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Financial Roundup: HBC Focuses on Digital and Luxury Sales, G-III Counts on Donna Karan

Hudson’s Bay Company

In a Nutshell: HBC, which operates the Lord & Taylor, Saks Fifth Avenue, Hudson’s Bay Company and Galeria Kaufhof department store chains, said while the current retail environment is changing rapidly, management believes the company is well positioned to succeed in the long term. HBC’s recently initiated “Transformation Plan” is proceeding as expected, and management expects that the initiatives associated with this 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 ($286.41 million) in annual savings when the plan is fully implemented by the end of fiscal 2018, including the anticipated 75 million Canadian dollars ($61.37 million) in annual savings announced in February. The company anticipates realizing about 170 million Canadian dollars ($139.11 million) in savings during fiscal 2017, mostly in the second half.

Complementing the company’s efforts to increase efficiency are the ongoing changes being made to adapt to evolving customer preferences. These include emphasizing digital sales by investing further in improving digital platforms and online capabilities, while leveraging technology to reduce fulfillment time for digital sales. HBC also continues to explore ways to differentiate the in-store experiences at all of its banners by offering events, pop-up shops, food areas and wellness activations. Recent highlights include the launch of the justBobbi Concept Shop at Lord & Taylor in New York and the opening of Topshop and Sephora in-store shops at Galeria Kaufhof stores in Germany.

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HBC is also working to increase its presence in the luxury market. The company said significant progress has been made on the transformational renovation of the Saks Fifth Avenue flagship, including the opening of its fifth floor, featuring new concepts in women’s contemporary and advanced designer ready-to-wear. As a part of the renovation, Saks debuted an innovative wellness-oriented concept called the Saks Wellery.

Sales: Retail sales for in the second quarter ended July 29 increased 1.2% to 3.3 billion Canadian dollars ($2.7 billion), led by digital sales growth. The increase was driven primarily by the opening of three new Saks Fifth Avenue stores, 26 Saks OFF 5TH stores and five Saks OFF 5TH Europe stores which together contributed approximately 64 million Canadian dollars ($52.37 million) in sales. These increases were offset by lower overall comparable sales of about 43 million Canadian dollars ($35.19 million) and a 41 million Canadian dollar ($33.55 million) impact from store closures.

Comparable digital sales increased 11 percent on a constant currency basis, rising 19.8% at HBC’s department store banners. Comparable sales at Saks Fifth Avenue grew the most in more than two years, up 1.7% on a constant currency basis.

Earnings: The net loss in the second quarter widened to 201 million Canadian dollars ($164.48 million) compared to 142 million Canadian dollars ($95.09 million) in the prior year. The higher net loss is primarily due to lower gross margin dollars combined with higher SG&A and depreciation and amortization expenses. These negative impacts were partially offset by a higher net earnings in joint ventures and a larger income tax benefit.

CEO’s Take: Jerry Storch, HBC’s chief executive officer, said: “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 web site. On Friday, we will be officially opening the renovated designer floor of our Saks Fifth Avenue flagship in New York. During the second quarter, our diversified banners demonstrated areas of strength, with Hudson’s Bay and Saks Fifth Avenue delivering positive comparable sales growth. Digital sales grew double digits at our department store banners, reflecting the ongoing execution of our long-term all-channel retail strategy…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.”

[Read more about HBC’s retail plans: HBC Opens its First Store Outside of Canada, Despite Investors’ Urges Not To]

G-III Apparel Group

In a Nutshell: As it integrates the Donna Karan and DKNY monikers into its brand portfolio, G-III Apparel Group sees better times ahead. Despite widening its loss in the second quarter, the company increased its prior guidance for the fiscal year ending Jan. 31. It’s now forecasting revenues of about $2.8 billion and net income between $56 million and $60 million, compared to previously forecasted net sales of $2.76 billion and net income between $52 million and $57 million.

The company’s forecast includes Donna Karan-related transitional expenses of about $8 million and non-cash imputed interest expense of $6 million. G-III now anticipates net income of $64 million to $69 million, up from $60 million to $65 million. The forecast reflects expected operating losses of about $23 million and additional interest expense of another $23 million associated with the Donna Karan business.

G-III is projecting full-year adjusted earnings before interest, taxes, depreciation and amortization for fiscal 2018 of $180 million to $188 million compared to adjusted EBITDA of $148.1 million in fiscal 2017 and compared to its previous forecast of adjusted EBITDA between $178 million and $186 million. This adjusted EBITDA guidance includes a forecasted full-year operating loss of about $12 million associated with the Donna Karan business.

Sales: G-III reported net sales for the second quarter ended July 31 increased 21.6% to $538 million, up from $442.3 million in the year-ago period. This increase includes about $45 million of net sales of DKNY and Donna Karan products.

Earnings: The company reported a net loss for the second quarter of $8.6 million, compared to a net loss of $1.3 million in the year-ago period. G-III noted that the year-ago second quarter net loss did not include any results from the Donna Karan acquisition, but did include about $3 million in professional fees related to the purchase. Included in the results for the second quarter are operating losses of $13.8 million and additional cash interest expense of $7.2 million related to the operation and ownership of DKI, which was completed on Dec. 1.

CEO’s Take: Morris Goldfarb, G-III’s chairman and CEO, said, “The brand portfolio we have created through acquisition and partnership is powerful. This great portfolio is enabling us to perform well despite significant headwinds in the marketplace. We are fortunate to have developed a diverse business, anchored by Calvin Klein and supported by other brands including Tommy Hilfiger and Karl Lagerfeld Paris, and now, Donna Karan and DKNY, both global power brands, will help us capture additional opportunities. We are positioned to provide exciting new assortments to a range of retailers and to demonstrate leadership in our industry at a critical time. We expect to generate growth in sales and achieve higher levels of profitability as we move forward.”

“In our own retail operations,” which include stores under the DKNY, Wilsons Leather, G. H. Bass, Vilebrequin, Calvin Klein Performance and Karl Lagerfeld Paris names, “we expect to improve performance through store rationalization, better merchandising and expense reductions,” Goldfarb added. “We believe we can mitigate the pressure on our retail results while reaping the benefits of an exciting new phase of wholesale growth as we look forward to a successful second half of the year. We anticipate achieving our operational and financial objectives and fulfilling our ongoing mission to offer brand and product solutions to an industry affected by disruption and change.”