Hudson’s Bay gets boost from discount arm of Saks.
Saks Off Fifth proves HBC’s best banner
TORONTO • Consumers love a bargain, and the upside of that is obvious when you look at Hudson’s Bay Co.’ s performance since its acquisition of Saks.
While the Canadian retailer posted strong fourth-quarter results at all of its banners, including The Bay, Saks and Lord & Taylor as well as their digital divisions, it was the off-price Saks Off Fifth banner that posted the strongest sales in the period ended Jan. 31 and the last fiscal year, a trend that shows no signs of slowing down.
Same-store sales, an important retailing bellwether, rose 3.2 per cent overall at HBC’s chains, led by a climb of 12.1 per cent at Saks Off Fifth, 2.3 per cent at The Bay and Lord & Taylor and 2.6 per cent at Saks.
For the full year, the performance of the upscale bargain banner was even more impressive — a 15.1 per cent same-store sales rise at Saks Off Fifth, compared with 1.5 per cent growth at The Bay and Lord and Taylor, and 2.1 per cent growth at Saks.
“We are going to continue to grow the (Saks Off Fifth) business quite rapidly from a unit growth (standpoint), and we will continue driving the (comparable) sales quarter after quarter,” chief executive Jerry Storch told analysts on a conference call showcasing strong yearover-year sales and profit gains.
Shares closed up $1.49, or 5.6 per cent, to $28.29 in Toronto trading on Tuesday.
“We think that is a very attractive business and it is where we are putting a lot of our new units,” Storch said.
Off-price stores typically sell goods at 20-per-cent to 60-per-cent below the original price tag, but Storch said the margin structure for the Off Fifth business remains “excellent.”
When Canada’s oldest retailer closed the Saks deal in the fall of 2013, executive chairman Richard Baker said his priorities were to expand HBC’s digital business and step up the expansion of Off Fifth.
The company plans to open the first of up to 25 Off Fifth stores across Canada beginning next spring, along with first two of as many as seven Saks full-line luxury department stores.
“We know that there is a polarization in retail — the luxury segment is doing really well and the value segment is doing well, and HBC has smartly positioned itself to take advantage of the luxury retail rebirth, and they have made the classic department store channel relevant again,” said Bruce Edward Winder, a retail industry consultant at J.C. Williams Group in Toronto.
“Expanding Off Fifth is smart because people always want a bargain, and this allows them to participate in the luxury channel without having to pay the full price. People love brands, and they can be aspirational when it comes to their shopping.”
HBC will spend $350 million to $400 million in 2015 to build one Saks Fifth Avenue store and between 12 to 14 Off Fifth stores.
In addition, HBC said it would invest an incremental $50 million during the year on growth initiatives, including accelerating the pace of new store openings at Off Fifth, which has 78 locations in the United States, up from 72 a year earlier.
The spending will also go toward strengthening its digital online capabilities and on pre-opening costs associated with expanding Saks Fifth Avenue into Canada.
The Toronto-based department store operator, which has 322 stores, posted net profit from continuing operations of $111 million, or 61 cents per share, in the fourth quarter compared with $37 million, (21 cents), in the same period a year ago.
Sales climbed 9.3 per cent to $2.63 billion.
Digital commerce sales rose to $304 million in the fourth quarter, marking a robust year-over-year increase of 35.1 per cent as the company aggressively expanded its digital presence.
For the year, digital commerce sales accounted for $900 million of $8.2 billion in retail sales.