Canada Goose stock is killing it today — up 20% on earnings beat and three new stores

TORONTO — Shares of Canada Goose Holdings Inc. soared nearly 20 per cent in early trading after it reported stronger-than-expected earnings and announced plans for three new stores in North America.

Canada Goose shares were up $11.56 or 19.27 per cent at $71.55 in trading on the Toronto Stock Exchange after going as high as $78.30.

The increase came as the luxury parka maker reported a fourth-quarter profit of $8.1 million or seven cents per diluted share compared with a loss of $23.4 million or 23 cents per diluted share a year ago.

Revenue for the quarter ended March 31 totalled $124.8 million, up from $51.1 million in the same quarter a year earlier.

On an adjusted basis, Canada Goose said it earned $9.9 million or nine cents per diluted share.

Analysts on average had expected a loss of eight cents per share for the quarter, according to Thomson Reuters Eikon.

Canada Goose also announced Friday that it would open new stores in Short Hills, N.J., Montreal and Vancouver this fall as part of its retail expansion plan.

The locations are expected to open ahead of the 2018 holiday shopping season.

For its full financial year, Canada Goose says it earned $96.1 million or 86 per diluted share on $591.2 million in revenue. That compared with a profit of $21.0 million or 21 cents per share on $403.8 million in revenue in the previous year.

DavidsTea shareholders toss current board members by electing co-founder’s slate

MONTREAL — DavidsTea shareholders have turfed most of the existing board by electing seven nominees presented by the company’s co-founder.

Herschel Segal, who is also the company’s largest shareholder, becomes executive chairman and will be joined by corporate director William Cleman, Viau Foods president Pat De Marco, retired professor Ludwig Max Fisher, former MEC chief executive Peter Robinson and Roland Walton, former president of Tim Hortons Canada.

Also winning re-election is Le Chateau president Emilia Di Raddo.

The eighth nominee to be elected is chief executive Joel Silver, who was management’s face on an attempt to prevent a dissident revolt.

Segal has blamed the outgoing board — of which he was a member until March — for taking too long to turn to online commerce and failing in its expansion to the United States.

His holding company Rainy Day Investments Ltd., owns about 46 per cent of the outstanding shares.

However, three investment companies that together control 36.5 per cent of the shares opposed his plan.

The company has complained that Segal was trying to acquire the company without paying a premium.

HBC shareholders challenge executive renumeration and lack of real estate plans

TORONTO — Hudson’s Bay Company faced a fight from some of its most prominent investors Tuesday over its decision to award executives with multi-million-dollar pay packages despite two years of weak sales and sizeable losses for the retailer.

The Ontario Teachers’ Pension Plan, British Columbia Investment Management Corp. and the California Public Employees’ Retirement System (CalPERS) said they voted against the company’s remuneration practices that include a $54.8-million pay package for the retailer’s executive chairman Richard Baker.

The “say on pay” vote — a non-binding motion that is growing in popularity at Canadian companies and aimed at collecting shareholder feedback — took place at the company’s annual general meeting in Toronto and ended in the executives’ favour.

However, CalPERS spokesman Mike Osborn said in an email “we don’t feel the company sufficiently linked pay with performance” and Teachers’ said in its proxy vote statement that “in this case, we do not feel that the awards have been sufficiently justified.”

Baker’s compensation includes more than $37 million in share-based awards and more than $16.6 million in option-based awards. The company’s other executives are due to earn totals of between $1.4 million and $9.4 million, according to HBC’s information circular.

After the vote passed, one shareholder in the audience criticized Baker’s remuneration saying, “It is one thing to award a package. It is another to accept it and so I think accepting it reflects on (Baker)’s character, who not so long ago said the fair value was twice where these payouts are.”

The shareholder called on Baker to address the issue, to which Baker replied “We appreciate your question. Thank you.”

The majority of other stakeholders at the meeting focused on the value of the company’s real estate, which at least one activist investor has previously pushed the company to think strategically about, given the retailer’s rocky recent performance that included a $400-million loss in its first quarter compared with a loss of $221 million a year ago.

In October, Jonathan Litt, who is chief investment officer and founder of activist investor Land & Buildings Investment Management, said the company is really a real estate company, not a retailer, that has failed to outline a plan to unlock the “substantial real estate value trapped in the company.”

On Tuesday, one shareholder echoed Litt’s sentiments saying, “What are you people waiting for? Are you waiting for us to go into a recession before you sell some of your real estate?”

He suggested the company take its Toronto HBC/Saks Fifth Avenue location at Yonge and Queen Street and build condos above it “while real estate is hot.”

Helena Foulkes, the company’s chief executive officer, indicated that the company might be ready to heed some of their investor’s advice.

She said the company was looking at selling certain properties, but was not in a hurry to sell everything quickly.

Baker said the company was looking to “better utilize” its spaces to create revenue as it has through partnerships with Topshop, health clubs or the shared office space business We Work.

In Toronto, for example, he said the company had taken its Yonge and Queen Street real estate and emptied two floors, pushing merchandise to other floors “in a way where we will lose no sales.”

That freed up 100,000 square feet of prime space that the company used for a lease with We Work, valued at more than $50 a square foot.

He said the deal was generating foot traffic and new shoppers and is indicative of the company’s plans moving forward.

“Our general focus around the world is to better utilize space, rather than selling off the particular pieces.”

Owners of fading malls ‘on their knees’ as buyer pool evaporates

Landlords have malls they’d like to unload. But who’d want to buy them?

As they battle the rise of e-commerce, U.S. mall owners are trying to clear their books of fading centres so they can focus on the most-profitable ones. That’s proving difficult, with just a shallow pool of investors who are willing to take on a declining mall and even fewer who would pay what the landlords want. Only about US$3 billion of retail real estate changed hands in April, a 27 per cent drop from a year earlier and the lowest monthly tally since February 2013, according to the latest data from Real Capital Analytics Inc.

Mall giants such as Simon Property Group Inc. and GGP Inc. are spending billions to update their centres, adding experiences that can’t be found online and reinventing the cavernous spaces left behind by failing department stores. But there’s a growing set of lower-tier malls that have slid too far toward irrelevance to be worth a costly overhaul.

“It’s a tough environment. I don’t think anybody really anticipated the decline of the department store to happen as quickly as it did,” said Joe Coradino, chief executive officer of Pennsylvania Real Estate Investment Trust, which owns 21 malls in the Mid-Atlantic region. “The sellers are clearly on their knees.”

The Philadelphia-based REIT has sold 17 bottom-tier malls since 2013. The last deal, completed in September, was a US$33.2 million transaction for the Logan Valley Mall in Altoona, Pennsylvania, anchored by Macy’s, JCPenney and Sears stores. If those same properties were on the market today, prices would be substantially lower, Coradino said.

“I’m very, very happy I sold those malls,” he said.

For all but the best centres, the number of buyers — and the group of lenders willing to fund such acquisitions — has dwindled to a trickle. The handful of investors that are active in the space are demanding steep discounts to take on the risks of shaky tenant rosters, falling foot traffic and an antiquated business model.

KKR, Starwood

Not long ago, some of the biggest names in private equity, such as KKR & Co. and Barry Sternlicht’s Starwood Capital Group, were laying out substantial sums to snap up retail properties. In 2012 and 2013, Starwood purchased a combined US$2.6 billion of malls from Westfield, followed less than a year later by a US$1.4-billion deal to buy seven malls from Taubman Centers Inc. From 2012 to 2014, KKR bought four regional malls for about US$502 million, Real Capital data show. That demand has all but evaporated as timing a wager on American malls becomes increasingly treacherous.

KKR still has three of the malls it purchased, according to Real Capital. After pouring millions into the Broadway Mall in Hicksville, New York — for a face-lift and an update of the interior — the firm started marketing the property last year, according to people with knowledge of the talks, who asked not to be identified because the negotiations were private.

The 1 million-square-foot property in suburban Long Island, acquired in 2014 for US$94 million, houses an Ikea as well as mall staples including Claire’s, Express, Aeropostale and Macy’s, according to its website. That lineup points to the fragile ecosystem of many malls. Claire’s filed for bankruptcy in March, while Aeropostale went bankrupt in 2016 before being bailed out by a consortium that included Simon and GGP.

A representative for KKR declined to comment.

Starwood, which two years ago made an unsuccessful attempt to sell some of the malls it acquired from Westfield, recently tapped the Israeli bond market to refinance debt on the properties. A Starwood representative declined to comment.

‘Pent-Up Backlog’

It’s hard to pin a number on how many retail properties are potentially on the market. Publicly traded mall landlords prefer to keep details to themselves rather than field questions on quarterly earnings calls about their progress on selling specific assets, according to Haendel St. Juste, an analyst at Mizuho Securities USA LLC.

“There’s definitely a pent-up backlog of malls the REITs want to sell,” said Thomas Dobrowski, an executive managing director at brokerage Newmark Grubb Knight Frank. “It’s just a matter of them getting over the hurdle of deciding to sell and having some catalyst that will give them a reason to sell into this market.”

It’s easy to understand their reluctance to sell now. Prices for malls fell 14 per cent in the past 12 months, even as values for other types of commercial properties, such as warehouses and office buildings, rose or held steady, according to Green Street Advisors LLC. At least four properties have been pulled from the market in recent months because the bids were too low, Dobrowski said.

Pruning their portfolios of lower-quality properties should be retail landlords’ top priority, according to Green Street. In its annual review of mall ratings last month, Green Street found that 85 per cent of changes were downgrades.

Landlords sitting on mediocre malls in hopes of getting a higher price at a later date may be missing their window, according to St. Juste. All indicators point to lower values in the future, he said.

“If you’re thinking about selling an asset down the road,” he said, “it would be wise to think about pulling it forward and selling now.”

–With assistance from Heather Perlberg.

Bloomberg.com

Robert De Niro’s Nobu aims for $1 billion in sales combining sushi, hotels and now condos

Nobu Hospitality LLC, the sushi restaurant and luxury hotel chain founded by Robert De Niro, chef Nobu Matsuhisa and movie producer Meir Teper, expects to reach US$1 billion revenue in five years as it adds condos to its growing empire.

A key step in the company’s growth was its first foray into the condo market with 660 units and 36 luxury-hotel suites atop a Nobu restaurant in Toronto. The project, announced last year, sold out in three months. After starting with one sushi restaurant in New York in 1994, the company now has more than 40 locations, including London and Las Vegas, said Trevor Horwell, chief executive officer of closely held Nobu Hospitality.

“It’s quite a rapid growth,” Horwell said, breaking ground at the Toronto project in the city’s entertainment district Monday. “Normally in our restaurants, we can have over 100,000 customers a year. All we’ve got to do is convert 10 to 15 per cent of those customers to fill our hotels. So that’s why we went into hotels.”

Nobu Hospitality hopes to complete the two-tower Toronto project, which may cost as much as $300 million (US$231 million), in 30 months, Horwell said. Hotel room rates are expected be as much as $800 per night and condo units will average $850,000.

Nobu Resort

“I’ve done movies here, a festival here and it’s a logical place for us to open,” said De Niro, who also attended the groundbreaking, complete with gold shovels and Japanese drummers.

A chef holds a finished sushi dish for a photograph at the Nobu London luxury restaurant inside the Metropolitan Hotel in London, U.K.

The company has committed to two more mixed-use developments, in Sao Paulo, Brazil and Los Cabos, Mexico, and is on the lookout for more opportunities in Asia, including Taipei, Hong Kong and Jakarta. Horwell hopes to have 10 mixed-use Nobu developments around the world in the next decade, while adding five hotels and restaurants per year.

New York is still the dream location for a Nobu-branded mixed-used development, said Horwell, despite an earlier project falling through due to zoning hurdles. “We want to do New York without a doubt, but it has to be special,” he said. “If we did a mixed-use, it’d have to be the best, because there’s some great developments there.”

De Niro is hoping to see a Nobu resort in the coming years, specifically eyeing Bermuda. “There’s quite a few things in the works,” he said.

Bloomberg.com

DavidsTea losses more than triple in first quarter ahead of proxy battle

MONTREAL — Embattled beverage retailer DavidsTea says its net loss more than tripled as sales fell six per cent in the first quarter of its fiscal year.

The Montreal-based company lost $1.2 million for the period ended May 5, compared with a loss of $362,000 a year earlier.

That translated into a loss of five cents per diluted share, versus a loss of one cent in the first quarter of 2017.

Excluding costs of “onerous contracts” and those related to a strategic review and proxy contest, the adjusted net loss was $1.7 million or seven cents per dilute share. A year earlier, it lost $1.1 million or four cents per share.

Revenues fell to $45.8 million from $48.7 million.

Same-store sales — a key retail measure of sales for stores open at least a year — decreased seven per cent.

The results were released ahead of its annual meeting Thursday when investors will decide on a slate of director nominees proposed by the company and another put forward by the co-founder and largest shareholder Herschel Segal.

Starbucks Canada closing stores today for race, bias and inclusion training

TORONTO — Starbucks is closing about 1,100 Canadian locations this afternoon for training on race, bias and inclusion.

In a letter to customers, Starbucks Canada president Michael Conway says the training will involve sharing experiences, listening to experts, reflecting on the realities of bias in society and talking about how employees can create public spaces where everyone feels like they belong.

The training comes after the Seattle-based company publicly apologized for the arrest of two black men who had been refused permission to use the washroom of a Starbucks coffee shop in Philadelphia.

In his letter, Conway calls the incident “reprehensible” and says the training isn’t just about what happened in Philadelphia, but about humanity and making sure all customers feel safe and welcome.

The training sessions at the Canadian Starbucks stores begin at 3 p.m.

In late May, 8,000 U.S. locations were shut for an afternoon for similar training.

Brewed awakening: Inside the nasty proxy battle for DavidsTea

TORONTO — DavidsTea Inc. chief executive Joel Silver is making an impassioned pitch for stability as the battle for control of the struggling tea retailer comes to a head this week.

Despite winning raves over the years for its range of creative tea products, distinctive packaging and airy, bright stores, the Montreal-based company has been grappling with a rapidly shifting consumer marketplace, poor financial results and all-too-frequent management upheavals.

DavidsTea has recorded losses in four of its past five fiscal years and posted three years of declining same-store sales, a key measure of retail stability. Since going public in 2015, the retailer’s shares have consistently traded far less than their US$19 IPO price, and they have been trading in the US$3 to US$4 range while a proxy battle rages between the company’s co-founder and the current board.

“There has been so much conflict and so much turnover, the company hasn’t really been able to open up new (growth) channels and work on strategy,” said Silver, the former president of Indigo Books & Music Inc. who took over the tea seller a little more than a year ago.

“We have had 10 board members turn over since the company went public, and I was the second CEO in three years, though there was an interim one in between. How do you work on a three-to-five-year plan when there is so much turnover?”

DavidsTea CEO Joel Silver.

Silver is defending his management team’s three-year turnaround plan that began last year, but he’s now staunchly opposed by Herschel Segal, the 87-year-old founder of fashion retailer Le Château Inc. and co-founder of DavidsTea, who believes the team has had more than enough time to fix the business.

“There is enough debate and I think we need to take action,” said Segal, who owns 46.4 per cent of DavidsTea’s shares through his Rainy Day Investments Ltd. firm.

After six years on the board, Segal resigned his seat in March, and is asking shareholders to jettison the current board at the company’s annual general meeting on June 14 and replace it with a slate of seven nominees, including himself as executive chairman.

“The action is to take our stores in Canada and make them profitable again,” he said. “And you do that as a merchant would: you see what works, change it and try it … you don’t need any major strokes.”

Three significant shareholders — Porchlight Equity Management LLC, TDM Asset Management PTY Ltd. and Edgepoint Wealth Management Inc., which collectively own 36.5 per cent of the company, disagree with Segal’s vision. They support the current board and its proposed slate of six candidates, including Silver and a representative from each of their firms.

In theory, DavidsTea should have a far better chance of making a stable recovery since Teavana, its Starbucks Corp.-owned rival, has closed its 379 stores, including 56 in Canada, during the past year.

But DavidsTea is primarily a retailer of fresh tea blends and accessories, not a quick-service beverage seller, and online shopping is taking a toll on mall traffic and sales at its 240 North American stores.

To-go tea drinks account for less than than 10 per cent of DavidsTea’s total sales — which reached $224 million in fiscal 2017 (the company will release fiscal second-quarter 2018 earnings after market close on June 11) — and its customer traffic reflects it. You won’t see huge Tim Hortons-like lines of morning regulars jostling for a hot cup of Chocolate Chili Chai, nor is it trying to serve that market.

Herschel Segal, centre, celebrates the DavidsTea IPO at the Nasdaq MarketSite in New York in 2015.

The retailer’s ability to rotate 40 seasonal teas from its assortment of 120 blends guarantees that loyal customers will regularly peruse its bricks-and-mortar locations to see what’s new. But orders for its 80 popular standby blends can easily be filled online: people don’t have to visit a store anymore to get their fix of premium loose tea.

Part of the romance customers have with the DavidsTea brand has been the ability to smell and sample new flavours from the store’s colourful “tea wall,” and the lion’s share of sales involve its associates, known as “tea guides,” scooping and packaging the product in front of customers. That process can result in long lineups at peak shopping times.

“The brand strength is strong, and I think they have a good loyalty following, but I think consumers have been frustrated with the model of always having to interact with the sales staff,” said Robert Carter, executive director of foodservice at market researcher NPD Group Inc.

“If they are regulars, they might know what they want, but they need to keep expanding (online operations) and expanding the distribution model further to look at other ways to gain customers. Now that Teavana has disappeared, they have an opportunity to carve out a greater market share.”

Carter believes DavidsTea has suffered because of the upheaval at the top and so its turnaround plan needs time to take hold, especially since it’s a different strategy than the company had three years ago. Without that stability, he believes, the company risks losing loyal customers while not attracting new ones.

But despite the polarizing proxy battle, it’s not clear that Silver’s and Segal’s visions are that far apart. Both stress the need to improve the Canadian business, grow e-commerce sales and develop new distribution channels such as grocery stores.

Silver said the first few months of his tenure involved strengthening the management team, upgrading the company’s digital capabilities and assessing the store network in both Canada and the U.S. He said the company was in more disarray than he anticipated when he took over last year.

“We (needed) a bigger turnaround than I thought,” he said. “The team was much more decimated than I thought.”

Though the board in December hired advisers to pursue strategic alternatives for the brand, Segal insists a sale is not on the table.

He is also optimistic about the performance of new-concept stores in Toronto and Calgary, which appear to mitigate the “throughput” problem — in other words, slow lines. Same-store sales by double digits at those locations, which allow customers to sniff tea samples from areas on the sales floor. The stores also stock more ready-to-go prepackaged containers of the most popular blends.

The company will now test the model at five more stores, Silver said. “At an investment of $130,000 per store, the return on capital is great.”

Management also wants to expand e-commerce, which accounts for 12 per cent of sales but is growing quickly, and Silver is keen for DavidsTea to be offered as a premium product on grocery store shelves, where bagged tea accounts for 98 per cent of the category.

He believes the U.S. market, where DavidsTea has 50 stores, has renewed potential given the recent exit of Teavana, and notes leasing terms are far more favourable today than they were when it entered the U.S. market in 2011.

Segal, for his part, believes current management has spent far too long mulling over strategy rather than making the necessary changes to improve the business in Canada.

Segal co-founded DavidsTea in 2008 with his entrepreneurial young cousin, David, after whom the tea retailer is named. The elder Segal is certain he will get the required votes to oust the current board, which he suspects wants to sell DavidsTea and are too aligned with the desires of the retailer’s institutional investors.

Though he was on the company’s board when DavidsTea began its store renovation program, he is not convinced a new store design is what the brand needs. He also sees room to improve the U.S. business.

“Whatever we have to do is going to be better than having confusion,” Segal said. “I think that it has to have one leader and I think I can do it, and I have done it, I have my money in there and I have no preconceived ideas. I just think it can be much better.”

Segal said the throughput problem could be remedied by any number of measures after testing, such as experimenting with the amount of prepackaged tea in stock, creating an express line or packaging products differently. “If you have a bottleneck in traffic, then you have to settle it, it doesn’t mean you have to re-engineer your whole store.”

The company, he said, could also sell more tea bags, which currently account for less than 11 per cent of DavidsTea’s sales. “Our tea bags are 92 cents. People don’t pay that for a tea bag. Forty cents is reasonable, when you can pay 15 cents (elsewhere).”

On March 5, when Segal left the board, his Rainy Day Investments firm said it intended to present a proposal to buy out DavidsTea’s minority shareholders. A week later, that proposal was off the table and Rainy Day said it would instead submit a dissident slate of board nominees for election at the June AGM. David Segal, meanwhile, has no horse in the race, since he left the company in 2016 and no longer owns any shares.

Though Rainy Day’s large ownership stake suggests an easy route to winning the proxy battle, two large proxy-advisory firms — Glass, Lewis & Co. LLC and Institutional Shareholder Services Inc. — are recommending shareholders vote against Segal’s proposed board and support the incumbent board’s nominees.

“We question whether further senior management changes would be advisable at this time given the relatively brief tenure of the current CEO and the company’s high management turnover in recent years,” Glass, Lewis said in a statement.

“Given his influential role as a director of the company during a period of significant underperformance, as well as his age … we question whether it would be advisable to install Mr. Segal as the chief architect of a turnaround plan at this critical juncture for the company.”

ISS cited Segal’s performance track record at Le Château Inc. as a strike against the retail veteran’s bid to control store operations as executive chairman.

Le Château, struggling to compete against fast-fashion retailers such as H&M and Zara since they entered Canada more than a decade ago, shrunk to 170 stores at the end of 2017 from 212 at the end of fiscal 2007. The fashion retailer has posted 10 years of flat to declining same-store sales, and declared a net loss in each of the past five fiscal years.

A Le Château store in Montreal.

But Segal said somebody has to take on the responsibility at DavidsTea and he thinks he should be the one.

“I’ve done it, I’m in good health, I have good people, I have a good business and we have the money to do it, and it won’t take us long if we don’t try to conquer the world,” he said. “We have to reclaim our position as a very solid business and it won’t be worth $4 a share — it’ll be worth much more.”

Silver said the board had hoped to come to terms with Segal to avoid an all-out proxy fight, one he admits he has a low chance of winning.

“Nobody wants this to be, but at this point, both sides want to air their case amongst the balance of the shareholders,” he said. “It’s expensive. It’s low chance. But we’ve got to fight for it.”

Whatever the outcome, Carter believes DavidsTea is suffering due to the prolonged discord.

“The strategy they are talking about now is different from the strategy they were talking about three years ago,” he said. “I don’t think they are getting any new customers coming in because of (the flux). They need to have a focused approach and execute against it, because they are at risk of losing their loyal customers as well.”

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