Investors like ‘drastic moves’ by HBC’s CEO
Saks sales growth among few bright spots in latest quarterly results, analysts say
Pursued by an activist investor and tallying a $164-million net loss in its third quarter, Hudson’s Bay Co. still managed to stir up some enthusiasm among industry analysts and investors after its earnings release Wednesday. The reason for hope, says one industry observer, is the company’s new chief executive, Helena Foulkes.
“They have a pulse now,” said Bruce Winder, partner at Retail Advisors Network. “You see significant movement and action on her part and that gives investors some confidence.
“It’s going in the right direction but boy oh boy is there still a lot of work to be done here. By no means are they out of the woods yet.”
In 10 months on the job, Foulkes has made “drastic moves,” Winder said, including a deal to merge its European operations with an Austrian rival last week.
HBC reported a net loss of $124 million in its continuing operations in the third quarter, worse than the $116 million loss a year ago, driven primarily by increased depreciation and amortization expenses and foreign exchange losses.
Sales rose five-and-a-half per cent to $2 billion. Including its European operations, Hudson’s net loss stood at $164 million, compared with $243 million a year ago.
Saks Fifth Avenue, the luxury department store chain HBC bought in 2013, saw a 7.3-per-cent boost in same-store sales, well above HBC’s overall rate of 1.2 per cent. The increase comes despite a major renovation at the Saks flagship store in New York City.
“We’ve been focused on fixing the fundamentals of our business,” Foulkes said in a call with industry analysts, adding that the quarterly results were proof of progress.
CIBC Capital Market analysts called the results “encouraging” in a research note, adding that the same-store sales growth at Saks was the brand’s “best result in years and third consecutive quarter above six per cent.” But the analysts found HBC’s Lord and Taylor stores were continuing to struggle.
After taking over as CEO, Foulkes said she saw no “sacred cows” in the company.
“Everything is on the table,” she said in March.
Earlier this year, Foulkes announced the closure of 10 Lord and Taylor stores. Closures at the department store will continue next year, HBC’s chief financial officer Edward Record told analysts Wednesday. HBC is also closing roughly four Saks Off Fifth locations, he said.
While its luxury Saks Fifth Avenue brand appears to thrive, HBC’s contingent of mid-level chains — Hudson’s Bay, Home Outfitters, Lord and Taylor and Saks Off Fifth — are the “albatross” around the company’s neck, said Winder.
“The department store business is in decline,” he said, pointing to shifting consumer preferences to e-commerce and specialty stores. Only a few luxury department stores, and discount chains, have managed to make it work, leaving stores like Hudson’s Bay “caught in the middle.”
The solution, Winder said, is to gradually cull underperforming stores, freeing up HBC’s valuable real estate holdings.
HBC has been hounded by an activist investor, Land and Buildings Investment Management, to do just that. In a letter to HBC shareholders last week, Land and Buildings founder Jonathan Litt gave HBC a laundry list of ways to unlock real estate value, including selling the Saks flagship store on Fifth Avenue in Manhattan, as well as selling off the Lord and Taylor brand and liquidating its inventory and real estate.
“HBC’s Board has an appalling track record,” Litt wrote.
“We believe change on the Board is needed to ensure that the Board listens to its shareholders and takes the steps needed to truly maximize value for all shareholders.”
CIBC analysts wrote Wednesday that HBC’s share price rose by 15 per cent following the release of Litt’s letter. And after HBC’s quarterly update on Tuesday evening, its share price jumped five per cent to $9.47 in less than an hour after market open Wednesday.