Hudson's Bay Company Q2 consolidated retail sales increased 59.6%
Staff Writer |
Hudson's Bay Company announced its second quarter financial results. Consolidated retail sales were $3,252 million, an increase of 59.6% from the prior year.
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This was primarily a result of the addition of HBC Europe and Gilt as well as an increase in comparable sales of 1.9%.
On a constant currency basis, comparable sales grew 1.1% at DSG, offset by declines of 0.9% at HBC Europe, 11.4% at HBC Off Price and 1.3% at Saks Fifth Avenue, resulting in a total comparable sales decline of 1.3%.
Total Digital sales increased by 84.4% from the prior year, with total Digital comparable sales increasing by 1.4% on a constant currency basis. Excluding HBC Off Price, total Digital comparable sales increased 17.3% on a constant currency basis.
As discussed in the prior quarter, HBC has significantly reduced its promotional activity at Saks OFF 5TH compared to the prior year, which has substantially increased margins while reducing sales.
During the quarter Hudson's Bay Company also migrated the Saks OFF 5TH website to a new platform, which caused some disruption and impacted Digital sales at this banner.
In addition, at Gilt, which is included in HBC Off Price and is a major component of Hudson's Bay Company's digital comparisons, the return policy was enhanced.
The Company expects the liberalization of the return policy at Gilt and the new common digital platform will enable HBC to build stronger relationships with its customers over the long term.
For HBC overall, gross profit rate as a percentage of retail sales was 41.5%, an increase of 200 basis points from the prior year. This increase was primarily related to the addition of HBC Europe, which operates at relatively higher gross margin and SG&A rates, as well as higher gross margins at Saks OFF 5TH.
The Company remains focused on improving efficiencies, reducing expenses and optimizing its real estate portfolio, and has made solid progress on its expense management initiatives disclosed previously.
These initiatives include the North American operations realignment program, voluntary restructuring programs of its European operations, and the outsourcing of IT systems maintenance positions in North America.
During the quarter Hudson's Bay Company recorded charges of $4 million related to these initiatives.
Over the last year, HBC has grown dramatically through the acquisition of GALERIA Kaufhof, Gilt, and the creation of the respective joint ventures with RioCan Real Estate Investment Trust and Simon Property Group (collectively the joint ventures).
Until Hudson's Bay Company begins to anniversary these transactions, SG&A expenses will not be directly comparable to previous periods.
SG&A expenses were $1,286 million compared to $775 million in the prior year. This increase reflects the additions of HBC Europe, Gilt and the joint ventures.
Normalized SG&A expenses were $1,249 million or 38.4% of retail sales, compared to 36.9% in the prior year. This rate increase was driven by the inclusion of HBC Europe, which operates at a higher SG&A rate, and the additional net rent expense incurred in connection with the joint ventures.
Adjusted EBITDAR was $263 million, an increase of 113.8% compared to $123 million in the prior year, primarily as a result of the addition of HBC Europe. As a percentage of retail sales, Adjusted EBITDAR improved 210 basis points to 8.1%, reflecting Hudson's Bay Company's continued focus on increasing efficiencies.
Adjusted EBITDA was $81 million, an increase of 55.8% compared to $52 million in the prior year. The joint ventures had a $61 million impact on Adjusted EBITDA during the quarter.
These Joint Venture expenses are essentially flat over the course of the year, while the retail business is seasonal, with sales and earnings weighted towards the second half of the fiscal year.
While management believes that Adjusted EBITDA is less useful than Adjusted EBITDAR when evaluating the performance of the retail business, Hudson's Bay Company will continue to disclose Adjusted EBITDA.
Finance costs were $56 million compared to $52 million in the prior year, primarily due to the change in non-cash finance income generated from mark to market adjustments associated with the valuation of outstanding common share purchase warrants.
Net loss was $142 million compared to Net earnings of $59 million in the prior year. Prior year earnings include a pre-tax gain of $133 million related to the creation of the joint ventures.
Normalized net loss was $122 million compared to a loss of $61 million in the prior year.
The increase is primarily a result of the creation of the joint ventures and the additional net rent expense associated with these entities, which are spread evenly over the course of the year, as well as increased depreciation and amortization expenses. ■