Hudson’s Bay Sees L&T, Saks Expansion

HBC'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.

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.

This story first appeared in the September 13, 2013 issue of WWD.  Subscribe Today.

Baker, chief executive officer, told analysts on Hudson’s Bay’s second-quarter conference call that he was exploring, among other things, a broader rollout of its Lord & Taylor outlet stores under Saks’ Off 5th umbrella. Lord & Taylor currently has only four outlet stores.

The ceo also sees opportunities to bring seven Saks full-line stores and 25 Off 5th Stores north of the border and to realize some of the value locked up in the real estate portfolio of the combined companies.

“Our footprint will cover all of North America, north to south, east to west and nearly all major metropolitan markets,” Baker said, speaking of the two firms, which expect to merge later this year in a $2.9 billion deal.

RELATED STORY: Saks Deal Weighs on Hudson’s Bay’s Bottom Line >>

Saks’ “go-shop” period under the agreement ended last week and the firm reported that no new bidders came forward. Government officials also signed off on the deal under antitrust laws.

The buyout might also bring Hudson’s Bay, which trades on the Toronto Stock Exchange, to Wall Street. Chief financial officer Michael Culhane told WWD that the firm might list its shares in New York at some point.

“The biggest thing is, you want to add more trading in the stock, which creates 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 if the right opportunity and the right interest are there.”

The combined company will have 179 full-line stores, 73 outlet stores and 69 home doors and three e-commerce sites, which all together produced sales of about $7.2 billion last year. The business combination is also expected to unlock $100 million of annual cost savings within three years.

Baker also acknowledged the increasing competition for the Canadian high-end shopper.

“We believe in Canada that a certain percentage of the luxury shopper is leaving Canada and coming to the United States to do their shop,” Baker said. “And we believe as Saks and Nordstrom open up stores in Canada that’s going to create greater opportunities for Canadians to stay in Canada and do their shopping and we believe we’re going to be a strong part of that.”

But that’s all in the future. For now, the pending deal is weighing on Hudson’s Bay and the Lord & Taylor division is showing some weakness.

The company’s second-quarter net losses totaled 82.3 million Canadian dollars, or $79.8 million, compared with earnings of 22.2 million Canadian dollars, or $21.8 million, a year earlier. Financing costs more than tripled to 76.9 million Canadian dollars, or $74.5 million, in the quarter, with 59.9 million Canadian dollars, or $58.1 million, of that coming from non-cash expense tied to the deal. Some of those acquisition-related costs could be reversed depending on how the Hudson’s Bay stock price performs between now and when the deal closes.

Hudson’s Bay’s normalized net earnings for the quarter tallied 3.9 million Canadian dollars, or $3.8 million, versus losses of 2 million Canadian dollars, or $2 million, a year ago.

Sales for the three months ended Aug. 3 increased 3.9 percent to 947.7 million Canadian dollars, or $918.6 million, from 911.9 million Canadian dollars, or $896.2 million. U.S. dollar figures are presented at average exchange rates for the respective periods.

Hudson’s Bay comparable-store sales grew by 6.2 percent, while Lord & Taylor’s comps slipped 1.2 percent. E-commerce sales jumped 56.1 percent to 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 zone and I think a lot of dollars in that zone are being used for some period of time on homes and cars and renovations and landscaping, that kind of thing, that’s moving some spend outside of our category,” he said.

Although traffic was lower than a year earlier, Lord & Taylor saw relative strength in men’s apparel, handbags and watches, while women’s apparel and shoes underperformed.

At the Hudson’s Bay division, sales were strong in women’s and men’s apparel, women’s shoes, handbags and accessories. The chain’s Topshop-Topman partnership also showed continued growth.