Hudson’s Bay Company Reeling After Q1 Results, Slashes Dividend

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Amazon (NASDAQ:AMZN) effect will likely continue to weigh on the financial results of the Hudson’s Bay Company (TSE:HBC)

SmallCapPower | June 9, 2017: Could Hudson’s Bay Company (TSX: HBC) be falling victim to the Amazon (NASDAQ: AMZN) effect? Hudson’s Bay Company shares slid 11% to $8.61 on Friday as the retailer said its first-quarter retail sales fell 3% to $3.2 billion, while its net loss for the quarter widened to $221 million from $97 million during the same period last year. Hudson’s Bay Company attributed the loss primarily to lower gross margin dollars combined with higher depreciation and amortization expenses of $15 million, higher finance costs of $12 million, and an increased share of net loss from the joint ventures of $25 million.

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Hudson’s Bay Company added that it will be reducing its quarterly dividend by 75% to $0.0125 per share.

This past month has not been particularly kind to Hudson’s Bay Company, as it announced the departure of its Chief Financial Officer on May 2. And, on May 11, the Company said its first-quarter comparable sales decreased by 2.9%.

Particularly troubling for Hudson’s Bay Company was the comparable sales decrease of 4.8% for its Saks Fifth Avenue division, a high-margin business that the Company has been banking on for its future success.

A lone bright spot of sort for Hudson’s Bay Company during Q1 was that its digital sales increased by 5.6% from the previous year. Hudson’s Bay Company also revealed details of its ‘Transformation Plan’, which is expected to result in annual savings of more than $350 million. The bulk of this savings will come from the reduction of about 2,000 of its employees.

Going forward, the real value of Hudson’s Bay Company appears to be in its real estate holdings, which the Company values at more than $5.5 billion, including plant and equipment. To that end, Hudson’s Bay Company said it has structured two joint ventures as REIT ready vehicles, and obtained independent appraisals on its two wholly-owned New York City flagships. Given Amazon.com’s impact on the retail space, don’t be surprise if Hudson’s Bay Company ends up becoming just a real-estate play.

Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.

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