With online, outlet and luxury sales on a roll, Hudson’s Bay Co. managed to cut its second-quarter loss and post positive comps across all of its divisions.
“I feel good about our performance, considering the relatively tough environment,” Richard Baker, chairman and chief executive officer of HBC, told WWD on Friday, just after the company reported a reduced net loss to $36 million in the quarter ended Aug. 2, from a $66 million loss in the year-ago period.
“I’m optimistic about the balance of the year,” Baker said, adding that the Toronto-based retailer reaffirmed its guidance for 2014 sales of $7.8 billion to $8.1 billion based on low- to midsingle-digit same-store sales growth. Normalized earnings before interest, taxes, depreciation and amortization are seen ranging from $580 million to $620 million. Looking further out, Baker projected HBC’s sales will top $10 billion by 2018.
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At the Saks Fifth Avenue division, “The luxury customer is giving us a lot of support,” Baker said. “They’re very interested in unique and special product that can be bought only at luxury stores. Luxury in all categories is our strongest part of the business. As the product gets more moderate in pricing, the business isn’t as strong.” Comparable-store sales at Saks rose 2.2 percent and were led by men’s wear, gifts and accessories.
Off 5th’s sales rose 14.9 percent and were strong across the majority of categories. Off 5th is being abetted by a shift to more opportunistic buys, the recently introduced digital business and by fulfilling digital orders from stores. “The off-price market is growing faster than the rest of the retail industry,” Baker said.
Hudson’s Bay and Lord & Taylor — HBC’s department store group — rose 1.1 percent. Men’s, home and cosmetics were the leading categories.
Same-store sales overall grew by 1.9 percent, while total HBC sales in the quarter ballooned to $1.76 billion, compared with $948 million in the year-ago period, primarily due to last year’s $2.9 billion acquisition of Saks.
Digital sales were $162 million in the quarter, including $116 million from Saks and growth of over 80 percent at the department store group. This year, HBC is spending an incremental $40 million more to bolster its digital businesses. The company has already increased the digital teams to “have a higher-functioning and better-looking online offering,” Baker said. He also cited enhanced online assortments and more inventory in the stores to help fulfill online orders. “Our digital [business] is less developed than many competitors. HBC’s digital journey has just begun.”
On a normalized basis, EBITDA in the quarter rose 35 percent to $81 million, compared with $60 million in the year-ago quarter. Normalized adjustments include costs from the sale of the Queen Street Hudson’s Bay flagship in Toronto, the Saks Fifth Avenue acquisition and integration, purchase accounting and restructurings.
In a few weeks, HBC is expected to reveal that it will open a second Saks Fifth Avenue in Manhattan, at Brookfield Place in lower Manhattan. “Nothing to report,” Baker said, when asked for an update on the location.
Baker is also working on a real estate strategy, possibly a real estate investment trust, to unlock the value of what he considers undervalued assets in the company’s portfolio, and to strengthen the balance sheet. The strategy will be unveiled by the time fiscal year-end results are reported. HBC’s owned properties include the Lord & Taylor and Saks flagships.
During the interview, Baker outlined the five core components of HBC’s growth strategy: pumping up digital operations across all banners; expanding Saks Off 5th; expanding into Canada with up to seven Saks Fifth Avenue stores and 25 Off 5th units; fueling “outsized” growth at the top 10 to 12 Saks, L&T and Hudson’s Bay stores, and driving synergies and efficiencies. In top doors, HBC beefs up inventories, manpower, training and renovations. “We continue to make very strong progress at Hudson’s Bay launching brands into the business,” including Marc by Marc Jacobs and Kate Spade, Baker said.
At Lord & Taylor, which is not performing as well as the other divisions, the ceo said, “We are still looking for additional sites. Our plan is not to open a lot of new Lord & Taylor or Hudson’s Bay stores. The focus is on greater productivity in existing stores and growth online.” L&T opens in Albany, N.Y., on Wednesday. Baker said L&T is being positioned as “a better alternative to Macy’s” but is dragged down by the more challenging retail climate in the Northeast.
At Saks Fifth Avenue, Baker boiled the strategy down to “a tremendous amount of very basic blocking and tackling, involving getting the right inventory at the right place at the right time and getting the right people in place,” and, second, “elevating the experience.” Baker said Saks’ president, Marigay McKee, and her team are doing “a fantastic job of modifying assortments and providing a level of service we believe people shopping luxury require.”