Hudson's Bay focuses on North American turnaround after Europe deal
- Hudson's Bay Co. on Wednesday reported that second quarter total sales decreased 2% year over year to $2.2 billion, while comparable sales declined 0.4%, according to a company release. By store banner, Saks Fifth Avenue comps grew 6.7%, while comps fell 7.6% at the off-price Saks Off Fifth and fell 3.8% at the unit that includes Hudson's Bay, Lord & Taylor and Home Outfitters.
- The company's net loss widened to $147 million in Q2, up 47% from the year-ago period. At $281 million, year-to-date net loss was up more than 38% from last year. Both increases were driven by foreign exchange effects on joint venture profits and a drop in tax benefits, the company said. Operating loss, meanwhile, decreased nearly 24% year over year.
- CEO Helena Foulkes said on a conference call that earnings have stabilized at the luxury Lord & Taylor chain and Saks Off Fifth, but there was more work to be done to improve sales at those lines.
This week, Hudson's Bay announced a deal to dump its European business into a joint venture co-owned with a major rival on the continent, Signa Holding, which will control the entity. (The companies expect the deal to close by the end of the fiscal year.) That move now frees up the Canadian department store company to focus on its North American business, executives said Wednesday.
Foulkes said on a conference call that executives see "improvement" in the North American business. As sales keep falling at key banners, there's plenty of room for more improvement.
Christina Boni, Moody's vice president and senior credit officer, noted in a Wednesday report that the deal would likely improve Hudson's Bay's credit profile. "Nonetheless, we expect that HBC must continue asset sales and curtail capital expenditures to reduce debt given the expectation of limited free cash flow after maintenance capex in 2018," Boni wrote. She added that the company's debt levels would stay high as it "works like most of its U.S. competitors to strengthen its customer position and stabilize sales performance."
Hudson's Bay's mainline Saks banner has been shouldering a heavy load, as the retailer's off-price and Lord & Taylor businesses have dragged on the company. In May, just a few months after Foulkes joined as CEO, Reuters reported that the company brought in advisers to help revive or even sell Lord & Taylor. With 48 stores, the banner represents nearly 14% of the retailer's store footprint — a larger share since the company has now agreed to fold its European business into the joint venture with Signa.
As the banner looks for traction online, it has partnered with Walmart to sell on the mass retailer's website a move that drew mixed reactions from onlookers. Foulkes on Wednesday could offer no hints to analysts on how the partnership was going so far. "It's really early, too early to say how that's going," she said, adding that executives were excited about the tie-up given the traffic to Walmart's website.
In the brick-and-mortar world, Lord & Taylor plays in a luxury space where brands have ever more options to reach customers, and one also filled with relatively strong competitors. Nordstrom, especially, is seen by many as a department store standout.
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