HBC says Competition Bureau’s mattress pricing probe has cost it US$425,000

OTTAWA — Hudson’s Bay Co. says it has spent more than US$425,000 to date to comply with demands for documents from Canada’s competition watchdog as it investigates alleged deceptive pricing practices.

The retailer says in a filing with the Competition Tribunal that it has invested more than 6,500 person-hours to produce 37,000 documents in response to the Competition Bureau’s complaint made last February.

In the filing, HBC says a recent request for more documents is unreasonable because they would be dated after the latest alleged offense mentioned in the original complaint.

The bureau claims that HBC offered mattresses and foundations sold together at grossly inflated regular prices so that it could then claim deep discounts on the sleep sets to suggest significant deals for customers.

It accuses the company of engaging in that practice throughout Canada between March 2013 and January 2015 and is seeking an administrative monetary penalty and costs of the proceeding, along with assurances the practices will stop.

HBC denied its pricing practices were deceptive in a filing of defence in April.

Ontario Securities Commission to review TSX approval in HBC land deal

TORONTO — The Ontario Securities Commission is holding a hearing Wednesday at the request of a Hudson’s Bay Co. activist investor to review a Toronto Stock Exchange decision concerning shares involved in the sale of a New York City property.

Land & Buildings Investment Management LLC applied on Monday for the regulator to review the TSX’s Nov. 7 decision to provide conditional support to Rhone Capital’s $632-million equity investment in the form of eight-year mandatory convertible preferred shares.

The funding was part of a deal that included the sale of HBC’s Lord & Talyor Fifth Avenue building to WeWork Property Advisors for nearly $1.1 billion and to pursue a strategic alliance with WeWork to pursue future real estate transactions.

The owner of Hudson’s Bay, Saks Fifth Avenue and Lord & Taylor said it expects Rhone will initially hold a 21.8 per cent voting and equity interest in the company on a partially diluted basis and that could grow to 30 per cent if the preferred shares are held to their eight-year maturity.

Land & Buildings has urged the retailer to consider a bid for its German operations by Signa Holding and criticized HBC for selling a controlling interest in the company without seeking the approval of minority shareholders.

The retailer and its investor have been in a war of words, accusing one another of misleading shareholders regarding the building’s sale and the related Rhone Capital investment.

Hudson’s Bay investors want debt reduction, payouts from real estate proceeds

TORONTO — As Hudson’s Bay Co steps up the pace of extracting value from its US$5 billion property portfolio, the department store chain’s shareholders want it to reduce debt, return cash to them and not invest the proceeds in traditional retail operations.

Hudson’s Bay is not new to selling real estate, but its actions are under greater scrutiny amid rising tensions between the company and activist hedge fund Land & Buildings, which says it holds about 5 per cent of the company.

The fund wants the owner of Saks Fifth Avenue and Lord & Taylor to sell or convert stores to alternate uses and transform itself into a real estate play. It values HBC’s real estate at about $35 a share, three times more than the company’s current level.

“The perception, and in some cases, the reality, is that (Amazon.com Inc) is speeding bricks and mortar retailers into submission,” said Jonathan Norwood of Mackenzie Investments, HBC’s eighth-biggest shareholder.

“If they sell the real estate, we want to see the money used to reduce debt and returned to shareholders,” added Norwood, who co-leads Mackenzie’s value-focused Cundill team. “We don’t want it going to revitalize or grow the retail operations.”

HBC is exploring the sale of its Vancouver flagship store, estimated at about $800 million (US$628.4 million), after selling its Lord & Taylor property in Manhattan for US$850 million last month.

Selling properties will further expose HBC to a brutal retail market but has not deterred the company from opening new stores in the Netherlands this year.

“It’s hard for an investor to get excited about new store openings when existing stores are on rocky ground,” said Joshua Varghese, portfolio manager at CI Investments, HBC’s sixth-largest shareholder.

The company should “seriously consider” a 3 billion euro offer from Signa Holdings for its German stores, Varghese said, noting HBC shares are unlikely to see significant gains without clarity on the company’s strategy.

An HBC spokeswoman declined to say whether the company has identified areas to deploy the proceeds from any future asset sales. It will use funds from the Lord & Taylor sale to pay down debt, which totalled $3.4 billion as of July 29, excluding its two joint ventures.

HBC’s net debt was 4.7 times earnings before interest, taxes, depreciation and amortization after the Lord & Taylor sale, compared with an industry average of 2, according to Royal Bank of Canada.

“If Richard (Baker, HBC’s executive chairman) sells the Vancouver store, he’ll probably pay off debt on the operating company,” said an HBC shareholder who declined to be identified. “I don’t think they’ll sell all the stores; they’re monetizing individual stores where demand is good.”

 

© Thomson Reuters 2017

Hudson’s Bay Co shares surge after confirming ‘incomplete’ offer for its German retail chain

Signa Holding, the Austrian property and retail group that owns German department store chain Karstadt, has made a 3 billion euro (US$3.5 billion) offer to acquire Hudson’s Bay Co’s German peer Kaufhof, people familiar with the matter said.

The bid comes one week after Hudson’s Bay demonstrated a willingness to consider a sale of some assets, agreeing to sell its flagship Lord & Taylor building in New York for US$850 million to WeWork Cos.

Shares of Hudson’s Bay Co. were halted on the TSX  Wednesday morning pending news. HBC confirmed after the halt that it had received an “incomplete, non-binding and unsolicited offer with no evidence of financing from SIGNA.” The board intends to review the offer. 

HBC shares rose more than six per cent when trading resumed in early afternoon.

At a valuation of 3 billion euros including debt, Signa’s bid values Kaufhof’s real estate at 2.63 billion euros, the sources said. Signa has offered to assume all of Kaufhof’s liabilities, including a 1.34 billion euro real estate loan by German bank LBBW, the sources added.

The sources asked not to be identified because the offer is confidential. Hudson’s Bay did not immediately respond to a request for comment, while Signa declined to comment.

Signa tried to buy Kaufhof in 2015, but Hudson’s Bay outbid it by paying 2.5 billion euros including debt for the German chain and its Belgian subsidiary. Since then, Kaufhof’s finances have deteriorated, to the point where vendors are finding it more difficult to find trade credit insurance to make shipments.
© Thomson Reuters 2017

Hudson’s Bay Co sells 5th Avenue store for US$850 million, stock jumps 8%

Hudson’s Bay Co. agreed to sell its flagship Lord & Taylor building in Manhattan and unloaded a minority stake to a private equity firm to help the Canadian retailer cut debt and bolster its balance sheet by a combined $1.6 billion (US$1.27 billion).

RhoneCapital LLC will buy US$500 million worth of convertible shares in Hudson’s Bay, and Rhone is teaming up with WeWork Cos. to buy the Lord & Taylor building on Fifth Avenue for US$850 million. WeWork will also lease space within some of Hudson’s Bay department stores, including its flagship outlet on Queen Street in Toronto.

The agreement brings some respite to the Toronto-based owner of Saks Fifth Avenue, which has been cutting thousands of jobs as it copes with an industry wide slump for department stores. It also came under renewed pressure from activist investor Jonathan Litt of Land & Buildings Investment Management, who is urging the company to monetize some of its real estate holdings.

The Lord and Taylor building will continue to operate though the 2018 holiday season. It will then become WeWork’s New York headquarters and office space, while hosting a revamped store.

The company said it expected minimal impact on its earnings there from the sale because the store is “many times less productive than the Saks Fifth Avenue flagship building.”

“Immediately upon closing, these transactions are expected to significantly strengthen HBC’s balance sheet, enhance our liquidity, and advance our core strategies by monetizing the Lord & Taylor Fifth Avenue building and increasing the productivity of key locations,” Hudson’s Bay Executive Chairman Richard Baker said in a statement Tuesday.

The 10-story Lord & Taylor building near 39th Street, erected in 1914, is known for its distinct Italian Renaissance style and was named a city landmark a decade ago. The iconic property is one of the city’s oldest retail stores and traces its origins to the dry goods stores established by Samuel Lord and his partner George Washington Taylor in 1826.

The company stock rose more than 8 per cent on the Toronto Stock Exchange in early morning trading.

Bloomberg

Hudson’s Bay Co gets hammered after Nordstrom puts off privatization plan

TORONTO — Shares in Hudson’s Bay Co , which is reviewing strategic options including privatization, fell as much as 5.2 per cent on Monday, with some analysts attributing the drop to rival Nordstrom Inc’s failed attempt to go private.

Earlier on Monday, U.S. upscale retailer Nordstrom said its founding family had suspended attempts to take private for the rest of the year due to difficulties in arranging debt financing ahead of the holiday season.

Hudson’s Bay was down 4.55 per cent to $11.74 in midday trading, while the broader Toronto stock benchmark rose 0.2 per cent. It fell to the day’s low of $11.66, it’s lowest in nearly six weeks.

“My…impression is that the stock is reacting to Nordstrom news…” said a Toronto-based retail analyst who declined to be named as the analyst was not authorized to speak about the matter publicly.

A Hudson’s Bay spokesman did not offer an immediate comment.

Shares of Nordstrom, the owner of Saks Fifth Avenue and Lord & Taylor, slumped as much as 6.5 per cent to their lowest since June, compared with the benchmark S&P 500 stock index, which rose 0.25 per cent.

Hudson’s Bay’s largest shareholder and executive chairman, Richard Baker, is looking for a new strategy after unsuccessful attempts this year to merge Hudson’s Bay with U.S. department store operators Macy’s Inc and Neiman Marcus, Reuters reported in August.

The review will consider all available options, from the possibility of the company going private to potential sales of retail assets and real estate.

U.S. activist investor Jonathan Litt has called for Hudson’s Bay to consider going private and to monetize its vast real estate holdings.

© Thomson Reuters 2017

Hudson’s Bay Co tumbles on fears today’s earnings will be worse than expected

TORONTO — Hudson’s Bay Co shares fell as much as 7.2 per cent by Tuesday, on track for their biggest one-day decline since June, amid concerns that quarterly results could be worse than expected, traders said.

Analysts are expecting a loss of $116.1 million, or 60 cents per share, on sales of $3.26 billion, according to Thomson Reuters I/B/E/S.

The company declined to comment.

The retailer, which did not pre-release comparable-store sales last month unlike previous quarters, is scheduled to release second-quarter results after markets close on Tuesday.

Hudson’s Bay shares, which tumbled amid a broader market sell-off, fell as low $11.22 in Toronto, down 7.2 per cent. It was HBC’s sharpest retreat since June 9 when shares plunged more than 10 per cent after the company reported a steeper-than-expected loss and announced a restructuring plan that included laying off 2,000 employees.

The shares later pared losses to trade at $11.44.

Investors and analysts said Tuesday’s decline was likely due to positioning ahead of the results, which come on the same day the company opened the first of 10 new stores in the Netherlands.

Shares of other North American department store operators also fell on Tuesday. Sears Holdings Corp was down 5.0 per cent, and Macy’s Inc was down 2.5 per cent.

© Thomson Reuters 2017

HBC pushes further into Europe, despite industry and investor pressure

TORONTO  Hudson’s Bay Co. is taking its flagship brand outside of North America for the first time despite a tepid retail environment and ongoing pressure from an activist investor who wants the department store giant to sell off some of its real estate assets.

On Tuesday, Canada’s oldest retailer will open the first of 10 Hudson’s Bay stores starting up in 2017 in the Netherlands, “where the exodus of other players left a major vacuum between the highest-end players and the discount chains,” according to HBC chief executive Jerry Storch.

HBC expanded into Europe with the $3.9 billion purchase of the Kaufhof department store chain in Germany and Belgium. Last year the owner of Lord & Taylor and Saks said it would open up to 20 stores in the Netherlands, where the market faced a void after the collapse of Dutch department store V&D in late 2015.

“In the internet era you may not need as much space as what existed in the past,” Storch said. “They had 60 stores covering the Netherlands, and we are targeting 20 stores.”

Given increased investor trepidation in a year that has seen U.S. shopping malls grapple with an unprecedented wave of store closures, any expansion can be seen as risky. In the first quarter, comparable sales at HBC Europe were flat, and in the prior fiscal year, comparable sales fell 1.2 per cent.

Market observers will be watching HBC closely Tuesday when the company discloses its second quarter results after markets close. The company’s shares have risen about 43 per cent since mid-June when Jonathan Litt, founder of Land & Buildings Investment Management LLC, began putting pressure on the retailer to explore options for its real estate and threatened a proxy war if the company didn’t find a way to monetize its assets. Land & Buildings owns 4.3 per cent of HBC’s shares.

Storch said he could not comment on recent reports that HBC governor Richard Baker was looking at strategic options, including privatizing the company, as part of a solution after alleged attempts to merge with Macy’s and Neiman Marcus failed.

When asked whether pressure from Land and Buildings was interfering with HBC’s retail strategy, Storch said “there is generally alignment on the real estate side with what we want to do and with what they suggest that we do. We remain focused on improving and growing our retail operations even as, of course, we continue to evaluate opportunities to ensure the best use of our both owned and leased locations (and look to) generate value from our real estate portfolio.”

HBC has announced 15 of its expected 20 locations in the Netherlands, which will include three stores under the Saks Off Fifth banner in addition to the Hudson’s Bay brand.

HBC could use the growth, said Jennifer Marley, a partner at the Toronto-based Sklar Wilton and Associates, who called the Netherlands a “great move” for the  retailer. “Brand Canada,’ let’s call it, has been especially powerful in the Netherlands since World War Two,” she added, when members of the Dutch royal family stayed in Canada for five years.

George Minakakis, principal at Toronto-based Inception Retail Group, said the expansion could prove challenging for HBC. “The damage online (business) is doing to retail in Europe is more significant than it is here,” he said, with greater ease of logistics due to the smaller geographic footprint.

“You do not find a lot of higher-end department stores in Europe, so your service value is a lot better than anyone else’s and if I pay you more money for a shirt or a dress, then it has got to be worth it. It might be tough to break in, but Europeans tend to recognize brands better than anyone else does.”

Despite a far higher percentage of e-commerce in overall retail in Europe, Storch said the market has never experienced the over-saturation of stores that was one factor behind weakening store-based retail players in the U.S.

“(Europe) is not nearly as over-stored as the U.S. — it is not even close,” he said. “The U.S. is the densest market in the world for retail, and Canada is about one-third less than the U.S. Europe is just a fraction, even, of Canada.”

Financial Post

hshaw@nationalpost.com

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