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Report On Business Hudson’s Bay cuts 265 head office jobs in bid to trim costs

Pedestrians walk past the Hudson's Bay Company store at Queen St. West and Yonge St. in Toronto in this file photo.

Fred Lum/The Globe and Mail

Hudson's Bay Co. is cutting 265 head office jobs as it races to shave costs while spending heavily on improving its digital business and launching more of its Saks Fifth Avenue and Off 5th stores.

The cuts, which represent about a 1-per-cent reduction in HBC's total work force of 44,000 people, will result in savings of $75-million a year, HBC said on Tuesday.

The cuts are mostly in its U.S. corporate offices.

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"We are always looking for ways to become more effective and more efficient," Jerry Storch, chief executive officer of Toronto-based HBC, said in an interview.

HBC, which runs its namesake chain in Canada and Saks and Lord & Taylor in the United States, has been expanding rapidly and will soon finalize yet another acquisition: that of department-store retailer Galeria Kaufhof in Germany. Now HBC, whose expenses mounted in its second quarter, feels the pressure to find savings to shore up its bottom line.

After it acquired Saks in 2013, the retailer predicted the combination would result in $100-million worth of cost savings.

The latest anticipated savings of $75-million will be from additional "synergies," Mr. Storch said.

The company expects to take a roughly $20-million charge in its third quarter as a result of the restructuring.

Sabahat Khan, a retail analyst at RBC Dominion Securities Inc., said on Tuesday that HBC's restructuring of its North American operations will "generate meaningful cost savings."

"HBC offers a unique investment opportunity to participate in both a retail renaissance and meaningful exposure to the U.S. economic recovery," Mr. Khan added in a report earlier this month.

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Investors seemed pleased with the news on Tuesday, pushing HBC shares up 6.58 per cent or $1.28 to close at $20.73 on the Toronto Stock Exchange.

Perry Caicco, retail analyst at CIBC World Markets, said HBC's sales and margin control is "impressive, but clearly there is a spending issue – the company as a result has embarked on a program to cut costs." He also noted that HBC has valuable real estate.

With its $3.36-billion Kaufhof acquisition, which could close as early as this week, HBC will operate a total of 464 stores with about 44 per cent of sales in the United States, 31 per cent in Germany, 23 per cent in Canada and 2 per cent in Belgium. HBC's overall sales would jump about 50 per cent to $13-billion.

Under the deal, HBC gets its hands on some prized real estate properties. It also has an agreement with Simon Property Group, its U.S. real estate partner, to purchase at least 40 of Kaufhof's owned or partly owned properties for at least $3.3-billion.

The proceeds of the Kaufhof-Simon real estate transaction are expected to largely finance the takeover itself, the company has said. The agreements are expected to be "significantly accretive" to HBC's earnings per share without requiring any "synergies" or cost savings from the merger itself, HBC said this summer.

HBC will also consider putting Saks in the same buildings as Kaufhof.

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In Canada, HBC will launch its first Saks Fifth Avenue stores early next year and, at about the same time, introduce its discount Saks Off 5th in this country. It is also adding more Off 5th outlets south of the border.

HBC reported earlier this month lower than expected second-quarter profit margins as a result of heavy spending on digital and store rollouts. But Mr. Storch vowed at the time retailer would lower expenses by introducing more automation and operating more functions in common among its various chains.

HBC said on Tuesday it is setting up "centres of excellence" in areas such as human resources. It also hired two new executives: Janet Schalk as chief information officer and Dion Rooney as executive vice-president of HBC digital.

In its second quarter, HBC posted a profit of $67-million or 33 cents compared with a loss of $36-million or 23 cents a year earlier. The latest quarter included a $107-million gain from HBC's contributions of properties to real estate joint ventures. Excluding the gain, HBC's loss was $53-million.

HBC's retail sales totalled $2.04-billion, up 15.2 per cent from a year earlier. Part of the increase was due to the stronger U.S. dollar and increased digital sales.

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