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Lord & Taylor Weighs on Hudson’s Bay

Richard Baker believes Sandy was a factor for much of the fourth quarter, leaving Lord & Taylor holding excess inventory and forcing extra clearance efforts.

Business at Hudson’s Bay Co. was up overall last quarter, but Lord & Taylor faced “headwinds,” leading to a decline at the division.

“Lord & Taylor is highly concentrated in areas that were impacted by Hurricane Sandy,” Richard Baker, chief executive officer of HBC, told WWD Thursday. “We had an excellent trend going into the beginning of November.”

On Thursday, the Toronto-based HBC said net earnings for the fourth quarter dropped to 105 million Canadian dollars, or 91 Canadian cents a share, from 195.8 million, or 1.87 Candian dollars, in the year-ago quarter.

Normalized net earnings, which exclude nonrecurring costs such as restructuring and impairments, came to 99.3 million Canadian dollars in the quarter ended Feb. 2, or 86 cents a share, from 94.8 million Canadian dollars, or 91 Canadian cents.

 

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Same-store sales rose 2.1 percent last quarter to 1.39 billion Canadian dollars, versus 1.3 billion Canadian dollars in the year-ago period. Canadian dollars are practically on par with U.S. dollars. The most recent quarter had 14 weeks, versus 13 in the quarter ended Jan. 28, 2012.

By division, Hudson’s Bay same-store sales grew 6.1 percent, but Lord & Taylor fell 2.9 percent in a marked shift from the double-digit gains the department store chain had been posting in recent seasons. Baker blamed the drop at L&T on external forces including Hurricane Sandy, a subsequent tropical storm, and the Sandy Hook shootings in Connecticut.

Baker believes Sandy was a factor for much of the quarter, leaving Lord & Taylor holding excess inventory and forcing extra clearance efforts. Lord & Taylor had a disappointing four weeks before Christmas, though it was difficult to quantify how much of that was Sandy related. Business in March continued weak due to unseasonably cold weather, Baker said.

Sometimes retailers use the weather to cover up for other problems in the business, but Baker told WWD, “We don’t see any bigger issues. We don’t see anything wrong with what we are doing. We are performing better than many of our peers,” in the specific areas where L&T operates. Hurricane Sandy did force L&T to temporarily close the majority of its locations, including the Fifth Avenue flagship, and inflicted significant damage on many communities served by the store.

Prior to going public on the Toronto Stock Exchange last year, HBC combined the top managements of Lord & Taylor and Hudson’s Bay. These executives regularly fly back and forth between Toronto and New York. The reorganization triggered certain departures and put extra pressures on the team, though Baker said, “We think it’s working out pretty well. We had to make a couple of tweaks, adding a person here or there.” The buying and planning organizations remain completely separate, he added.

At Hudson’s Bay in Canada, where business was better, increases were partly attributed to Topshop, which currently has large shops inside five Hudson’s Bay stores and generates over $600 in sales per square foot. Baker also attributed overall gains to e-commerce, and reinvesting in existing locations with renovations. Best-performing categories were footwear and handbags. Home is being downsized to be more efficient and productive and two Lord & Taylor Home stores were closed.

Baker brushed aside the new competition from Target Corp., which began opening stores in Canada this year. “They look very nice. They will have little or no effect on our business. They’re selling at a different price than we sell at.” Two years ago, Hudson’s Bay sold off its Zellers real estate to Target, enabling the discounter to enter Canada.

Looking ahead, Baker said HBC is targeting annual same-store sales growth of 3 to 5 percent, and that he was encouraged by business trends so far in April. Long-term, the area impacted by Sandy will see “good, strong growth, as billions of dollars for construction gets pumped in,” Baker said. “We did not lose any competitive advantages. None of our facilities were damaged. As those communities continue to come back, we will get our fair share of market. We are sticking to our plan right across the board.”

Key initiatives this year include relaunching the L&T and Hudson’s Bay Web sites; opening five additional Topshops in Canada; opening Lord & Taylor in Boca Raton, Fla.; significant renovations of four Lord & Taylor and four Hudson’s Bay locations; enhancing social media, and increasing the private brand business. The company is also embarking on a two-year renovation of the Lord & Taylor flagship on Fifth Avenue, and opening a 20,000-square-foot Kleinfeld Bridal salon on the seventh floor of the Hudson’s Bay’s flagship on Queen Street in Toronto in 2014.

“We are rejuvenating all of our stores,” Baker said. “Every single location has been touched in some way since 2009.” The renovation program is about a third complete.

For the year, normalized net earnings were up 1.9 percent to 76.8 million Canadian dollars, from 68.1 million Canadian dollars. There was a net loss of 44.8 million Canadian dollars, versus a net gain of 1.45 billion Canadian dollars the year before largely from the sale of the Zellers real estate to Target. Revenues for the year reached 4.08 billion Canadian dollars, from 3.85 billion Canadian dollars in 2011.