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Hudson’s Bay Co Sees Margins Drop on Saks Fifth Ave & Other Retailers

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Shares of Hudson’s Bay Co. fell, after it reported weak sales for the second quarter and a decline in gross margins. As reported by Bloomberg News, the Canadian retail business group which operates Lord & Taylor, Saks Fifth Avenue, Off Saks, and Home Outfitters, blamed the news partially on a “hyper-promotional environment” Photo Credit: PR Newswire

By: Hellen Zaboulani

Shares of Hudson’s Bay Co. fell, after it reported weak sales for the second quarter and a decline in gross margins. As reported by Bloomberg News, the Canadian retail business group which operates Lord & Taylor, Saks Fifth Avenue, Off Saks, and Home Outfitters, blamed the news partially on a “hyper-promotional environment”, which stretched even to luxury goods at the Saks Fifth Avenue stores. Other cited reasons for the drop in gross margins were cited as changes in store’s footprint, vendor relationships and merchandise.

The company said on Thursday that comparable store sales fell 0.4 percent. The decline brought the company’s total revenue to $1.9 billion, which highlighted a 19% year-over-year increase in digital sales. Sales rose 0.6 percent at Saks, which was the slowest growth in more than eight quarters. Margins dropped by 530 basis points for Hudson’s Bay, which is known as the oldest company in North America, founded in Toronto 349 years ago. Comparable sales slid 3.4 percent, the third consecutive drop. Second quarter net loss from continuing operations was $462 million, including a $150 million non-cash write down of the value of Canadian deferred income tax assets. In light of the news, the stock dropped 2.1% to C$9.99 at 9:35 a.m. in Toronto on Thursday.

Helena Foulkes, CEO of the Hudson’s Bay Co said in a statement on Thursday: “We continue to concentrate on controlling the ‘controllables’–serving our customers and lowering expenses and inventory while making strategic investments for our future. While we’ve progressed in simplifying the business and strengthening operations, the second quarter demonstrates that we are still in the early stages of what HBC can become,” said Foulkes. “This quarter we responded as the market moved early to discount merchandise in both luxury and Canadian retail. Our digital performance was a standout with a sharp increase in growth as our changes in strategy, people and infrastructure are paying off. With the Lord + Taylor sale agreement, our focus is now squarely on Saks Fifth Avenue and Hudson’s Bay–businesses that have the greatest potential for HBC amid the consolidating industry.”

For some time now, Saks, which Hudson’s Bay purchased in 2013, has been one of its only bright spots, with the other holdings faring worse. The company has been working on an initiative to take out 300 “unproductive” brands and brings in another 100.

Hudson Bay is now being targeted for a takeover by Chairman Richard Baker and his partners, who own about 57% of the company. Hudson’s Bay’s board has already declined Baker’s proposed buyout price of C$9.45 per share, as “inadequate”.

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