Hudson’s Bay Company CEO vows changes at underperforming Lord & Taylor, Saks OFF 5th as loss widens

TORONTO — Canadian department store operator Hudson’s Bay Co said on Wednesday its second-quarter loss widened due to lower sales at its Lord & Taylor and Saks OFF 5th divisions.

Chief Executive Officer Helena Foulkes said the company, which announced a joint venture in Europe with Austrian rival Signa Holding on Tuesday, will focus on turning around the two underperforming divisions.

“We’ve made some poor decisions over the last few years that have hurt (the Saks OFF 5th brand’s) profitability,” Foulkes, who became chief executive in February, told Reuters. “But this is a business that fundamentally can be successful.”

Lord & Taylor was more challenging and a turnaround would take longer, she said, adding that the company was open to changes, including smaller stores.

Hudson’s Bay reported a net loss of $147 million, or 62 cents a share, in its North American operations for the quarter ended Aug. 4. That compared with a loss of $100 million, or 55 cents, a year earlier.

Sluggish sales have dogged the company as Inc and other online retailers lure consumers away from department stores. In all but one of the past 10 quarters, HBC has posted losses.

Shares have fallen 6.2 per cent this year, compared with a 0.7 per cent decline in the benchmark Toronto stock index.

Comparable sales in HBC’s department store group, which includes its Hudson’s Bay and Lord & Taylor banners, fell 3.8 per cent in the quarter from a year earlier, while sales at Saks OFF 5th, which offers discounted designer goods, dropped 7.6 per cent.

The company’s luxury Saks Fifth Avenue brand’s 6.7 per cent increase in sales couldn’t offset the declines in its other businesses.

Including its European business, Hudson’s Bay reported a net loss of $264 million, widening from $201 million a year ago, and deeper than the loss of $173 million that analysts expected, according to Thomson Reuters I/B/E/S.
Gross margins improved 240 basis points, lifting adjusted earnings before interest, taxes, depreciation and amortization, to $33 million from $3 million a year ago, the company said.

The European joint venture will merge HBC’s Galeria Kaufhof chain with Signa’s Karstadt brand to form the region’s third-biggest department store chain. The companies said on Tuesday that their combined regional sales in 2017 were 5.4 billion euros (US$6.25 billion).

That venture, which will include both HBC’s European retail operations and real estate assets, was the latest in the Toronto-based company’s efforts to boost its performance.

In June, the company said it would sell its unprofitable online banner Gilt, and close up to 10 Lord & Taylor stores including its Manhattan flagship, whose building it agreed to sell to Softbank-backed WeWork Cos. last year.

© Thomson Reuters 2018

Hudson’s Bay Company and Austria-based Signa form joint venture in European retail

TORONTO — Hudson’s Bay Co. has completed a deal with an Austrian retail heavyweight that will see the two firms create a joint venture to operate existing businesses in Germany, Belgium and elsewhere in Europe.

The Canadian retailer announced the agreement in a statement early Tuesday, saying it’s formed a “strategic partnership for its European retail and real estate assets” with Austria-based Signa Retail Holdings.

The deal has been in the works for some time, with HBC confirming in July that it was in talks with Signa.

The European firm had made an unsolicited offer late last year to buy HBC’s German operations, but withdrew it earlier this year after it was rejected by the HBC board because it undervalued the business.

Signa owns Kardstadt, a department store selling everything from apparel to household appliances, while HBC runs department stores overseas called Galeria Kaufhof and Galeria INNO.

The new venture will include those assets, as well as the European arm of HBC’s Saks Off Fifth brand, Hudson’s Bay in the Netherlands, Kardstadt sports stores and both companies’ food and catering businesses.

“This transaction builds on our recent efforts to streamline HBC and provides a clear path forward to improve our European operations,” HBC chief executive Helena Foulkes said in a statement.

“The creation of a stronger operator in Europe allows us to focus our attention on our North American banners, helping to ensure we are making the right strategic decisions to drive performance and profitability within those businesses.”

The deal is subject to regulator approval in Europe, and is expected to close within the next 90 days.

Hudson’s Bay agrees to sell half its European business to Signa Holding: report

DUESSELDORF/FRANKFURT — Hudson’s Bay has agreed to sell about half of its European business to Austria’s Signa Holding in a deal that will bring together two major German department store chains, according to media reports on Wednesday.

The agreement, described as a “proposed merger of equals for the European department store business” by German magazine WirtschaftsWoche, was signed by both parties on July 3, the weekly reported.

Under the deal, a joint venture will be created consisting of Kaufhof, the German department store chain owned by Canada-based Hudson’s Bay, and Karstadt, which is owned by Signa, the magazine said.

Signa will hold slightly more than half of the entity and will manage the operating business, it added.

In a separate article, the Wall Street Journal said Hudson’s Bay would receive 1.1 billion euros (US$1.3 billion) from Signa as part of the transaction. Signa, in turn, will assume 750 million in debt, the paper said.

Hudson’s Bay declined to comment. A spokesman for Signa was not immediately available for comment.

© Thomson Reuters 2018

Hudson’s Bay in talks with Signa for Kaufhof joint venture: sources

NEW YORK — Saks Fifth Avenue owner Hudson’s Bay Co is in discussions with Austrian property and retail group Signa Holding GmbH about a joint venture for its German retail chain Kaufhof, two people familiar with the matter said on Monday.

Canada-based Hudson’s Bay, which rejected Signa’s 3 billion euro bid (US$3.7 billion) for Kaufhof earlier this year, has been looking to improve its financial performance as shoppers move away from brick-and-mortar department stores and toward e-commerce giants like Inc.

The joint venture for Kaufhof being discussed by the companies calls for Signa’s department store operator Karstadt to acquire half of Kaufhof’s property company, and 51 per cent of its operating company, with the option to buy the rest at a later date, according to the people who asked not to be named because the matter is private.

If the talks are successful, a deal could be announced in the next few weeks, the people added. There is no guarantee the talks will result in a deal and the negotiations could still fall apart, the sources cautioned.

Signa and Hudson’s Bay could not immediately be reached for comment.

Hudson’s Bay has been re-shuffling its department store brands, and shoring up cash by making deals. It said earlier this month that it would shutter 10 Lord & Taylor stores, with the brand’s flagship Manhattan building sold for US$850 million last year.

It also sold its luxury e-commerce shop Gilt to peer Rue La La.

As of May 5, Hudson’s Bay had $3.8 billion (US$2.85 billion) in loans and borrowings on its balance sheet. Its debt to profit levels have been higher than the industry average.

Activist investor Land & Buildings has been critical of the company’s strategy, urging it last week to extract more value from its substantial real estate holdings.

Hudson’s Bay bought Kaufhof in 2015 for 2.8 billion euros from German retailer Metro AG.

It financed the deal with a joint venture that acquired the German retailer’s real estate, becoming its landlord.

But Kaufhof struggled to make the higher rent payments as shopper numbers fell.

Hudson’s Bay is also working with consulting firm AlixPartners LLP on cutting costs and reforming its business, Reuters reported in May.

© Thomson Reuters 2018

Activist investor Land & Buildings resumes criticism of Hudson’s Bay

TORONTO — Activist investor Land & Buildings on Thursday resumed its criticism of department store owner Hudson’s Bay Co, urging it to correct its underperformance and extract value from its substantial real estate holdings.

The hedge fund, which has been agitating for change at HBC, agreed in December to cease public statements about the company until its annual shareholder meeting on June 12. That was in exchange for concessions from the company in a deal with Rhone Capital that the fund said gave the private equity firm preferential treatment.

Now, Land & Buildings founder Jonathan Litt is again pushing HBC to boost its share price, which is significantly below the value of its assets following a run of earnings disappointments, and to monetize its prime property assets.

The fund held a stake of nearly 5 per cent in the company last July and has not provided an updated figure for its holding.

Hudson’s Bay declined to comment.

“It has become clear that the familiar refrain blaming the challenges of the macro retail environment no longer rings true,” Litt said in a letter to shareholders, comparing the company’s share performance with its peers.

Hudson’s Bay shares are up 4.4 per cent this year, compared with a 40 per cent gain in the S&P 500 department store index, used as a benchmark because of the store’s big presence in the United States. On Thursday, shares were little changed at $11.78 at 10:52 a.m. in Toronto trading.

Hudson’s Bay’s real estate is worth $31 a share, Litt said.

The company has taken some steps to turn its performance around. In December, it sold its flagship Lord & Taylor building in Manhattan and received a US$500 million investment from Rhone as part of that deal. It said this month that it would close that store and up to nine others and had agreed to sell its unprofitable online banner Gilt.

HBC also has signed a conditional agreement to sell its eponymous flagship store property in Vancouver, a person familiar with the matter told Reuters in May.

Chief Executive Officer Helena Foulkes, who took over in February, also has said all options are on the table in its quest to improve profitability.

Litt also flagged concerns over Executive Chairman Richard Baker’s US$54.8 million pay package, which was approved by shareholders but opposed by investors including the Ontario Teachers’ Pension Plan and the California Public Employees’ Retirement System.

© Thomson Reuters 2018

Hudson’s Bay shares fall as company reports bigger loss, announces closure of Lord & Taylor flagship store

TORONTO — Hudson’s Bay Co said on Tuesday it would sell its unprofitable online banner Gilt and up to 10 Lord & Taylor stores, including its flagship Manhattan outlet, as its quarterly loss widened on declines in its European and Saks OFF 5th divisions.

The department store chain, which owns the Saks Fifth Avenue luxury retailer, reported a net loss of $400 million (US$308.5 million), or $1.70 a share, in its first quarter ended May 5, following a net loss of $221 million, or $1.21 per share, a year earlier.

Its adjusted net loss excluding one-time items was $286 million, compared with analyst expectations of $200.5 million, according to Thomson Reuters I/B/E/S.

Hudson’s Bay shares were down 4.05 per cent to $10.19.

Boston-based e-commerce operator Rue La La, which is owned by billionaire Michael Rubin’s Kynetic, said late on Monday it had agreed to buy Gilt, which Hudson’s Bay acquired in January 2016 for US$250 million.

The companies didn’t disclose the price, but the Wall Street Journal reported Rue La La paid less than US$100 million, citing people familiar with the deal.

“Our decision to divest Gilt will allow us to focus our time and resources on the businesses with the greatest potential to drive operating performance,” Hudson’s Bay Executive Chairman Richard Baker said in a statement.

Hudson’s Bay, which also owns GALERIA Kaufhof in Europe, is cutting costs and increasing efficiencies, as it wrestles with a run of earnings disappointments amid a shift in consumer preferences away from department stores to e-commerce and off-price offerings.

Its shares closed at $10.62 on Monday, down 5.9 per cent for the year. That compares to a 1 per cent drop in the Toronto Stock Exchange benchmark, but Hudson’s Bay shares have recovered 32 per cent since their March trough. On Monday, they surged 7 per cent to a four-month high.

Comparable sales rose 7.7 per cent in Hudson’s Bay’s digital division and 6 per cent at Saks Fifth Avenue in the recent quarter. However, those gains were offset by a 6.6 per cent drop in comparable sales in its European division, which includes Kaufhof, Germany’s largest retail chain, and new stores in the Netherlands, and a 3.5 per cent drop in its Saks OFF 5th banner.

The department store group, which includes the Hudson’s Bay, Lord & Taylor and Home Outfitters brands, saw sales slip 0.6 per cent.

Hudson’s Bay does not provide a breakdown of the earnings of individual divisions.

Hudson’s Bay engaged investment bankers and consultants to advise on potential deals regarding its department store portfolio and/or a restructure of its business, and reached a conditional agreement to sell its Vancouver flagship store building, people familiar with the matters told Reuters in April and May.

© Thomson Reuters 2018


Hudson’s Bay sells Gilt to Rue La La in turnaround effort

The cleanup continues at Hudson’s Bay Co., the owner of Saks Fifth Avenue.

The struggling Canadian retailer agreed to sell Gilt, a flash-sale, e-commerce company it bought two years ago that has become one of its worst-performing businesses. The buyer, Rue La La, announced the purchase on Monday without disclosing a price, and said it plans to run the two sites independently and hire 150 people.

Hudson’s Bay shares rose before the sale was announced, jumping 7.2 per cent to $10.62, the biggest one-day gain since November.

The move is the first major decision by new Chief Executive Officer Helena Foulkes, adding to measures to turn around the company that include selling the landmark Lord & Taylor building in Manhattan, unloading a minority stake to a private equity firm to reduce debt, and striking partnerships with Walmart Inc. and WeWork Cos. The retailer is due to report quarterly earnings Tuesday morning.

Hudson’s Bay failed to revive Gilt even after combining inventories with its other discount business, Saks OFF 5TH. It agreed to buy Gilt for US$250 million in 2016. At the end of fiscal 2017, it wrote off US$63 million “due to further deterioration in operating results.”

Rue La La believes it can do better and capitalize on its mobile-first approach. The combined company, which will be named Rue Gilt Groupe, “will serve over 20 million members with a focus on young, affluent, fashion and brand-conscious consumers,” Rue La La said in a statement.

–With assistance from Lindsey Rupp .

To survive in Amazon era, retailers need to use technology to stay relevant: HBC digital expert

TORONTO — Amazon need not be a bogeyman for all retailers, given what digital experts are learning about consumer shopping patterns.

Some retailers have seen their store-based traffic increase after selling certain exclusive products on Amazon, while others note consumers are using the online giant as a browsing tool for products before they buy at a store, Jorge Carrasqueiro, director of digital marketing at Hudson’s Bay Company, told an industry audience at the annual eTail Canada conference in Toronto on Tuesday.

“We have seen that many consumers read Amazon reviews before going to buy locally,” Carrasqueiro said. Still, in an environment of declining mall visits, Amazon represents 51 cents out of every $1 of online growth, he noted. At the same time, only one in four shoppers say they have a favourite retailer, making it a critical time for merchants to leverage technology in order to remain relevant to consumers.

“The intelligence and insight provided by search (marketing) is invaluable for marketers today,” he said. “We want a complete view of our customers across all channels to drive actual insights.” Technologies such as machine learning are helping to drive retail research about customer insights, Carrasqueiro said.

“We are really excited at HBC about AI (artificial intelligence systems). As an example, if you search on Google Home or Alexa for a suit to wear to a wedding, it will provide you with not only the product information but contextual information about the occasion.” Those technologies will help retailers time advertising strategically to suit a customer’s needs, he said.

Still, despite assurances from better-performing traditional retailers about their prospects, trepidation remains high in the industry. Hundreds of department stores have closed in the United States where HBC operates Lord & Taylor, Saks Fifth Ave and its assorted off-price banners. Specialty chains have also been hit hard, sparking the closure of Bebe and Toys ‘R’ Us in the U.S., while others such as Nine West, jewelry chain Claire’s and department store Bon-Ton Stores Inc. filed for Chapter 11 bankruptcy protection this year.

Credit Suisse has forecast that up to a quarter of U.S. shopping malls will close over the next four years and predicted online sales in the country will fill the gap, doubling by 2030 to an estimated 35 per cent of all retail sales.

HBC has not been immune to the industry struggles: The performance of its European division, off-price banners and Lord & Taylor has been weak, though the retailer said in March that its Hudson’s Bay banner in Canada managed to generate double-digit online sales growth in 2017 while largely maintaining its store traffic and sales.

During the fourth quarter ended Feb. 3, HBC’s comparable digital sales rose 9 per cent at the retailer’s department store banners and were up 2.8 per cent overall.

“While I applaud the work that the teams have done over the last few years, we are definitely, as a leadership team, seeing real opportunity to take our digital and store performance to the next level,” Helena Foulkes, the company’s new CEO, told investors on the quarterly conference call.

At the same time, HBC has been under pressure from investor Land & Buildings Investment Management LLC to sell more of its leases and properties.

Carrasqueiro said the company does not view its stores as a hindrance.

“We actually see them as an asset,” he said. “Hands-on product interaction is still an important thing.”

Store-based returns are much easier at a cost level for retailers who have stores and are convenient for customers, he said, and online retail does not have a good solution for impulse purchases: if you want something immediately, the quickest way to get it is to drive to the nearest store.

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