Hudson’s Bay Co. is pouring money into e-commerce and store upgrades, as the intense discounting caused by increased competition shaves its profit.
HBC, which acquired U.S. luxury rival Saks Inc. last month, reported a third-quarter profit that missed many analysts’ estimates and contributed to a lower outlook for fiscal 2013.
One bright spot for the future is Saks, which saw a 9.6-per-cent jump in same-store sales in the quarter, although the results were not included in HBC’s financials because the deal closed two days after the end of the quarter. Hudson’s Bay’s same-store sales in Canada rose 6.4 per cent. Those sales also returned to positive territory at the company’s Lord & Taylor division.
“HBC is in the midst of a transformational period,” Richard Baker, the company’s chief executive officer said. “We have lots of work ahead of us.”
As the retailer moves into the final two weeks before Christmas, HBC is trying to improve service and offerings to lure customers. But the bigger challenge will be to fold Saks into its operation, in an effort to meet the goal of $100-million in annual cost savings in three years.
Mr. Baker said Hudson’s Bay will learn from Saks in e-commerce; the U.S. chain has a more developed online business. “We are not yet satisfied with the level of service we’re providing” or the range of products, he said.
As a result, the company is “overinvesting” in its e-commerce to pave the way for future growth.
The efforts are starting to pay off: HBC’s third-quarter e-commerce sales jumped 58.3 per cent to $48.9-million.
“There’s a sense of urgency,” said Michael Penalosa, managing principal at retail specialist Thomas Consultants in Vancouver. “The marketplace is fickle.”
U.S. high-end retailer Nordstrom Inc. will arrive in Canada next fall, with plans for as many as 10 full-line stores as well as up to 20 Rack outlet stores, and a goal of $1-billion in annual sales. Mr. Baker will bring Saks to Canada within the next two years, with plans for seven or eight stores along with as many as 25 of its Off 5th discount outlets.
Other high-end players, including Holt Renfrew and men’s clothier Harry Rosen, are also working to raise their game. “There are a lot of competitors in the marketplace that are vying for similar space,” Mr. Penalosa said.
HBC joins other retailers in reporting a tough holiday period, which in the U.S. has been shortened by six days because of the late timing of its Thanksgiving. With traffic to stores lighter than expected, the sluggish environment is forcing HBC and rivals to discount more heavily than planned, hurting profits.
In its third quarter, Toronto-based HBC’s loss widened to $124.2-million, or $1.04 a share from $14.4-million, or 14 cents a year earlier, mostly because of costs related to the Saks deal. Excluding acquisition-related and restructuring costs, the retailer posted a profit of $8.9-million or 7 cents a share. Analysts on average had expected 10 cents, according to Thomson Reuters I/B/E/S.
Sales in the latest third quarter rose 6 per cent to $984.1-million.
HBC reduced its 2013 outlook, expecting normalized earnings before interest, taxes, depreciations and amortization to be between $315-million and $335-million, down from its earlier guidance of between $360-million and $390-million. It knocked down its 2013 forecast for same-store sales to an increase of 3.5 to 4 per cent – from between 3 per cent and 5 per cent.
Perry Caicco, retail analyst at CIBC World Markets, said HBC’s third-quarter gross margins were much stronger than he expected, but were more than offset by expenses that came in at $14-million ahead of his forecast.