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HBC Helped by Tax Reform, Hindered by Off-Price

While the luxury sector proved positive, HBC reported disappointing Q4 results as the off-price and international businesses struggled.

In a nutshell: After a fairly strong November, Hudson’s Bay Company reported Wednesday that the fourth quarter turned out to be a disappointment overall.

Other than Hudson’s Bay and Saks, the North America brands have “clearly not met expectations,” according to the retail group’s new CEO Helena Foulkes. Just in the role since February, Foulkes said she’s been making the rounds to the stores to evaluate the various businesses. Though some decisions are still to be determined, she does plan to continue to capitalize on the surge in luxury through Saks and Hudson’s Bay. She’s also working on an overarching roadmap for boosting HBC Europe, calling Europe—led by Germany—“a core part” of the company’s strategy.

The retail group, which operates 483 stores across all if its banners, expects Hudson’s Bay to continue to perform well, especially given the exit of Sears Canada from the market. That’s after HBC took a bit of hit as consumers opted to shop at the now defunct retail chain during its clearance sales.

Despite the recent re-positioning of the Gilt brand, the business continued to be a pain point.

As a part of HBC’s Transformation Plan, the group reaffirms its goal of achieving $350 million in tax savings in FY18. The retail group is also working to reduce inventory levels, which were down by about 1 percent by the end of the year, and improve working capital. HBC closed out the quarter with $3.1 billion in debt.

HBC is actively looking for ways to increase productivity in stores, which it said could come through partnerships like the ones it has with Topshop and Sephora and the deal it struck to sell the Lord & Taylor flagship to WeWork.

Sales: HBC reported retail sales of $4.7 billion Canadian ($3.6 billion U.S.) for the 14-week quarter, representing a 2.1% increase over the 13-week quarter of 2016. New stores and the additional week provided a $267 million Canadian ($206.6 million U.S.) benefit, while store closures, comp sales and foreign exchange rates were a drag on the results.

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Comp sales at Saks increased by 2.1%, representing the third consecutive quarter of positive comps, while Hudson’s Bay’s same-store sales were up for the 30th consecutive quarter. The news was quite different across the rest of the business unit. For instance, the company’s off-price business, which includes Gilt and Saks Off 5th, reported comps down 7.6%. The company attributed the poor performance to the challenges related to its turnaround, sluggish traffic at Lord & Taylor, its off-price units and Galeria Kaufhof.

Digital sales, on the other hand, were up 9 percent, excluding Gilt.

Earnings: The company reported net earnings of $84 million Canadian ($65 million U.S.) for the quarter, compared to a net loss of $152 million Canadian ($117.6 million U.S.) during the prior-year period. HBC gives partial credit for the results to the U.S. tax reform, which resulted in a gain of $181-million Canadian ($140 million U.S.), as well as income from its real estate joint ventures.

CEO’s Take: “I’m a big believer in providing our customers with a seamless end-to-end shopping experience across all channels. While the company has made progress during the last few years, HBC still has a long way to go. And I believe that all of our banners have meaningful opportunity to continue to grow their online capabilities and to serve our customers,” Foulkes said.

“As I continue to listen and learn from our associates and customers, I’m working with the leadership team to heighten accountability for near-term business results, improve our culture and develop a long-term strategic plan for the company,” she continued.