• Net loss widens to CAD201m (US$162.3m)
  • Retail sales increase CAD39m to CAD3.29bn
  • Transformation Plan "proceeding as expected"
In the 13 weeks ended 29 July, net loss widened 41.5% to CAD201m from CAD142m in the prior year

In the 13 weeks ended 29 July, net loss widened 41.5% to CAD201m from CAD142m in the prior year

Canadian retailer Hudson's Bay Company (HBC) says it is optimistic about the remainder of the year, despite widening its net losses in the second quarter, as its restructuring efforts, designed to generate more than CAD350m (US$282.6m) in savings, is "proceeding as expected".

In the 13 weeks ended 29 July, net losses widened 41.5% to CAD201m (US$162.3m) from CAD142m in the prior year. The retailer said the higher loss was primarily due to lower gross margin dollars combined with higher SG&A and depreciation and amortisation expenses. It added these negative impacts were partially offset by a higher net earnings in joint ventures and a larger income tax benefit.

Retail sales amounted to CAD3.29bn, an increase of CAD39m, or 1.2% from CAD3.25bn the prior year, driven by the opening of three new Saks Fifth Avenue stores, 26 new Saks Off 5th and five new Saks Off 5th Europe stores, which together contributed about CAD64m sales, as well as a CAD59m positive net foreign exchange impact on the translation of US dollar and Euro denominated sales.

On a constant currency basis, comparable sales increased by 1.7% at Saks Fifth Avenue while declining by 1.6% at DSG, 2.3% at HBC Off Price and 2.8% at HBC Europe, resulting in an overall consolidated comparable sales decline of 1.3%. Digital sales increased by 12.7% from the prior year, with comparable digital sales on a constant currency increasing by 11%, reflecting the company's continued strategic focus on growing this channel.

For HBC overall, gross margin declined 80 basis points to 40.9%. The decrease is the result of lower margins realised at the majority of the company's banners due, in part, to increased promotional activity, partially offset by higher margins at Saks Fifth Avenue.

"During the second quarter, our diversified banners demonstrated areas of strength, with Hudson's Bay and Saks Fifth Avenue delivering positive comparable sales growth," said CEO Jerry Storch. 

Late last year, HBC launched a comprehensive review of its business operations to identify efficiencies, streamline processes and improve back of store productivity, while also enhancing customer service.

In June, the company said it had "largely completed" the review and revealed a Transformation Plan it says will make it more agile, drive its business forward, improve its all-channel business model, and re-align its expenses to focus on growing its digital business.

Designed to increase operational synergies, sharpen capabilities and reduce expenses, the initiative is expected to realise total annual savings of more than CAD350m by the end of fiscal 2018, and includes plans to reduce total headcount by about 2,000, representing around 3% of the company's more than 66,000 employees.

Hudson's Bay Company to cut 2,000 jobs as Q1 loss widens

Now, HBC says the strategy is "proceeding as expected" with the associated initiatives likely to have a significant impact in the second half of the year.

"Additionally, we expect that the Transformation Plan will have a much larger impact on our second half results," adds Storch. "These factors, combined with what we are seeing so far in the third quarter, give us reason to be optimistic about the remainder of the year."

Across its banners, Storch says HBC is focused on driving the business during the critical fall and holiday seasons, which generate the vast majority of the company's annual earnings. Meanwhile, creating shareholder value remains the company's top priority. "This includes assessing the best use of our retail and real estate portfolio while making the right strategic and tactical decisions to improve performance in our retail businesses going forward."

Through streamlining operations, increasing efficiencies and leveraging scale, the company currently anticipates realising more than CAD350m in annual savings when the plan is fully implemented by the end of fiscal 2018. This includes the anticipated CAD75m in annual savings previously announced in February.

HBC adds it expects to realise CAD170m in savings during fiscal 2017, with most of these savings occurring in the second half of the year.

"These factors, combined with what we are seeing so far in the third quarter, give us reason to be optimistic about the remainder of the year," adds Storch. "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. This includes assessing the best use of our retail and real estate portfolio while making the right strategic and tactical decisions to improve performance in our retail businesses going forward," he adds.

The retailer was tight-lipped last week regarding reports it plans to review its options, including going private, following pressure from an activist shareholder, and was put under pressure earlier this year to sell, spin-off or redevelop parts of Hudson's Bay's real estate portfolio in a bid to stem deepening losses.

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The retailer, however, is continuing to drive its European strategy, opening its first store outside Canada yesterday (5 September), with the new Amsterdam location the first of a further nine stores due to open across the Netherlands later this month.

Storch called the move was a "historic moment" in the company's 347-year history and answers an "unmet demand for a premium department store" in the Dutch market.

Hudson's Bay drives EU strategy, opens first store outside Canada

Also in the pipeline for HBC are efforts to adapt to what it calls "evolving customer preferences". These include emphasising digital sales by investing further in improving digital platforms and online capabilities; leveraging technology to reduce fulfilment time for digital sales; developing new in-store experiences such as pop-up shops and store-within-store concepts; and an effort to grow HBC's presence in the luxury market.