Saks’ parent HBC intends to close its $2.65 billion deal to buy the Neiman Marcus Group by the end of its fiscal year and says that will help expedite delayed payments to vendors.
Company executives on Wednesday also said new financing and equity infusions through the deal, future property sales and fall 2024 selling expected to kick in next month will improve liquidity, helping to catch up on outstanding payments to vendors, many months past the average 60-day period.
The news and commentary came during a rare conference call with Richard Baker, executive chairman and chief executive officer of HBC; Marc Metrick, CEO of Saks Global, and Jennifer Bewley, chief financial officer of HBC, providing updates to Saks and Saks Off 5th vendors. Saks Global is the combination of luxury-oriented retail and real estate assets, including Saks Fifth Avenue and Saks Off 5th, and will include Neiman Marcus and Bergdorf Goodman, once the deal is closed. Baker is also executive chairman of Saks Global. Saks Global will generate $10 billion in sales, with Saks accounting for about $6 billion in sales and Neiman’s, $4 billion.
While apologetic for how vendors have been treated, the executives urged them to stick with Saks and Saks Off 5th, and expressed extreme confidence that the deal to buy the Neiman Marcus Group will soon close, ultimately benefiting — and not hurting — them. They also said they would be more transparent and communicative going forward.
They blamed the company’s inability to pay vendors mostly on the performance of Hudson’s Bay in Canada, and said the issue “had little to do” with Saks. They said Saks and Saks Off 5th are profitable on an EBITDA basis.
Still, vendors have been baffled by how HBC has been able to pursue its takeover of the Neiman Marcus Group at a time when many of them have been getting stiffed. But they were assured during Wednesday’s webcast that HBC is not diverting money owed them to fund the transaction.
On Tuesday, sources familiar with the situation told WWD that HBC cleared a regulatory hurdle, and that the Federal Trade Commission effectively greenlit HBC’s deal to purchase the Neiman Marcus Group by virtue of letting its review period expire without any objections to the deal emerging. On Wednesday, the WWD report was confirmed when HBC announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The expiration of the waiting period satisfies a closing condition for the transaction, HBC indicated.
The FTC, as well as the Department of Justice, would have been concerned about the potential for HBC to raise prices, close stores, lay off workers and increase pressure on vendors. Recent history shows that these federal agencies have challenged transactions involving well-known businesses in other industries, such as Microsoft, Meta, American Airlines and JetBlue, but also in fashion/retail, with the FTC blocking Tapestry Inc.’s $8.5 billion deal to buy Capri Holdings.
Richard Baker
Patrick Macleod/WWD
“We are very muted in our conversations and discussions about it because we have a lot of lawyers and and government kind of folks who put a lot of pressure on us to be very focused and careful with what we say,” Baker said. “But don’t mistake our excitement and the opportunity that exists, not only for us, but for all of our vendors going forward,” Baker said, referring to the Neiman’s deal. “This is something that Marc and I have been working on, dreaming about, and thinking about for over a decade, and here we are very close to the finish line.” In fact, on the very same day Baker disclosed in 2013 that HBC was buying Saks Fifth Avenue, he told WWD that his company would buy the Neiman Marcus Group.
On Wednesday, Baker said his company is in the process of selling certain non-core assets to create cash flow to help the operating businesses. “We expect to have some good news very shortly,” he said, adding that until recently the real estate market was frozen but has thawed with declining rates making financing easier. He said HBC owns and controls more than 30 million square feet of real estate in North America worth more than $6 billion. The portfolio of retail and real estate grows when Neiman’s is brought into the fold.
Metrick told vendors that the company intends to close the Neiman’s transaction by the end of HBC’s fiscal year, which ends in January. The closing, he said, “is just a few months away.”
“I want to remind everybody we plan to operate all of the businesses under their respective nameplates as we go forward, but the newly combined company will be de-leveraged from where this combined company sits today on a pro-forma basis. It’s going to be funded with a new term loan and a fresh revolving line of credit with significant levels of available liquidity.” He said the bigger company is projected to be immediately cash flow positive.
Marc Metrick
“I want everyone on the call today to think of the close of the transaction as the outside date when our businesses will return to normal operations,” Bewley said.
She disclosed that the company was able to lock into some interim financing on Tuesday. “This is not a silver bullet, but it is a significant amount, and we will have additional opportunities to add more financings.
“We are aware of the pressure that our actions have put you under,” Bewley said to vendors. “First, we apologize. We are very empathetic to the situation and recognize that we have not made it easy for anyone. Second, I want to thank you. Thank you to our vendors for your creativity, your partnership, your willingness to work with us through this down cycle and continuing to provide the merchandise that sets all of our businesses apart.
“The story is a frustrating one, as it has very little to do with Saks. Even though the Saks and Saks Off 5th business performance this year has declined as compared to last year, the U.S. stores are still EBITDA profitable.”
She also cited “significant investments” into Saks and Saks Off 5th dot-com businesses. “Both of the dot-com businesses are focused on profitability and are forecasting significant improvements in fiscal 2024 and even more in fiscal 2025.”
The CFO said Hudson’s Bay in Canada did not rebound after the pandemic the way U.S. retailers did. Heavy investments in digital capabilities and inventory in Canada did not pay off, and Hudson’s Bay had to clear merchandise more aggressively than it wanted, particularly when Nordstrom liquidated in Canada and Bed Bath & Beyond went bankrupt. The situation was further complicated discretionary spending, even in the luxury sector, weakened, “triggering” slowed payments to Saks Fifth Avenue and Saks Off 5th vendors.
Bewley said Liz Rodbell, president and CEO of Hudson’s Bay, and chief financial officer Michael Culhane are leading changes in Hudson Bay stores, operationally and visually, and in apparel (the weakest category) which is shifting to more traditional and classic styles. Years ago, Rodbell and Culhane were running Hudson’s Bay in Canada when the company was performing much better, Bewley observed.
For HBC’s retail companies, “August is our seasonal low point. This year is no different,” Bewley said. “And no one is happier than me when the week of September 9 comes around, which marks the start to our seasonal build and the kickoff to our fall season, when we do much more business. As we come into the fall season, you will start to see an improvement in payments.…Think of the acquisition as the outside date when we return to normal operations. However, we have opportunities to move that date forward.”
While seeing a return to the normal payment flow after the acquisition closes, Bewley did say that before then payments “may be longer terms than you’re used to. It may be a payment plan, but we’ll be more consistent, and so I think we’ll make good progress in the fall.”
All HBC businesses become recapitalized, at the close of the transaction, she said. Amazon is an investor in the deal, as is private equity giant Apollo as well as Salesforce.
“What we’re working through today is just a point in time and a reminder that when we close this transaction, we’re going to be stronger from a financial perspective, and well positioned to meet the customer’s evolving expectations, which is going to enable all of us to grow,” Metrick said.
