,” said the CEO. “It’s a good place to be right now. It’s a market that has been growing and is forecasted to continue to grow. There are more high net worth individuals, and they’re richer and more affluent than pre-COVID[-19].”
“We have free cash flow that we can reinvest in our business, as well as generate more cash on a run rate basis,” added Katie Anderson, NMG’s executive vice president and chief financial officer. “We also make our profit from our core assets. A lot of companies in our industry make money from credit cards or off price. That’s not us. We are profitable across our channels…We also have over a billion dollars of liquidity, which gives us a ton of flexibility.
“We have sightline to profitable growth,” said Anderson. “And we also have sightline to margin expansion. As you know, leaning into relationships is a lot cheaper than chasing new customers. We have top brands that don’t discount. We have customers that pay full price and categories with high margins.”
The Neiman Marcus Group is privately held by Davidson Kempner Capital Management, Sixth Street Partners and Pacific Investment Management Co. Eventually, the group of owners will want to cash in on their investment, possibly through a public offering of NMG or a sale to another retailer, or to private equity. So it’s important that NMG executives broadcast the state of the business to Wall Street as well as to the luxury brands it sells.
Van Raemdonck did note that NMG, in its fiscal year which concluded July 31, 2022, generated $5 billion in gross merchandise value sales, an 11 percent earnings before interest, taxes, depreciation, and amortization margin rate, and $495 million in adjusted EBITDA, and that for the six months of the current fiscal year, NMG experienced a 6 percent comp gain in GMV sales. Gross merchandise value refers to all the merchandise sold through NMG stores and websites, owned, on commission and through consignment. The company does not disclose net profits.
On a comparable basis, NMG was up 33 percent in sales, the company reported last October. Over the past several seasons, six Neiman Marcus stores and all but five of the Last Call clearance locations were closed.
NMG’s positive report on the state of its business comes despite other industry reports that the luxury sector is slowing in some cases amid the uncertain outlook on the economy and a stock market that last year lost some value.
But van Raemdonck said the U.S., where NMG operates all its stores, “has been over the last couple of years the largest and the fastest-growing market. And there’s been growth and a shift to consumption online, which we believe we are most poised to capture and capture profitably given our omnichannel approach.”
Through its investment in Farfetch (revealed last year) and access to that company’s infrastructure, NMG will launch BergdorfGoodman.com internationally later this year. He said NMG online generated $1.5 billion last year and 300 million visits.
Van Raemdonck emphasized that profitability is sustained through successful efforts to generate greater full price selling; sales associates that build relationships with customers; operating three retail channels — stores, online and remote selling, and curating “with the right product assortment but also the right experiences” for customers.
“We spend time curating brands, curating the assortment and ultimately we buy with our own money,” meaning wholesaling rather through leasing arrangements. Whereas certain retailers such as Bloomingdale’s have opted for leased shops to be able to sell certain brands, Neiman’s has avoided the leased model aside from a couple of exceptions, such as with Louis Vuitton.
Van Raemdonck said NMG’s omni business model is “so tied to profitability,” adding, “If you take a customer who shops in a single channel online, they spend 1X. If we’re able to migrate them across channels, they spend 5X. And if we’re able to get them in a relationship with a sales associate, who curates assortments for them and experiences, they spend 12X. Mind you, it’s the same cost of [customer] acquisition, but it’s just migrating the person and as they migrate, they’re buying more full price.”
Furthering the case for profitability, van Raemdonck said NMG operates a “very clean, profitable and tight network of stores located where customers and high net worth individuals live. It’s 36 locations of Neiman Marcus and one for Bergdorf Goodman, and we exited off price, but for five liquidation stores. We are investing in our stores and we are investing $200 million of strategic [capital expenditure], half of which is funded by landlords, and that will touch half of our stores — our top 10 stores — and a third of the total fleet.
“The goal there is to make our stores look even better, but it’s also making sure that we increase the distribution of brands and that we move more and more towards offering services and experiences.”
Activations with companies such as Prada Group “can be very profitable and lead to sales in the seven figures over a couple of days, or sometimes even on the first day of a launch because it’s about activating our customer for something that they can’t get anywhere else,” van Raemdonck said.
Key brands sold at NMG are “growing their distribution by themselves, but in parallel, they’re growing with us. We have access to that unique luxury customer, who we can outfit across all categories, and most brands are strong in one category, not across all categories. We provide [brands] with value added services,” including targeting the right customers, or providing them insights on what customers want, or where is the whitespace in their offering. He also said brands benefit from NMG’s integrated channel business model.
“Over the last 12 months we’ve increased the points of distribution with our top luxury brands, not all luxury brands, by 600 points of distribution,” van Raemdonck said. “We’ve added 200 emerging brands, many exclusive to us. And about 60 percent of the top 20 brands have done exclusive activations with exclusive collections, just this fall alone.”
According to CFO Anderson, “We’re sending out 1.5 million texts or emails, a month with personalized messages to our customers. We also serve a true luxury customer [with] true luxury brands. And we, you know, have added 600 new points of distribution over the last year and have grown our top customers by 15 percent versus pre-pandemic. And obviously, this is resulting in great growth and profitability. So all of these strategies culminate in a business model that is scaled and profitable.
“At Neiman Marcus, the market is bigger than the business. So we’re really going to cultivate our top customers and have steady profitable growth here and lean into share of wallet.”