After a transformational year, Hudson's Bay Co. is counting on the launch of its Saks business in Canada to help keep its sales and profit rising.
While the Toronto-based retailer reported healthy fourth-quarter gains late Monday, its luxury Saks Fifth Avenue chain continued to struggle in its U.S. home market as the strong American dollar reduced tourist shopping south of the border.
In February, HBC opened its first two Saks Fifth Avenue stores in Canada and, a month later, its first discount Saks Off 5th outlets. Last year, HBC acquired German-based department store retailer Galleria Kaufhof.
"It was really a transformational year for us," Richard Baker, HBC's governor and executive chairman, said in an interview.
"Now a large part of our business is in Europe. … Our results are best-in-class compared to our peers."
North American department stores are grappling with profound changes as consumers shift to online sellers as well as spend their money on experiences such as travel or eating out rather than more stuff.
Retailers such as HBC are trying to respond to such changes by improving their e-commerce operations and making shopping in their stores more of an experience, with eye-catching digital and other visual cues.
HBC, helped by its acquisitions, reported better fourth-quarter results. Its profit rose to $370-million or $2.03 a share from $115-million or 63 cents. Sales jumped to $4.5-billion from $2.6-billion.
The results come as other North American rivals have struggled to make gains. U.S. rival Macy's Inc. reported a 31-per-cent drop in profit in its fourth quarter, while revenue fell 5.3 per cent to $8.87-billion (U.S.) Its same-store sales slipped 4.3 per cent. Those are sales at outlets open a year or more and are considered a key retail measure.
Nordstrom Inc., which has opened stores in Canada, posted sluggish fourth-quarter sales results over all and said it would look to cut costs to bolster its profit. Its same-store sales at its traditional department stores dropped 3.2 per cent.
HBC's fourth-quarter same-store sales were better than many analysts had expected. On a constant-currency basis, its same-store sales rose 1.8 per cent over all.
Still, Saks Fifth Avenue lagged those of other HBC divisions, with sales down 1.2 per cent – although improved from the 3.6 per cent drop in the previous quarter (on a constant-currency basis.)
HBC's other key banners, Hudson's Bay and Lord & Taylor, saw same-store sales rise 4 per cent while at its discount Saks Off 5th chain those sales grew 2 per cent and 0.4 per cent at its new European division. Digital sales rose 22.8 per cent.
"Obviously it was a challenging environment," Jerry Storch, chief executive officer of HBC, said in an interview. But the results "may calm those who felt the quarter was not so strong."
He said that while HBC continues to have difficulty attracting tourists to its U.S. stores, the Canadian Saks opening of its downtown Toronto store was the chain's strongest to date.
Mr. Baker added the Saks flagship in Toronto, which occupies the same downtown building as Hudson's Bay, could be among its top stores in the chain over all.
And the first five Saks Off 5th outlets opened last month in Canada are performing "quite a bit better than we projected," he said. The Saks openings came in the company's current quarter and are not reflected in its fourth-quarter results.
Mr. Baker said the company has learned from its practice of operating a "store within store" and will move this fall to set up a Saks Off 5th within its existing Hudson's Bay in the Rideau Centre mall in Ottawa. He hinted that HBC may add Saks to other Hudson's Bay stores, possibly in Vancouver. "That's a good idea – we'll look at that," Mr. Baker said.
The company is also considering converting its Home Outfitters stores to Hudson's Bay Home stores, with a wider array of home goods, including mattresses and furniture, he said. It recently launched its first converted home stores in Winnipeg.
Despite HBC's progress, it faced a setback last month in its operations in Belgium, which was struck by a terrorism attack. Mr. Baker said HBC had to temporarily close some of its stores there and saw "reduced business due to the terrorism. But it's a small portion of our business. We'll continue to operate business as usual."
Patricia Baker, a retail analyst at Scotiabank, said in a note last month that HBC has shown "improved retail performance as a result of targeted investments in banners" in physical stores, digital capabilities, merchandising strategies and new stores.
As well, Ms. Baker (no relation to HBC's governor) said HBC has "a path to exploit underlying real estate value."
Saks Fifth Avenue's flagship property in New York alone has been appraised at $3.7-billion, more than the $2.9-billion HBC paid for the entire chain.
HBC sold part of its equity in HBS Global Properties, its global real estate joint venture, and used the proceeds to pay down debt. HBC's Mr. Baker said: "This is just one example of how we are able to utilize our real estate holdings to enhance our financial flexibility."