September 24, 2009 / 7:12 PM / 8 years ago

UPDATE 1-Hudson's Bay IPO would face tough market

* Department store chain eyes IPO in 2011

* Analysts say weak retail market will pose problems

* Inefficient business model hurts prospects (Adds analysts’ comments and background)

By Scott Anderson

TORONTO, Sept 24 (Reuters) - With its prospects for growth uncertain at best, Hudson’s Bay Co, Canada’s oldest retailer and one of its biggest department store chains, is likely to face a tough audience if it opts to offer shares to the public, industry analysts said on Thursday.

The company, which was taken private in 2006, is looking to go public again in early 2011, owner Richard Baker, a U.S. businessman, told an industry conference on Wednesday, according to media reports that were confirmed by the company on Thursday.

“Nothing is formal, but we are beginning discussions...we are working on the different alternatives,” Baker told the conference.

The Globe and Mail newspaper’s website, citing industry sources, said Hudson’s Bay Co (HBC) hopes to raise C$100 million to C$200 million ($93.1 million to $186.2 million) in the offering.

Industry experts said the retailer, which was first incorporated in the 1600s and now includes The Bay department store chain, the Zellers discount department store chain, and Home Outfitters, would face tough slogging if it were to forge ahead with plans for an IPO.

An uncertain economic outlook, weak consumer confidence and a dry market for new construction do not bode well for the future of big department store chains, they said.

“I think it would be pretty tough to make a growth story out of the Hudson’s Bay Company. They are in the department store industry that doesn’t have a lot of growth,” said Bill Chisholm, an investment analyst at MacDougall, MacDougall & MacTier.

“Their business has been chipped away by more efficient, specialty retailers. Even the drugstores have taken away a lot of the cosmetic business from which they had a monopoly for a long time.”

Analysts point to the poor performance of department store chains over the past year as proof that the industry is struggling.

Last month Sears Canada SCC.TO, the country’s second-biggest department store chain, said its quarterly profit dropped 20 percent as fragile consumer confidence and cool weather hurt sales.

While HBC is not a public company and not required to disclose its sales figures, it is likely to be facing the same struggles as Sears Canada.

“I don’t think (an IPO) would be great at the current moment, because I can’t imagine that their business trends are very strong,” said Brian Yarbrough, a retail analyst at Edward Jones in St. Louis, Missouri.

“I can’t imagine that they have positive same store (sales) right now. It’s a pretty tough environment so I have got to believe that they are probably struggling.”

Baker said on Wednesday he plans to hold on to his HBC shares and remain active in the business if there is an IPO. He declined to specify whether he planned to spin off a majority or a minority share of the company.

He said, however, that he is considering including his upscale U.S. department store chain Lord and Taylor in the IPO.

Baker’s U.S.-based private equity group, NRDC Equity Partners, bought HBC last year for C$1.1 billion. He said he has cut C$400 million of operating expenses in an attempt to refocus the company.

Earlier this year the company cut 1,000 jobs, or about 5 percent of its work force, to reduce costs.

$1=$1.09 Canadian Reporting by Scott Anderson; Additional reporting by Biswarup Gooptu in Bangalore; editing by Peter Galloway

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