Hudson's Bay to invest in online retailing, warns on profit

Thu Apr 3, 2014 12:57pm EDT

A woman holds a Hudson's Bay shopping bag in front of the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014. REUTERS/Mark Blinch

A woman holds a Hudson's Bay shopping bag in front of the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014.

Credit: Reuters/Mark Blinch

(Reuters) - Canadian department store operator Hudson's Bay Co (HBC.TO), which bought U.S. luxury chain Saks Inc last year, forecast weaker-than-expected 2014 earnings as it spends more to build up its online shopping sites.

Hudson's Bay shares fell as much as 9 percent, making the stock one of the biggest losers on the Toronto Stock Exchange as the company also reported a steep fall in fourth-quarter profit.

The company said it expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of C$580 million ($525.96 million) to C$620 million, well below the average analyst estimate of C$680.1 million, according to Thomson Reuters I/B/E/S.

"In the near-term, investments in our growth strategy will initially moderate our EBITDA growth and margin expansion," Chief Executive Richard Baker said.

The company said it plans to make an additional C$40 million investment in 2014 to enhance its e-commerce offerings as part of its plans to achieve C$10 billion in sales by fiscal 2018.

Hudson's Bay also said it expects to open up to seven full-line Saks Fifth Avenue stores and up to 25 Off 5th stores in Canada over the next few years, leveraging its pool of real estate and logistics capabilities.

The company holds a lucrative real estate portfolio, including the flagship Saks Fifth Avenue store in Manhattan.

"Although guidance for 2014 is lower than we/the Street had forecast, we believe management did a good job on the call of explaining the source of the shortfall," RBC analyst Irene Nattel said in a note.

E-COMMERCE THRUST

Hudson's Bay forecast low-to-mid single-digit consolidated same-store sales growth in 2014, primarily driven by strong e-commerce sales.

"One of our compelling aspects of acquiring Saks was their digital capabilities were more developed than ours," Baker told Reuters, noting that 70 percent of retail transactions were influenced by the digital experience.

Online sales related to Hudson's Bay and Lord & Taylor stores increased by about 59 percent in the fourth quarter.

The company's net profit from continuing operations fell about 59 percent to C$37.4 million, or 11 Canadian cents per share, hurt by higher expenses and a harsh winter.

Selling, general and administrative expenses more than doubled, driven by a rise in non-cash share-based compensation and costs related to the company's strategic initiatives, it said.

Hudson's Bay posted an about 74 percent rise in retail sales to C$2.41 billion, largely driven by the inclusion of Saks, which it acquired in November for $2.9 billion, including debt.

The company said consolidated same-store sales rose 6.6 percent, including the impact of foreign exchange, with an increase of 5.2 percent at its namesake chain. Same-store sales at Saks increased by 3.1 percent, but fell at Lord & Taylor by 1.3 percent, on a U.S. dollar basis.

Hudson's Bay, which traces its roots to the Canadian fur trade in the late 1600s, operates The Bay and Home Outfitters in Canada and Saks and Lord & Taylor in the United States.

Hudson's Bay shares were down more than 4 percent at C$18 on Wednesday on the Toronto Stock Exchange.

The stock rose about 3 percent in the last six months to Wednesday, lagging the TSX-Toronto Stock Exchange 300 Composite Index .GSPTSE, which rose more than 12 percent in the same period.

($1 = 1.1028 Canadian Dollars)

(Reporting by Ashutosh Pandey in Bangalore; Editing by Saumyadeb Chakrabarty and Maju Samuel)

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