National Post

HBC takes hit on slumping global sales

- By Hollie Shaw Financial Post hshaw@nationalpo­st.com Twitter.com/HollieKSha­w

Hudson’s Bay Co. is performing well in Canada but its Saks and Saks Off Fifth divisions have been hit hard in the United States by the stronger U. S. dollar and a resulting decline in -tourist spending, company executives said Fri day.

“Internatio­nal sales are down in the significan­t double-digits,” Jerry Storch, the department s- tore retailer’s chief executive, said in a confer ence call with analysts to discuss third-quarter results. “It’s not a small factor, and it would be a very different story at Saks if that effect were not in place.”

Investors gave the news a chilly reception, sending shares down 12.5 per cent to close at $17.40 on Friday.

T-he biggest declines in the third quarter end ed Oct. 31 were a result of Canadians avoiding U. S. shopping trips due to the weakened dollar, SE torch noted. “ven our own ( employees) with discounts don’t shop in the U.S. anymore.”

Falling spending from tourists at the luxury retailer led to a 3.6 per cent decline at Saks in third- quarter same- store sales, which strips out the effects of new store openings on sales growth, even as overall sales at Hudson’s Bay grew.

The company’s less economical­ly sensitive Saks Off Fifth discount luxury division was also affected, eking only modest same- store sales gains of 2.8 per cent in the period after multiple quarters of robust growth.

W-eaker sales from internatio­nal “have signifi cantly impacted Off Fifth,” said chief financial officer Paul Beesley. “The stores along the Canadian border, the stores in Florida that a lot of Canadians visit — there is a significan­t impact on same- store sales arising from that.” HBC , which owns Hudson’s Bay stores in Canada and 136 Kaufhof stores in Germany and Belgium, has also noticed an overall decline in U.S. customers hailing from Russia and Brazil, executives said.

In Ca-nada, it was a different story. The retail e-r’s department store division, which includes re sults from its Canadian stores and the U.S. chain Lord & Taylor, increased sales by 5.1 per cent.

“We have been and continue to be very strong in Ca-nada,” Storch said, an area where the com p- any has been upgrading its stores, merchan dise selection and digital business for the past seven years. “Our performanc­e with Hudson Bay is among the best in any department store in the world.”

As a result of the hit to luxury and dampened fourth- quarter spending in Europe after the N- ovember terrorist attacks in Paris, the com pany cut its sales forecasts for 2015 and 2016, to a- range of $10.7 billion to $11.2 billion from a pri or target of $11 billion to $11.5 billion. Hudson’s Bay reduced its 2016 sales guidance to between $ 14.2 billion and $ 15.2 billion, from an earlier range of $14.5 billion to $15.5 billion.

“We are planning conservati­vely for next year,” said Storch. “It is the only smart thing to do right now.”

Regardless, executives said the company, which closed its $ 3.36 billion Kaufhof deal in the third quarter, is in a solid position to execute on its stated strategies in 2016, including upgrading its retail stores, becoming more efficient due to increased scale, and unlocking value from its sizable real estate portfolio.

Analyst Irene Nattel of RBC Capital Markets maintained her outperform rating on the shares, noting the anticipate­d volume shortfall is not out of line with industry trends.

“Although total sales guidance was revised l-ower, the company continues to expect low sin gle- digit same store sales growth ( unchanged) and foreign exchange rates that are consistent w-ith prior guidance,” Nattel said in a note to cli ents Friday.

Analyst Brian Morrison of Td Securities maintained his buy rating on the shares but decreased his price target on the shares to $ 33 from $36.

“- We are not surprised by the downward re vision to guidance based on peer reports and the general state of the retail environmen­t in the U. S.,” he wrote in a note to clients. “That stated, the magnitude of the revision is more than we had anticipate­d.” Morrison said HBC’s balance sheet is “adequately positioned to endure the current environmen­t” and see the company through ongoing investment­s that should imp-rove its retail outlook. “We reiterate our previous commentary that there appears to be a lack of identifiab­le near- term catalysts to HBC ,” he added. “That stated, we believe that the ongoing investment­s across the retail banners should improve the outlook for fiscal 2017 and fiscal 2018, and that management continues to make progress in surfacing the value of its real estate portfolio.”

On Thursday, HBC reported quarterly sales were up 34 per cent to $ 2.57 billion from $ 1.91 billion in the third quarter of 2014.

Net profit was $ 1 million, or one cent per share, compared with a net loss of $ 13 million, (seven cents) a year ago. Analysts were expecting profit of two cents and revenue of $2.69 billion, according to estimates from Thomson Reuters.

Excluding items, the company lost four cents per share.

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