Hudson's Bay shares recover as markets digest earnings, savings forecast

TORONTO (Reuters) - Canadian department store operator Hudson's Bay Co HBC.TO on Wednesday posted a rise in overall sales and its first profit in eight quarters, but missed earnings expectations as a tough retail environment weighed sales and margins.

FILE PHOTO: A woman walks through the doors at the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014. REUTERS/Mark Blinch/File Photo

The company said a transformation plan announced in June to improve efficiencies had caused some business disruptions, which had a negative impact in the fourth quarter, but that it will generate annual savings of C$350 million ($271.02 million) by this fiscal year’s end.

Its shares, which touched a record low earlier in the session, recovered to trade up 1.5 percent at C$8.65 at 2:45 p.m. ET (1845 GMT)

Hudson’s Bay, the owner of the Saks Fifth Avenue and Lord & Taylor brands, has been trying to extract value from its substantial real estate holdings as it wrestles with a shift in consumer preferences away from department stores to online and specialty offerings.

Comparable sales in Hudson’s Bay’s digital division rose 2.8 percent in the three months. Same-store sales in all other divisions except Saks Fifth Avenue dropped and gross margin across the company fell 50 basis points to 39.7 percent, it said.

Performance at the company’s Lord & Taylor and HBC Off Price banners has “clearly not met expectations,” Helena Foulkes, who became chief executive on Feb. 19, said on a teleconference on Wednesday. “We’re looking at every part of the business to improve performance. Everything is on the table.”

The company plans to open 10 stores and close nine, including four Lord & Taylor locations and one Hudson’s Bay, this year.

Comparable sales in its European division, which includes Galeria Kaufhof, Germany’s largest retail chain, fell 3.4 percent.

Canada’s oldest company said last month it had rejected Austrian property and retail group Signa Holding GmbH’s 3 billion euro bid for the Kaufhof unit, and that Signa had withdrawn its offer.

German magazine Manager Magazin last week reported that Kaufhof was set to post a loss of more than 100 million euros for the fiscal year, due to rental increases of 50 million euros annually imposed by Hudson’s Bay, which is also Kaufhof’s main landlord.

Hudson’s Bay does not provide a breakdown of the earnings of individual divisions.

Hudson’s Bay reported net income of C$84 million, or 39 Canadian cents per share, in the fourth quarter, which ended Feb. 3, compared with a net loss of C$152 million, or 83 cents, a year earlier, primarily due to a tax benefit on recent U.S. tax reforms, the company said in a statement.

Adjusted net income excluding one-time items was C$20 million, missing analyst expectations of C$120.18 million, according to Thomson Reuters I/B/E/S.

The company reported a loss of C$581 million, or C$3.04 per share, for the full year, compared with C$516 million, or C$2.83, in the prior period.

The company has put its downtown Vancouver store, which it owns in a joint venture with Canadian retail property trust RioCan RIO_u.TO, up for sale. That follows the sale of its flagship Lord & Taylor building on Manhattan's Fifth Avenue to Softbank-backed WeWork Companies Inc for $850 million.

Reporting By Nichola Saminather; Editing by Chizu Nomiyama and Bill Trott