Saks Just Posted Its Largest Growth In Two Years — Here’s How

Saks Downtown Men's Store
Inside the Saks Fifth Avenue men's store at Brookfield Place.
Romer Pedron

Hudson’s Bay Co. is showing early signs of improvement as it executes the aggressive transformation plan it laid out in June.

The parent of Saks Fifth Avenue, Lord & Taylor, Gilt and other luxury department stores on Tuesday posted a 1.2 percent gain in second-quarter sales to $3.3 billion CAD, or $2.7 billion at current exchange, led by digital sales growth and a resurgence at Saks.

Following several quarters of declines, comparable sales at Saks grew 1.7 percent, the largest the high-end retailer has seen in two years.

The improvements, the company said, are the rewards of ongoing attempts to evolve the retailer’s experience across all channels. Particular areas of strength included handbags and men’s, while women’s designer apparel saw a “notable” increase in full-price sales, HBC said. Additionally, there was a small positive impact from the timing shift of a promotional event.

HBC said it plans to continue to gear investments toward Saks’ digital business throughout the remainder of the year.

On the brick-and-mortar side, the opening of three new Saks Fifth Avenue stores, 26 Saks Off 5th stores and five Saks Off 5th Europe stores were a significant boon to sales, together contributing approximately $64 million to HBC net sales.

Despite the growth at Saks, overall, HBC widened its net losses to $201 million, compared with $142 million in the prior year. The higher net loss was due mostly to lower gross margin dollars combined with higher SG&A and depreciation and amortization expenses, the company said. Negative impacts were partially offset by higher net earnings in joint ventures and a larger income tax benefit.

Total comparable sales during the quarter improved modestly compared with the prior quarter but were impacted by lower traffic across HBC’s banners, as well as a highly promotional retail environment, the company said. Comps declined by 1.6 percent at the Department Store Group (DSG), 2.3 percent at HBC Off Price and 2.8 percent at HBC Europe, resulting in an overall consolidated comparable sales decline of 1.3 percent. (DSG refers, collectively, to the Hudson’s Bay, Lord & Taylor and Home Outfitters banners. HBC Europe refers to the Galeria Kaufhof, Galeria INNO and Sportarena banners. HBC Off Price refers to the Saks Fifth Avenue Off 5th and Gilt banners.)

Second-quarter comparable digital sales increased 11 percent, with a 19.8 percent gain at HBC’s department store banners.

Looking ahead, HBC governor and executive chairman Richard Baker said he is optimistic despite expected headwinds, adding that the company is also evaluating real estate opportunities.

The current retail environment provides both challenges and opportunities, and while it was a tough second quarter as expected, we continue to make the smart decisions necessary to succeed in this rapidly evolving landscape,” Baker said. “As part of this, we are constantly evaluating the best use of both our retail and real estate assets to create value for shareholders. HBC has a long, successful history of accretive transactions with our real estate assets, and we are actively exploring further opportunities to build on this track record. We continue to believe that our model of combining world class real estate assets, which are less impacted by short-term trends, with our diverse retail businesses is the right path to generating long-term value for our shareholders.”

In June, after taking a 4.3 percent stake in HBC, activist investor Land & Buildings Investment Management LLC urged the company to “evaluate all strategic alternatives to maximize value.”

In a letter addressed to HBC, Stamford, Conn.-based Land & Buildings pressured the Canada-based company to look more closely at its real estate and warned that its “highest value and best use” is tied to its “one-of-a-kind real estate” and not its department stores.

“Hudson’s Bay is a real estate company, full stop,” the letter, signed by Land & Buildings founder and CIO Jonathan Litt, read. “If there is a smarter and better use of any or all of the locations, stores should be closed and redeveloped and put toward their optimal use.”

In Tuesday’s earnings release, HBC said it plans to increase the productivity of its real estate and that it is actively repurposing existing floor space for use “by partners or others who drive additional traffic and key customer segments to HBC’s stores.”

Parts of its transformation plan include exiting owned and leased stores “when the economic incentives are accretive to its shareholders and it makes sense for the business,” the company said this week.