Rent & Transformation Costs Hurt HBC In Q1

Saks Fifth Avenue
Saks Fifth Avenue at The Galleria in Houston.
Courtesy of ECB.

Hefty real estate costs took a toll of Hudson’s Bay Co. last quarter, leading the company to an even Q1 greater net loss than the year-ago same period.

The Canada-based owner of Saks Fifth Ave., Lord & Taylor and several other department stores said Thursday that its first-quarter 2016 net loss almost doubled to $97 million CAD, or $76.6 million, from $49 million CAD, or $37.9 million, in the comparable period.

Consolidated retail sales, however, increased 59 percent, to $3.3 billion, or $2.6 billion, with comparable sales up 4.4 percent and down 1 percent on a constant currency basis. Digital sales were also a bright spot, rising 86 percent in Q1, with comps up 7.4 percent on a constant currency basis. Meanwhile, sales at Saks Fifth Ave. dipped nearly 6 percent.

Over the past few months, HBC ramped up its presence in Europe, acquiring Galeria Holding last September to create HBC Europewhich includes German mega department-store chain Galeria Kaufhof, Belgium department store Galeria Inno and Sportarena. In February, the company finalized its acquisition of luxury e-tailer Gilt Groupe Holding’s Inc.

HBC governor and executive chairman Richard Baker said acquisitions are already boosting the business.

With banners across multiple geographies and consumer segments, we believe HBC’s diversified retail platform positions us well for future sales and earnings growth in all of our businesses,” Baker said. “In the first quarter we continued to generate sales growth as a result of the Galeria and Gilt acquisitions and experienced continued strength at our Canadian operationsAdditionally, HBC’s real estate portfolio, which is less impacted by short-term trends in retail, continues to provide the company with opportunities to create value.”

Baker added that the company is amending two of its leases. HBC will modify its Saks Fifth Avenue lease at The Mall at Short Hills in Millburn, N.J., in preparation for its planned flagship Saks Fifth Avenue store at the American Dream complex in East Rutherford, N.J.

We [also] made modifications to our Saks Fifth Avenue lease in Honolulu, Hawaii,” Baker said. “These two lease modifications generated proceeds of $99 million for the company.

Last year, HBC partnered with Simon Property Group Inc. to form the HBS Global Properties joint venture, which contributed to higher rent expenses in the quarter. Restructuring charges related to the company’s transformation initiatives also added to higher SG&A costs.

However, HBC CEO Jerry Storch said the rent experiences had a larger impact in the early part of the year, while he expects sales and earnings to be weighted toward the second half of the year.

As we look toward the rest of the fiscal year, we expect that our ongoing efforts to become more efficient, in conjunction with our all-channel strategy of combining exciting retail destinations with a best in class e-commerce platform, will drive both sales and earnings growth,” Storch said.

HBC maintained in fiscal year outlook and continues to expect sales in the range of $14.9 to $15.9 billion CAD, or $11.8 to $12.6 billion.

(All conversions are based on current exchange rates.)