Shopper slowdown slams HBC shares
TORONTO • Hudson’s Bay Co. shares were pummeled Tuesday after the department store retailer scaled back on its 2016 fiscal outlook for the second time since November, falling as much as 13 per cent and hitting an all- time low since going public in 2012.
Citing weak sales in the U. S. and Europe, HBC now expects sales of $14.4-billion to $ 14.6- billion for the year ended Dec. 31, according to a statement on Monday. That’s down from a trimmed forecast in November of as much as $14.9-billion for the year, and an earlier September forecast predicting 2016 sales as high as $15.9 billion.
The shares closed down $ 1.50 at $ 10.16 in Toronto. They have fallen more than 30 per cent since November, when HBC cut its holiday outlook for the first time.
The poor numbers came at a time of growing unease about the value of department stores and the real estate they occupy, even as operators improve their digital sales.
“HBC is vested in the department store sector around the world, and that is probably the hardest hit out of any retail sector right now,” Bruce Winder, a partner in Toronto- based Retail Advisors Network, citing its ownership of Germany’s Kaufhof, Lord & Taylor and Saks in the U. S. and Hudson’s Bay in Canada.
“Almost every department store player in the U. S. reported pretty brutal holiday results. It is really tough for these retailers right now in terms of footfall — some say mall traffic was down as much as 10 per cent in the U. S. over the holidays. That is big.
“And there are broader questions about how many of the products that department stores offer are being now consumed t hrough online companies like Amazon.”
In the last nine weeks of the calendar year, HBC said its overall sales at stores open for more than a year fell 0.7 per cent.
A number of other department stores including Macy’s, Kohl’s and J.C. Penney reported slow U. S. holiday sales last week. Luxury department store chain Neiman Marcus, meanwhile, scrapped i ts plans to go public.
Beyond the competitive landscape, higher- end U. S. stores are hurting in particular because of diminished tourism, Winder said.
“The U. S. dollar has been very strong since the election compared with other worldwide currencies, so you are seeing lower tourist spending in the U. S. and fewer tourists coming into the U.S. as a result.”
HBC said it now expects adjusted earnings before interest, taxes, appreciation and amortization of $ 615 to $ 665 million, down from its November forecast of $ 700 million to $785 million.
The news prompted analyst Brian Morrison of TD Securities to downgrade the retailer’s shares to hold from buy and lower his price target to $ 13 from $ 26, saying the results may delay HBC’s plans to extract value from its real estate assets.
“Although t here i s no change in our view that HBC has tremendous value within its real estate portfolio, our perception has changed that HBC will be able to realize the fair value of its real estate assets in full within our valuation horizon,” Morrison wrote in a note to clients Tuesday.
The analyst believes HBC may still be in a position to go ahead with IPOs of its joint- venture assets in the next 18 months, but he doesn’t think this will include the company’s flagship Saks store in New York. Morrison had valued the Saks flagship at $ 12 per share, which accounted for the majority of his price target reduction.
“Clearly, the asset has value, but we have seen numerous companies with attractive real estate assets not been rewarded until a value- surfacing event takes hold,” Morrison said.
“Heading into the seasonally weak first half, it is difficult to envision a financial catalyst to expand HBC’s applied multiple during this time.