Dive Brief:
- Ratings agency S&P Global on Wednesday issued a negative outlook for Hudson's Bay Co., citing deep challenges in the department store sector, according to an S&P press release emailed to Retail Dive. Hudson's Bay did not immediately return Retail Dive's request for comment.
- Analysts with S&P reaffirmed the Canadian department store retailer's corporate credit rating, at BB-, but said they expect its performance to be lower than their previous forecasts. A lower credit rating would follow if Hudson's Bay, which runs Saks and Lord & Taylor, fails to stem its sales declines or if its profit-to-interest coverage were to fall.
- "Despite all the transactions the company has recently engaged in to shore up its liquidity, industry headwinds continue to buffet HBC's retail operations," S&P analysts said in the release. "Changing shopping habits, including lower consumer spending on apparel, declining mall traffic, and the shift to online and off-price retailers that offer convenience and value, will continue to weigh on performance."
Dive Insight:
Hudson's Bay has been moving quickly to shore up its balance sheet, but S&P's downward shift in outlook is one signal that the market doesn't expect the company's efforts, so far, to be enough.
Those moves include the sale of its Manhattan Lord & Taylor flagship to make way for a WeWork headquarters, the prospective sale of its Vancouver namesake brand flagship store, the possible sale of its German unit and the sale of another Lord & Taylor store. The company's previous CEO, Jerry Storch, also abruptly departed this fall, leaving an opening at the company's top management spot.
All this follows an already dramatic year that had seen the departure of interim CFO Paul Beesley and failed buyout talks with both Macy's and Neiman Marcus. (Talks with Macy's broke down because the price was too steep, and with Neiman Marcus because the accompanying debt load was too high).
The company has also slashed jobs, seen its credit downgraded and posted losses this year, even though in the second quarter it managed modest increases in total and comparable store sales. That was followed by significant year-over-year top-line and same-store sale declines in the third quarter.
And then there's the activist in the retailer's midst. Land & Building's founder, Jonathan Litt, and others have been pressing Hudson's Bay to cash in on its real estate, after the company had already taken significant steps in that direction by spinning off many of its properties into joint ventures the company said could be monetized through an IPO.
That's not enough for Litt, who said in a June letter he considered Hudson's Bay "a real estate company, full stop" that should sell off even its "crown jewels" — including a famous Manhattan Saks store property. Litt and his firm, so far, have not been placated by the executive changes or property sales.
