Driven by strong comparable-store sales, robust online sales and strength in women’s and men’s wear, Hudson’s Bay Co. posted second-quarter net earnings that swung to a profit.
This story first appeared in the September 11, 2015 issue of WWD. Subscribe Today.
Moreover, as other department stores slog through a challenging consumer spending environment, results at HBC reflect a top performer firing on all cylinders.
As a result, net earnings came in at $67 million, or 33 cents a share, which compares to a loss of $36 million, or 23 cents, in the same period last year on sales that jumped 15.2 percent to $2 billion from $1.8 billion. Same-store sales increased 14.3 percent in the quarter with the company’s department store group posting a comps gain of 4.9 percent.
Richard Baker, HBC’s governor and executive chairman, told WWD that the retailer’s performance also reflects the “fruits of our labor” several years in the making, which includes investments, acquisitions, closing out joint ventures and redefining the merchandise mix. “And we continue to look for further opportunities,” he added, hinting at further acquisitions.
Regarding an uptick in apparel, especially women’s wear, Baker said fashion is indeed back, and it bodes well for the retailer — and the industry as well. It’s important to note that the rise in women’s apparel is not broad-based. Retailers have to have spot-on fashion. “And they respond when you get it right,” he said adding that the retailer has invested in fine-tuning and better managing its brands.
By the numbers, Saks Fifth Avenue delivered a same-store sales gain of 0.1 percent. Digital sales gained 30 percent on a constant currency basis. Same-store sales at Saks Fifth Avenue Off 5th rose 12.7 percent. The gross profit rate jumped to 40.1 percent of sales in the quarter from 39.6 percent last year, and was fueled by favorable currency transactions. On an adjusted basis, which includes various one-time costs, earnings came in at $139 million, which compares to $142 million.
Regarding e-commerce and the retailer’s 30 percent sales gain, Baker said the company is “aggressive in serving its customers.”
In the quarterly report, Baker described the quarter as “transformative.”
“During the quarter we closed our joint venture with Simon Property Group as well as the first tranche of our joint venture with RioCan REIT, as we continue to execute on our strategies to highlight the value of our real estate assets,” he said. “As part of these transactions, we paid down more than $1 billion in debt, providing us with additional flexibility to invest in our retail businesses. We also entered into a definitive agreement to acquire Galeria Kaufhof, Germany’s leading department store chain, which we expect to be significantly accretive to our shareholders. All of our businesses are in excellent shape for the fall and holiday quarters, putting HBC in a great position to deliver on our 2015 strategic priorities and initiatives.”
Jerry Storch, HBC’s chief executive officer, said the quarter was “characterized by very strong sales growth, led by the increasing traction of our digital platforms. We continue to drive growth today while executing on our strategies to build our businesses and invest in the long-term vision of HBC. These strategies include strengthening our digital capabilities, expanding Off 5th, bringing Saks Fifth Avenue and Off 5th to Canada and leveraging our scale to capture synergies and promote efficiencies across our businesses.
“These initiatives are a key part of HBC’s future growth, and we look forward to realizing the benefits of these investments in the coming quarters,” Storch added.
In the report, the company reiterated that it is “investing a total of approximately $50 million in strategic initiatives during fiscal 2015, with the impact of these investments being more pronounced during the first half of the year, given the sales and earnings profile of the company.”
One example of the types of investments Baker and Storch are talking about include the $250 million master plan for the Saks Fifth Avenue flagship. The company describes the work as something beyond a renovation. “We do not look at this as a renovation. This is a reinvention. A reimagination, and a redevelopment,” said Marc Metrick, president of Saks.
From a merchandising perspective, it’s also a reconfiguration that includes shifting beauty to another floor, and adding an “everything evening” ballroom. It’s the type of retail engineering that Baker said differentiates the company from other department stores.
During the quarter, the retailer said in the report that “sales growth [at the department store group] was driven by men’s wear, ladies apparel, home products and cosmetics. Sales growth at Saks Fifth Avenue was driven by men’s wear and cosmetics, while at Off 5th, sales growth was driven by women’s shoes, women’s accessories and men’s wear.”