Hudson's Bay Company Records Strong Third Quarter Retail Sales Increase and Initiates Quarterly Dividend to Shareholders
TORONTO, Dec. 11, 2012 /CNW/ - Hudson's Bay Company ("HBC" or the "Company") (TSX: HBC) reported strong same store sales increases today for the quarter and year-to-date periods ended October 27, 2012, and announced an initial quarterly dividend of $0.09375 per share payable on December 27, 2012 to shareholders of record as of December 19, 2012. Today's financial report for the third quarter of fiscal year 2012 is the first for HBC since the Company's initial public offering ("IPO") in November 2012.
Commenting on the quarter, Richard Baker, Governor and Chief Executive Officer of Hudson's Bay Company, stated "Hudson's Bay and Lord & Taylor continued to deliver solid mid-single digit same store sales increases for the third quarter of 2012, including an 8% same store sales increase in October at both banners. This continued strong performance has allowed the Company to approve an initial quarterly dividend of $0.09375 per share."
Financial and Operating Highlights
(All comparative figures below and in the "Financial Results" section that follows are for the 13 and 39 week periods ended October 27, 2012 and October 29, 2011. Throughout this news release, the terms "Normalized EBITDA" and "Normalized Net Earnings (Loss) - Continuing Operations" have been used to refer to financial results that have been adjusted to exclude certain non-recurring items and charges. For a full explanation of the Company's use of Non-IFRS measures, please refer to Note 1 of the Selected Consolidated Financial Information section of this news release.)
Highlights of the 13 week period ended October 27, 2012
- Same store sales increased by 4.5% at Hudson's Bay and 5.2% on a U.S. dollar basis at Lord & Taylor, primarily driven by stronger storewide promotional events in October. Consolidated same store sales, which increased 3.5% compared to the prior period, were negatively impacted by foreign exchange rate movements and lower sales at Home Outfitters;
- Normalized EBITDA was $47.9 million or 5.1% of retail sales in the quarter compared to $65.2 million or 7.3% of retail sales in the prior period. The decline in Normalized EBITDA as a percentage of retail sales was principally due to a higher inventory shortage and seasonal clearance markdowns, partially offset by a 0.5% improvement in SG&A leverage;
- Normalized Net Earnings (Loss) - Continuing Operations was $0.8 million for the quarter compared to ($5.0 million) for the prior period, a $5.8 million improvement;
Highlights of the 39 week period ended October 27, 2012
- Consolidated same store sales increased by 4.9% with an increase of 5.0% at Hudson's Bay and 4.6% on a U.S. dollar basis at Lord & Taylor;
- Normalized EBITDA decreased 9.0% to $132.9 million or 4.9% of retail sales in the 39 week period, compared to $146.1 million or 5.7% of retail sales during the prior period. The decrease in Normalized EBITDA margin is principally due to a higher inventory shortage and seasonal clearance markdowns, partially offset by a 0.3% increase in SG&A leverage;
- Normalized Net Earnings (Loss) - Continuing Operations for the 39 week period ended was ($22.2 million) compared to ($38.9 million) for the prior period, an improvement of $16.7 million; and
- Two new Lord & Taylor stores were opened in Ridge Hill, NY and Rockingham, New Hampshire.
"We welcome our new shareholders. As a result of our successful IPO during the third quarter, we have reduced our net debt and we are in a strong position to continue growing our business", said Michael Culhane, Chief Financial Officer of Hudson's Bay Company.
Financial Results
13 week period ended October 27, 2012
Retail sales increased 3.8% to $930.4 million for the 13 week period ended October 27, 2012 from $896.7 million in the corresponding period in 2011.
Consolidated same store sales increased 3.5% in the third quarter, with an increase of 4.5% at Hudson's Bay and 5.2% on a U.S. dollar basis at Lord & Taylor. The improvement in same store sales was primarily driven by stronger storewide promotional events including "Bay Days" at Hudson's Bay and "Friends and Family" at Lord & Taylor. Sales from the Company's Omni-channel initiative grew 55.3% in the third quarter from $20.8 million for the 13 week period ended October 29, 2011 to $32.3 million for the 13 week period ended October 27, 2012, excluding in-store returns. Foreign exchange rate movements, related to the translation of Lord & Taylor results, and lower sales at Home Outfitters, negatively impacted consolidated same store sales results.
Gross profit was $362.7 million or 39.0% of retail sales for the 13 week period ended October 27, 2012, compared to $370.7 million or 41.3% of retail sales for the 13 week period ended October 29, 2011. The decrease in gross profit rate was due to an unfavourable inventory shortage and markdowns on seasonal merchandise. The higher than expected inventory shortage negatively impacted gross profit by approximately $9.3 million or 1.0% of retail sales for the period. We have revisited our inventory control processes and have taken actions to ensure that this will not be an ongoing issue. As a result of seasonal markdowns, we were able to reduce excess inventory related to spring 2012 merchandise which resulted in appropriate inventory levels at the end of the quarter.
SG&A was $351.7 million or 37.8% of retail sales in the 13 week period ended October 27, 2012, compared to $343.4 million or 38.3% of retail sales in the 13 week period ended October 29, 2011. The SG&A rate as a percentage of retail sales decreased by 0.5% in the 13 week period ended October 27, 2012 compared to the same period in the prior year. This decrease is a result of improvements in both store payroll and marketing leverage, and was partially offset by a lower return from credit operations related to the change in terms of the HBC credit card program at the beginning of Fiscal 2012.
Normalized EBITDA was $47.9 million in the 13 week period ended October 27, 2012 compared to $65.2 million in the 13 week period ended October 29, 2011, a decrease of $17.3 million. The decline in EBITDA was principally due to a higher inventory shortage, partially offset by SG&A leverage.
Net earnings (loss) from continuing operations for the 13 week period ended October 27, 2012 was ($8.5 million) compared to ($7.5 million) for the 13 week period ended October 29, 2011.
Normalized Net Earnings (Loss) - Continuing Operations increased to $0.8 million for the 13 week period ended October 27, 2012 compared to ($5.0 million) for the 13 week period ended October 29, 2011.
39 week period ended October 27, 2012
Retail sales increased 5.5% to $2,690.5 million for the 39 week period ended October 27, 2012 from $2,550.0 million for the corresponding period in 2011.
Gross profit was $1,068.4 million or 39.7% of retail sales for the 39 week period ended October 27, 2012, compared to $1,039.8 million or 40.8% of retail sales for the 39 week period ended October 29, 2011. The decrease in gross margin as a percentage of retail sales was primarily due to increased seasonal markdowns and an unfavourable inventory shortage result. The higher than expected inventory shortage impacted gross profit by approximately $13.3 million or 0.5% of retail sales for the 39 week period ended October 27, 2012. The increase in seasonal markdowns focused on maintaining appropriate inventory levels in key categories, and enhanced the sales productivity of our major seasonal marketing events.
SG&A was $1,081.7 million or 40.2% of retail sales in the 39 week period ended October 27, 2012 compared to $984.4 million or 38.6% of retail sales in the 39 week period ended October 29, 2011. The SG&A as a percentage of retail sales increased by 1.6% in the 39 week period ended October 27, 2012 compared to the same period in the prior year. This increase arose largely as a result of $55.5 million in restructuring costs and other one-time expenses incurred in 2012 which are not considered part of day-to-day operations, and a lower return from credit operations.
The increase in SG&A for the 39 week period ended October 27, 2012 was due to increased store payroll and benefits to support increased sales, decreased return from credit operations of $13.0 million due to new program terms, incremental costs associated with the investment in our Omni-channel platform, corporate reorganization charges primarily due to costs associated with closing distribution centres and a gain recorded in 2011 associated with the sale of the Halifax Hudson's Bay store. The cost increases were partially offset by reductions in shared service costs. Excluding the $55.5 million impact of one-time charges related to restructuring and Offering costs, SG&A as a percentage of retail sales would have improved 2.1% to 38.1% of retail sales in 2012 and 0.2% better than the prior period.
Adjusted for the non-recurring and IPO-related SG&A expenses, Normalized EBITDA decreased 9.0% to $132.9 million, or 4.9% of retail sales, in the 39 week period ended October 27, 2012, compared to $146.1 million or 5.2% of retail sales in the corresponding period in 2011.
Normalized Net Earnings (Loss) - Continuing Operations improved from ($38.9 million) in the 39 week period ended October 29, 2011 compared to ($22.2 million) for the 39 week period ended October 27, 2012.
Hurricane Sandy Update
During the week of October 28, 2012 (the first week of the fourth quarter of Fiscal 2012), Hurricane Sandy swept across a large tract of the U.S. northeast. 80% of our Lord & Taylor stores were impacted by closings and limited operating hours. The effects of the storm may negatively impact fourth quarter sales by approximately U.S. $20 million and result in moderately higher inventory levels at Lord & Taylor.
Because of the disruption to our operations caused by Hurricane Sandy, we are providing November's same store sales information. For the month of November, our consolidated same store sales were flat. This was driven by positive comparable sales at Hudson's Bay of 9.0% and negative 12.4% comparable sales on a U.S. dollar basis at Lord & Taylor. Adjusting for the approximately U.S.$20 million impact of Hurricane Sandy, same store sales at Lord & Taylor would have increased 3.7% on a U.S. dollar basis, and consolidated same store sales would have increased 5.7%. Both banners experienced uplift in sales performance as a result of promotional activity during Black Friday sales at the end of the month.
Dividend
The Company's Board of Directors approved a dividend for holders of common shares of $0.09375 per common share. The Company's dividend will be paid on December 27, 2012 to shareholders of record at the close of business on December 19, 2012 and is designated as an "eligible dividend" for Canadian tax purposes.
Selected Consolidated Financial Information
| (millions of Canadian dollars except for per share amounts) |
13-week period ended | 39-week period ended | |||||||||||
| Oct 27, 2012 |
Oct 29, 2011 |
Oct 27, 2012 |
Oct 29, 2011 |
||||||||||
| $ | % | $ | % | $ | % | $ | % | ||||||
| Earnings Results | |||||||||||||
| Retail sales | 930.4 | 100.0% | 896.7 | 100.0% | 2,690.5 | 100.0% | 2,550.0 | 100.0% | |||||
| Cost of sales | (567.7) | −61.0% | (526.0) | −58.7% | (1,622.1) | −60.3% | (1,510.2) | −59.2% | |||||
| Gross profit | 362.7 | 39.0% | 370.7 | 41.3% | 1,068.4 | 39.7% | 1,039.8 | 40.8% | |||||
| Selling, general & administrative expenses | (351.7) | −37.8% | (343.4) | −38.3% | (1,081.7) | −40.2% | (984.4) | −38.6% | |||||
| Operating income (loss) | 11.0 | 1.2% | 27.3 | 3.0% | (13.3) | −0.5% | 55.4 | 2.2% | |||||
| Finance costs | (32.7) | −3.5% | (37.9) | −4.2% | (84.1) | −3.1% | (114.4) | −4.5% | |||||
| Loss before income taxes ("EBT") | (21.7) | −2.3% | (10.6) | −1.2% | (97.4) | −3.6% | (59.0) | −2.3% | |||||
| Income tax benefit | 13.2 | 1.4% | 3.1 | 0.3% | 35.3 | 1.3% | 17.1 | 0.7% | |||||
| Net earnings (loss) — continuing operations | (8.5) | -0.9% | (7.5) | −0.8% | (62.1) | −2.3% | (41.9) | −1.6% | |||||
| Net earnings (loss) — discontinued operations | 6.5 | 1,247.4 | (87.7) | 1,295.1 | |||||||||
| Net earnings (loss) for the period | (2.0) | 1,239.9 | (149.8) | 1,253.2 | |||||||||
| EBITDA(1) | 42.5 | 4.6% | 61.6 | 6.9% | 77.4 | 2.9% | 139.8 | 5.5% | |||||
| Normalized EBITDA(1) | 47.9 | 5.1% | 65.2 | 7.3% | 132.9 | 4.9% | 146.1 | 5.7% | |||||
| Net Earnings (Loss) per Common Share — Basic and Diluted(7) | |||||||||||||
| Continuing Operations | (0.08) | (0.07) | (0.59) | (0.40) | |||||||||
| Discontinued Operations | 0.06 | 11.90 | (0.84) | 12.36 | |||||||||
| Total earnings per share | (0.02) | 11.83 | (1.43) | 11.96 | |||||||||
| Weighted average shares outstanding — basic and diluted (millions) | 104.8 | 104.8 | 104.8 | 104.8 | |||||||||
| Same Store Sales Percentage Change(2) | |||||||||||||
| Continuing Operations | 3.5% | 5.2% | 4.9% | 4.3% | |||||||||
| Continuing Operations (excluding impact of Foreign Exchange) | 3.9% | 6.3% | 4.2% | 6.2% | |||||||||
| Hudson's Bay(3) | 4.5% | 7.7% | 5.0% | 5.8% | |||||||||
| Lord & Taylor(4) | 5.2% | 5.9% | 4.6% | 7.4% | |||||||||
| Store Information | |||||||||||||
| Store Count(5) | |||||||||||||
| Hudson's Bay | 90 | 91 | |||||||||||
| Lord & Taylor | 48 | 46 | |||||||||||
| Home Outfitters | 69 | 69 | |||||||||||
| Total Stores | 207 | 206 | |||||||||||
| Cash Flow Data | |||||||||||||
| Total Capital expenditures(6) — continuing operations | 64.2 | 92.6 | 137.5 | 147.8 | |||||||||
| Oct 27, 2012 |
Jan 28, 2012 |
Oct 29, 2011 |
||||||
| Balance Sheet Data(8) | $ | $ | $ | |||||
| Cash | 37.9 | 42.4 | 263.9 | |||||
| Trade and other receivables | 53.6 | 124.0 | 139.0 | |||||
| Inventories | 1,255.1 | 1,814.2 | 2,237.6 | |||||
| Assets of discontinued operations held for sale (8) | 626.0 | - | - | |||||
| Current assets | 2,018.1 | 2,007.2 | 2,705.1 | |||||
| Property, plant and equipment | 1,318.1 | 1,401.1 | 1,384.7 | |||||
| Total assets | 3,859.6 | 3,993.5 | 4,721.7 | |||||
| Current liabilities | 2,093.4 | 1,916.8 | 2,855.9 | |||||
| Loans and borrowings (including current portion) | 1,412.6 | 1,192.7 | 1,489.1 | |||||
| Liabilities of discontinued operations held for sale | 525.5 | - | - | |||||
| Shareholders' Equity | 692.3 | 955.9 | 1,057.9 | |||||
________________________________
| Notes: | |
| (1) | For a reconciliation of Net Earnings (Loss) — Continuing Operations to EBITDA and Normalized EBITDA, please see the table below. |
| (2) | The Company calculates same store sales on a year-over-year basis using sales from stores operating for at least 13 months, Internet sales and clearance store sales. |
| (3) | Our sponsorship of the Vancouver 2010 Winter Olympics and our status as the exclusive supplier of the Canadian Olympic Collection resulted in significant non-recurring sales in the fourth quarter of Fiscal 2009 and the first quarter of Fiscal 2010. In order to provide meaningful comparisons on a period over period basis, we disclose same store sales percentage change information excluding the impact of sales of Olympic merchandise for the first quarter of 2010 of $50.5 million. |
| (4) | Same store sales of Lord & Taylor are calculated in U.S. dollars. |
| (5) | Lord & Taylor operates two Lord & Taylor Home stores and three Lord & Taylor Outlet stores that are not included in the store count. |
| (6) | Capital expenditures from continuing operations are inclusive of software development costs and exclude expenditures associated with discontinued operations. |
| (7) | All references to shares, share prices, per share amounts and share plans have been adjusted retroactively for the share split on November 19, 2012. |
| (8) | Under IFRS, prior period balance sheets are not restated to reflect assets and liabilities of discontinued operations apart from ongoing operations. See Note 4 in the unaudited interim condensed consolidated financial statement for the thirteen and thirty-nine weeks ended October 27, 2012 and October 29, 2011 for additional information. |
The following table shows the reconciliation of Net Earnings (loss) — Continuing Operations to EBITDA as well as Normalized EBITDA.
| 13-week period ended | 39-week period ended | |||||||
| (millions of Canadian dollars) | Oct 27, 2012 |
Oct 29, 2011 |
Oct 27, 2012 |
Oct 29, 2011 |
||||
| $ | $ | $ | $ | |||||
| Net Earnings (Loss) - Continuing Operations | (8.5) | (7.5) | (62.1) | (41.9) | ||||
| Finance costs | 32.7 | 37.9 | 84.1 | 114.4 | ||||
| Income tax benefit | (13.2) | (3.1) | (35.3) | (17.1) | ||||
| Pension expense (non-cash) | 4.6 | 2.8 | 13.7 | 8.4 | ||||
| Depreciation and amortization | 26.2 | 24.3 | 73.1 | 66.5 | ||||
| Impairment and other non-cash expenses | 0.7 | 7.2 | 3.9 | 9.5 | ||||
| EBITDA | 42.5 | 61.6 | 77.4 | 139.8 | ||||
| Normalizing Adjustments: | ||||||||
| Restructuring and corporate reorganization | 5.4 | 3.6 | 55.5 | 11.9 | ||||
| Gain on sale of Bay Halifax store | - | - | - | (5.6) | ||||
| Total Normalized Adjustments | 5.4 | 3.6 | 55.5 | 6.3 | ||||
| Normalized EBITDA | 47.9 | 65.2 | 132.9 | 146.1 | ||||
The following table shows the reconciliation of Net Earnings (loss) - Continuing Operations to Normalized Net Earnings (Loss) - Continuing Operations.
| 13-week period ended | 39-week period ended | |||||||
| (millions of Canadian dollars) | Oct 27, 2012 |
Oct 29, 2011 |
Oct 27, 2012 |
Oct 29, 2011 |
||||
| $ | $ | $ | $ | |||||
| Net Earnings (Loss) - Continuing Operations | (8.5) | (7.5) | (62.1) | (41.9) | ||||
| Restructuring | 3.8 | 2.5 | 38.8 | 8.3 | ||||
| Gain on sale Bay Halifax store | - | - | - | (5.3) | ||||
| Write-down of deferred finance costs | 5.5 | - | 5.5 | - | ||||
| Impact of Tax Rate Change | - | - | (4.4) | - | ||||
| Total Normalized Adjustments | 9.3 | 2.5 | 39.9 | 3.0 | ||||
| Normalized Net Earnings (Loss) - Continuing Operations | 0.8 | (5.0) | (22.2) | (38.9) | ||||
EBITDA is a non-IFRS measure that we use to assess our operating performance. EBITDA is defined as net earnings before interest expense, income taxes, depreciation and amortization expense. The Company's defined benefit pension plan is currently over funded, and as a result pension expense is adjusted as management does not expect to make any payments given the surplus position. For a reconciliation of net earnings to EBITDA, see the table above.
Normalized EBITDA is defined as EBITDA adjusted to exclude: (i) business and organization restructuring/realignment charges; (ii) merger/acquisition costs and expenses; and (iii) normalizing adjustments, if any, related to transactions that are not associated with day-to-day operations. Normalized Net Earnings (Loss) - Continuing Operations is defined as net earnings (loss) adjusted to exclude: (i) business and organization restructuring/realignment charges; (ii) merger/acquisition costs and expenses; and (iii) normalizing adjustments, if any, related to transactions that are not associated with day-to-day operations. We have included Normalized EBITDA and Normalized Net Earnings (Loss) - Continuing Operations to provide investors with supplemental measures of our operating performance. We believe Normalized EBITDA and Normalized Net Earnings (Loss) - Continuing Operations are important supplemental measures of operating performance because they eliminate items that have less bearing on our operating performance and thus highlights trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use EBITDA, Normalized EBITDA, and Normalized Net Earnings (Loss) - Continuing Operations in the evaluation of issuers, many of which present similar metrics when reporting their results. Our management also uses Normalized EBITDA in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our future debt service, capital expenditure and working capital requirements and our ability to pay dividends on our capital share. Because other companies may calculate EBITDA, Normalized EBITDA, or Normalized Net Earnings (Loss) - Continuing Operations differently than we do, these metrics are not comparable to similarly titled measures reported by other companies.
Conference Call to Discuss Results
Management will discuss the quarter ended financial results and other matters during a conference call on Tuesday, December 11, 2012 at 8:30 am EST. The conference call will be accessible by calling the participant operator assisted toll-free dial-In number (877) 852-2926 or International dial-in number (253) 237-1123.
A live webcast of the conference call will be accessible on HBC's website at: http://investor.hbc.com/eventdetail.cfm?eventid=122713. The audio instant replay will be available via this link until January 11, 2013.
About Hudson's Bay Company
Hudson's Bay Company ("HBC"), founded in 1670, is North America's longest continually operated company and is a leading retailer offering a wide selection of branded merchandise in Canada and the United States through its three banners. In the United States, HBC operates Lord & Taylor, a fashion department store with 48 full-line store locations throughout the northeastern United States and in two major cities in the Midwest. In Canada, HBC operates Hudson's Bay, Canada's largest national branded department store with 90 locations. HBC also operates Home Outfitters, a kitchen, bed and bath superstore with 69 locations. With approximately 29,000 associates in Canada and the U.S., Hudson's Bay Company banners provide stylish, quality merchandise at great value and with a dedicated focus on exceeding customers' expectations.
Forward looking statements
Information in this press release that is not current or historical factual information may constitute forward-looking information, including future-oriented financial information and financial outlooks, within the meaning of securities laws. This information is based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While the Company considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking information is subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what the Company currently expects. These risks, uncertainties and other factors include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates, the timing and market acceptance of future products, competition in the Company's markets, the growth of certain business categories and market segments and the willingness of customers to shop at the Company's stores, the Company's margins and sales and those of the Company's competitors, the Company's reliance on customers, risks and uncertainties relating to information management, technology, supply chain, product safety, changes in law, regulations, competition, seasonality, commodity price and business disruption, the Company's relationships with suppliers and manufacturers, changes to existing accounting pronouncements, the ability of the Company to successfully implement its strategic initiatives, changes in consumer spending, managing our portfolio of brands and our merchandising mix, seasonal weather patterns, economic, social, and political instability in jurisdictions where suppliers are located, increased shipping costs, potential transportation delays and interruptions, the risk of damage to the reputation of brands promoted by the Company and the cost of store network expansion and retrofits, compliance costs associated with environmental laws and regulations, fluctuations in currency and exchange rates, commodity prices, the Company's ability to maintain good relations with its employees, changes in the law or regulations regarding the environment or other environmental liabilities, the Company's capital structure, funding strategy, cost management programs and share price, the Company's ability to integrate acquisitions and the Company's ability to protect its intellectual property.
For more information on these risks, uncertainties and other factors the reader should refer to the Company's filings with the securities regulatory authorities, including the Company's supplemented PREP prospectus dated November 19, 2012, which is available on SEDAR at www.sedar.com. To the extent any forward-looking information in this press release constitutes future-oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future-oriented financial information and financial outlooks, as with forward-looking information generally, are based on assumptions and subject to risks, uncertainties and other factors. Actual results may differ materially from what the Company currently expects. Other than as required under securities laws, the Company does not undertake to update any forward-looking information at any particular time. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. All forward-looking information contained in this press release is expressly qualified in its entirety by this cautionary statement.
E-HBC1670
SOURCE: Hudson's Bay Company
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