Hudson’s Bay Co. lost out on sales in its fourth quarter at its namesake chain because it lowered prices too much to try to draw former customers of the failed Sears Canada Inc., its top executive says.
The lower-priced merchandise attracted more customers to Hudson Bay stores located near former Sears outlets but contributed to overall lower sales, said Helena Foulkes, chief executive of parent Hudson’s Bay Co. (HBC) on Wednesday after the Toronto-based company released fourth-quarter results that included revenue below expectations.
“I think we took it too far,” Ms. Foulkes told analysts on a conference call.
Sales at HBC’s Hudson’s Bay division, which includes its soon-to-close Home Outfitters chain and U.S. banner Lord & Taylor, fell a surprising 5.2 per cent at outlets open a year or more. In the past, Hudson’s Bay was one of HBC’s strongest chains.
Ms. Foulkes said that already the retailer is upgrading its inventory for 2019 while searching for a new president of the chain to replace Alison Coville, who left on March 1. The effects of the merchandise changes and higher pricing will start to show up in results in the second half of the year, she predicted. “It’s fixable. … We’re on it.”
The setback came as Ms. Foulkes, who took the top job just more than a year ago, has made a flurry of bold moves to turn around HBC’s fortunes. She’s focusing on its North American business after selling off half of HBC’s money-losing European operations and its Lord & Taylor flagship store. She is also closing unprofitable Lord & Taylor and Saks Off 5th stores and all 37 Home Outfitters outlets in Canada.
In its fourth quarter ended Feb. 2, HBC profit, including its discontinued European operations, rose to $286-million or $1.20 a share from $84-million, or 39 cents, a year earlier. The retailer posted a loss of $226-million or 95 cents a share from continuing operations, compared with a profit of $180-million, or 84 cents. Sales fell to $2.9-billion from $3.1-billion. Analysts were expecting revenue of about $3.2-billion in the latest quarter, according to Refinitiv.
After adjusting for one-time items, the company earned 41 cents a share, beating the analyst average estimate of 25 cents, Refinitiv data show.
Investors appeared to be encouraged by the company’s actions. HBC’s stock rose 5.8 per cent to close at $7.98 on the Toronto Stock Exchange.
On a positive note, sales increased at HBC’s luxury Saks Fifth Avenue stores during the holiday shopping season amid overall higher HBC online sales.
Fourth-quarter same-store sales at Saks grew 3.9 per cent and were up 8.7 per cent in its e-commerce business. But those critical sales fell 2.1 per cent at discounter Saks Off 5th and, overall at HBC, declined 1.4 per cent.
Ms. Foulkes said Saks stores outside of New York were key to that chain’s higher sales, as the flagship store in Manhattan was under renovation.
She said 2018 was a year of “significant progress” at HBC as it identified weaknesses and took actions to overcome them. She pointed to opportunities in the coming year, including investing further in Hudson’s Bay and Saks, enhancing customer service, cutting operating costs and “complexity” while continuing to fix the “fundamentals” and capitalizing on the company’s real estate.
Mark Petrie, retail analyst at CIBC World Markets, said HBC’s fourth-quarter results reflect “the challenges of an early stage turnaround in the retail operations.”
But he said the retailer’s balance sheet “is in substantially better shape with the divestiture of the Lord & Taylor flagship and half of the European operations.”
In February, HBC closed a deal to sell the flagship to office-sharing company WeWork Cos. for $1.1-billion. It shut the Lord & Taylor store on Fifth Avenue earlier this year after more than 100 years of operations.
Richard Baker, executive chairman of HBC and a real estate expert, said the retailer’s properties continue to have “significant underlying value, and we always consider the most productive ways to unlock value for shareholders.”
HBC has been under pressure from activist investor Jonathan Litt to sell off more real estate and other businesses. Mr. Litt couldn’t be reached for comment on Wednesday.