Sales Jump on Acquisitions, but HBC’s Loss Missed Estimates, Lowers Forecast

In Reports, What's New, Industry News by Jeff Prine

Hudson's BayToronto and New York—While its recent European acquisitions helped with a 34% sales increase, Hudson’s Bay Company today reported an adjusted loss that missed analysts’ estimates.

For the three months ended Oct. 31, the parent of Lord & Taylor and Saks posted a net profit was C$1 million, or 1 Canadian cent, compared with a net loss of C$13 million, or 7 Canadian cents a share, a year ago. Excluding certain items, the company posted a loss of 4 Canadian cents a share. Analysts had predicted a profit of 2 Canadian cents.

While acquisitions helped sales rise 34% to C$2.57 billion (about $1.88 billion), that still trailed analysts’ C$2.65 billion average estimate.

HBC noted that with its European acquisitions, most of the sales now come from outside the United States. Executives also blamed the strong US dollar for cutting into spending by foreign tourists, especially Canadians, Russians and Brazilians. Warmer-than-normal temperatures and a decline in foot traffic also hurt sales figures.

Headwinds at Saks

According to CEO Jerry Storch, “Our Department Store Group (DSG) performed extremely well given overall market conditions. HBC Europe and OFF 5TH segments also saw solid growth, while the luxury business at Saks Fifth Avenue continues to face headwinds. We made good progress on our initiatives in the quarter as we continue to drive profitability while investing in the long term vision of HBC. We also remain focused on strengthening our digital capabilities, expanding OFF 5TH, bringing Saks Fifth Avenue and OFF 5TH to Canada and leveraging our scale to capture synergies and promote efficiencies across our businesses.”

Retail sales, which include digital sales from all HBC-owned stores, were C$2,566 million, an increase of $653 million or 34.1% from $1,913 million in the prior year. Comp store sales increased 12.9%. (On a constant currency basis, consolidated comp store sales increased by 2%). Comp store sales on a constant currency basis increased by 5.1% at DSG, by 2.8% at OFF 5TH and by 6.6% at HBC Europe for the one month of ownership, and decreased by 3.6% at Saks Fifth Avenue. Digital sales increased by 23.9% on a constant currency basis.

While many categories performed well a few saw pressure. At DSG there was sales growth in home products, menswear and cosmetics. At OFF 5TH, growth was driven by women’s shoes, handbags and menswear while at Saks Fifth Avenue, strength in outerwear and women’s advanced contemporary was more than offset by weakness in men’s luxury collections and women’s and men’s ready to wear collections.

Gross profit as reported was $1,074 million compared to $787 million for the prior year, a year-over-year improvement of $287 million. “The inclusion of HBC Europe for the month of October, as well as sales growth at our existing banners, combined with a favorable currency conversion on U.S. dollar denominated sales, drove the increase in gross profit dollars.”

Lowered Forecast

“With the addition of HBC Europe during the quarter, we now generate the majority of our sales outside the U.S., and have a significant European retail platform from which we can explore additional growth opportunities.” stated Richard Baker, HBC’s Governor and Executive Chairman. “We closed the GALERIA acquisition, with HBS Global Properties purchasing 41 of the properties, and subsequently sold a portion of our equity in HBS Global Properties during the fourth quarter, using the proceeds to de-leverage HBC’s balance sheet. Our strategy of utilizing real estate to help finance targeted acquisitions should enable us to continue to drive profitable growth in our retail operations.”

However, HBC cut its 2015 sales forecast to C$10.7 billion to C$11.2 billion from C$11.0 billion-C$11.5 billion. The company reduced its 2016 sales guidance to C$14.2 billion-C$15.2 billion, from C$14.5 billion-C$15.5 billion

As a result, HBC shares fell in early trading by more than 16% in Toronto. Hudson’s Bay already had fallen 19% this year through Thursday.

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