TORONTO — The new chief executive officer of Hudson’s Bay Co. vowed to turn around the lagging parts of the retailer’s business Tuesday after announcing the sale of its deals site Gilt.com and the pending closure of up to 10 struggling Lord & Taylor stores.
And Helena Foulkes, who took the helm in February, didn’t mince words when it came to her assessment of how the department store retailer had conducted business under its erstwhile management team.
“Across all of our businesses, I have found that we tend to make decisions without involving one of our key stakeholders: the customer,” Foulkes told industry analysts on a conference call Tuesday after HBC posted disappointing first-quarter results, including a wider than expected loss and declining sales performance in its European and off-price divisions. Foulkes said she will work with HBC’s slate of newly minted executives in technology, marketing and at Lord & Taylor and act quickly to improve results.
The company’s shares, down 12 per cent this year, were down 1.6 per cent in afternoon trading Tuesday.
Amid disappointing returns and a flurry of management-level exits in the last year, HBC has been under pressure from activist investor Jonathan Litt of Land & Buildings Investment Management to privatize the business or sell off more of its real estate portfolio. HBC said Tuesday that it is continuing ongoing discussions for the sale and leaseback of its Vancouver store, and the retail operator struck a $1 billion deal last fall in a joint venture that included WeWork Cos. for its Lord & Taylor flagship location in New York to house the company’s headquarters and shared office spaces.
Coca-Cola Canada spending $85 million to build new Ontario lactose-free milk plant‘The opportunity is massive’: Canada Goose to open two retail stores in China
The deal also freed up higher department store floors for WeWork’s shared office work spaces in Toronto, Vancouver and Germany and had an option to lease back the 104-year old New York flagship, though HBC said Tuesday that it will not reopen the store. HBC did not say which of the existing 48 Lord & Taylor stores will close, as it is still negotiating with landlords.
“What’s hard on the outside is to know how much of this is about submitting to (Litt’s demands), or agreeing with him,” said David Gray, principal at retail consultancy DIG 360 in Vancouver.
Retailers in the public markets are facing pressure amid fears about the future of retail and mall-based department stores. “That’s why the Nordstroms were trying to go private,” Gray added. “With the chaos going on, (HBC’s moves) can seem very reactionary.”
HBC’s full-line department stores in Canada grew same-store sales for the 31st consecutive quarter, and Saks’ sales climbed six per cent by the same measure, but the company’s other divisions have been struggling.
Excising Gilt.com, a “flash-deal” merchant and a retail investment that has failed to pay off since HBC bought it in early 2016 for US$250 million, is part an effort to fix HBC’s struggling off-price business, which includes Saks Off Fifth and competes with TJX Cos., the operator of Winners and HomeSense in Canada.
While HBC did not disclose a purchase price Tuesday, the Wall Street Journal reported that rival Rue La La paid less than US$100 million for Gilt, citing people familiar with the deal.
Same-store sales in HBC’s off-price business fell an average of 6.1 per cent in fiscal 2017 after declining an average of 7.4 per cent in 2016. The company excluded Gilt from its off-price segment results in the quarterly numbers released Wednesday, but the category’s performance was still poor without it: same-store sales at Saks Off Fifth fell 3.5 per cent in the quarter.
Weakness also plagued HBC Europe, where same-store sales fell 6.6 per cent in the first quarter after declining throughout 2017. Results in the Netherlands, where HBC began opening stores in September and has opened 13 Hudson’s Bay locations to date, have not met initial expectations, Foulkes admitted Tuesday.
The entire European division, including stores in Germany and Belgium, needs to reduce inventory and expenses and improve its marketing and merchandise assortment to be more in tune with local customers, she said.
In February, HBC rejected a reported offer of 3 billion euros for its German department stores and real estate assets from Signa Holding GmbH, saying the unsolicited bid had undervalued the business and had uncertain financing.
“We’re constantly evaluating our store portfolio and we’re excited about the real estate we own in Europe and its potential,” Foulkes told analysts. “But as I said before, everything’s on the table in terms of focusing on driving improved profitability for the business.”
Bruce Winder, partner at Toronto-based Retail Advisors Network, anticipates HBC will sell off additional parts of its business, including all or part of the European division.
“HBC’s real estate decisions have made sense, but they have had an unfocused strategy on the retail side, and hopefully that will get sorted out with (Helena Foulkes) on board,” he said. “These guys have way too much on their plate, and they have overextended themselves, from my perspective.”
HBC’s net loss in the period ended May 5 was $314 million compared to a net loss of $214 million in the first quarter a year ago.
The adjusted loss excluding one-time items was $286 million, or $1.22 per share, far below analyst expectations of 76 cents, according to Thomson Reuters.
Revenue rose 1 per cent to $3.08 billion, and overall same-store sales fell 0.7 per cent.