Hudson’s Bay still eyeing acquisitions but focusing on cutting costs

The Bay
The Bay

Hudson’s Bay Co. says it’s focused on cutting costs as it faces a challenging retail environment in Canada and abroad, but that doesn’t mean it has completely shut the door on acquisitions.

HBC’s top executives, who spoke to analysts Wednesday from the Netherlands where the Toronto-based company plans to open 10 Hudson’s Bay department stores by the end of this year, wouldn’t identify any potential targets, but said it’s keeping an open mind.

“We’re very focused on our core operations,” said Richard Baker, HBC governor and executive chairman, in a conference call.

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Rumours have been swirling for months that the owner of various banners including luxury retailer Saks Fifth Avenue is looking to acquire struggling U.S. retail chains Neiman Marcus or Macy’s.

Baker said Wednesday that acquisitions remain a part of HBC’s strategy, but the company doesn’t comment on rumours or speculation.

“In no way would we do an acquisition that affects our debt ratios and impact our existing business in a material way, but we do view ourselves as a global consolidator,” Baker said.

He also said the company continues to believe that there is still “tremendous value” in its real estate holdings, which include some of the most valuable retail properties in Toronto, New York and Europe.

Although he did admit that in hindsight, the company perhaps should’ve spun off some of its holdings into a separate real estate investment trust months ago.

It is a strategy that several Canadian retailers including Canadian Tire Corp. (TSX:CTC.A) and Loblaw (TSX:L) have used in recent years.

Shares in Hudson’s Bay (TSX:HBC) rose more than seven per cent, or 72 cents, to $10.42 on the Toronto Stock Exchange in mid-afternoon trading.

Chief executive Jerry Storch said the retailer, and the industry as a whole, continues to face several challenges including intense competition and less traffic in shopping malls, where many of its stores are located.

To position itself to weather these factors, the company is focused on doing what it can to put it in the best financial position if these retail trends do not change.

“I just don’t know when the market is going to get less promotional, or when or if traffic is going to improve in malls, but I do know that we can control what we spend.”

“I just don’t know when the market is going to get less promotional, or when or if traffic is going to improve in malls, but I do know that we can control what we spend,” Storch said.

On Tuesday, HBC reported after stock markets closed that it had a $152-million net loss in its fourth quarter ended Jan. 28, boosting its loss for its full financial year to $516 million. A year ago, it had earnings of $370 million for the quarter and $387 million for the year.

The fourth-quarter loss includes a one-time non-cash goodwill impairment charge of $116 million driven by weak sales at Gilt, one of HBC’s e-commerce businesses, as well as at its Saks Off 5th stores.

For the same period, it saw 2.5 per cent increase in retail sales to $4.6 billion and a 13 per cent increase in comparable digital sales on a constant currency basis.

HBC is budgeting between $450 million and $550 million in capital spending this year, about $150 million less than it spent last year. In January, the company also announced it would cut $75 million from annual costs.

Founded in 1670, Hudson’s Bay operates more than 470 stores under banners such as the Bay, Saks Fifth Avenue, Lord & Taylor, Gilt, and Saks Off 5th. It also owns Galeria Kaufhof, Galeria INNO and Sportarena in Europe.

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