Hudson’s Bay Co.’s deal to acquire Saks Inc. is on track and Richard Baker is busy crafting his plan for how the two companies will be brought together.
Baker,chief executive officer, told analysts on Hudson’s Bay’s second-quarterconference call that he was exploring, among other things, a broaderrollout of its Lord & Taylor outlet stores under Saks’ Off 5thumbrella. Lord & Taylor currently has only four outlet stores.
Theceo also sees opportunities to bring seven Saks full-line stores and 25Off 5th Stores north of the border and to realize some of the valuelocked up in the real estate portfolio of the combined companies.
Saks’ “go-shop” period under the agreement ended last weekand the firm reported that no new bidders came forward. Governmentofficials also signed off on the deal under antitrust laws.
Thebuyout might also bring Hudson’s Bay, which trades on the Toronto StockExchange, to Wall Street. Chief financial officer Michael Culhane toldWWD that the firm might list its shares in New York at some point.
“Thebiggest thing is, you want to add more trading in the stock, whichcreates liquidity for people who want to go in and out of the stock,”Culhane said. “It’s definitely one of the things that we want to do ifthe right opportunity and the right interest are there.”
Thecombined company will have 179 full-line stores, 73 outlet stores and 69home doors and three e-commerce sites, which all together producedsales of about $7.2 billion last year. The business combination is alsoexpected to unlock $100 million of annual cost savings within threeyears.
Baker also acknowledged the increasing competition for the Canadian high-end shopper.
“Webelieve in Canada that a certain percentage of the luxury shopper isleaving Canada and coming to the United States to do their shop,” Bakersaid. “And we believe as Saks and Nordstrom open up stores in Canadathat’s going to create greater opportunities for Canadians to stay inCanada and do their shopping and we believe we’re going to be a strongpart of that.”
But that’s all in the future. For now, the pendingdeal is weighing on Hudson’s Bay and the Lord & Taylor division isshowing some weakness.
The company’s second-quarter net lossestotaled 82.3 million Canadian dollars, or $79.8 million, compared withearnings of 22.2 million Canadian dollars, or $21.8 million, a yearearlier. Financing costs more than tripled to 76.9 million Canadiandollars, or $74.5 million, in the quarter, with 59.9 million Canadiandollars, or $58.1 million, of that coming from non-cash expense tied tothe deal. Some of those acquisition-related costs could be reverseddepending on how the Hudson’s Bay stock price performs between now andwhen the deal closes.
Hudson’s Bay’s normalized net earnings forthe quarter tallied 3.9 million Canadian dollars, or $3.8 million,versus losses of 2 million Canadian dollars, or $2 million, a year ago.
Salesfor the three months ended Aug. 3 increased 3.9 percent to 947.7million Canadian dollars, or $918.6 million, from 911.9 million Canadiandollars, or $896.2 million. U.S. dollar figures are presented ataverage exchange rates for the respective periods.
Hudson'sBay comparable-store sales grew by 6.2 percent, while Lord &Taylor’s comps slipped 1.2 percent. E-commerce sales jumped 56.1 percentto 37.3 million Canadian dollars, or $36.2 million.
Baker said the Lord & Taylor chain has been hit by weakness in the wake of Hurricane Sandy last year.
“Lord& Taylor has a high concentration of stores in the hurricane zoneand I think a lot of dollars in that zone are being used for some periodof time on homes and cars and renovations and landscaping, that kind ofthing, that’s moving some spend outside of our category,” he said.
Althoughtraffic was lower than a year earlier, Lord & Taylor saw relativestrength in men’s apparel, handbags and watches, while women’s appareland shoes underperformed.
At the Hudson’s Bay division, saleswere strong in women’s and men’s apparel, women’s shoes, handbags andaccessories. The chain’s Topshop-Topman partnership also showedcontinued growth.
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