Luxury-Goods Retailer Reports a Doubling of Its Quarterly Loss And Warns the Wealthy Are Cutting BackUpscale retailer Neiman Marcus Inc. offered a bleak outlook for the holidays and said its quarterly loss more than doubled from a year earlier, signaling a further downturn in the U.S. luxury-goods market.
Neiman, which posted a $35.7 million loss for its fiscal quarter ended Aug. 2, warned that the American luxury market is likely to be hit hard by the recent financial crisis as wealthy and upper-middle-class consumers change their attitudes toward spending.
[Neiman Marcus Sees Bleak Holiday] Najlah Feanny for The Wall Street Journal
A Neiman Marcus at New Jersey's Garden State Plaza Mall on Wednesday
James Skinner, Neiman's chief financial officer, said that news of the financial turmoil is ubiquitous and that is negatively affecting the mood of consumers, who otherwise can still afford expensive clothes, shoes and jewelry. "The best customers never lose the ability to spend," Mr. Skinner added. But "there's an emotional impact" because of the coverage.
Carol Brodie, a branding adviser from Fairfield, Conn., said she splurges every fall on high-end coats and shoes. But this year, though she is doing well financially, she didn't shop. "I don't feel comfortable going all out," she said.
In a conference call, Neiman Marcus Group Chief Executive Burt Tansky said that "we anticipate that the months ahead will be difficult," including the crucial holiday season. He noted that many of the company's customers are heavily invested in the stock market.
Neiman's results came after analysts last week began reducing their full-year earnings forecasts for Saks Inc., which generates more than 20% of its annual sales at its flagship store in New York. Shares of Saks hit a 52-week low Wednesday in intraday trading before closing at $9. "Obviously, it's a very difficult time in the U.S.," said Saks CEO Steve Sadove Wednesday at a fashion-industry event in Milan.
As recently as the summer, some key categories of the U.S. luxury market were showing surprising resilience, including high-end jewelry, Swiss watches and products from such European brands as Hermès and Louis Vuitton.
But many luxury retailers saw sales start to weaken as the summer wore on. Nordstrom Inc., for example, cut its outlook for the second half in mid-August. Saks reported a 5.9% decline in
August same-store sales and a $32 million loss for its fiscal quarter ended Aug. 2. Tiffany & Co., which sells everything from $200 silver pendants to $1 million-plus diamond rings, said same-store sales in the U.S. declined 4% in the quarter ended July 31.Then came last week's meltdown on Wall Street, which industry executives say could dry up any lingering demand in the U.S. for luxury goods, including the last pockets of strength.
At the fashion shows under way in Milan this week, many European luxury-goods executives didn't hide their concern that affluent consumers will quit buying designer clothes, handbags and shoes. Francois Henri Pinault, chief executive of PPR SA, which owns Gucci, Bottega Veneta and Balenciaga, said he doesn't expect the U.S. market to recover until mid-2009.
"There will always be rich people, but it's the mindset" that drives their spending, Mr. Pinault said. He is particularly concerned about whether Asian consumers, a key market for the sector, will continue buying given the financial turmoil.
The financial crisis, coming only a month before many retailers put up their holiday-gift displays, couldn't come at a worse time. Neiman Marcus, for example, will unveil its annual holiday catalog Oct. 7. While most retailers were already expecting sales to slow and were keeping inventories lean, they are now bracing for an even tougher season.
Neiman, which is owned by private-equity funds TPG and Warburg Pincus, posted revenue of $4.6 billion in the fiscal year ended Aug. 2, up from $4.4 billion the previous year. But heavier discounting and free shipping eroded gross margins by 1.1 percentage points, the company said, and sales at stores open at least a year fell 1.4%. Results were helped by a 53-week fiscal year, which tacked on an additional $50 million of revenue.
Mr. Tansky said that high-end jewelry, in particular the most expensive pieces, as well as handbags, shoes and fragrances performed well in the quarter. Lower-priced items aimed at the "aspirational" or "occasional" shopper didn't sell as well. He also said the company's most loyal customers "haven't traded down."
Retailers that are heavily reliant on the New York City market will probably experience significant sales declines in coming months, analysts say, citing both the financial crisis and a likely dropoff in foreign tourists as the crisis spreads abroad.
"Saks and Tiffany are at the center of Wall Street's woes," because their businesses are so reliant on both New Yorkers and foreign tourists, said Goldman Sachs analyst Adrianne Shapira in an interview.
Tiffany's New York flagship accounts for 10% of the company's sales, Ms. Shapira said. On Friday, she reduced her 2008 earnings estimate for Saks three cents to 16 cents a share and cut Tiffany's guidance by a penny, to 31 cents a share.
Neiman's New York City outpost Bergdorf Goodman, which accounted for 12.6% of revenue in 2008, could also be hit hard.
By: Rachel Dodes
Wall Street Journal; September 25, 2008
