Retailer Hudson’s Bay Co. signs deal to sell Gilt, posts $400M loss

Canada’s oldest department store will sell its Gilt online retail business and shutter multiple Lord & Taylor locations as the struggling retailer attempts to boost its performance.

“These actions will allow us to focus our energy on businesses with the greatest potential to impact our results in a meaningful way,” Hudson’s Bay Co. executive chairman Richard Baker told a conference call with analysts Tuesday.

HBC has not been pleased with its off-price shopping segments, said CEO Helena Foulkes.

The company expects to dedicate resources to Saks Off Fifth, a discount designer clothing outlet, and “realize the full potential that this luxury off-price banner offers,” she said, adding a new leadership team is looking at every aspect of the business, including merchandising and store operations.

Gilt competitor Rue La La announced Monday it would purchase Gilt from HBC in a transaction expected to close in July.

Both websites sell apparel, accessories and home goods online at a discount. Gilt was founded in 2007 and HBC announced it would acquire the online retailer for $250 million in January 2016.

The brands will continue to operate independently, Rue La La said in a statement Monday.

HBC, which confirmed the agreement Tuesday, also said it will close up to 10 Lord & Taylor locations through 2019 as it focuses on driving the brand’s digital business in an effort to reduce costs and optimize its performance.

The company is also looking to explore opportunities to leverage its real estate portfolio, Baker said.

It expects to close the sale of its Fifth Avenue flagship Lord & Taylor building in the latter half of the year, he said. It will vacate that location after co-working space company WeWork takes over the building. When it first struck the $1.6-billion deal to sell the flagship property, HBC expected to house a smaller store at the Manhattan location.

The company is also having ongoing discussions about the sale and leaseback of its Vancouver property, a downtown Hudson’s Bay department store with a long-term lease.

Accretive asset sales are one part of the company’s strategy to realize the value of its real estate, Baker said.

“We believe that there are opportunities to create additional partnerships that better utilize physical space while increasing traffic and improving the economics of our stores.”

The company has faced pressure from an activist investor, Land & Buildings Investment Management LLC, to monetize the company’s real estate assets. The investor argued the retailer’s shares were undervalued and urged it to consider a $4.49-billion bid for its German operations. The company board of directors rejected the bid unanimously in February.

Department stores have been struggling as consumers favour luxury, discount or specialty stores over one-stop shops. Like other retailers, HBC is also grappling with a continued shift to online shopping.

Last year, the company announced it would cut 2,000 jobs in an effort to trim hundreds of millions of dollars in annual costs. At the time, HBC said it was committed to investing in online shopping and expanding its European footprint.

However, its performance on the continent has been lacklustre, with comparable sales at HBC Europe falling for several quarters.

Overall comparable sales declined 0.7 per cent in the most recent quarter, led by a 6.6 per cent decrease at HBC Europe, which includes Galeria Kaufhof and Galeria INNO.

The results came partly because of HBC’s missteps and overall retail trends in that region, Foulkes said.

“Across our European banners, we have a big opportunity to improve our marketing and merchandising assortment to better reflect the preferences of our consumers,” she said, adding the company expects to see the impact of some changes it has been making this year.

But, the company continues to evaluate its store portfolio everywhere, she said.

“We’re excited about the real estate that we own in Europe and the potential. But as I said before, everything’s on the table in terms of focusing on driving improved profitability for the business.”

The company’s shares fell in early-morning trading, losing nearly seven per cent on the Toronto Stock Exchange before regaining some of those losses. The shares were down 21 cents or just under two per cent at $10.41 around 1 p.m. ET.

HBC lost $400 million in its first quarter ended May 5 compared with a loss of $221 million a year ago. The loss amounted to $1.70 per share compared to $1.21 per share in the same quarter last year.

On a normalized basis, HBC said its loss per share for the quarter amounted to $1.22 compared with a normalized loss of $1.15 per share a year ago.

Analysts on average had expected a loss of 87 cents per share, according to Thomson Reuters Eikon.

Revenue totalled nearly $3.09 billion, up from nearly $3.06 billion a year ago. North American results were encouraging, the company said, but the strength was offset by European performance.