Activist investor Jonathan Litt is renewing his calls for a big overhaul of troubled retailer Hudson’s Bay Co., including selling off lucrative real estate and much of its other businesses.
In a letter to HBC shareholders on Wednesday, Mr. Litt, founder of Land & Buildings Investment Management LLC of Stamford, Conn., said he will speak with the retailer’s shareholders about convening a special meeting to name new members for the board of directors, among them potentially a former HBC executive, whom he did not name.
Mr. Litt, who began his call for change at HBC more than a year ago, said the Toronto-based retailer should unload its Saks Fifth Avenue brand, including the coveted flagship store in Manhattan; sell its remaining interest of almost 50 per cent in the European Galeria Kaufhof business to its main German rival, which recently sealed a deal to buy the other half; sell Lord & Taylor; and spin off the properties of its Canadian namesake chain into a real estate investment trust (REIT) and sublease excess space.
“HBC’s board has an appalling track record, overseeing more than $2-billion of shareholder value destruction with a 60 per cent share price decline over the last three years,” Mr. Litt’s letter says.
The call to action comes as HBC undergoes a big revamping of its own, naming a new chief executive this year, selling almost half of its stake in its ailing European division and divesting its troubled Gilt.com flash-sale fashion business in a bid to revive the company’s fortunes.
By the end of January, HBC is slated to close a deal with WeWork to sell the Lord & Taylor flagship store in Manhattan to the workplace-sharing firm for about $1-billion, going a long way to reducing HBC’s debt.
And while HBC’s share price has struggled, after the release of Mr. Litt’s letter on Wednesday, the stock rose more than 9 per cent to close at $8.60 on the Toronto Stock Exchange.
Michael Smedley, chief investment officer at Morgan Meighen & Associates – some of whose clients hold HBC shares – said Mr. Litt’s proposals are “nothing new,” although some, such as setting up a REIT and selling all of HBC’s European business, make sense.
Mr. Smedley said Richard Baker, executive chairman of HBC, is sincere in his bid to turn around the company. But he needs to take more “dramatic” and “revolutionary” actions to attract more customers.
“I’m rather pessimistic about the continuation of department stores,” Mr. Smedley added. “They really don’t work.”
Still, he said some, such as Harrods in Britain, are in a league of their own – almost like museums – adding that Saks “has a little of that atmosphere.” He applauded Mr. Baker’s initiative of launching food halls at Saks stores, and supported holding onto Saks. "If you’ve got it, you’re never going to get it again.”
Walter Loeb, a New York retail consultant and former HBC director, agreed that the retailer should keep Saks' flagship, although it should close some other stores, including more Lord & Taylor outlets. “Investors are getting impatient. ... There is lots of work to be done.”
Mr. Litt said investors' displeasure in HBC’s Mr. Baker “continues to weigh on the company’s share price.”
HBC officials would not comment until the company releases its third-quarter results next Wednesday. Mr. Litt, whose firm owned about 5 per cent of HBC in the summer of 2017, also declined comment.
Helena Foulkes, a veteran merchant who was named as HBC’s CEO in February, is racing to simplify the business, and focus on its weakest parts under new leaders while beefing up its digital and other operations. She has said everything is on the table.
HBC’s second-quarter loss widened amid declining sales at Lord & Taylor and its discount Saks Off 5th business. On a bright note, sales at its luxury Saks rose a strong 6.7 per cent at stores open a year or more, which is a key retail metric.
HBC has grappled with its own missteps, including in its e-commerce and discount initiatives, in a fast-changing sector, resulting in red ink for all but one of the past 11 quarters, as well as executive changes and restructurings.