After years of resisting significant store closures, Hudson’s Bay Co. is now preparing to shut up to 10 of its U.S. Lord & Taylor outlets, including its iconic flagship on Fifth Avenue in New York, while selling its Gilt online division, amid disappointing first-quarter results.
The moves come about four months after Toronto-based HBC named as its new chief executive officer Helena Foulkes, a seasoned retail leader who previously helped strengthen the drugstore division of U.S.-based CVS Health Corp.
Now, Ms. Foulkes is starting to put her stamp on HBC, having appointed some new executives – including former CVS managers – and sending a strong signal that she is ready to make big, bold moves at HBC to revive its struggling business.
“We still have a lot of work to do but we’re committed to making the right business decisions to turn our results around,” Ms. Foulkes said on Tuesday after the department-store retailer released first-quarter results that missed analysts’ expectations.
“Every option is on the table.”
HBC has grappled for years with a fast-changing retail market and the rise of e-commerce powerhouses that are reshaping the landscape and forcing incumbents to either reinvent their businesses or falter.
HBC’s first-quarter results reflect its difficulties as sales across most of its divisions dipped while costs rose, although bright spots were its luxury Saks Fifth Avenue chain and its e-commerce. The company’s stock fell about 1.5 per cent to $10.46 on the Toronto Stock Exchange.
HBC’s first-quarter loss almost doubled to $400-million or $1.70 a share from a loss of $221-million or $1.21 a share a year earlier. Its adjusted net loss excluding one-time items was $286-million, compared with analyst expectations of $200.5-million, according to Thomson Reuters I/B/E/S.
Overall revenue rose to $3.09-billion from $3.06-billion. But same-store sales at outlets open a year or more, a key retail measure, slipped 0.7 per cent, although they rose 7.7 per cent in its digital division and 6 per cent at Saks Fifth Avenue. However, those key sales dropped 6.6 per cent at HBC’s troubled European division, which includes Kaufhof, the largest retail chain in Germany, and new stores in the Netherlands, and 3.5 per cent at its Saks OFF 5th discount banner. Its department-store group, which includes the Hudson’s Bay and Home Outfitters chains in Canada and Lord & Taylor in the United States, saw those sales dip 0.6 per cent.
Ms. Foulkes said she is refocusing Lord & Taylor on its digital business, after having teamed with discount giant Walmart Stores Inc. to run Lord & Taylor on its online store. That initiative, which launched last week, “represents how we are thinking about the entire business,” she said.
HBC already cut a deal last fall to sell its Lord & Taylor flagship store to WeWork for more than $1-billion, although it had planned to continue to lease space on the bottom floors for its retailing while WeWork ran shared office space on the top floors.
With 48 Lord & Taylor stores today, HBC recorded a $16-million inventory reserve tied to the planned closures and a $4-million markdown charge related to the shutdown of two of its stores in the first quarter.
As for its European division, Ms. Foulkes said she has already gotten rid of layers of management to encourage faster decision-making and bolster results.
She said some of the troubles in Europe were the result of an overall weak market but also the retailer’s “own missteps.” She said the 13 new Hudson’s Bay stores in the Netherlands, that banner’s first foray outside of Canada, had not met internal targets.
Ms. Foulkes said the European problems were basic ones in marketing and merchandising, such as carrying too much inventory and having to sell off old inventory.
Ms. Foulkes did not go as far as saying she was ready to close some of the European stores but she didn’t rule it out either. “Everything is on the table in terms of focusing on driving improved profitability for the business … We know that this is a business that is changing rapidly and we need to be nimble and focused on where we can improve profitability.”
She said HBC’s discount business, including Saks OFF 5th, is underperforming the market and “we have not been pleased with our performance.” Its sale of flash-sale e-commerce site Gilt.com will help HBC focus on its other discount chains, she said.
HBC is looking to sell its downtown Vancouver Hudson’s Bay store to Chinese billionaire Zheng Jianjiang, the chairman of Chinese manufacturing firm Ningbo Sanxing Electric, The Globe and Mail has reported. Mr. Zheng has offered to pay about $600-million, sources have said.
The sale of Gilt to flash-sale operator Rue La La is expected to improve HBC’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) by between $10- and $15-million annually, the company said.