June 10, 2015 / 12:09 PM / 2 years ago

UPDATE 2-Hudson's Bay benefits from Target exit; costs pinch results

(Updates with details from chairman interview, conference call, market reaction)

By Solarina Ho

TORONTO, June 10 (Reuters) - Target Corp’s exit from Canada has helped Hudson’s Bay Co pick up Canadian market share, HBC executives said on Wednesday as the department store operator reported higher quarterly sales but a bigger loss.

HBC said sales at its upscale Saks Fifth Avenue stores in the United States were hit in its first quarter, ended May 2, as a strong U.S. dollar deterred foreign customers.

Higher costs also contributed to the loss with Toronto-based HBC making heavy investments in e-commerce and technology, as well as in preparing for next year’s launch of its first Saks stores in Canada.

The company, founded in 1670, said overall same-store sales rose 2.7 percent on a constant currency basis, with sales up 4.9 percent at its department store group, which includes Hudson’s Bay and Home Outfitters stores in Canada and Lord & Taylor stores in the United States.

Comparable sales at Saks rose only 0.6 percent, while those at OFF 5th outlets were up 10.3 percent.

Overall online sales jumped 37.2 percent.

“Home Outfitters and Hudson’s Bay are both reaping the rewards, or taking advantage, of the exit of Target and the continued erosion that you’re seeing at Sears,” Chairman Richard Baker said in an interview.

While the strong U.S. dollar hurt the Saks chain, Baker said it benefited Canadian operations, which make up about a third of revenue.

Saks’ move into Canada comes as competition intensifies in the country’s luxury market, with the arrival Nordstrom and the expansion of Canada’s Holt Renfrew.

Baker said that given HBC’s existing supply chain and foothold in Canada, the launch of Saks carries fewer risks than those faced by other new entrants.

HBC has been in high-level talks with Germany’s Metro to buy its department store chain, Kaufhof. Executives declined to comment, but sources have told Reuters HBC is expected to make an offer.

HBC shares have fallen about 10 percent since late April, when reports of HBC’s interest in Kaufhof surfaced. The stock was little changed at C$23.93 on Wednesday.

HBC reported a quarterly loss of C$54 million ($44.02 million), or 30 Canadian cents a share, compared with a profit of C$176 million, or 97 Canadian cents, a year earlier.

Adjusted to exclude restructuring and other items, the loss was C$33 million, up from a comparable C$27 million loss a year earlier.

Sales rose 11.7 percent to C$2.07 billion, slightly missing analysts’ C$2.08 billion estimate.

$1=$1.23 Canadian With additional reporting by Amrutha Gayathri in Bengaluru; Editing by Jeffrey Hodgson and Peter Galloway

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