Hudson's Bay falters as cuts undermine sales
Hudson's Bay Co. on Wednesday said that third quarter retail sales fell 4.2%, or $140 million Canadian ($109 million U.S.) to $3.2 billion ($2.5 billion U.S.), driven primarily by lower overall same-store sales of approximately $104 million ($81 million U.S.) and negative foreign exchange impacts of $64 million ($50 million U.S.). Closed stores had a $34 million ($26 million U.S.) negative impact on overall sales but were partially offset by the opening of new stores, which added some $61 million ($47 million) in sales during the quarter, according to a company press release.
Same-store sales on a constant currency basis declined by 3.2%, or 5.1% on a reported basis. By banner, same-store sales at Saks Fifth Avenue grew for the second consecutive quarter, rising by 0.2%. Same-store sales at Hudson's Bay grew for the 29th consecutive quarter, this quarter by 3% on a constant currency basis at HBC Europe, 3.7% at DSG (Hudson's Bay, Lord & Taylor and Home Outfitters) and 7.6% at HBC Off Price (Saks Off Fifth and Gilt).
On a constant currency basis, e-commerce sales rose 2.1%, or by 9% excluding the company's Gilt unit. For HBC overall, gross profit as a percentage of retail sales was 41.6%, a decline of 60 basis points compared to the prior year, driven primarily by more promotional and clearance activity at a majority of the company's banners, the company said. Net loss in the quarter was $243 million compared to $125 million in the prior year period, primarily due to lower gross margin dollars combined with higher finance costs, higher depreciation and amortization expenses and a lower income tax benefit. Thomson Reuters I/B/E/S analysts had expected a net loss of $138 million Canadian ($108 million U.S.), cited by Reuters.
Hudson's Bay on Wednesday said that its cost-cutting effort, part of recently announced moves to get back on track, took a bigger toll than executives had anticipated.
"The large reduction in our workforce during the second quarter caused some operational disruptions in our marketing and merchandising areas, particularly in our digital business," CFO Edward Record told analysts, according to a transcript from Seeking Alpha, adding that the company is making changes to that process, which they expect will bear fruit next year.
Despite the disruption to its e-commerce wrought by cost cuts, the company still sees a lot of potential online. The company on Wednesday said that it's working to make its Gilt flash sales unit into a more intent-based shopping destination and the company has begun selling inventory from its Saks OFF 5TH off-price unit on gilt.com in order to move excess inventory. "This milestone represents an important step in leveraging the potential of these two banners, both of which will benefit from a shared pool of common inventory," according to the release.
The company's recent tie-up with Walmart, which entails its Lord & Taylor department store opening an exclusive storefront on the retail giant's online marketplace, is also a major part of its e-commerce sales push. "Our agreement to create a Lord & Taylor flagship on walmart.com significantly extends the reach of this business, and we know that all of our banners have meaningful runway to continue to grow their online presence," Richard Baker, governor and executive chairman, as well as Interim CEO since the abrupt departure of Jerry Storch in October, told analysts.
But the company seems to be hobbled by its focus on real estate investments over the past couple of years. Land & Buildings Investment Management has pressed Hudson's Bay to sell off its best properties and deliver the proceeds to investors, perhaps through a go-private buyout. It's a remarkable situation for a company that in the early months of the year seemed poised to gobble up Macy's — America's largest department store — and later, upscale department store Neiman Marcus, which also owns Bergdorf Goodman.
"They've gone from being the hunter a year ago, looking to acquire Macy's or Neiman Marcus, to being the hunted," Mark Cohen, director of retail studies at Columbia University's Graduate School of Business, told Retail Dive. "This isn't a retail company — it's a real estate company."
Executives insisted, however, that holiday sales will help the retailer regain its footing, with Record saying they're off to "a really good start for the holiday."
- press release HBC Reports Third Quarter 2017 Financial Results
- Seeking Alpha Earnings Call Transcript Hudson's Bay's CEO Richard Baker on Q3 2017 Results
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