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It seems the one thing people are interested in buying from retailers these days is their real estate. After Loblaw Cos. stock popped last week when the grocer announced plans to spin most of its bricks and dirt into a real estate investment trust, Richard Baker, the governor and controlling shareholder of the newly public Hudson's Bay Co., mused about doing the same thing while talking to analysts on Tuesday.

That would be good for investors, because the retailer's first quarterly report since its initial public offering last month reveals a company struggling with declining profit margins despite apparently healthy sales.

During the third quarter ended Oct. 27, same-store sales at the company's Hudson's Bay and U.S.-based Lord & Taylor chains rose by 4.5 per cent and 5.2 per cent, respectively, in their home currencies, over the same period last year.

Behind those seemingly good top-line numbers is the real story. Like many other retailers, HBC stores had to resort to heavy promotions to woo tepid consumers to open their wallets in the third quarter. That weighed significantly on profits. Earnings before interest, taxes, depreciation and amortization from continuing operations (i.e. excluding the Zellers stores that HBC is winding down) fell by 27 per cent to $47.9-million from the year-ago period as discounting and inventory shortages took their toll on the bottom line.

HBC's new investors are left with a fuzzy picture of the company's prospects. But one thing seems certain – without an unexpected pickup in consumer sentiment and spending, the fourth quarter won't offer much better news. The company has already announced that it expects a $20-million (U.S.) hit to Lord & Taylor sales because of store shutdowns as Hurricane Sandy ripped through the East Coast. Looking further ahead, the company faces an increasingly competitive landscape when U.S. retail phenomenon Target arrives in Canada next year and sets up shop in many of the Zellers locations that HBC is exiting.

A REIT spinoff would be a welcome but unexpected Christmas gift for shareholders, who haven't seen the stock trade above its $17 IPO price since the day after its debut Nov. 20. For now the best deal they're likely to see out of The Bay is a discount on the merchandise in stores.