- Revenues totaled $1.8 billion, with
comparable sales down 1.7% including a 15% year-over-year increase
in digital sales
- Gross profit margin was 38.3%, down 120
basis points year-over-year; Adjusted for liquidating stores, gross
margin rate was unchanged year-over-year
- Fourth consecutive quarter of
year-over-year decrease in selling, general and administrative
expenses, resulting in 70 basis points of SG&A
leverage
- Net loss from continuing operations of $175
million
- Adjusted EBITDA declined $40 million
year-over-year to $84 million, due to the sale of our interest in
the European real estate joint venture and lower profitability in
North American retail
- Net debt declined $2.2 billion or 56%
year-over-year to $1.7 billion; Strong liquidity of $2.1 billion at
quarter end
HBC’s (TSX: HBC) third quarter comparable sales declined 1.7
percent, as the company lapped its top-performing quarter in 2018.
The sale of the company’s interest in the European real estate
joint venture and strategic changes in vendor relationships also
weighed on the company’s profitability, with Adjusted EBITDA down
32 percent year-over-year to $84 million.
“In the third quarter, we faced our toughest comp, soft
industry-wide luxury sales and the challenge of winning back market
share in Canada. Strong digital growth, continued cost containment
and inventory control were not enough to deliver the financial
performance we wanted,” said Helena Foulkes, HBC’s CEO. “We must
quicken the pace of improvement while bearing the ongoing costs of
our strategic portfolio reset and the headwinds impacting our
industry. I’m confident that we are on the right journey with each
of our businesses as we sharpen our focus to deliver on the
potential of HBC.”
In the third quarter, HBC sold its remaining stakes in the
European real estate and retail joint ventures for $1.5 billion. As
part of the transaction, HBC acquired 100 percent ownership of HBC
Netherlands.
Operating Results
HBC’s financial results and comparable sales are for the
thirteen week period ended November 2, 2019, as compared to the
thirteen weeks ended November 3, 2018. Certain metrics, including
those expressed on an adjusted, normalized, comparable and/or
constant currency basis, are non-GAAP financial measures. For more
information please refer to the “Supplemental Information” section
of this press release and the reconciliation tables provided.
As of the close of the European transactions on October 1, 2019,
the company’s Netherlands financial results are included in retail
sales, gross profit, and selling general and administrative
expenses. As a result of the sale to Le Tote, Lord + Taylor has
been classified and presented as discontinued operations and its
financial results are not included in the following discussion,
including any impacts related to Lord + Taylor’s inventory or lease
obligations.
Third quarter revenues totaled $1.8 billion, including $55
million from liquidating stores at Saks OFF 5TH, Hudson’s Bay
clearance centers, and HBC Netherlands. Digital sales increased 15
percent year-over year due to continued improvements in our
data-driven marketing strategy.
HBC’s third quarter comparable sales decreased 1.7 percent. On a
two-year stacked basis, Saks Fifth Avenue, Hudson’s Bay, and Saks
OFF 5TH each posted positive comparable sales.
- Saks Fifth Avenue’s comparable sales decreased 2.3
percent in the third quarter, as compared to a 7.3 percent increase
a year ago, resulting in a two-year stacked comp of 5.0 percent.
Men’s and jewelry were fast growing categories, and the Fifth
Avenue Club, Saks’ personal shopping service available in every
store, grew 15 percent year-over-year.
- Hudson’s Bay comparable sales decreased 3.9 percent in
the third quarter, and increased 0.4 percent on a two-year stacked
basis. As the quarter progressed and the weather changed, sales
improved and were boosted throughout the quarter by increased
traffic and conversion in The Bay’s digital channels.
- Exceptional growth in digital at Saks OFF 5TH resulted
in a positive 4.9 percent comparable sales and an increase of 2.6
percent on a two-year stacked basis. The team is focused on fixing
the fundamentals, including delivering more merchandise newness,
marketing modernization, and improving our service model.
Foulkes continued, “With last year’s historically high
comparable sales growth for Saks, we knew the third quarter would
be challenging. Across the industry, there was a pullback among
luxury consumers, allowing shoppers to more frequently take
advantage of markdowns, which ultimately reduced full-price sales.
As expected, reigniting sales at Hudson’s Bay is taking time as we
replace unproductive brands and improve service. Our better, more
modern merchandise had good performance, reinforcing confidence in
our strategy, which we are accelerating for the upcoming spring
season. Across HBC, we will continue to make the necessary
investments to capitalize on our greatest opportunities - Hudson’s
Bay and Saks Fifth Avenue - as we drive the upside in our digital
business and deliver the kind of excitement and experiences
shoppers expect from our iconic brands.”
Third quarter gross profit declined by $38 million
year-over-year to $706 million, primarily driven by lower sales
volume, and the strategic changes in our vendor relationships.
Gross profit margin was 38.3 percent, down 120 basis points
year-over-year. Adjusting for the sales and gross profit impact
from liquidating stores, gross profit margin rate was 39.5 percent
in the third quarter, consistent with the prior year’s
performance.
The company continues to exercise financial discipline, while
making necessary investments in marketing and digital capabilities.
The expected benefits from strategic choices in our store
footprint, and further optimization of our in-store scheduling to
best meet customer demand contributed to a decline of $29 million
in SG&A expenses to $679 million. SG&A as a percentage of
sales improved by 70 basis points year-over-year to 36.9
percent.
Third quarter net loss from continuing operations was $175
million, a $105 million decrease from the same period a year ago.
Excluding one-time items, HBC’s normalized net loss1 was $128
million, as compared to a normalized net loss of $56 million a year
ago.
Adjusted EBITDA1 declined $40 million to $84 million for the
third quarter. The sale of our interest in the European real estate
joint venture contributed $16 million to the decline, while less
than expected performance in our retail business was $24 million of
the decline.
Given the company’s financial performance through the first
three quarters of fiscal 2019, the company expects North American
Department Stores Adjusted EBITDA1 to be lower, as compared to the
equivalent measure in Fiscal 2018.
Adjusted EBITDAR1 was $146 million in the third quarter, as
compared to $202 million in the same period a year ago.
Balance Sheet & Capital Spending
Net debt,1 defined as total debt less cash and cash equivalents,
was $1.7 billion at November 2, 2019 down 56 percent
year-over-year. During the third quarter, the company repaid the
$429 million balance of the term loan and additional proceeds from
the European transaction were added to the company’s cash
balances.
At November 2, 2019, HBC had the following outstanding loans and
borrowings on its balance sheet:
(in millions of Canadian dollars at
respective quarterly foreign exchange rates)
Nov 2, 2019
Nov 3, 2018
Global ABL
1,170
1,149
U.S. Term Loan B
—
656
Saks Mortgage
1,643
1,639
Lord + Taylor Mortgage
—
512
Other loans
26
28
Total Outstanding Loans and
Borrowings
2,839
3,984
Cash and cash equivalents
1,094
19
Net debt1
1,745
3,965
Capital expenditures were $85 million during the third quarter
of 2019. In fiscal 2019, the company expects its capital
expenditures to moderate year-over-year to approximately $350
million or, net of landlord incentives, $300 million.2
Portfolio Changes and Associated Liabilities
The company’s efforts to streamline the business have resulted
in an estimated $825 million of cash obligations from closing the
HBC Netherlands operations, rent for the initial three years of Le
Tote’s ownership of Lord + Taylor, dark rent from the closure of
Home Outfitters and the 15 Saks OFF 5TH locations, as well as other
restructuring and non-recurring expenses.
After the quarter closed, HBC Netherlands filed for protection
from creditors under Dutch law. This does not change the company’s
overall outlook for resolution of the guaranteed lease liability in
the Netherlands. HBC has reached a settlement with one landlord to
eliminate one lease guarantee for an upfront payment.
After the quarter closed, the company completed the sale of Lord
+ Taylor to Le Tote. For the initial three years, HBC has agreed to
maintain economic responsibility for the rent payments owed by Lord
+ Taylor at the 38 locations operated by Le Tote. Net of HBC’s
distributions from HBS Global Properties, HBC expects to continue
to be liable for approximately $77 million in Lord + Taylor total
cash rent on an annual basis.
Starting in 2021, HBC and Le Tote will have options to reassess
the Lord + Taylor store network. This may include HBC recapturing
select locations to determine their highest and best use, including
possible redevelopment into mixed-use properties with a variety of
services, experiences and retail offerings. HBC has hired a team of
seasoned professionals to lead the planning and execution of any
redevelopment, which is an inherently complex, capital intensive,
long-term project. For any recaptured or returned stores, HBC
retains long-term rent responsibility, risk and costs for
redevelopment.
Dividend
The Board of Directors of HBC declared the company’s regular
quarterly dividend to be paid on January 15, 2020, to shareholders
of record at the close of business on December 31, 2019. The
dividend is in the amount of $0.0125 per HBC common share and is
designated as an "eligible dividend" for Canadian tax purposes. The
declaration of dividends is at the discretion of HBC's board.
Consolidated Financial Statements and Management’s Discussion
and Analysis
The company’s unaudited interim condensed consolidated financial
statements for the thirteen and thirty-nine weeks ended November 2,
2019 and Management’s Discussion and Analysis (“MD&A”) thereon
are available under the company’s profile on SEDAR at www.sedar.com
and on the company’s website at www.hbc.com. HBC encourages
investors to review the MD&A.
Conference Call to Discuss Results
Management will discuss the third quarter financial results and
other matters during a conference call on December 10, 2019 at 8:30
am EST.
The conference call will be accessible by calling the
participant operator assisted toll-free dial-in number (800)
535-7056 or international dial-in number (253) 237-1145. A live
webcast of the conference call will be accessible on HBC’s website
at: http://investor.hbc.com/events.cfm. The audio replay also will
be available via this link.
About HBC
HBC is a diversified retailer focused on driving the performance
of high-quality stores and their omni-channel platforms and
unlocking the value of real estate holdings. Founded in 1670, HBC
is the oldest company in North America. HBC’s portfolio today
includes formats ranging from luxury to premium department stores
to off price fashion shopping destinations, with nearly 250 stores
and approximately 30,000 employees around the world. HBC’s leading
businesses across North America include Saks Fifth Avenue, Hudson’s
Bay, and Saks OFF 5TH.
HBC also has significant investments in real estate joint
ventures. It has partnered with Simon Property Group Inc. in the
HBS Joint Venture, which owns properties in the United States. In
Canada, it has partnered with RioCan Real Estate Investment Trust
in the RioCan-HBC Joint Venture.
Consolidated Financial Information
The following tables set out summary consolidated financial
information and supplemental information for the periods indicated.
The summary financial information set out below for the quarters
ended November 2, 2019 and November 3, 2018 has been prepared in
accordance with generally accepted accounting principles in the
United States (“U.S. GAAP”) as issued by the Financial Accounting
Standards Board (“FASB”) on a retrospective basis beginning with
the company’s published first quarter 2019 results. In the opinion
of the company’s management, this unaudited financial data reflects
all adjustments, consisting of normal and recurring adjustments,
necessary for a fair presentation of the results for those periods.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year or any
future period. The information presented herein does not contain
disclosures required by GAAP for consolidated financial statements
and should be read in conjunction with the company’s unaudited
interim condensed consolidated financial statements for the
thirteen and thirty-nine weeks ended November 2, 2019.
INTERIM CONSOLIDATED STATEMENTS OF
LOSS
(millions of Canadian dollars, except per
share amounts)
Thirteen week period
ended
Thirty-nine week period
ended
Nov 2, 2019
Nov 3, 2018
Nov 2, 2019
Nov 3, 2018
Retail sales
1,818
1,858
5,474
5,508
Credit revenue and other, net
23
27
73
82
Total revenue
1,841
1,885
5,547
5,590
Cost of goods sold (exclusive of
depreciation shown separately below)
(1,135
)
(1,141
)
(3,488
)
(3,366
)
Gross profit
706
744
2,059
2,224
Selling, general and administrative
expenses (“SG&A”)
(679
)
(708
)
(2,057
)
(2,141
)
Depreciation and amortization
(116
)
(110
)
(323
)
(320
)
Transaction, restructuring and other
costs
(29
)
(13
)
(150
)
(31
)
Net gain on sale of European
investments
220
—
220
—
Gain on sale of property, net
—
—
817
—
Gain on settlement of lease obligations of
HBC Netherlands
36
—
36
—
Gain on sale of equity-method investment -
real estate
—
—
3
—
Impairment
(32
)
—
(49
)
(7
)
Operating (loss) income
106
(87
)
556
(275
)
Interest expense, net
(50
)
(46
)
(137
)
(133
)
Income from equity-method investments -
real estate
(1
)
11
19
14
Loss from investment in the EDS Group
(80
)
—
(282
)
—
Dilution gain from equity method
investments - real estate
—
5
—
6
(Loss) income before income tax
(25
)
(117
)
156
(388
)
Income tax (expense) benefit
(150
)
47
(477
)
112
Net loss - continuing
operations
(175
)
(70
)
(321
)
(276
)
Net loss - discontinued operations, net of
taxes
(51
)
(91
)
(614
)
(547
)
Net loss for the period
(226
)
(161
)
(935
)
(823
)
Loss per share - basic and
diluted
Continuing operations
(0.95
)
(0.38
)
(1.74
)
(1.51
)
Discontinued operations
(0.28
)
(0.50
)
(3.34
)
(2.99
)
Total operations
(1.23
)
(0.88
)
(5.08
)
(4.50
)
INTERIM CONSOLIDATED BALANCE SHEETS
(millions of Canadian dollars)
Nov 2, 2019
Feb 2, 2019
Assets
Cash and cash equivalents
1,094
19
Trade and other receivables
147
148
Inventories
2,542
2,162
Asset held for sale
—
279
Assets of discontinued operations held for
sale
972
676
Other current assets
104
162
Total current assets
4,859
3,446
Property, plant and equipment
3,376
3,885
Operating lease assets
2,396
—
Finance lease assets
391
—
Goodwill
208
207
Other intangible assets
489
580
Pensions and employee benefits
172
170
Deferred tax assets
167
318
Equity-method investments - real
estate
202
554
Investment in the EDS Group
—
284
Other assets
76
73
Total assets
12,336
9,517
Liabilities
Current portion of loans and
borrowings
1,157
471
Current portion of operating lease
liabilities
172
—
Current portion of finance lease
liabilities
26
29
Trade payables
1,106
949
Other payables and accrued liabilities
854
742
Deferred revenue
107
112
Liabilities of discontinued operations
held for sale
1,164
272
Other current liabilities
86
246
Total current liabilities
4,672
2,821
Loans and borrowings
1,630
2,538
Operating lease liabilities
3,769
—
Finance lease liabilities
310
318
Pensions and employee benefits
172
177
Deferred tax liabilities
250
143
Equity-method investment - real estate
233
239
Other liabilities
527
1,597
Total liabilities
11,563
7,833
Shareholders’ equity
Common shares - 184 and 183 million shares
issued and outstanding
1,438
1,434
Convertible preferred shares
618
618
Accumulated deficit
(1,853
)
(931
)
Additional paid-in capital
197
170
Accumulated other comprehensive income
373
393
Total shareholders’ equity
773
1,684
Total liabilities and shareholders’
equity
12,336
9,517
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
(millions of Canadian dollars)
Thirty-nine week period
ended
Nov 2, 2019
Nov 3, 2018
Operating activities
Net loss
(935
)
(823
)
Net loss - discontinued operations, net of
tax
614
547
Net loss - continuing
operations
(321
)
(276
)
Loss from investment in the EDS Group
282
—
Depreciation and amortization
323
320
Impairment
49
7
Loss on disposal of assets
13
—
Net defined benefit pension and employee
benefits expense
13
17
Distributions of earnings from
equity-method investments - real estate
77
155
Dilution gains from equity method
investment - real estate
—
(6
)
Income from equity-method investments -
real estate
(19
)
(14
)
Net gain on sale of European
investments
(220
)
—
Gain on sale of property, net
(817
)
—
Gain on sale of equity-method investment -
real estate
(3
)
—
Share of rent expense to equity-method
investments - real estate
(91
)
(94
)
Gain on settlement of lease obligations in
HBC Netherlands
(36
)
—
Share based compensation
35
43
Other operating activities
8
26
Changes in operating assets and
liabilities
364
(119
)
Cash (used in) provided by operating
activities from continuing operations
(343
)
59
Cash used in operating activities from
discontinued operations
(239
)
(691
)
Net cash used in operating
activities
(582
)
(632
)
Investing activities
Capital investments
(223
)
(298
)
Proceeds on sale of property, net of
transaction costs
770
33
Proceeds on sale of European
investments
1,463
—
Proceeds on sale of equity-method
investments - real estate
3
—
Investment in equity-method investments -
real estate
(13
)
—
Transaction costs paid
(21
)
—
Proceeds on disposal of assets
2
10
Proceeds on sale of Gilt operations
—
41
Other investing activities
(10
)
(12
)
Cash provided by (used in) investing
activities from continuing operations
1,971
(226
)
Cash used in investing activities from
discontinued operations
(3
)
(146
)
Net cash provided by (used in)
investing activities
1,968
(372
)
Financing activities
Repayments
(948
)
(6
)
Borrowing costs
(10
)
—
Long-term loans and borrowings
(958
)
(6
)
Net borrowings from asset-based credit
facilities
702
745
Borrowing costs
(10
)
(1
)
Short-term loans and borrowings
692
744
Settlement of share based compensation
(4
)
(4
)
Payments on finance leases
(25
)
(26
)
Dividends paid
(7
)
(7
)
Cash (used in) provided by financing
activities - continuing operations
(302
)
701
Cash provided by financing activities -
discontinued operations
—
321
Net cash (used in) provided by
financing activities
(302
)
1,022
Foreign exchange (loss) gain on cash
(9
)
1
Increase in cash and cash equivalents
1,075
19
Cash and cash equivalents at beginning
of year
21
70
Cash and cash equivalents at end of
period
1,096
89
Deduct: cash reclassified to assets of
discontinued operations held for sale
(2
)
(64
)
Cash and cash equivalents at end of
period - continuing operations
1,094
25
Supplemental Information
On the pages that follow, the company has provided certain
supplemental information that we believe will assist the reader in
assessing our business operations and performance, including
certain non-GAAP financial information and required reconciliations
to the most comparable GAAP measure.
Supplemental schedules provided include:
Quarterly Adjusted EBITDA & Adjusted EBITDAR
Reconciliations
A reconciliation of Adjusted EBITDA and Adjusted EBITDAR are
provided. The information provides the reader with information we
believe is necessary to analyze the company.
Quarterly Combined Adjusted EBITDA & Adjusted EBITDAR
Reconciliations
A reconciliation of Combined Adjusted EBITDA and Combined
Adjusted EBITDAR are provided.
Normalized Net Loss
A reconciliation of Normalized Net Loss is provided. The
information provides the reader with information we believe is
necessary to analyze the company.
Non-GAAP and Quarterly Supplemental Data
On this schedule, the company provides certain non-GAAP business
unit information that we believe is useful to understanding the
business operations of the company.
HBC QUARTERLY ADJUSTED EBITDA AND ADJUSTED
EBITDAR RECONCILIATIONS
Thirteen week period
ended
Thirty-nine week period
ended
(millions of Canadian dollars)
Nov 2, 2019
Nov 3, 2018
Nov 2, 2019
Nov 3, 2018
$
$
$
$
Net loss – continuing
operations
(175
)
(70
)
(321
)
(276
)
Interest expense, net
50
46
137
133
Income tax expense (benefit)
150
(47
)
477
(112
)
Depreciation and amortization
116
110
323
320
EBITDA (1)
141
39
616
65
Transaction, restructuring and other
costs
29
13
150
31
Impairment
32
—
49
7
Loss (income) from equity-method
investments - real estate
1
(11
)
(19
)
(14
)
Loss from investment in the EDS Group
(3)
80
—
282
—
Dilution gains from equity-method
investments - real estate(4)
—
(5
)
—
(6
)
Net gain on sale of European
investments
(220
)
—
(220
)
—
Gain on settlement of lease obligations in
HBC Netherlands
(36
)
—
(36
)
—
Gain on sale of property, net
—
—
(817
)
—
Gain on sale of equity-method investment -
real estate
—
—
(3
)
—
Non-cash share based compensation
11
12
25
33
Non-cash pension expense
4
6
12
17
Adjustment for store closures
(1
)
(1
)
(1
)
(1
)
Other
(1
)
11
21
30
Adjusted EBITDA (1) - North American
Department Stores
40
64
59
162
Share of (income) loss from equity-method
investments - real estate
(1
)
11
19
14
Interest expense, net
23
24
72
70
Income tax expense
2
5
11
13
Depreciation and amortization
15
14
52
48
Foreign exchange adjustment
—
6
—
38
Other
5
—
3
—
Adjusted EBITDA (1) - Real estate
equity method investments
44
60
157
183
Adjusted EBITDA (1)
84
124
216
345
Rent adjustments
62
78
197
237
Adjusted EBITDAR (1)
146
202
413
582
Share of net loss in the EDS Group
(80
)
—
(282
)
—
Share of net loss in excess of the
investment balance(3)
(156
)
—
(156
)
—
Interest expense, net
11
—
30
—
Income tax benefit
109
—
87
—
Depreciation and amortization
34
—
87
—
Impairment
37
—
37
—
Inventory purchase price adjustment
included in cost of sales
—
—
30
—
Restructuring
61
—
91
—
Adjusted EBITDA (1) - EDS Group
16
—
(76
)
—
Third party rent expense - EDS Group
102
—
292
—
Adjusted EBITDAR (1) - EDS
Group
118
—
216
—
Combined Adjusted EBITDA (1)
100
124
140
345
Combined Adjusted EBITDAR (1)
264
202
629
582
NORMALIZED NET LOSS RECONCILIATION
Thirteen week period
ended
Thirty-nine week period
ended
(millions of Canadian dollars)
Nov 2, 2019
Nov 3, 2018
Nov 2, 2019
Nov 3, 2018
$
$
$
$
Net loss – continuing
operations
(175
)
(70
)
(321
)
(276
)
Gain on sale of property, net
—
—
(533
)
—
Pre-tax, net gain on sale of European
investments
(220
)
—
(220
)
—
Tax related to net gain on sale of
European investments
153
—
153
—
Gain on settlement of lease obligations in
HBC Netherlands
(36
)
—
(36
)
—
Gain on sale of investment in equity
method investment - real estate
—
—
(2
)
—
Dilution gains from equity-method
investment - real estate
—
(5
)
—
(6
)
Impairment
26
—
38
7
Transaction, restructuring and other
costs
21
10
132
23
Adjustments to (income) loss on equity
method investments - real estate(5)
3
2
2
22
Adjustments to loss from investment in the
EDS Group
69
—
111
—
Adjustment for store closure
(1
)
(1
)
(1
)
(1
)
Tax related adjustments
37
—
162
—
Other
(5
)
8
16
22
Total adjustments(6)
47
14
(178
)
67
Normalized net loss (1)
(128
)
(56
)
(499
)
(209
)
HBC QUARTERLY SUPPLEMENTAL DATA
Nov 2, 2019
Aug 3, 2019
May 4, 2019
Feb 2, 2019
Nov 3, 2018
Aug 4, 2018
May 5, 2018
Feb 3, 2018
Retail sales (in millions)
Hudson’s Bay
$657
$620
$599
$938
$683
$642
$631
$1,028
Saks Fifth Avenue
$799
$827
$879
$1,087
$832
$855
$862
$1,083
Saks OFF 5TH
$327
$315
$311
$388
$312
$297
$292
$403
Home Outfitters
$0
$63
$42
$35
$31
$36
$35
$56
HBC Netherlands
$35
$0
$0
$0
$0
$0
$0
$0
Total retail sales
$1,818
$1,825
$1,831
$2,448
$1,858
$1,830
$1,820
$2,570
Comparable sales
Hudson’s Bay
(3.9
%)
(3.4
%)
(4.3
%)
(2.9
%)
4.3
%
(0.6
%)
3.2
%
1.4
%
Saks Fifth Avenue
(2.3
%)
0.6
%
2.4
%
3.9
%
7.3
%
6.7
%
6.0
%
3.1
%
Saks OFF 5TH
4.9
%
3.4
%
4.4
%
(2.1
%)
(2.3
%)
(7.6
%)
(3.5
%)
(2.0
%)
Total HBC
(1.7
%)
(0.4
%)
0.3
%
0.2
%
4.5
%
1.5
%
3.4
%
1.3
%
Change in comparable digital sales
14.6
%
19.3%
13.9
%
9.0
%
8.3
%
10.4
%
6.8
%
9.0
%
Store count(7)
Hudson’s Bay
89
89
89
89
89
89
89
89
Saks Fifth Avenue
42
42
42
42
42
42
42
41
Saks OFF 5TH
115
128
129
129
133
132
132
129
246
259
260
260
264
263
263
259
Gross leasable area/square footage(7)
(in thousands)
Hudson’s Bay
15,771
15,771
15,771
15,771
15,739
15,720
15,720
15,731
Saks Fifth Avenue
5,217
5,217
5,217
5,216
5,303
5,303
5,303
5,187
Saks OFF 5TH
3,467
3,845
3,871
3,868
3,998
3,966
3,939
3,879
24,455
24,833
24,859
24,855
25,040
24,989
24,962
24,797
Cash rent to joint ventures (in
millions)
$35
$35
$34
$34
$34
$34
$33
$33
End Notes
1 These performance metrics have been identified by the company
as Non-GAAP measures. For the relevant definitions and
reconciliations, please refer to the “Non-GAAP Measures” and
“Supplemental Information” sections, respectively, of this
release.
2 The capital investment expectations reflect exchange rate
assumptions of USD:CAD = 1:1.31 for the year. Any variation in the
foreign exchange rate assumptions and/or other material assumptions
and factors described in the "Forward-Looking Statements" section
of this press release could impact the above outlook.
3 During the thirteen and thirty-nine week periods ended
November 2, 2019, the Company stopped recording its 49.99% share of
the net loss of the EDS Group when the value of its investment in
the EDS Group was reduced to nil. The Company sold its interest in
the EDS Group on October 1, 2019 - See also ‘Investment in the
European Department Store Group’ in the company’s Management
Discussion and Analysis.
4 Represents gains realized as a result of the changes in
ownership related to the company’s equity method investments in
real estate.
5 Relates to the Company’s share of net non-recurring items
incurred by the equity-method, real estate investment entities,
which primarily includes unrealized foreign exchange losses (gains)
of the HBS Joint Venture arising from the translation of certain
intra-group monetary assets and liabilities related to the overall
tax and legal structure of the joint venture.
6 All adjustments are tax-effected as appropriate.
7 The company operates one Hudson’s Bay outlet and two Zellers
clearance centres that are excluded from the store count and gross
leasable area. Also excluded from the store count and gross
leasable area are all stores and outlets of Lord + Taylor as part
of discontinued operations, and HBC Netherlands locations which are
expected to close at the end of the year.
Non-GAAP Measures
“EBITDA” is defined as net income or loss before net interest
expense, income tax expense or benefit and depreciation and
amortization expense.
“Adjusted EBITDA - North American Department Stores” is defined
as EBITDA adjusted to exclude: (A) transaction, restructuring and
other costs, (B) impairment, (C) loss from equity method
investments - real estate, (D) loss from investment in the EDS
Group, (E) dilution gains from equity method investments - real
estate, (F) gain or loss on sale of property, net, (G) non-cash
share based compensation expense, (H) non-cash pension expense (I)
adjustments for store closures and (J) other adjustments not
associated with day to day operations.
“Adjusted EBITDA - Real estate equity method investments” is
defined as share of net income or loss in real estate equity method
investments adjusted for interest expenses, net, income tax expense
(benefit), depreciation and amortization and foreign exchange
adjustment.
“Adjusted EBITDA” is defined as Adjusted EBITDA - North American
Department Stores plus Adjusted EBITDA - Real estate equity method
investments.
“Adjusted EBITDAR” is defined as Adjusted EBITDA before rent
expense.
“Adjusted EBITDA of the EDS Group” is defined as share of net
loss in EDS Group adjusted for interest expense, net, income tax
(expense) benefit, depreciation and amortization, inventory
purchase price adjustment included in cost of sales and
restructuring charges.
“Adjusted EBITDAR of the EDS Group” is defined as Adjusted
EBITDA of the EDS Group before third party rent expense.
“Combined Adjusted EBITDA” equals Adjusted EBITDA plus Adjusted
EBITDA of the EDS Group.
“Combined Adjusted EBITDAR” equals Adjusted EBITDAR plus
Adjusted EBITDAR of the EDS Group.
“Normalized net loss” is defined as net income (loss) adjusted
to exclude: (A) gain on sale of property, net, (B) net gain on sale
of European investments, (C) gain on settlement of lease
obligations in HBC Netherlands, (D) gain on sale of investment in
equity method investment - real estate, (E) dilution gains from
equity method investments - real estate, (F) impairment, (G)
transaction, restructuring and other costs, (H) adjustment to share
of income or loss from equity method investments - real estate, (I)
adjustment to share of loss from investment in the EDS Group, (J)
adjustment for store closures costs, (K) other adjustments not
associated with day to day operations, and (L) tax related
adjustments.
“Net debt” is defined as total debt less cash and cash
equivalents.
Comparable store sales growth on a “two-year stacked basis” is
computed by adding comparable sales growth of the period referenced
and that of the same fiscal period ended twelve months prior.
The company uses these non-GAAP measures to provide investors
and others with supplemental measures of its operating performance.
The company believes these non-GAAP measures are important
supplemental measures of operating performance because they
eliminate items that have less bearing on the company’s operating
performance and thus highlight trends in its core business that may
not otherwise be apparent when relying solely on GAAP financial
measures. The company also believes that securities analysts,
investors, rating agencies and other interested parties frequently
use these non-GAAP measures in the evaluation of issuers, many of
which present similar metrics when reporting their results. The
company’s management also uses Adjusted EBITDAR in order to
facilitate retail business operating performance comparisons from
period to period, prepare annual operating budgets and assess the
company’s ability to meet its future debt service, capital
expenditure and working capital requirements and the company’s
ability to pay dividends on its Common Shares. As other companies
may calculate these non-GAAP measures differently than the company,
these metrics may not be comparable to similarly titled measures
reported by other companies.
This press release makes reference to certain comparable
financial results expressed on a constant currency basis, including
comparable sales, comparable digital sales and comparable
inventory. In calculating the sales change, including digital
sales, on a constant currency basis where applicable, prior year
foreign exchange rates are applied to both current year and prior
year comparable sales. This enhances the ability to compare
underlying sales trends by excluding the impact of foreign currency
exchange rate fluctuations. The company calculates comparable
inventory levels on a year-over-year constant currency basis and
does not include new store openings after the end of the same
comparable quarter of the prior fiscal year. Definitions and
calculations of comparable financial results differ among companies
in the retail industry. All comparative sales figures are for the
thirteen week period ended November 2, 2019, compared to the
thirteen week period ended November 3, 2018.
For further discussion of the company’s financial and operating
results, please refer to the MD&A of Financial Condition and
Results of Operations for thirteen and thirty-nine week periods
ended November 2, 2019.
Forward-Looking Statements
Certain statements made in this news release, including, but not
limited to, expectation with respect to North American Department
Stores Adjusted EBITDA in Fiscal 2019 relative to Fiscal 2018,
closing of operations of HBC Netherlands, HBC’s expectation with
respect to its continued liability for guaranteed lease liabilities
in the Netherlands and its continued liability for Lord + Taylor
cash rent on an annual basis, HBC’s anticipated plans with respect
to the redevelopment of any recaptured or returned stores,
including the cost and timing thereof, HBC’s expected Fiscal 2019
capital expenditure, HBC’s prospects for making necessary
investments, fixing the fundamentals, strengthening operations and
future growth opportunities and other statements that are not
historical facts, are forward-looking. Often but not always,
forward-looking statements can be identified by the use of
forward-looking terminology such as “may”, “will”, “expect”,
“believe”, “estimate”, “plan”, “could”, “should”, “would”,
“outlook”, “forecast”, “anticipate”, “foresee”, “continue” or the
negative of these terms or variations of them or similar
terminology.
Implicit in forward-looking statements in respect of the
company’s expectations about North American Department Store
Adjusted EBTIDA will be lower in Fiscal 2019 as compared to Fiscal
2018 and HBC’s anticipated Fiscal 2019 total North American capital
investments of $350 million or, net of landlord incentives, $300
million are certain assumptions regarding, among others, the
overall retail environment and currency exchange rates for Fiscal
2019. Specifically, the company has assumed the following exchange
rates for Fiscal 2019: EUR:CAD = 1:1.5 and USD:CAD = 1:1.31. These
current assumptions, although considered reasonable by the company
at the time of preparation, may prove to be incorrect. Readers are
cautioned that actual North American Department Store Adjusted
EBITDA and capital investments for Fiscal 2019 could differ
materially from what is currently expected and are subject to a
number of risks and uncertainties, including, among others
described below, general economic, geo-political, market and
business conditions, retail environment, changes in foreign
currency rates from those assumed, the risk of unseasonal weather
patterns and the risk that the company may not achieve overall
anticipated financial performance.
Although HBC believes that the forward-looking statements in
this news release are based on information and assumptions that are
current, reasonable and complete, these statements are by their
nature subject to a number of factors that could cause the
company’s actual results, level of activity, performance,
achievements, future events or developments to differ materially
from management’s expectations and plans as set forth in such
forward-looking statements, including, without limitation, the
following factors, many of which are beyond HBC’s control and the
effects of which can be difficult to predict: ability to execute
our retail strategies, changing consumer preferences, demand and
fashion trends, marketing and advertising program success, damage
to brands and dependence on vendors, ability to make successful
acquisitions, investments, expansions and divestitures, ability to
successfully manage inventory levels, loss of or disruption in
centralized distribution centers, ability to upgrade, maintain and
secure the company’s information systems to support the needs of
the company and protect against cyber security threats, risks
related to privacy issues and cyber and other security breaches,
ability to attract and retain quality employees, risks related to
labor costs and other challenges from a large workforce,
deterioration in labor relations, ability to maintain pension plan
surplus, funding requirements of Saks’ pension plan, limits on
insurance policies, loss of intellectual property rights,
insolvency risk of parties with whom we do business or their
unwillingness to perform their obligations, exposure to changes in
the real estate market, loss of flexibility with respect to
properties in the real estate joint ventures, ability to realize
the expected benefits from the real estate joint ventures or to
effect a future monetization transaction with each of the real
estate joint ventures, exposure to potential environmental
liabilities relating to owned and leased real property, liabilities
associated with lease guarantees (including in the Netherlands) and
with third parties who have assumed leases from the company,
ability to realize the expected benefits from the European
transaction or the Lord + Taylor sale transaction, increased or new
competition, change in spending of consumers and lower demand,
extreme or unseasonable weather conditions or natural disasters,
international operational risks, fluctuations in the U.S. dollar,
Canadian dollar, Euro and other foreign currencies, increase in raw
material costs, seasonality of business, ability to manage
indebtedness and cash flow, risks related to increasing
indebtedness, restrictions of existing credit facilities reducing
flexibility, loss of flexibility due to restrictive debt covenants,
future availability of financing, limitations related to changes in
the company’s credit ratings, ability to maintain adequate
financial and management processes and controls, ability to
maintain dividends, ability of a small number of shareholders to
influence the business, future sales of the company’s Common Shares
by significant shareholders could affect share price, constating
documents could delay and discourage favorable takeover attempts,
effect of existence and creation of Convertible Preferred Shares on
holders of Common Shares, effect of actions by activist
shareholders, risks related to regulatory liability, risks of
product liability claims and product recalls, inability to comply
with laws and regulations that impact the company’s business could
lead to litigation or regulatory actions against the company,
non-compliance with changing privacy regulatory environment,
exposure to significant additional costs and expenses relating to
losing foreign private issuer status in the future, risks related
to tax matters, changes in accounting standards and other risks
inherent to the company’s business and/or factors beyond the
company’s control which could have a material adverse effect on us.
Additional risks and uncertainties are discussed in the company’s
materials filed with the Canadian regulatory authorities from time
to time. These factors are not intended to represent a complete
list of the factors that could affect us; however, these factors
should be considered carefully.
HBC cautions that the foregoing list of important factors and
assumptions is not exhaustive and other factors could also
adversely affect its results. For more information on the risks,
uncertainties and assumptions that could cause HBC’s actual results
to differ from current expectations, please refer to the “Risk
Factors” section of HBC’s Annual Information Form dated May 3, 2019
and HBC’s Management’s Discussion and Analysis of Financial
Condition and Results of Operations for the Thirteen and
Thirty-Nine Week Periods Ended November 2, 2019, as well as HBC’s
other public filings, available at www.sedar.com and at
www.hbc.com.
The forward-looking statements contained in this news release
describe HBC’s expectations at the date of this news release and,
accordingly, are subject to change after such date. Except as may
be required by applicable Canadian securities laws, HBC does not
undertake any obligation to update or revise any forward-looking
statements contained in this news release, whether as a result of
new information, future events or otherwise. Readers are cautioned
not to place undue reliance on these forward-looking
statements.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191210005281/en/
INVESTOR RELATIONS: Jennifer Bewley Phone: (646) 802-4631
Email: jennifer.bewley@hbc.com
MEDIA: Andrew Blecher Phone: (646) 802-4030 Email:
press@hbc.com