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Hudson’s Bay Co. reported a big quarterly loss as sales slumped at its namesake Bay department stores, highlighting the challenges facing the Canadian retailer while it pursues a turnaround plan.

Toronto-based HBC, which also owns luxury retailer Saks Fifth Avenue, posted a net loss from continuing operations of $462-million, or $2.51 a share, for the fiscal quarter ended Aug. 3, compared with $104-million, or 58 cents a share, in the same period last year. Revenue was roughly flat at $1.85-billion, compared with $1.86-billion last year.

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A customer enters a Hudson's Bay retail location at the Yorkdale Shopping Centre in Toronto on Aug. 19, 2019. Sales at Hudson’s Bay stores that have been open at least a year were down 3.4 per cent for the fiscal quarter ended Aug. 3, while comparable sales were up 0.6 per cent at HBC-owned Saks Fifth Avenue and 3.4 per cent at Saks Off 5th, its discount brand.Christopher Katsarov/The Globe and Mail

Last quarter, chief executive Helena Foulkes said that it had shifted away from a strategy of selling less-expensive products to attract former customers of the bankrupt Sears Canada Inc. This quarter, the Bay stores have been changing their product mix, selling off more than 300 “unproductive brands” and introducing roughly 100 new ones to its stores this fall, such as Anthropologie Home, L.L. Bean and some Scandinavian fashion brands. The Bay is also more aggressively advertising product exclusives in stores, said Ms. Foulkes, who was hired last year to revive the company’s performance.

“For Hudson’s Bay, we are working to fix this business to recapture market share over time,” Ms. Foulkes said in a statement Thursday.

Sales at Hudson’s Bay stores that have been open at least a year were down 3.4 per cent, while comparable sales were up 0.6 per cent at Saks Fifth Avenue and 3.4 per cent at Saks Off 5th, its discount brand.

The sales decline number for the Bay “is difficult to bounce back from,” said George Minakakis, CEO of consultancy Inception Retail Group. “You need significant sales gains to be back at zero [for the year].”

Ms. Foulkes has indicated that the company expects improvements in the second half of the year, which includes both the back-to-school shopping season and the crucial holiday period.

HBC has been pursuing a strategy of selling off underperforming stores and focusing on its Hudson’s Bay and Saks brands.

“These next two quarters are going to tell a lot about whether the strategies they’re trying to pursue are going to turn into sales,” Mr. Minakakis said. “You can’t become a growth company by not growing sales. Sears tried to wow the industry by cutting and reducing costs to the point of oblivion. That’s not the answer.”

HBC has faced growing competition from other department stores, as well as from online retailers such as Inc. HBC has been working to improve its e-commerce capabilities, and while overall sales were down in the quarter, digital sales increased 19 per cent.

“HBC’s core operations are challenged by numerous sides, including increased competition, which have hurt sales and compressed gross margins,” CIBC analyst Mark Petrie wrote in a research note on Thursday. “… We expect gross margin to stabilize somewhat, and branding enhancements and optimization of inventory levels should support [results in the second half of the year], but the business remains challenging and this will get no easier with competition intensifying.”

HBC is also in the midst of a dispute over an offer to take the company private. A group led by executive chairman Richard Baker has offered roughly $1-billion, or $9.45 a share, for the company. However, a group of minority shareholders has called the bid “inadequate.”

Last month, HBC announced that it would sell its Lord & Taylor banner to fashion rental service Le Tote Inc. for $132.7-million. The deal will allow shoppers at Lord & Taylor stores to either buy or rent merchandise, which will be a new way of doing business for the 193-year-old department-store chain. It could provide a model for other stores that HBC operates when they consider how to offer “new services” such as subscriptions, rentals and resales, Ms. Foulkes said.

HBC’s net loss for the second quarter, including losses from discontinued operations tied to Lord & Taylor, was $984-million.

HBC has been closing some Saks Off 5th stores and plans to focus on markets with concentrated populations and higher household incomes. However, it has no plans to close Hudson’s Bay-branded stores in Canada. Ms. Foulkes said the company is happy with its store footprint, although it is considering using some store space in different ways. She pointed to a deal with workspace-sharing company WeWork to develop co-working spaces on the upper floors of some of its Bay locations as an example. And the company is exploring other options for the use of square footage that could lure in customers who might not otherwise visit its stores.

"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,” Ms. Foulkes said in the statement.

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