Saks Is a Silver Lining as HBC’s Losses Mount

Deep markdowns and a shrinking physical footprint have led to greater losses for Hudson’s Bay Co. in the second quarter.

The retail group, which posted today its financial results for the period ended Aug. 3, saw losses widen to 462 million Canadian dollars ($350 million), or $CA2.51 per share, compared with 2018’s $CA104 million. Revenues totaled $CA1.9 billion, with comps down 0.4% including a 19% year-over-year increase in digital sales.

“While we’ve progressed in simplifying the business and strengthening operations, the second quarter demonstrates that we are still in the early stages of what HBC can become,” said CEO Helena Foulkes. “This quarter, we responded as the market moved early to discount merchandise in both luxury and Canadian retail. Our digital performance was a standout with a sharp increase in growth as our changes in strategy, people and infrastructure are paying off.”

Two weeks ago, HBC announced that it had agreed to sell its storied Lord & Taylor business to fashion rental service Le Tote in a deal worth $CA99.5 million. The acquisition, which is expected to close before the start of the 2019 holiday season, would allow the company to focus its resources on its North American operations, including better-performing banners Saks Fifth Avenue and Hudson’s Bay.

During the second quarter, Saks continued to prove its status as HBC’s golden brand, noting same-store sales that rose for the ninth consecutive quarter by 0.6% — driven by the men’s, women’s ready-to-wear, handbags and beauty categories. It also logged comps that were up 7.3% on a two-year stacked basis.

Meanwhile, Saks Off Fifth reported a 3.4% gain in same-store sales, marking the second straight period of customer growth. The outlet is also currently in the early stages of a shift in its buying, marketing and service model.

“Saks Fifth Avenue has been posting quarter after quarter of industry-leading sales growth by focusing on its ‘New Luxury’ strategy, which includes merchandise and experiences that can only be found through Saks,” Foulkes added. “Finally, the positive change in Saks Off Fifth’s performance demonstrates the power of a strategic shift in how we appeal to customers.”

Hudson’s Bay’s comps, however, decreased 3.4% as the retailer’s struggles with its merchandising mix have pushed HBC to exit more than 300 underperforming brands and add 100 new labels to “reset the fall assortment,” Foulkes said. “We expect these changes may take time to resonate in the market.”

The company is also in the midst of a bid to go private, with executive chairman Richard Baker offering $CA1.7 billion in cash as HBC pulls out of its European operations.

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