News Wednesday that Neiman Marcus (NMG) posted a quarterly loss provides more evidence that the recession is hitting luxury retailers hard.
Fitch Ratings expects comparable store sales trends for the U.S. luxury department store retailers to remain highly pressured in 2009 with expected comparable store sales declines in the double digit range. Sales for this group are expected to underperform the broader department store sector after being relatively resilient through the first half of 2008.
Fitch expects luxury retailers will continue to see pressure on margins, cash flow and credit metrics, which is incorporated in the Negative Rating Outlooks for the three retailers under coverage.
Based on recently reported earnings for some retailers, comparable inventory per square foot for the luxury department stores declined in the low-to-mid-teen levels at the end of the fourth quarter. Gross margins are expected to remain under pressure as the risk of continued markdowns remains, particularly if comparable store sales do not improve materially from current trends in the second half of 2009.
“The luxury retailers also have some geographical concentration - Nordstrom’s (JWN) 30% concentration in California, Neiman Marcus‘ 30% concentration in California and Florida, and Saks‘ (SKS) concentration in New York of over 20% — which could further pressure sales if these markets underperform the national average.”