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Hudson’s Bay Co. wants to be the next stock market darling.
This story first appeared in the October 18, 2012 issue of WWD. Subscribe Today.
The retailer, which owns Lord & Taylor, The Bay and Home Outfitters, has filed for an initial public offering on the Toronto Stock Exchange that could value the group at 2.2 billion to 2.6 billion Canadian dollars, or up to $2.55 billion. The IPO is expected to come in six to eight weeks and could raise a combined 400 million Canadian dollars, or $392.2 million, for the company and its architect, the real-estate-player-turned-retailer Richard Baker, sources said.
The company’s registration statement was made public Wednesday and while it did not detail how many shares HBC might float, in the past Baker has said it could be up to 20 percent of the retailer.
The registration statement showed a department store that is being reinvented, but still growing and buttressed financially by significant real estate assets.
HBC has been a company on the move under Baker, replacing brands, bringing in Topshop to its flagship chain and moving to triple its private-label presence. The stock sale would boost the profile of Canadian retailing, restate the case for department store stocks, give the company money to continue to improve its operations and help Baker’s NRDC Equity Partners profit from its investments in Lord & Taylor and The Bay, which were acquired in 2006 and 2008, respectively.
All together, HBC has 207 doors in the U.S. and Canada. The firm logged net earnings of 1.45 billion Canadian dollars, or $1.4 billion, for the fiscal year ended Jan. 28. Normalized earnings before interest, taxes, depreciation and amortization totaled 312.9 million Canadian dollars, or $310 million, and sales tallied 3.85 billion Canadian dollars, or $3.8 billion.
Over the last two fiscal years, sales per square foot rose 20 percent at Lord & Taylor to $210, while sales per square foot at The Bay increased 9 percent to 133 Canadian dollars, or $131.80. Over the next three to five years, the retailer expects Lord & Taylor’s sales per square foot to grow to $240 to $250, as The Bay’s sales per square foot grow to 170 to 180 Canadian dollars, or as high as $176.48.
Historical dollar figures are given at the average exchange rate for the period to which they refer.
The registration filing highlights the company’s real estate assets. That’s no surprise since Baker, who is governor and chief executive officer, was initially attracted to both Lord & Taylor and The Bay’s real estate.
Baker caught the retail bug after buying the two chains and consolidated them earlier this year under the control of president Bonnie Brooks. Only some details of executive compensation were included in the filing, but Baker’s salary for 2012 is given as 600,000 Canadian dollars, or $588,264. Brooks’ pay this year includes a salary of 1 million Canadian dollars, incentive pay of 1 million Canadian dollars, a pension valued at 643,820 Canadian dollars and other compensation of 2.7 million Canadian dollars — a total of $5.2 million.
The company is positioning itself at the upper part of the midtier. It has revamped its merchandising to carry more modern fashions. And Lord & Taylor, which is the more upscale of the two chains, is seen as an expansion vehicle.
“We have a valuable real estate portfolio which is strategically located in core retail locations across Canada and the eastern and mid-western United States,” the company said in the filing. “The company owns or ground leases more than 11 million square feet of prime retail space, including flagships in Toronto, Vancouver, Calgary, Montreal, New York, Westchester and on Long Island.”
HBC said this real estate gave it more flexibility and financing options.
“Given the relative scarcity of comparable prime retail properties in Canada and the eastern United States, we believe our real estate portfolio provides us with a sustainable competitive advantage and acts as a significant barrier to entry in these markets,” the filing said.
RBC Capital Markets, BMO Capital Markets, CIBC and Bank of America Merrill Lynch are underwriting the offering.
Canadian retailing has come into the spotlight lately. Target Corp. is making its entrée, after Baker sold the discounter the leases for HBC’s Zellers chain for $1.84 billion. Nordstrom is also entering the market in 2014 with a Calgary store.