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Monday, 18 December 2017

Neiman Marcus bonds hit as retail worries intensify

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Neiman Marcus Group bonds fell as much as five points on Monday on worries about the sector and the highly levered company after other high-end retailers reported disappointing results.

Neiman Marcus Group bonds fell as much as five points on Monday on worries about the sector and the highly levered company after other high-end retailers reported disappointing results.

Neiman’s 8% 2021s touched an all-time low of 58.94 early on Monday, according to MarketAxess data, before recovering slightly.

The bonds have lost over 25 points since the company reported disappointing quarterly results in mid-December and have traded several points below par since late 2015.

In a note on Friday, analysts at JP Morgan highlighted how negative comments about the US market made by jewelry giant Tiffany and British luxury brand Burberry could be a source of concern for Neiman Marcus investors.

Lower earnings guidance from major retailers and Neiman’s high levels of inventory ahead of the holiday season have also weighed on the credit, according to Duncan Vise, a senior analyst at Invesco.

Neiman, which operates 42 stores across the US in addition to the two iconic Bergdorf Goodman stores on Manhattan’s Fifth Avenue, has been grappling with weaker demand from consumers and a stronger dollar.

But while many of these challenges have been shared by its rivals, it is Neiman’s leverage of over nine times - largely the result of a US$6bn buyout from Ares Management and the Canada Pension Plan Investment Board in 2013 - that now has many bond investors worried.

“Retail is undergoing strong, structural headwinds,” said Mike Terwilliger, a portfolio manager at Resource America. “Levered companies are going to feel that pain even more.”

Uncertainties around the trade policy of the Trump administration are also making investors more cautious on retailers as new taxes on imports could cause their costs to soar, said Terwilliger.

Near term, however, it is Bergdorf Goodman’s proximity to Trump tower that could deliver a new blow for investors, according to some.

In its report last week, Tiffany attributed a 14% drop in holiday sales at its flagship Fifth Avenue store in Manhattan at least partly to traffic disruptions around Trump Tower, which sits on the same block.

The two Bergdorf Goodman stores - which are just a block up on Fifth Avenue - account for close to 14% of Neiman’s revenues and 20.3% of its Ebitda, according to JP Morgan.

 

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