“Bold actions are starting to pay off.”
That’s the message from Hudson’s Bay Co. chief executive officer Helena Foulkes, who during an interview with WWD addressed the recent performance of the company and its future.
The Toronto-based retailer reported a small increase in the net loss for the third quarter to 124 million Canadian dollars, or $92.8 million, from 116 million Canadian dollars in the year-ago period, but Foulkes stressed that HBC’s retail operations are improving.
“The number to look at is adjusted EBITDA,” Foulkes said. Adjusted earnings before interest, taxes, depreciation and amortization rose to $63 million from $40 million, driven by sales growth and improved gross margin and expense rates. Those figures, and all subsequent ones related to the results, are in Canadian dollars.
Year-to-date, Foulkes noted, adjusted EBITDA is $151 million. “That’s a $106 million gain” in Canadian dollars from $45 million. “We’ve had a very nice performance from an EBITDA perspective.”
The net loss last quarter, according to chief financial officer Edward Record, was primarily driven by increased depreciation and amortization expenses.
Those “bold” actions included selling to Karstadt in Germany a majority stake in HBC’s European retail operations and a 50 percent stake in HBC’s European real estate. That deal, valued at over 600 million euros, closed last week and created a merger of the Karstadt and Kaufhof department store chains in Germany.
In other maneuvers, HBC is in the process of selling Lord & Taylor’s Fifth Avenue flagship to WeWork in an $850 million U.S. deal expected to close next January. WeWork has an option to convert $125 million into HBC equity.
Also, HBC sold Gilt to Rue La La back in June.
HBC’s sell-offs, said Foulkes, mean the company will be able to pay off $2 billion in debt in the fourth quarter. HBC has over $4 billion in debt.
Other “bold steps” could be taken to further reduce debt and streamline the retail operations.
“There are no plans right now,” Foulkes said, when asked if the sale of any divisions, such as Saks Fifth Avenue or Lord & Taylor, are being contemplated. There has recently been on and off talks to sell Saks Fifth Avenue to the Neiman Marcus Group, and potentially other pieces of the business.
“Part of my job is to be open to opportunities and to be making sure we are constantly evaluating the landscape. Everything remains on the table,” Foulkes said.
HBC’s total sales increased 5.6 percent to $2.2 billion last quarter. Comparable sales rose 2.9 percent.
Saks Fifth Avenue’s comparable sales rose 7.3 percent; Hudson’s Bay, Lord & Taylor, and Home Oufitters combined saw an increase of 0.9 percent, and Saks Off 5th registered a comp decline of 2.3 percent.
HBC Europe saw a 2.1 percent comparable sales decline.
Regarding Lord & Taylor, “We are really encouraged by the work that Vanessa and her team are doing to turn that business around,” Foulkes said, referring to L&T’s president Vanessa LeFebvre. “She has a unique ability to understand the consumer and is taking real actions to simplify the shopping experience and bring back fashions that are comfortable and easy. The team is very focused on being local and relevant to drive results.”
Foulkes wouldn’t comment on whether Lord & Taylor makes or loses money, other than saying, “It’s moving in the right direction. It’s getting more profitable.”
Regarding the Lord & Taylor store on Walmart.com, “It’s very early days,” Foulkes said. “We are both learning together.” At this point, “There is not a real impact on the overall business.”
With HBC’s digital operations, the bulk of what’s been done over the year involves “fixing the fundamentals, getting the organizational structure right. It was very diffused. It took too long to effect change,” Foulkes said. HBC now has a common platform across divisions and there’s been progress on site speed, navigation and delivery time. “In each area, we are making progress. We still have more to do,” Foulkes said. She also cited progress in the “marriage of digital tools to stores,” thereby giving sales associates tools to better service customers.
At Saks, the focus is on the Manhattan flagship renovation. Foulkes said the renovation remains “on track” and that the main floor for handbags and a lower level for fine jewelry, which will be called The Vault, will both open in the first quarter of next year. A “spectacular” escalator is being built which “will essentially expand our main floor into three, creating an expansive experience where our customers will have seamless access to the lower level, ground floor and second floor,” Foulkes said during a conference call.
“The power of the Saks model is in the power of digital and stores together,” Foulkes said. The Fifth Avenue renovation “sets the tone for the overall chain. We are already seeing success moving the beauty business to the second floor.”
Also next year, the famous L’Avenue restaurant in Paris will open inside the Saks flagship.
In the call, Foulkes said Saks continues to drive overall results at HBC, and that the third quarter of 2018 marked the luxury division’s sixth consecutive three-month period of positive comparable sales. They were up 7.3 percent. She said Saks’ performance has been bolstered by “its long-term strategy to elevate the Saks brand through a differentiated fashion-forward offering, increased customer engagement, emphasis on ease of service, personalized interactions, and enhancements to the digital platform. Saks associates have been given digital tools to enable them to better serve customers. HBC is also continuing to invest in the Saks mobile app.
Renovations on the main floor began during the third quarter, Foulkes said. With the construction continuing, comp sales were negatively impacted in the third quarter and will be further hit during the fourth quarter.
At the Hudson’s Bay chain in Canada, Foulkes said the biggest opportunities involve top doors and top-spending customers.
“We are very encouraged by the positioning of Hudson’s Bay,” though she noted the service experience can be improved. Foulkes said there is an opportunity in Canada to refresh the fleet with renovations, though she feels good about its overall health. The chain has been able to capitalize this year on the closing of Sears Canada. “We see very nice performances at stores near Sears.”
Foulkes, who joined HBC last February, said it’s been a year for “fixing the fundamentals, the overall technology and bringing in new leadership.” Q3 results represent progress, Foulkes said. “We are pleased with continued momentum in North America. We are optimistic about our progress but we still have significant work ahead.
“Bringing the customer into every decision we are making is having an impact.”
One area is with inventories. “We still expect rather significant inventory reductions on track to be down around 5 percent by the end of year, and down next year as well, but not as much,” said Foulkes.