(Adds context, Hudson's Bay talks)
By Lauren Hirsch and Sruthi Ramakrishnan
March 14 Luxury fashion retailer Neiman Marcus
Group Ltd LLC said on Tuesday that it was exploring strategic
alternatives, including changes to its capital structure or a
sale of the company, as it seeks relief from its swelling debt
The announcement follows a Reuters report earlier this month
that the company had turned to investment bank Lazard Ltd
to explore ways to bolster its balance sheet. Neiman
Marcus has total liabilities of $6.4 billion, including $1.2
billion of deferred income taxes.
Hudson's Bay Co, owner of the Lord & Taylor and
Saks Fifth Avenue retail chains, is in exploratory talks about
acquiring Neiman Marcus, according to people familiar with the
The Wall Street Journal reported earlier on Tuesday that
Hudson's Bay was seeking a deal that would give it control of
the business without having to assume Neiman Marcus' debt. It
did not provide details as to how this can be achieved.
It was not immediately clear how the company's capital
structure could allow for a sale that would be in compliance
with its debt obligations without some arrangement with
creditors. Hudson's Bay and Neiman Marcus declined to comment.
Neiman Marcus also said it made changes to its corporate
structure, including naming subsidiary online store My Theresa
and some of its properties in Virginia and Texas "unrestricted,"
meaning not subject to the same rules under credit agreements as
other units of the company.
However, experts said this was aimed more at helping the
company better manage its debt liabilities.
"They want to increase flexibility to deal with creditors,"
said Anthony Canale, head of high yield research at research
firm Covenant Review LLC. "They want a bargaining chip."
Hudson's Bay had approached department store operator Macy's
Inc earlier this year about an acquisition, but its bid
stumbled as it struggled to line up equity financing, sources
told Reuters earlier this month.
Neiman Marcus would be a significantly smaller acquisition.
It had $4.9 billion in sales in 2016, compared with Macy's $25.8
billion, and has roughly 40 stores, compared with more than 700
stores operated by Macy's.
Neiman Marcus has been challenged by the same problems as
other U.S. retailers: pressure to offer discounts to entice
shoppers who increasingly prefer the price and convenience of
Meanwhile, shares of Hudson's Bay tumbled more than 20
percent to a record low in January after it cut its revenue
forecast for the year ended on Jan. 28 for the second time,
citing a challenging retail environment in the United States and
Hudson's Bay shares were down 1.2 percent to C$11.75 in
Toronto on Tuesday afternoon, giving it a market capitalization
of C$2.1 billion.
Dallas-based Neiman has also been challenged as affluent
Texans have cut back on buying because of a drop in energy
prices, while a stronger U.S. dollar has restrained spending at
its Bergdorf Goodman department store, a popular New York
Neiman Marcus on Tuesday reported a 6.1 percent drop in
quarterly revenue and a net loss of $117 million, compared with
year-earlier net earnings of $7.9 million. It blamed the results
in part on an inventory management system that failed to work
properly, leaving it unable to fill orders.
The company also wrote down the value of the Neiman Marcus
brand by $153.8 million, after having reduced it by $466.2
million last September.
Private equity firm Ares Management LP and the
Canada Pension Plan Investment Board had acquired Neiman Marcus
for $6 billion in 2013.
Despite its challenges, Neiman Marcus has been renovating
existing stores and still plans on opening new ones, including a
flagship location at New York City's Hudson Yards development.
(Reporting by Sruthi Ramakrishnan in Bengaluru and Lauren
Hirsch in New York; additional reporting by Jessica DiNapoli in
New York; Editing by Saumyadeb Chakrabarty and Lisa Von Ahn)