Hudson's Bay Emphasizing Digital After Shaky Q4

Andrew Cummings
April 7, 2017

"We have a tremendously valuable portfolio of real estate which can be monetized in a variety of ways", executive chairman Richard Baker told investors on a conference call Wednesday, adding that the company in hindsight might have done well to spin off its USA and Canadian real estate in public offerings six or eight months ago.

Canadian department store operator Hudson's Bay Co's (HBC.TO) said on Wednesday it was aggressively working on fundamental changes in the business to improve performance and further cut costs. The partners were RioCab Real Estate Investment Trust and Simon Property Group.

The owner of Saks Fifth Avenue and Lord & Taylor reported a fourth quarter loss after markets closed on Tuesday. Hudson's Bay purchased Saks 2013 and agreed to buy Metro's Galeria Kaufhof stores for 2.83 billion euros ($3 billion) two years later.

"In no way would we do an acquisition that affects our debt ratios and impact our existing business in a material way, but we do view ourselves as a global consolidator", Baker said.

He said acquisitions is part of HBC's strategy but the company doesn't comment on rumours or speculation. "We're not just looking at a little tinkering with the business model".

When the owner of Saks Fifth Avenue previous year said it was buying flash-sales pioneer Gilt Groupe for $250 million, it touted the deal as a way of quickly turning its burgeoning discount Saks Off Fifth chain into an e-commerce powerhouse. But HBC had been hoping to turn it around and use its prominence with hip, young shoppers, and tech, to build up Saks' online discount business in a major way in much the same way Nordstrom's (jwn) acquisition of HauteLook a few years earlier had. The charge was prompted by recent sales weakness at Saks OFF 5th and, which resulted in the company "prudently lowering its future earnings expectations as compared to initial internal estimates", it said.

Retail sales improved 2.5 percent to C$4.600 billion from C$4.486 billion in the prior year.

Hudson's Bay Co. executives sought to reassure investors Wednesday that the retailer is in a better position than its faltering industry rivals and revived talk about a deal to monetize real estate in the wake of a sizable fourth quarter loss.

Net capital investments for the year are expected to ring in at between $450 million and $550 million.

While overall sales at stores open a year or more - a key retail measure - dropped 1.2 per cent at HBC, they declined 5.9 per cent at its off-price division.

Storch said Wednesday that it took longer than executives had anticipated to merge the online systems for Saks Off Fifth and Gilt, which it acquired in January 2016.

"Department stores are one of the softest segments in retail right now", he said. Where it managed a 387 million dollar (270 million euro) profit in 2015, it had to take a 516 million dollar (360 million euro) loss in 2016. He knows that interest rates in the United States can only go up.

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