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Hudson's Bay Co. sales fall as company reports $226M loss

A sign is seen at the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014. REUTERS/Mark Blinch.

Hudson’s Bay Co. (HBC.TO) sales fell in the third quarter as the company grapples with weakness in the luxury market and ongoing challenges at its namesake department store chain.

The Canadian retailer reported a net loss of $226 million for the 13-week period ending Nov. 2, a 12.3 per cent decline from the same time last year, when the company reported a net loss of $161 million. Sales came in at $1.84 billion, down from nearly $1.89 billion in the same quarter last year.

The weaker results come as HBC’s executive chairman Richard Baker leads a group of majority shareholders in a fight to take the company private, a move they say will best address the risks and uncertainties currently facing HBC.

HBC, which operates the Hudson’s Bay, Saks Fifth Avenue and Saks Off Fifth department store chains, has been struggling for years amid a rapidly changing retail environment.

The third quarter saw comparable sales, a key metric in the retail industry, fall 1.7 per cent at HBC overall, compared to a 4.5 per cent increase last year. Hudson’s Bay saw the most significant decline in comparable sales at 3.9 per cent, while Saks Fifth Avenue – typically a bright spot for the company – saw a decline of 2.3 per cent.

HBC chief executive Helena Foulkes said weakness in the luxury market allowed shoppers to take advantage of more markdowns, which weighed on sales at Saks Fifth Avenue.

“Strong digital sales, continued cost control and inventory management were not enough to overcome industry headwinds, softening in the luxury category and the challenge of winning back market share in Canada,” Foulkes told analysts on a conference call on Tuesday, adding that efforts to improve the business, particularly at Hudson’s Bay, are ongoing.

“While the incremental progress is encouraging, more work needs to be done – and faster – in men’s and women’s apparel for us to fully reposition ourselves in the market and return to growth.”

Part of Foulkes’ plan to improve operations at Hudson’s Bay is “upscaling” the department store’s product assortment, particularly in the apparel categories, to more fashion-forward brands. That process includes expanding the company’s relationship with 250 existing brands and adding 75 new designers while ditching 600 “older, more conservative brands” brands.

“We have brought in newer, more exclusive fashion forward brands, we’re really happy with their performance, but we need more of them to offset the declines that we’re seeing,” Foulkes said.

HBC’s stock was down nearly 2 per cent as of 1:05 p.m. ET on Tuesday.

The results come the day before Hudson’s Bay is scheduled to appear before the Ontario Securities Commission, as part of the continued fight against Catalyst Capital Corp. over a potential takeover of the Canadian retailer.

A group of majority shareholders led by Hudson’s Bay executive chairman Richard Baker have offered to take the company private at $10.30 per share, a bid that falls short of the $11 per share counter offer made by Catalyst last week. Catalyst’s offer was rejected by HBC’s special committee last week, as “the transaction is incapable of being completed” due to a lack of support from the Baker group.

Catalyst filed a complaint with the OSC last week after was rejected. The private investment firm is seeking to ban the Baker group from acquiring the retailer, or alternatively force HBC to amend its management circular document which allegedly had “numerous omissions and misrepresentations” and postpone a meeting to vote on the privatization.

Last week, lawyers representing HBC argued that the move is an attempt by Catalyst to postpone its shareholder meeting, scheduled for Dec. 17, and that the Commission was “being co-opted” by the private equity firm.

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