Hudson's Bay Co.'s loss widened in its second quarter amid stagnant sales as the retailer raced to streamline operations and consider options to strengthen the returns from its real estate assets.
Toronto-based HBC, which also owns Saks Fifth Avenue, Lord & Taylor and Galeria Kaufhof (in Europe), reported late Tuesday a second-quarter loss of $201-million or $1.10 a share compared with a loss of $142-million or 78 cents a year earlier. Sales inched up to $3.29-billion from $3.25-billion.
HBC has been feeling the heat from U.S. activist investor Jonathan Litt, who is urging the department store retailer to consider a host of strategies to revive weak results, including going private, monetizing its real estate holdings – valued at about $10-billion – and divesting its European business.
"We are constantly evaluating the best use of both our retail and real estate assets to create value for shareholders," Richard Baker, executive chairman of HBC and a U.S. real estate magnate, said.
"HBC has a long, successful history of accretive transactions with our real estate assets, and we are actively exploring further opportunities to build on this track record." But he said the company believes that its "model of combining world class real estate assets, which are less impacted by short-term trends, with our diverse retail businesses is the right path to generating long-term value for our shareholders."
HBC is sharing the pain with other department-store retailers of a fast-changing retail environment amid the expansion of e-commerce heavyweights such as Amazon.com Inc.
HBC is moving swiftly to slash costs, cutting 2,000 jobs in its key North American retail business and overseeing a massive transformation aimed at eliminating layers of management and streamlining decision making.
The latest cuts are targeted at saving more than $350-million annually by the end of fiscal 2018 and putting more of a focus on its digital business.
But for Mr. Litt, who through his investment firm Land and Buildings Investmenet Management LLC owns more than a 4-per-cent stake in HBC, the retailer's latest initiatives haven't been enough.
Sabahat Khan, an analyst at RBC Dominion Securities, said in a report last week that if HBC went private, it would allow its management "to invest with a long-term focus as it positions the company to compete in a rapidly evolving retail environment.
"The company is looking to make meaningful capital investments to redevelop its store base and its omni channel platform [online and in-store operations]."
Added Mark Petrie, retail analyst at CIBC World Markets: "The department store industry continues to experience challenging conditions, including heightened competition, and structural impediments to increased profitability resulting from investments in online channels and saturated bricks and mortar locations."
In its second-quarter, HBC's digital same-store sales increased 11 per cent on a constant currency basis, about twice the 5.4-per-cent gain in its first quarter. And in another brighter note, its same-store sales at its Saks Fifth Avenue grew the most in more than two years – up 1.7 per cent, the company said.
It has struggled with the business at its luxury chain Saks Fifth Avenue, which opened its first stores in Canada last year, partly because of the stronger U.S. currency and fewer tourists coming to the United States on shopping sprees.
Overall same-store sales, which are considered a key retail measure, fell 1.3 per cent, declining 1.6 per cent at its department-store division, which includes the Bay in Canada, by 2.3 per cent at its off-price discount business and by 2.8 per cent at HBC Europe, which includes Kaufhof.
Those sales at stores open a year or more were hurt by fewer shoppers coming to its banners as well as a highly promotional retail climate, the company said.
"Heading into the fall season, we are optimistic about the remainder of the year," Mr. Baker said.
"The current retail environment provides both challenges and opportunities, and while it was a tough second quarter as expected, we continued to make the smart decisions necessary to succeed in this rapidly evolving landscape."
HBC on Tuesday opened its first of 20 stores in the Netherlands – its first foray outside of Canada with the Hudson's Bay name in its 347-year history.
And while it has struggled to make gains at its German Kaufhof chain, it is gaining market share in that market, Jerry Storch, chief executive officer of HBC, said in an interview on Friday before the Amsterdam launch.
"The whole market has been slow, particularly for department stores, which is not unusual around the world … The changes we are making are working."
Mr. Storch said on Tuesday, in releasing the second-quarter results, that HBC's transformation efforts will give the company a bigger boost in the second half of the year.
And he said that another bright spot in its second quarter was a positive same-store sale performance at its Hudson's Bay stores in Canada. (The chain is part of the retailer's department-store division, which includes Lord & Taylor in the United States.)
In its real estate, HBC is re-purposing existing stores space for use by partners such as TopShop in Hudson's Bay, Pusateri's food halls in Saks in Toronto and cosmetics specialist Sephora in Kaufhof, driving additional traffic and new customers to its stores, the company said.
It said it considers exiting owned and leased stores "when the economic incentives are accretive to its shareholders and it makes sense for the business. It could include the sale of existing leases or the sale or leasing of owned real estate," it said. Examples of such moves were the sale and leaseback of its downtown Toronto flagship store to landlord Cadillac Fairview and the sale of its Zellers leases to Target Corp. Total proceeds from such transactions have come to more than $2.5-billion, HBC said.
And it pointed to diversifying of the assets in its HBC real estate joint ventures beyond HBC stores. "Management believes that further diversification would improve the opportunity to undertake an initial public offering, subject to favourable market conditions." Mr. Baker for years has said he is looking at spinning out its properties into a real estate income trust, as other retailers have done.
HBC's shares dipped 6.78 per cent or 82 cents to close at $11.27 on the Toronto Stock Exchange on Tuesday.