Hudson's Bay Company announced its second quarter financial results for the 13-week period ended August 1, 2015.
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Retail sales, which include digital sales from all banners, were $2,038 million, an increase of $269 million or 15.2% from $1,769 million in the prior year.
Unless otherwise indicated, all amounts are expressed in Canadian dollars.
Same store sales growth was 14.3%. On a constant currency basis, consolidated same store sales increased by 4.2%. Same store sales on a constant currency basis increased by 4.9% at DSG, by 0.1% at Saks Fifth Avenue and by 12.7% at OFF 5TH.
Digital sales increased by 30% on a constant currency basis when compared to the prior year, reflecting the company's continued strategic focus on growing this channel.
In terms of merchandise category performance, sales growth at DSG was driven by menswear, ladies apparel, home products and cosmetics. Sales growth at Saks Fifth Avenue was driven by menswear and cosmetics, while at OFF 5TH, sales growth was driven by women's shoes, women's accessories and menswear.
Gross profit as reported was $818 million compared to $700 million for the prior year, a year-over-year improvement of $118 million. Improved performance at DSG and Saks, combined with a favourable currency conversion benefit on U.S. dollar denominated sales, drove the increase in gross profit dollars.
Gross profit rate was 40.1% of retail sales, a 50 basis point improvement over the comparable gross profit rate of 39.6% during the second quarter of the prior year.
SG&A expenses were $775 million compared to $652 million for the prior year. Excluding normalization items of $23 million ($31 million in the prior year), Normalized SG&A expenses were $752 million compared to $621 million, an increase of $131 million.
In addition to these normalization adjustments, SG&A expenses were negatively impacted in the quarter from the conversion of U.S. dollar denominated expenses into Canadian dollars.
Second quarter SG&A expenses include the impact of incremental strategic investments in our digital business, pre-opening costs associated with the introduction of Saks to Canada and accelerated OFF 5TH openings in the U.S., and the negative impact associated with the conforming change in the classification of advertising credits between SG&A and gross profit as they relate to the Saks business adopted in Q4 2014.
These increases are partially offset by operating synergies of $14 million realized in the second quarter.
In addition to being on track to achieve $100 million in synergies as part of the Saks acquisition, the company believes that there are opportunities for additional synergies and cost savings from further operational efficiencies due to our increased scale.
As such, the company has embarked on a program to further identify and implement these savings within and across its businesses. The benefits of this program are expected to be realized beginning in the third quarter of Fiscal 2015 and will continue into Fiscal 2016.
Adjusted EBITDAR for the second quarter was $139 million compared to $142 million in the prior year, while Adjusted EBITDA was $66 million compared to $81 million for the same periods.
As previously disclosed, the company is investing a total of approximately $50 million in strategic initiatives during Fiscal 2015, with the impact of these investments being more pronounced during the first half of the year, given the sales and earnings profile of the company.
Finance costs were $52 million in the quarter, compared to $29 million for the second quarter of Fiscal 2014.
The increase is primarily related to an $18 million write-off of deferred financing costs in connection with the full repayment of the Senior Term Loan B with proceeds received from the joint ventures with Simon Property Group and RioCan REIT, respectively.
Net Earnings were $67 million in the quarter, compared to a Net Loss of $36 million in the second quarter of Fiscal 2014.
Normalized Net Loss was $53 million in the quarter, compared to $28 million in the second quarter of Fiscal 2014.
Normalized items include the net-of-tax gain recognized on the contribution of properties to the joint ventures of $107 million in the second quarter of Fiscal 2015. ■