Softer-than-anticipated sales at department store operator Hudson’s Bay Co. prompted the retailer to revise its estimates downward on Friday, an unexpected blow for the country’s oldest company as it heads into the critical holiday selling season.
The owner of Saks and Lord & Taylor saw its shares fall more than 10 per cent after it reported third-quarter sales at stores open for a year, an important measure of retail performance known as same-store sales, fell 3.6 per cent after adjusting for currency fluctuation.
Including foreign exchange, same-store sales were down four per cent. The retailer also announced it would pull back on its planned capital expenditures for 2016 to a level of between $700 million and $750 million from a prior plan of $750 million to $850 million.
“The apparel retail environment continued to be challenging through the third quarter,” chief executive Jerry Storch said in a statement. “We remain optimistic about this year’s upcoming extended holiday season following last year’s tough fourth quarter which was impacted by warm weather, and are focused on executing our all channel strategy for long term growth and increased profitability.”
HBC’s sales weakness was most pronounced in the off-price channel, where same-store sales tumbled 8.4 per cent at banners including Saks Off Fifth and Gilt Groupe, a channel that has been a stellar driver of the company’s past financial results.
HBC trimmed its estimate for 2016 sales to between $14.5 billion and $14.9 billion from its previous outlook, issued in September, of $14.9 billion to $15.9 billion.
“HBC, with Saks Off Fifth has scaled back on some of their promotional pricing to try to improve margin, and I don’t think that is the wisest strategy,” said Bruce Winder, a partner in Toronto-based Retail Advisors Network.
“The reason people go to Saks off Fifth or a Nordstrom Rack is for those 60 to 70 per cent off deals, and that whole off-price segment is getting more competitive. It’s a dangerous thing to back off of that strategy, and particularly in a climate of economic uncertainty — it almost always backfires.”
In the meantime, the veteran retailer has been ramping up its technology investments in order to appeal to a broader range of shoppers. HBC recently made $60 million in upgrades to its Toronto distribution centre in order to hasten fulfillment and delivery time and better compete with the likes of Amazon. Storch said Friday that the company’s technology investments led to increases in digital sales in all of its department store banners in the third quarter.
The Toronto-based retailer’s earlier outlook had been based on the expectation that same-store sales would be better in the second half of the year, something that “has not yet transpired,” management said Friday.
Competing apparel retailers have turned in a mixed bag of results for the period thus far.
On Thursday, Nordstrom Inc. reported a comparable sales increase of 2.4 per cent, due largely to the robust performance of its yearly anniversary sale. Macy’s same-store sales were down 3.3 per cent, the seventh straight quarter of same-store declines, but the retailer boosted its sales outlook for the remainder of the year. At Kohl’s, same-store sales fell 1.7 per cent, while at J.C. Penney sales fell 0.8 per cent as the retailer also cut its full-year sales growth forecast on Friday.
HBC will release its full financial results for the period ended Oct. 29 on Dec. 5.
Source: Mobile Commerce Daily