The Hudson’s Bay Co., lifted by its positive department store sales trends and cost-cutting measures, turned profitable in the third quarter after last year’s loss.
The company reported net earnings of $1 million in the quarter ended Oct. 31, compared to a net loss of $13 million in the year-ago period.
On a constant currency basis, there was a consolidated same-store sales increase of 2 percent, with the department store group generating a 5.1 percent gain, while Saks Fifth Avenue saw a same-store sales decrease of 3.6 percent. Saks Off 5th posted a same-store sales increase of 2.8 percent, and Galeria Kaufhof in Germany, including the Galeria Inno and Sportarena chain in Belgium, showed a 6.6 percent same-store sales increase for the one month of ownership.
On the digital side of the business, where HBC has been investing heavily, sales rose 23.9 percent on a constant currency basis.
Adjusted earnings before interest, taxes, depreciation and amortization totaled $160 million, compared to $116 million a year ago.
“For the third quarter, we generated industry leading sales results in a difficult environment,” Jerry Storch, chief executive officer, told WWD. “The department store group performed extremely well and we continue to work on our SG&A [selling, general and administrative] rate.”
Storch cited “a major focus on expense reduction, some reduction in workforce and a comprehensive reorganization designed to capture synergies enabled through HBC’s various acquisitions.” Last September, HBC revealed that it was letting go of 265 associates at headquarters and in corporate functions across the store banners to operate more efficiently.
HBC’s results are particularly noteworthy in light of other recently reported third-quarter results. Nordstrom posted a dramatic slowdown in comparable-store sales growth to 0.9 percent, and Macy’s comparable sales on an owned plus licensed basis were down by 3.6 percent.
Even with its good performance last quarter, uncertainties remain about how the fourth quarter will play out. Asked how tough the retail business is currently, Storch replied, “It’s a difficult environment — no doubt about it. The list of headwinds has been well articulated.”
The warm weather, strong dollar against foreign currencies, the lack of tourist spending and shifts by consumers to spending more on experiences, such as restaurants and spas, rather than fashion, have been dragging retailers down.
Asked whether in light of HBC’s good department store sales trend there is momentum for holiday selling, Storch replied, “We are all waiting for the weather to change and for currency rates to change so we can see what the underlying trend is.”
He did say HBC experienced strength in most categories including women’s apparel, cosmetics and home.
“No one was strong in outerwear, though the exception was Saks where outerwear was strong.” He said jewelry was also strong across the HBC banners, particularly at Saks.
Trends overall at Saks were weak. “The luxury market does face headwinds,” Storch said. “Certainly, the most important reasons have been the steep and dramatic appreciation of the U.S. dollar versus international currencies and the lack of international visitors to gateway cities. Our diverse array of banners enables us to navigate difficulty in one sector with strength in others.”
Storch also cited “good progress on our initiatives in the quarter as we continue to drive profitability while investing in the long-term vision of HBC.” Initiatives include strengthening 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.”
Richard Baker, HBC’s governor and executive chairman, said the third quarter was important “as we continued to execute our strategy of delivering operational improvements while growing and diversifying our retail offerings through targeted acquisitions. With the addition of HBC Europe during the quarter, we now generate the majority of our sales outside the U.S., and have a significant European retail platform from which we can explore additional growth opportunities.”
During the third quarter, HBC closed on its Galeria Kaufhof acquisition in Germany, and in the current quarter sold a portion of its equity in the HBS Global Properties joint venture with Simon Properties, using the proceeds to de-leverage HBC’s balance sheet.
“Our strategy of utilizing real estate to help finance targeted acquisitions should enable us to continue to drive profitable growth in our retail operations,” Baker said.
Last month, Hudson’s Bay Co. sold $533 million of equity in HBS Global Properties. The equity sale was to three third-party investors, and the proceeds from the sale will be used to pay down HBC’s outstanding term loan B borrowings to $500 million from $1.09 billion. The investors who acquired the stakes are $250 million by Ivanhoé Cambridge; $150 million by Madison International Realty, and $133 million by a large U.S. pension fund, which remained unidentified, HBC said. HBC still retains a 63 percent stake in the joint venture.