Hudson's Bay Co. reported a large quarterly loss when sales crashed in its Bay department stores, highlighting the challenges facing the Canadian retailer while pursuing a turnaround plan.
Toronto-based HBC, which also owns luxury goods retailer Saks Fifth Avenue, reported a net loss from continuing operations of $ 462 million, or $ 2.51 per share, for the fiscal quarter ended Aug. 3 , compared to $ 104 million or 58 cents to share, in the same period last year. Revenues were virtually unchanged at $ 1.85 billion, compared to $ 1.86 billion last year.
Last quarter, CEO Helena Foulkes said she had shifted from selling cheaper products to attract the former customers of the failed Sears Canada Inc. In this quarter, Bay stores changed their product mix , selling more than 300 "unproductive brands" and the introduction of around 100 new ones in its stores this fall, such as Anthropologie Home, LL Bean and some Scandinavian fashion brands. The Bay is also more aggressively advertising in store product exclusives, said Foulkes, who was hired last year to boost the company's performance.
"For Hudson's Bay, we are working to repair this business to regain market share over time," Foulkes said on a note Thursday.
Sales in Hudson Bay stores that have been open for at least a year have decreased by 3.4%, while comparable sales have increased by 0.6% at Saks Fifth Avenue and 3.4% at Saks Off 5th, its brand of Discount.
The number of sales decline for the Bay "is difficult to recover," said George Minakakis, CEO of consulting firm Inception Retail Group. "You need significant sales gains to get back to zero [for the year]."
Foulkes indicated that the company is planning improvements in the second half of the year, which includes both the back-to-school shopping season and the crucial holiday period.
HBC pursued a strategy of selling off underperforming stores and focusing on Hudson's Bay and Saks brands.
"The next two quarters will say a lot about whether the strategies they are trying to pursue will become sales," said Minakakis. "You cannot become a growing company by not increasing sales. Sears has tried to impress the industry by cutting and reducing costs to the point of oblivion. This is not the answer."
HBC has faced increasing competition from other department stores as well as online retailers such as Amazon.com Inc. HBC worked to improve its e-commerce capabilities, and while overall sales declined in the quarter, digital sales increased by 19%.
"The main operations of HBC are being challenged by numerous parties, including increased competition, which damaged sales and compressed gross margins," wrote CIBC analyst Mark Petrie in a research note on Thursday. "… We expect the gross margin to stabilize in some way and the improvements in the brand and optimization of inventory levels [results in the second half of the year] should be supported, but the business remains difficult and this will not be easier with the intensification of competition. "
HBC is also in the midst of a dispute over an offer to take over the private company. A group led by executive president Richard Baker offered about $ 1 billion, or $ 9.45, for the company. However, a group of minority shareholders called the offer "inadequate".
Last month, HBC announced that it would sell its Lord & Taylor banner to the fashion rental service Le Tote Inc. for $ 132.7 million. The agreement will enable purchasers of Lord & Taylor stores to buy or rent merchandise, which will be a new way of doing business for the 193-year-old department store chain. "It could provide a model for other stores that HBC handles when they consider how to offer" new services "such as passes, rentals and resales," Foulkes said.
HBC's net loss for the second quarter, including losses from discontinued operations related to Lord & Taylor, was $ 984 million.
HBC has closed some Saks Off 5 stores and plans to focus on markets with concentrated populations and higher household incomes. However, he has no plans to close Hudson brand stores in Canada. Mrs. Foulkes said the company is satisfied with her presence at the point of sale, although she is considering using some of the store's spaces in different ways. He indicated an agreement with the WeWork workspace sharing company to develop, for example, co-working spaces on the upper floors of some of its bay locations. And the company is exploring other options for the use of square footage that could attract customers who might not otherwise visit its stores.
"As we progressed in simplifying the business and strengthening operations, the second quarter shows that we are still in the early stages of what HBC can become," Foulkes said in the note.
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