Hudson’s Bay Company (HBC) reported retail sales of 3,291 million Canadian dollars (2,656 million dollars) in the second quarter, an increase of 39 million Canadian dollars (31 million dollars) or 1.2 percent, from the prior year. Net loss for the quarter widened to 201 million Canadian dollars (162 million dollars) compared to 142 million Canadian dollars (114 million dollars) in the prior year due to lower gross margin dollars combined with higher SG&A and depreciation and amortization expenses.
“Heading into the fall season, we are optimistic about the remainder of the year. The current retail environment provides both challenges and opportunities, and while it was a tough second quarter as expected, we continue to make the smart decisions necessary to succeed in this rapidly evolving landscape,” said Richard Baker, HBC’s Governor and Executive Chairman in a statement.
HBC said, this increase was driven primarily by the opening of three new Saks Fifth Avenue stores, 26 new Saks Off 5th stores and five new Saks Off 5th Europe stores which together contributed approximately 64 million Canadian dollars (51 million dollars) sales, as well as a 59 million Canadian dollars (47 million dollars) positive net foreign exchange impact on the translation of US dollar and euro denominated sales. The company said, increases retail sales were offset by lower overall comparable sales of approximately 43 million Canadian dollars (34 million dollars) and a 41 million Canadian dollars (impact from store closures.
Consolidated comparable sales improved from the first quarter, increasing by 0.4 percent and on a constant currency basis, comparable sales increased by 1.7 oercent at Saks Fifth Avenue while declining by 1.6 percent at DSG, 2.3 percent at HBC Off Price and 2.8 percent at HBC Europe, resulting in an overall consolidated comparable sales decline of 1.3 percent. The company added that comparable sales during the quarter were impacted by lower traffic across HBC’s banners, as well as a highly promotional retail environment.
While HBC Europe experienced lower overall traffic, the company continues to execute on its growth strategy in Germany and achieved significant milestones during the quarter including the opening of the first five Saks Off 5th stores, as well as the introduction of Sephora store-within-store concepts at Galeria Kaufhof. In the Netherlands, HBC Europe opened its first Hudson’s Bay store yesterday and expects to open a total of ten Hudson’s Bay and two Saks Off 5th stores over the coming weeks.
Digital sales increased by 12.7 percent from the prior year, with comparable digital sales on a constant currency increasing by 11 percent, reflecting the company’s continued strategic focus on growing this channel. Excluding Gilt, comparable digital sales increased by 22.3percent and on a constant currency basis increased by 19.8 percent.
For HBC overall, gross profit as a percentage of retail sales was 40.2 percent, a decline of 130 basis points driven by higher promotional and clearance activity at the majority of the company’s banners. Adjusted EBITDA was 16 million Canadian dollars (12 million dollars), a decrease of 65 million Canadian dollars (52 million dollars) compared to the prior year and higher than the decline in Adjusted EBITDAR.
Normalized net loss was 164 million Canadian dollars (132 million dollars) compared to 122 million Canadian dollars (98 million dollars) in the prior year.
Year-to-date retail sales decreased 0.9 percent
For the twenty-six week period ended July 29, 2017, retail sales were 6,494 million Canadian dollars (5,244 million dollars), a decrease of 61 million Canadian dollars (49 million dollars) or 0.9 percent, from the prior year. The company said, this decrease was related primarily to lower overall comparable sales of approximately 137 million Canadian dollars (110 million dollars) and the impact of closed stores of 66 million Canadian dollars (53 million dollars). The decrease was offset by a positive 28 million Canadian dollars (22 million dollars) foreign exchange impact on the translation of US dollar and euro denominated sales and by the opening of three Saks Fifth Avenue stores, 26 Saks Off 5tg stores and five Saks OFF 5TH Europe stores which contributed approximately 114 million Canadian dollars (92 million dollars) in sales.
Consolidated comparable sales decreased by 1.7 percent, and on a constant currency basis decreased by 2.1 percent over the comparable twenty-six week period ended July 30, 2016. On a constant currency basis, comparable sales decreased by 1.4 percent at HBC Europe, 1.8 percent at Saks Fifth Avenue, 2 percent at DSG and 4.6 percent at HBC Off Price.
Digital sales increased by 8.7 percent from the prior year, while comparable digital sales on a constant currency basis increased by 7.9 percent, reflecting the company’s continued strategic focus on growing this channel. Excluding Gilt, comparable digital sales increased 16.2 percent on a constant currency basis.
For HBC overall, gross profit as a percentage of retail sales was 40.9percent, a decline of 80 basis points compared to the prior year, as a result of lower margins realized at the majority of the company’s banners due, in part, to increased promotional activity, partially offset by higher margins at Saks Fifth Avenue.
Adjusted EBITDAR was 375 million Canadian dollars (302 million dollars), compared to 513 million Canadian dollars (414 million dollars) in the prior year. Accordingly, Adjusted EBITDA was negative 5 million Canadian dollars (4.04 million dollars), a decrease of 148 million Canadian dollars (119 million dollars) compared to the prior year. Net loss was 422 million Canadian dollars (340 million dollars) compared to 239 million Canadian dollars (193 million dollars) in the prior year. Normalized net losses were 381 million Canadian dollars (307 million dollars) compared to 213 million Canadian dollars (172 million dollars) in the prior year.
HBC expects to save 350 mn Canadian dollars by FY18
HBC’s management expects that the initiatives associated with the transformation plan will have a significant impact in the second half of the year. Through streamlining operations, increasing efficiencies and leveraging scale, the company currently anticipates realizing more than 350 million Canadian dollars (282 million dollars) in annual savings when the plan is fully implemented by the end of fiscal 2018, including the anticipated 75 million Canadian dollars (60 million dollars) in annual savings previously announced in February. The company anticipates realizing approximately 170 million Canadian dollars (137 million dollars) in savings during fiscal 2017, with most of these savings occurring in the second half of the year.
Commenting on the possible impact of the company’s transformation pan, Jerry Storch, HBC’s Chief Executive Officer, added in the statement, “We are growing our business globally, digitally, and physically. Just today we unveiled our first Hudson’s Bay store in the Netherlands and re-launched our Gilt website. On Friday, we will be officially opening the renovated designer floor of our Saks Fifth Avenue flagship in New York. Additionally, we expect that the transformation plan will have a much larger impact on our second half results. Across our banners, we are focused on driving the business during the critical fall and holiday seasons, which generate the vast majority of HBC’s annual earnings.”
During the quarter, Lord & Taylor moved onto the same online platform as Saks Fifth Avenue and Saks Off 5th, while Hudson’s Bay is expected to migrate over in early 2018 letting HBC leverage the same infrastructure across all of its banners. The company said, following the successful installation of the case shuttle system at its Canadian distribution centre in 2016, HBC remains on track with the installation of the same robotic technology at its Pottsville, Pennsylvania distribution centre, serving Saks Off 5th and Lord & Taylor.
During the second quarter, HBC opened two Saks Off 5th stores located in Winnipeg, Manitoba in Canada and Honolulu, Hawaii in the US. The company also opened five Saks Off 5th Europe stores in Germany located in Düsseldorf, Frankfurt, Wiesbaden, Heidelberg and Stuttgart. The company closed one Home Outfitters store in Toronto, Ontario and two Galeria Kaufhof stores in the cities of Berlin and Aachen in Germany.
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