Saks’ Canadian foray overcomes challenges
The opening of Saks Fifth Avenue was a huge success in Canada despite a nagging weakness in the overall luxury sector, executives of Hudson’s Bay Co. said Tuesday.
“There is no doubt that the luxury market is the most challenging market we participate in right now,” chief executive Jerry Storch told analysts on a conference call to discuss fourth-quarter and yearend results for the period ended Jan. 30.
“The strong U.S. dollar has significantly reduced the amount of international tourists who come to the U.S. and their purchases in those luxury gateway cities.”
In the important holiday quarter, sales at locations open for more than a year, a key metric known as same-store sales, fell 1.2 per cent at Saks, but rose two per cent at Saks Off Fifth and four per cent at Hudson’s Bay and Lord & Taylor on a constant currency basis. Same-store sales rose 0.4 per cent at HBC Europe, the unit created from the retailer’s $3.9 billion acquisition of German department store chain Galeria Kaufhof last September. Comparable digital sales rose 23 per cent year-overyear as the company continued to expand its online presence.
Visits to New York locations by Canadians and Europeans are down and fewer Brazilians are visiting stores in South Florida, Storch said. The upside is that more Canadians are staying in Canada to shop, Storch added — consumers who frequent the offprice Saks Off Fifth chain in the U.S. northeast and Florida “are essentially trapped in Canada for their shopping.”
The company has a more bullish outlook for the second half of the year. Shares were up three per cent in midday trading Tuesday to $19.08.
Opening in February, Saks’ flagship Toronto store had one of the highest-performing store openings in the retailer’s history, executives said, and the adjacent Hudson’s Bay location has seen a subsequent increase in traffic and sales.
The company opened another Saks in Toronto’s west end later that month and in March opened Canada’s first four Saks Off Fifth outlets in Ontario.
Early sales results are “on the very strong side,” HBC governor Richard Baker said. “We have long believed that Canada is underpenetrated in the off-price marketplace,” he said, adding the Off Fifth investment presents a low risk and high opportunity for reward.
Baker said HBC will use its experience remodelling the Hudson’s Bay department store chain as a template for how to improve performance at its Kaufhof department store chain in Germany and Belgium, refreshing its brand assortment and testing categories such as expanded shoes, cosmetics and accessories before making any permanent changes at its 131 stores.
Net earnings in the quarter were $370 million, or $1.88 per diluted share, compared with $115 million, (62 cents) in the year-earlier period as the company realized $516 million on the sale of investments in its real estate joint venture.
Due to the addition of Kaufhof, revenue spiked 70.4 per cent to $4.5 billion from $2.6 billion.
For the full year, HBC’s net earnings were $387 million, up from $233 million in fiscal 2014. Full-year consolidated retail sales were $11.2 billion, up 36 per cent from $8.2 billion, also primarily attributable to the addition of HBC Europe.
Consolidated retail sales, including digital sales from all banners, were $4.5 billion, up $1.86 billion from a year earlier.