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 .

Bloomberg.com

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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Hudson’s Bay seeking ways to turn around the slumping fortunes of its Lord & Taylor chain

Hudson’s Bay Co is working with investment bankers and consultants to identify deals and new measures to turn around its Lord & Taylor department store chain, once the cornerstone of its retail empire, people familiar with the matter said.

The move shows how the chain’s fortunes have diverged from Hudson’s Bay’s luxury Saks Fifth Avenue banner, which has managed to better weather the rise of online shopping sites including Amazon.com Inc and the resulting decline of brick-and-mortar stores. It comes as the company decided to sell its eponymous Hudson’s Bay department store in downtown Vancouver, Reuters reported exclusively on Monday.

The Canadian retailer has been working with investment bank PJ Solomon Co for advice on potential deals regarding its department store portfolio, and is also working with consulting firm AlixPartners LLP on cutting costs and reforming its business, the sources said.

Much of their focus has been on Lord & Taylor, which accounts for about one tenth of Hudson’s Bay’s stores, the sources added.

Hudson’s Bay is also open to divesting Lord & Taylor, but considers this outcome unlikely given the scarcity of potential buyers that would pay top dollar for it amid the retail sector’s malaise, according to the sources, who asked not to be identified discussing confidential deliberations. AlixPartners and PJ Solomon declined to comment.

“Lord & Taylor is a storied brand and we will continue to evolve it for the future,” a Hudson’s Bay spokeswoman said in an emailed statement, declining to comment on moves the company was considering with investment bankers and consultants.

“As we shared on our last earnings call, recent performance at Lord & Taylor has not met expectations. However, we see a lot of opportunity to grow the business.”

Hudson’s Bay Executive Chairman Richard Baker has publicly expressed disappointment with the chain’s performance. His investment firm NRDC Equity Partners acquired Lord & Taylor for US$1.2 billion in 2006, when department stores were still thriving, and used it as a launch pad to build a holding company with several retail chains.

Long focused on upper middle class markets in the U.S. Northeast and Midwest, Lord & Taylor’s 50 department stores are now increasingly struggling to distinguish themselves from competitors such as Macy’s Inc and off-price retailers including TJX Companies Inc.

Unless Hudson’s Bay, which has lost two-thirds of its market value in the last three years, can reposition Lord & Taylor, the chain risks weighing further on the company’s stock performance, industry insiders said.

“‘What do we offer consumers that’s differentiated?’ If they can’t answer that question, they need to come up with a reason for consumers to care,” said Greg Portell, lead partner in the retail practice of A.T. Kearney, a management consulting firm.

Lord & Taylor’s president Liz Rodbell left Hudson’s Bay at the end of April, leaving the retailer with another challenge to face. The company expects to name a replacement in the coming weeks, a Hudson’s Bay spokeswoman said.

ABORTED DEALS

Hudson’s Bay has mulled a range of options for Lord & Taylor. In March, it considered acquiring Bon-Ton Stores Inc, a bankrupt retailer operating 250 department stores in 23 U.S. states, to merge it with Lord & Taylor, the sources said.

Such a deal would have complemented the two chains’ customer base and improved their buying power, the sources added. However, Hudson’s Bay subsequently abandoned its pursuit of Bon-Ton to focus on other opportunities and continue its revamp, according to the sources. A U.S. bankruptcy judge approved Bon-Ton’s wind-down last month.

Hudson’s Bay held talks earlier this year about merging with private equity-owned department store operator Neiman Marcus Group Ltd, a deal it also pursued unsuccessfully last year, the sources said.

The talks once again ended without an agreement, in part because Neiman Marcus’ US$5-billion debt load was too big for Hudson’s Bay, the sources added.

SALES DROPPING

Lord & Taylor’s 10 per cent contribution to total retail sales at Hudson’s Bay has declined significantly over previous years as the company has grown through acquisitions, analysts estimate. The Lord & Taylor division, which includes the Hudson’s Bay department stores and Home Outfitters in Canada, reported comparable sales falling 2.6 per cent year-on-year in the three months that ended in February.

Comparable sales at Saks Fifth Avenue, whose 41 stores analysts estimate make up a third of sales at the company, rose 2.1 per cent over the same period.

Lord & Taylor has announced it plans to launch a dedicated internet store on budget retailer Walmart Inc’s website this month, a move that may help its presence online but could take further sheen off its name, according to the sources.

Hudson’s Bay has also shown willingness to trim some Lord & Taylor locations. The chain’s flagship property in New York City was sold to WeWork Cos last year for US$850 million. As a result, that store will shrink to a quarter of its current size.

The company also said in October it was exploring a sale of its Hudson’s Bay store in downtown Vancouver, together with its joint venture partner RioCan Real Estate Investment Trust . Reuters reported on Monday it had found a buyer for that store for $675 million (US$524.4 million).

Some Hudson’s Bay shareholders want more. The company should sell one of its weak banners, rather than add another to its stable, which include Galeria Kaufhof in Germany and Galeria Inno in Belgium, said Joshua Varghese, portfolio manager at CI Investments Inc, which is Hudson’s Bay’s sixth-largest shareholder.

“Hudson’s Bay should focus on having fewer stores,” Varghese said. “If that means selling certain brands, then so be it. Lord & Taylor does make sense.”

© Thomson Reuters 2018

Hudson’s Bay, RioCan agree to sell flagship Vancouver store for around $675 million: source

TORONTO — Department store owner Hudson’s Bay Co and joint venture partner RioCan REIT have signed a conditional agreement to sell HBC’s flagship store in downtown Vancouver for about $675 million (US$524.4 million) to an Asian buyer, a person familiar with the matter told Reuters.

The buyer, who owns a closely held real estate company, is seeking to arrange interim financing from at least one Canadian lender, according to the person, who declined to be identified as the deal has not been made public yet. The source declined to identify or give the nationality of the buyer, but said the deal is expected to be finalized by mid-June.

RioCan and Hudson’s Bay, which owns the Saks Fifth Avenue and Lord & Taylor brands, said in October they were exploring the sale of the store. Hudson’s Bay will lease back space in the property and continue to operate the store, they said then.

A HBC spokeswoman declined to comment. RioCan did not immediately respond to a request for comment.

HBC shares rose as much as 4.3 per cent, and were trading up 2.2 per cent at $9.07 at 10:10 am ET. RioCan shares rose 0.4 per cent to $23.47, while the Toronto stock benchmark added 0.7 per cent.

The deal progresses HBC’s efforts to extract value from its substantial real estate holdings as it battles a retail industry-wide slump and faces investor pressure to lift its share price. It follows the sale of its Lord & Taylor flagship store on New York’s Fifth Avenue to WeWork Companies Inc for US$850 million last year.

Hudson’s Bay shares have lost two-thirds of their value in the past three years, hurt by disappointing earnings for several quarters. The company valued its real estate at US$35 a share before the Lord & Taylor store sale.

RioCan shares have fallen 21 per cent in the same period, compared with a 2.4 per cent gain in the Toronto stock benchmark.

RioCan is also shifting its strategy, honing in on malls in major Canadian cities and developing more condos and rental apartments to capitalize on surging demand for housing.

The joint venture between HBC and RioCan now owns properties including Hudson’s Bay stores in Montreal, Calgary and Ottawa, as well as 50 per cent stakes in Oakville Place and Georgian Mall in Ontario province.

The JV was owned 88.1 per cent by HBC and the rest by RioCan, but its terms entitle RioCan to 20 per cent of the sale proceeds, the person said in October.

CBRE and Brookfield Financial Real Estate Group handled the sale.

© Thomson Reuters 2018

HBC reveals Saks, Lord & Taylor data leak lasted nine months

TORONTO — Hudson’s Bay Co. says a previously announced security breach at its Saks Fifth Avenue, Saks Off 5th and Lord & Taylor stores began as early as July 1 last year, but has been contained since March 31.

The Toronto-based retailer announced the breach on April 1 but provided few details at the time.

It now says the breach was caused by malware, a type of software inserted into its system to collect customer payment card information, including the cardholder name, card number and expiration date.

The details released today confirmed some of the information published weeks ago by Gemini Advisory LLC, a cybersecurity firm that detected the breach after it noticed an influx of stolen credit and debit card information for sale.

The firm found that three Canadian Saks locations were exposed to the breach: Sherway Gardens in Toronto, Bramalea City Centre in Brampton, Ont. and Pickering Town Centre in Pickering, Ont.

HBC says it believes the breach no longer poses a risk to customers shopping at the affected stores.

It also says there’s no indication that its e-commerce platforms, Hudson’s Bay and Home Outfitters stores in Canada or HBC Europe were affected.

Hudson’s Bay Co probes data breach at Saks and Lord & Taylor stores

Hudson’s Bay Co, the Toronto-based department store operator, is investigating a data security issue at some of its North American stores.

The probe concerns information from payment cards used at certain Saks Fifth Avenue, Saks Off 5th, and Lord & Taylor stores, the company said in a statement Sunday. Details from more than 5 million credit and debit cards are up for sale, according to a post from Gemini Advisory, a security firm. An external representative for Hudson’s Bay declined to comment on Gemini’s report.

The breach comes as Hudson’s Bay is struggling to turn around declining same-store sales. The retailer has already scrapped more than 2,000 jobs and hired a new chief executive in its battle to win back consumers. On March 28 the retailer reported fourth-quarter earnings that missed analysts’ estimates, and its shares fell as much as 5.9 per cent before ending the day up about 1.1 per cent.

“HBC has identified the issue, and has taken steps to contain it,” the company said in its statement, adding that it’s working with the card companies and law enforcement. Customers should flag any unfamiliar transactions to their card providers and Hudson’s Bay will offer any affected shoppers free identity protection services. They won’t be liable for fraudulent charges, the company said.

There’s no indication that Hudson’s Bay, Home Outfitters, HBC Europe or the company’s online sales platforms have been affected, according to the company’s statement.

It’s not the first time Hudson’s Bay has run into trouble over data protection. The company published thousands of customers’ personal information — including email addresses and phone numbers — last year. In that instance, payment data was not exposed, a spokeswoman said at the time.

Bloomberg.com

Hudson’s Bay Co posts weak showing in fourth quarter

TORONTO — Profits and sales grew at Hudson’s Bay Co. in the fourth quarter but the large department store saw year-over-year sales declines in the bulk of its store divisions.

The owner of Hudson’s Bay, Saks and Kaufhof Retail saw its retail sales climb 2.1 per cent in the period ended Feb. 3 to $4.7 billion, an increase of $95 million from the prior year.

Net earnings were $84 million, or 39 cents per share, compared with a net loss of $152 million (83 cents) in the prior year. Normalized earnings per share, excluding items such as restructuring costs, were 9 cents, up from one cent a year ago.

“While we are not pleased with our recent performance, we continue to capitalize on the value of our real estate portfolio and are taking action to improve our operating results,” said Richard Baker, HBC’s executive chairman. “Together, we are determined to grow sales and increase margins while evaluating all opportunities to create shareholder value.”

The retailer said sales were hurt by “operational challenges” stemming from its restructuring plan that aims to generate annual savings of $350 million by the end of fiscal 2018, as well as lower traffic at Lord & Taylor, HBC’s off-price stores, and Galeria Kaufhof.

Comparable sales at Saks Fifth Avenue grew for the third consecutive quarter, increasing by 2.1 per cent. Comparable sales at Saks Fifth Avenue have now been positive for four of the last five quarters, while comparable sales at Hudson’s Bay grew for the 30th consecutive quarter.

But overall comparable sales at the retailer’s department store group, which also includes Lord & Taylor and Home Outfitters, fell 2.6 per cent.

Similarly, comparable sales — a measure that tallies volume at stores open for more than a year — tumbled 3.4 per cent at HBC’s European department stores and sank 7.6 per cent at HBC’s struggling off-price division, which includes Saks Off Fifth and the online retailer Gilt.com.