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Venerable department store Neiman Marcus was downgraded one notch to triple-C plus by S&P Global on Thursday, as the luxury-goods retailer struggles with what analysts at the ratings agency characterise as an “unsustainable” capital structure.

The indebted department chain that peddles Valentino, Givenchy and Christian Dior to the country’s doyennes has wrestled with some of the same conditions that have buffeted the wider retail industry, including weak mall traffic and lacklustre consumer spending on apparel, handbags and shoes.

Helena Song, an analyst with S&P, said those trends would continue to “weigh heavily” on Neiman Marcus’s operating performance.

“It faces all the same challenges as the other large department store operators,” she said. “We believe the operating environment for department stores and retail apparel will remain difficult, with top line and margin pressure from competitive threats even as department store retailers work to address challenges with better in-store experiences as well as merchandise and online investments.

Ms Song maintained a negative outlook on the company, indicating Neiman had a one-in-three chance of another downgrade over the next 18 months.

Neiman Marcus, which also owns Manhattan’s Bergdorf Goodman — revered by the film “Scatter My Ashes at Bergdorf’s” — was taken private by private equity group Ares Management and the Canada Pension Plan Investment Board for $6bn in 2013.

The deal levered up the group with debt before many of the factors troubling the retail industry erupted. The Texas-based group cancelled plans for an initial public offering last month after it reported same-store sales, a key industry metric, had fallen for a fifth consecutive quarter.

Revenues in the company’s fiscal first quarter, which ran through October 2016, fell 7 per cent from a year earlier to $1.1bn. The company blamed the decline in part depressed tourist spending thanks to a resurgent US dollar.

Bonds issued by the company in connection with its buyout in 2013 traded hands on Thursday at 56 cents on the dollar, according to MarketAxess. Their nearly $1bn of debt, which matures in October 2021, was quoted at 74 cents on the dollar at the start of January and as high as 88 cents last year.

Copyright The Financial Times Limited 2017. All rights reserved.
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