/HBC posts lower results on eve of OSC showdown

HBC posts lower results on eve of OSC showdown

Hudson’s Bay Co. posted a $226 million net loss for its fiscal third quarter on Tuesday as a bruising battle for control of the ailing department store chain appeared to be approaching a climax.

Shareholders are scheduled to vote next week on a privatization offer from a group led by chairman Richard Baker, which has offered $10.30 per share. In the past week or so, Catalyst Capital Group Inc., HBC’s largest minority shareholder, has launched a two-pronged offensive to stop that deal, floating its own takeover offer at $11 per share, then calling on the Ontario Securities Commission to block Baker’s deal, or at least push back an upcoming shareholder vote.

While an OSC hearing on the matter is scheduled to begin Wednesday, there was little mention of the battle on HBC’s conference call with analysts Tuesday.

“Over the last month, many have asked if we expect our strategy to change. In short, the answer is ‘No’,” HBC chief executive Helena Foulkes said at the end of her opening statement. “Whether we are a public or private company, our strategy remains the same.”

None of the questions from analysts touched on the deal.

“Everyone was a grownup on the call and just knew there’s nothing more they could add,” Scotiabank analyst Patricia Baker told the Financial Post. “I do not think what’s going on will have really impacted the operating performance of the company.”

Foulkes spent most of Tuesday’s call discussing her efforts to fix Hudson’s Bay, which include making staff easier to find, stores easier to navigate, and a cull of 600 brands from the Bay roster. Foulkes calls it an “upscale edit,” replacing older and more conservative brands with a smaller mix of fashion-forward designers. But in the third quarter, Foulkes said HBC faced a “luxury pause” in the retail industry, as credit card transaction data showed a downturn in consumer spending in the high-end category. That pause appears to be over, she said, as holiday shopping ramps up.

“There’s no doubt that we wanted more from our third-quarter performance,” she said. “I feel encouraged by what we’re see since the Black Friday break. On the other hand, I’m still very cautious because we need to see more than a few good weeks.”

HBC posted a total revenue of $1.841 billion for the quarter ending Nov. 2, down from $1.885 billion a year ago. Its same-store-sales growth — one of the main success metrics in retail — was negative 1.7 per cent. At HBC’s Saks Fifth Avenue banner, same-store-sales growth was negative 2.3 per cent and Hudson’s Bay was negative 3.9 per cent. But Saks Off 5th, HBC’s value brand, posted same-store-sales growth of 4.9 per cent. The $226-million net loss for the quarter includes a $51 million net loss associated with its discontinued operations, including the now-sold Lord and Taylor banner. Excluding one-time items, HBC gave its normalized net loss as $128 million.

The Company’s performance and outlook remains challenging, and its share price has continued to decline.

HBC special committee chair David Leith

The quarter also saw a $10 million impairment charge for HBC’s Winnipeg flagship store after real estate appraisals conducted during deliberations on the take-private offer showed that the value on the company’s books was $10 million too high.

“The earnings this morning were disappointing,” Baker, at Scotiabank, said, adding that if Foulkes’ strategy to turn around the company is working, HBC should start seeing positive cash flow soon.

“I would not want to hazard a guess on how much longer that will take,” Scotiabank’s  Baker said. “If it’s going to work, it’s got to start to show some progress in the right direction in 2020.”

Last month, a special committee of HBC’s board of directors didn’t appear confident that the turnaround would be an expeditious one.

“Despite the progress made by the Company,” special committee chair David Leith wrote to shareholders, “the Company’s performance and outlook remains challenging, and its share price has continued to decline.”

On Wednesday, Catalyst is expected to ask the Ontario Securities Commission to block the $10.30 offer, or at least postpone the Dec. 17 shareholder vote to approve the deal. But before the OSC can consider it, it will first decide if Catalyst’s application has standing. The hearing is scheduled for 10 a.m.

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