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Pedestrians walk past the Hudson's Bay Company store at Queen St. West and Yonge St. in Toronto. (Fred Lum/The Globe and Mail)
Pedestrians walk past the Hudson's Bay Company store at Queen St. West and Yonge St. in Toronto. (Fred Lum/The Globe and Mail)

Hudson’s Bay posts loss for the holiday season Add to ...

Hudson’s Bay Co. suffered a loss of $152-million in its crucial fourth-quarter holiday season, as the department-store retailer took a $116-million writedown tied to its struggling Saks OFF 5th and Gilt.com discounters and moved to revamp operations.

The results came amid disappointing results for North American department-store merchants generally and tougher times for Toronto-based HBC particularly as it digests a series of acquisitions over the past few years, including Saks Inc. and Gilt.com, and rushes to adapt to the rising popularity of e-commerce.

“The past year was a disruptive one for the retail industry,” Jerry Storch, chief executive officer of HBC, said in releasing its fourth-quarter results late Tuesday. “While the department store sector remains challenging, we are taking decisive action and making the tough decisions to ensure continued performance should the current environment persist.”

The company said it is cutting costs and capital spending, strengthening its balance sheet and overhauling its so-called off-price discount retailers Saks OFF 5th and Gilt.com.

In its fourth quarter, HBC reported a loss of $152-million or 83 cents a share, compared with a profit of $370-million or $2.03 a share a year earlier. Sales rose to $4.6-billion from $4.49-billion.

Investors had already pushed down HBC shares 2.4 per cent to $9.70 on Tuesday – before the results were released – and 8 per cent on Monday on the Toronto Stock Exchange. Year-to-date, the stock has fallen 26.5 per cent.

HBC is caught in the storm of the fast-shifting retail segment, which is being hit by discounters touting cheap-chic fashions and digital players that constantly lower prices to take on titan Amazon.com Inc.

In the midst of the storm, Richard Baker, HBC’s executive chairman and a U.S. real estate tycoon, has been acquiring new retailers, including Saks Fifth Avenue and Galeria Kaufhof in Europe, and making complex real estate deals to help shore up the retail operations. He is currently in talks to take over struggling U.S. luxury retailer Neiman Marcus Group in a bid to find savings by combining it with HBC’s upscale Saks, industry sources have said.

Earlier this year, HBC looked at buying U.S. department-store giant Macy’s Inc., but those talks didn’t go far, sources have said.

Mark Petrie, retail analyst at CIBC World Markets, said last week HBC’s recent results “highlight the more immediate priority of stabilizing and improving the existing retail platforms which already span numerous geographies and price points.”

Late Tuesday, HBC disclosed its fourth-quarter results include a non-cash goodwill impairment charge of $116-million related to writing down the goodwill associated with HBC’s off-price discount business. The charge was prompted by recent sales weakness at Saks OFF 5th and Gilt.com, which resulted in the company “prudently lowering its future earnings expectations as compared to initial internal estimates,” it said.

While overall sales at stores open a year or more – a key retail measure – dropped 1.2 per cent at HBC, they declined 5.9 per cent at its off-price division.

The retailer said it felt the pinch of discounting among its competitors. And its Gilt sales were hurt by fewer visitors to its site, while those at Saks OFF 5th were squeezed partly by its decision to introduce lower priced apparel during fiscal 2016. Essentially it meant that shoppers heading to the chain for cheap designer label items were finding instead more middle-of-the-road brands and leaving empty-handed, industry watchers have said.

Now Saks OFF 5th is overhauling its merchandising strategy, shifting to a bigger focus on products at the top end of the fashion scale, it said. The changes are expected to bolster sales by shoring up the number of shoppers coming to the stores and the amount of money they spend on their purchases, it said. Saks OFF 5th anticipates to have its new product mix in place by the third quarter of this fiscal year.

And by the end of this year, the retailer plans to combine the inventory at Saks OFF 5th and Gilt so that the Saks offerings will be sold online through Gilt, it said.

“Rest assured, as we remain focused on the continued growth of our company, we are aggressively positioning HBC to adapt to the changing retail environment,” Mr. Storch said.

Mr. Baker said the retailer took important steps to position itself for industry leadership. “We believe our winning model of combining world class real estate assets, which are less impacted by short-term trends, with our diverse retail businesses will continue to provide value for the company and our shareholders,” he said.

The company said it expected to save $75-million annually from its recently announced efficiency measures and looks to reduce overhead further.

It said it expects capital spending for fiscal 2017 to come in between $450-million and $550-million, about $150-million less than a year earlier. Those capital investments will focus on already launched initiatives and “expected high-return projects,” including European expansion and renovations around the world.

At Hudson’s Bay in Canada and Lord & Taylor in the United States, the company is focusing on expanding key categories such as dresses, active wear and home goods. In Europe, it plans to introduce Saks OFF 5th and Hudson’s Bay stores; at Saks Fifth Avenue, it is focused on stepping up its digital sales and launching a buy-online-pick-up-in-store program in the fall.

HBC’s fourth-quarter $152-million loss, which includes the one-time non-cash goodwill impairment charge of $116-million, compares with the prior-year $370-million profit which included a $333-million gain tied to the sale of investments in joint ventures.

The company’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $404-million compared with $455-million a year earlier, it said. EBITDA stood at $131-million compared with $782-million a year earlier.

It said it strengthened its balance sheet by taking advantage of favourable lending conditions during the year to refinance its mortgage on its Lord & Taylor flagship store in New York and reduce the interest rate on its term loan. It said it ended the year with about the same amount of total debt on its balance sheet as at the beginning of fiscal 2016. Its loans and borrowings were $2.744-billion in the year ended Jan. 28 compared with $2.729-billion a year earlier.

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