Hudson’s Bay Co.’s Saks Fifth Avenue unit is continuing to feel pressure from the ascent of the U.S. dollar, as international customers buy and travel less, but hopes for moderation in foreign exchange.
“The dollar troughed around July 4 and started an ascent that lasted into February,” said Jerry Storch, chief executive officer of HBC, on a conference call with analysts on Wednesday. “We’re going to start to lap ourselves on that. Many of our vendors have made adjustments, such as offering some lower prices for the U.S. market. The difference might start to close.”
Currency fluctuation played a significant role in HBC’s first-quarter results, in which net and same-store sales grew at an 11.7 percent clip. On a constant currency basis, eliminating the benefit of transactions made in U.S. dollars through Saks Fifth Avenue, Lord & Taylor and the company’s U.S.-based Web sites, comps rose a more modest 2.7 percent, including a 0.6 percent increase at Saks offset by gains of 4.9 percent at the Department Store Group, which includes Lord & Taylor as well as the Canadian Hudson’s Bay operation, and 10.3 percent at Off 5th.
Online sales – a particular focus for the company as its pursues an omnichannel strategy designed to align its brick-and-mortar stores, e-commerce and m-commerce in as many transactions as possible – were up 37.2 percent.
“What’s really key is leveraging our brick-and-mortar to drive online sales, and when sales involve the store instead of just being shipping to the customer’s home, they’re much more profitable than those sales that are simply ‘Amazonian’ type shipments,” Storch said.
Richard Baker, chairman and governor of the Toronto-based firm, added, “The truth is the department stores, and the better department stores and better retailers like Saks, actually have a big advantage over other retailers in their online sales because they’re selling higher-priced, higher-margin items that weigh less.”
Storch responded, “We tend to have very high average order values, which is a key to online profitability as well as high gross margin rates. We’re not selling big-screen TVs.”
For the three months ended May 2, the company incurred a net loss of 54 million Canadian dollars, or $43.2 million, versus net income of 176 million Canadian dollars, or $159.2 million, in the year-ago quarter. The net loss per diluted share amounted to 30 Canadian cents, or 24 cents, versus a profit of 97 Canadian cents, or 88 cents, a year ago.
Stripping out various special items relating to its real estate joint ventures, early extinguishment of debt and other factors, the adjusted loss came to 33 million Canadian dollars, or $26.4 million, deeper than the loss of 27 million Canadian dollars, or $24.4 million, in the 2014 quarter.
Dollar figures have been converted from the Canadian dollar at average exchange rates for the periods to which they refer.
Net sales rose to 2.07 billion Canadian dollars, or $1.66 billion, from 1.86 billion Canadian dollars, or $1.68 billion, in the year-ago period.
Storch was noticeably impressed with Off 5th’s performance. “When we purchased Saks Fifth Avenue, we discovered a crown jewel,” he told WWD. “It had been confined to outlet malls, but we saw opportunity to go into the heart of population centers, into downtown areas and suburban centers. We’re not abandoning outlet malls but continuing to expand in this way.”
HBC plans to open 15 to 20 Off 5th stores a year in the U.S.
Without specifically mentioning Macy’s plans for its new off-price Backstage nameplate, Storch said that Off 5th, which now operates 81 units, appeared to be “riding the crest of a wave” as more retailers consider the off-price model and the market’s strongest players, The TJX Co.’s Inc. and Ross Stores Inc., continue to outperform other sectors of retailing.
“Everyone else wants to get in on it and go surfing, but they haven’t surfed before. It’s the apple of a lot of people’s eyes and we have a major head start in the segment,” he said
The company reiterated its full-year sales expectations of 9 billion to 9.3 billion Canadian dollars, or $7.2 billion to $7.44 billion, implying low-single-digit same-store sales growth. Capital investments are expected to total 350 million to 400 million Canadian dollars, or $280 million to $320 million.
In Toronto Stock Exchange trading, shares of the company fell 2.1 percent to 23.50 Canadian dollars, or $18.99.