• Q1 net loss totalled CAD400m (US$309m), compared to a loss of CAD221m in the year-ago period.
  • The Canadian retailer has entered into agreements to sell Gilt – with rumours circulating online firm Rue La La is the buyer in question.
  • The company is also to close up to ten  Lord & Taylor stores through 2019, including its flagship on New York's Fifth Avenue. 
 HBC is to close up to ten  Lord & Taylor stores through 2019 - including its Fifth Avenue flagship

HBC is to close up to ten  Lord & Taylor stores through 2019 - including its Fifth Avenue flagship

Hudson's Bay Company (HBC) has widened its loss in the first quarter amid an announcement by the Canadian retailer that it is to offload its online shopping and lifestyle website Gilt and shutter up to ten of its Lord & Taylor stores – including its flagship on New York's Fifth Avenue.

For the 13 weeks ended 5 May, net losses totalled CAD400m (US$309m), compared to a loss of CAD221m in the year-ago period. Gross margin improved 20 basis points to 42.1% compared to the prior year. During the quarter, HBC recorded a $16m inventory reserve related to the planned store closures at Lord & Taylor, and a $4m markdown charge related to the closure of two Lord & Taylor stores during the quarter. Minus these charges, gross profit as a percentage of sales would have improved 90 basis points.

Total sales, meanwhile, amounted to CAD3.09bn, an increase of CAD30m or 1% from CAD3.06bn last year. While overall comparable sales were down 0.7%.

Comparable sales at Saks Fifth Avenue grew for the fourth consecutive quarter, increasing by 6%, while comparable sales at Hudson's Bay grew for the 31st consecutive quarter. Comparable sales declined by 0.6% at DSG, by 6.6% at HBC Europe, and by 3.5% at Saks Off 5th. Following the company's decision to divest Gilt, the business has been classified as a discontinued operation. Comparable digital sales increased by 7.7%.

"Results in North America were encouraging, highlighted by better performance across the group and comparable sales growth of 6% at Saks. We have significant opportunity to build on this trend, and are taking action to strengthen the foundation of the company and position HBC for profitable growth," said chairman Richard Baker.

These actions include entering into agreements to sell Gilt – with rumours circulating that online firm Rue La La is the buyer in question – and "right-sizing" the store footprint of its Lord & Taylor banner, including plans to shutter its flagship store on Fifth Avenue in New York.

According to Baker, the decision to divest Gilt will allow the company to focus its time and resources on the businesses with the greatest potential to drive operating performance.

"In addition to making the right strategic decisions to improve our business, we will continue to explore all opportunities to leverage the strength of our real estate portfolio to create value for our shareholders," he adds.

Gilt generated less than 4% of the company's total sales in fiscal 2017, and the disposition is expected to improve adjusted EBITDA by CAD10m- CAD15m on an annualised basis.

Meanwhile, HBC says an increased focus on driving Lord & Taylor's digital business, combined with new leadership and an optimised store footprint, is expected to reduce costs and improve the banner's overall performance.

As a result, and in a move designed to "better balance the brand's brick and mortar presence with its online channels and increase profitability," HBC is to close up to ten Lord & Taylor stores through 2019. "This reduced store network will allow new leadership to re-think the model and better position Lord & Taylor for future success," the firm says.

With regards to the New York flagship, HBC said it has decided not to maintain a presence at this location following turnover of the building to WeWork.

In October of last year, HBC announced a series of strategic transactions with WeWork Companies and private equity firm Rhône Capital – including the sale of its Lord & Taylor Fifth Avenue flagship – as part of a relationship designed to maximise the productivity and value of HBC's global real estate assets.

HBC adds: "Exiting this iconic space reflects Lord & Taylor's increasing focus on its digital opportunity and HBC's commitment to improving profitability."

Previous steps to reposition the banner include the launch of a dedicated online Lord & Taylor flagship store on Walmart.com and the Walmart app in a move that aligned with the US retail giant's plans to offer luxury fashion to its customers. The flagship went live last week.

"Over the last month, we have worked rapidly to put in place a leadership team focused on driving business results, streamlining our processes and fostering a culture of accountability," says CEO Helena Foulkes. "We need to improve across all areas of the business, and this begins with rededicating ourselves to putting the customer first in everything we do."

She adds this customer-focused mindset will dictate how HBC thinks about key functions of the business, and notes there is an opportunity to "dramatically" improve marketing and digital operations while also refining company wide processes that impact end-to-end customer experience.

"Accountability begins with our leadership team, and I am confident that we now have the right people in place across HBC to drive actions that will result in profitable growth."

Regarding Lord & Taylor, Foulkes says the firm aims to reposition the banner for improved results and increased profitability.

She adds: "With a new leader dedicated to evolving our experience and merchandise assortment to best meet customer expectations and shopping preferences, we will take advantage of having a smaller footprint to rethink the model and focus on our digital opportunities. The Lord & Taylor flagship on Walmart.com, which launched last week, is a great example of this and represents how we are thinking about the entire business."

Neither HBC or Rue La La owner Kynetic returned a request for comment regarding the Gilt sale at the time of going to press.