Saks' S&P Scorecard Reveals Ongoing Liquidity Worries

A New Chapter for Saks Global

Marc Metrick, the chief executive officer of Saks Global, is focused on moving forward from the company's financial challenges. He wants to shift the conversation from past debts and bills to what Saks Global can offer its brand partners. However, skepticism remains, especially after Standard & Poor's issued a cautious rating and some vendors expressed concerns.

At a recent event at Bergdorf Goodman, Metrick emphasized that brands would be paid but insisted that this wasn't the most exciting part of their strategy. Instead, he highlighted plans to increase volume by 50% over the next five years. Vendors are eager to see this progress, but the company's financial history has kept the focus on its debt and financial struggles.

Since the merger with Neiman Marcus and Bergdorf Goodman in a $2.7 billion deal, Saks Global has taken on more debt and refinanced much of the money used to close the deal. This has led to increased scrutiny from credit agencies like Standard & Poor's. The agency rated Saks Global's restructured debt at "CCC" with a negative outlook, indicating a high risk of default in the next 12 months without improvement.

The debt restructuring involved exchanging $2.2 billion in bonds for new notes, including $600 million in new money from lenders. While this provided much-needed cash, S&P expects liquidity to be quickly depleted due to the need to stabilize the business in a challenging economic environment. The company is expected to face a $500 million deficit in free operating cash flow this year, partly due to nonrecurring expenses and higher interest costs.

Interest expenses alone will amount to about $400 million over the next 12 months, adding to the pressure on the company’s finances. S&P noted that Saks Global will likely rely heavily on its $1.8 billion asset-backed lending facility, highlighting the ongoing risks of another default if significant improvements aren’t made.

Despite these challenges, there is hope. A source close to Saks Global mentioned that the integration of operations could generate $600 million in cost savings, which might help cover the company’s needs. However, the integration process has not been smooth. Saks Global moved from four different systems to one, but this caused issues with purchase orders, leading to canceled holiday orders worth between $110 million and $180 million.

A spokesperson for Saks Global explained that while the integration went smoothly for the legacy Saks business, the Neiman Marcus business faced issues with data transfer. The company is working closely with brand partners to resolve these problems and continue its multiyear transformation strategy.

Vendors are willing to work with Saks Global but remain cautious. Some have expressed concerns about the company's systems and the ability to receive goods. One vendor mentioned that they are hesitant to ship goods without being paid, as the inventory cannot be used as collateral if payment is delayed.

Bondholders have also taken notice of the company's situation. While the new first-lien bonds have traded at 90 cents on the dollar, this is not seen as a strong indicator of success. A bond trader noted that the company needs to show positive growth in the fourth quarter to avoid further difficulties in 2026.

The luxury retail landscape is changing, with many brands adopting a concession or consignment model. This means Saks Global does not always own the inventory it displays, which affects its margin opportunities. However, the company still relies on direct purchases from brands to maintain its offerings.

Overall, Saks Global faces a complex set of challenges. From managing debt to integrating systems and maintaining relationships with vendors, the company must navigate a difficult path. The coming months will be critical in determining whether Saks Global can turn its fortunes around and achieve long-term success.