Analysis: Hudson's Bay faces tough sell as it prepares for IPO

Sun Nov 11, 2012 8:07am EST
 

By Allison Martell and Phil Wahba

TORONTO/NEW YORK (Reuters) - If Hudson's Bay Co wants to provide some measure of comfort to investors in its upcoming initial public offering, it might have to throw in some of its signature striped wool blankets.

The retailer, owner of two of the most venerable names in department stores - Hudson's Bay in Canada and Lord & Taylor in the United States - faces a big challenge in convincing investors it can win the turnaround game, especially with a hip and agile competitor like Target Corp (TGT.N: Quote) about to arrive in Canada.

As HBC prepares for its C$400 million ($399 million) initial public offering in Toronto, it is touting a "transformation" that includes rising sales at established stores, a figure investors watch closely.

But both chains face increasing competition, a likely medium- and long-run negative for the stock. The department store sector has grown slowly as shoppers look online or seek out discount stores.

In the United States, Lord & Taylor competes with a resurgent Macy's Inc (M.N: Quote), and in Canada, HBC faces competition from Target and other U.S. companies intent on shaking up the retail landscape.

"I think an investor in the Bay would be well-advised to wait until Target has entered the market and they have some insight as to what the business climate will be for the Bay on a real basis, not on a speculative basis," said Mark Cohen, former chief executive of Sears Canada Inc (SCC.TO: Quote) and now a professor of marketing at Columbia University in New York.

HBC says its transformation is a work in progress, with more upside to come.

"The focus will be the opportunity to close the margin gap, the opportunity to grow same-store sales," said Walter Stackow, analyst with Manning & Napier, which invests in retail stocks.   Continued...

 
Pedestrians walk past a Hudson's Bay store in downtown Ottawa July 16, 2008. REUTERS/Chris Wattie