HBC defends bricks-and-mortar method
CEO says answer to internet threat is to invest in stores
TORONTO Hudson’s Bay Co. is better off than some traditional department stores as it cuts costs, revamps its stores and invests in its expanding web operations, company executives told investors made skittish by widespread industry weakness.
A day after Canada’s oldest retailer released weak sales results and faces ongoing pressure from activist investor Jonathan Litt, the company reiterated its belief Wednesday in the strength of its multi-banner bricks-and-mortar network around the globe, even as rivals have closed hundreds of department stores across the U.S.
Hudson’s Bay Co. chief executive Jerry Storch cited a pervasive market narrative “that the internet is killing department stores,” he told analysts on a second-quarter conference call.
While acknowledging that retailers face a general threat from the internet, “the answer to that can’t be to disinvest from the business,” Storch said. “The answer is to invest to make the department store experience better. People don’t dislike department stores, they dislike bad department stores and they like good ones.”
After falling more than six per cent on Tuesday before the release of second-quarter results, HBC’s shares recovered on Wednesday, ending the day 8.12 per cent higher to $12.19.
Retailers such as Macy’s, JC Penney, Sears and Kohl’s have closed poorly performing stores this year, and though HBC was rumoured to be interested in acquiring Macy’s and Neiman Marcus, executive chairman Richard Baker said the company is not presently “focused on any retail acquisitions, or frankly any large acquisitions” despite an established track record as a retail consolidator.
Litt, whose Land & Buildings Investment Management owns 4.3 per cent of the company’s shares, has been vocal about his desire for HBC to pursue options for its real estate, including selling off some of its assets or finding more productive uses for its store space.
Baker told analysts that HBC was one of the first retailers to repurpose its stagnant store space, having put upscale restaurants, food halls, Kleinfeld Bridal and the U.K. chain TopShop into stores in Canada and Germany. The company has also secured the exclusive rights to open Sephora, the highly productive cosmetics retailer, inside its German department stores, he added.
At the same time, HBC has poured millions into its online operations, which now account for 20 per cent of its overall retail sales, and initiated a massive restructuring of its store-based business in June, cutting 2,000 jobs and streamlining operations in a bid to save $350 million a year by the end of fiscal 2018.
On Tuesday, the retailer missed analyst estimates and announced a net loss of $201 million in the period ended July 29, or $1.10 per share, compared with a net loss in the same period last year of $142 million (78 cents).
Its normalized net loss was 90 cents. Analyst estimates were calling for a loss of 60 Canadian cents per share.
Sales rose 1.2 per cent to $3.29 billion, hurt by high competition and lower customer traffic across multiple store banners. Comparable store sales, a key measure of retail health, rose just 0.4 per cent.
After the analyst call on Wednesday, Land and Buildings issued a statement reiterating Litt’s frustration with HBC’s management, calling out the company for expressing a “vague commitment … to address its deep undervaluation” and a “continued lack of transparency” with shareholders.
Litt argues that HBC’s shares are trading at a fraction of the value of the company’s real estate, pegged at $35, according to third-party valuations, and the company’s response “demonstrates a lack of urgency given the rapidly changing retail landscape.”
Industry sources, the statement said, have bolstered reports that the HBC board is evaluating a potential go-private offer from management, and added that there is an alleged potential buyer willing to pay $10 per share for the company’s European business.
“The time has come for Hudson’s Bay to be more open with shareholders about its plan for delivering value and to take decisive action in the near-term,” Land and Buildings said.