S&P cuts debt rating for Neiman Marcus

Neiman Marcus drew a debt downgrade from Standard & Poor’s Ratings Services, as the portfolio company of Ares Corp and Canada Pension Plan Investment Board faces headwinds in the retail sector.

S&P Credit Analyst Helena Song cited soft apparel trends in 2016, increased competition, declining mall traffic and a shift in spending toward restaurants and services. On the plus side, Neiman Marcus is operating with adequate liquidity under its asset-based loan facility, she said.

“Our assessment of Neiman Marcus’s business risk reflects its participation in the highly-competitive [high-end] department store sector, a relatively narrow market compared with other department store operators,” Song said in a research note. “Still, we think the company has a good position in the high-service, luxury merchandise specialty department store industry, strong vendor relationships and historically good operating performance in recent years.”

While Neiman Marcus enjoys a positive reputation for customer service and quality merchandise, the luxury retail segment as a whole faces risks tied to the highly discretionary nature of purchases, Strong said. Other high-end retailers have also seen debt downgrades, including Macy’s and Nordstrom.

The downgrade came after Neiman Marcus posted a first-quarter loss of $10.5 million for the three months ended October 31, versus net income of $196,000 in the year-ago period. The retailer’s same-store sales dropped 5.6 percent, while total revenue declined 1.8 percent to $1.19 billion. Adjusted EBITDA declined to $164.3 million from $194.3 million.

A Neiman Marcus spokesman didn’t respond to a request for comment.

Neiman Marcus holds about $59 million in cash, and has access to $900 million via an asset-based loan.

S&P cut its corporate rating for the reailer to B- from B. A rating of B means debt may be more vulnerable to adverse business, financial and economic conditions, but the issuer has the capacity to meet financial commitments, according to S&P ratings definitions.

S&P also reduced its rating on Neiman Marcus’s second-lien secured debt facility to CCC from CCC+. The CCC rating means the issuer is vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.

Neiman Marcus filed for an initial public offering over the summer, but the deal was pulled amid market volatility early in the fourth quarter.

Two years earlier, previous Neiman Marcus owners TPG and Warburg Pincus cancelled a planned IPO in favor of selling the company to Ares and CPPIB for $6 billion.

Action Item: See Neiman Marcus’s latest quarterly results here: http://1.usa.gov/1Ry3jLU

Photo: A Neiman Marcus sign is seen on a store in Golden, Colorado December 9, 2009. REUTERS/Rick Wilking