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Saks Fifth Avenue 'a bright spot' for HBC as revenues slip in Q4

A woman carries her purchases as she leaves Saks flagship store on New York's Fifth Avenue,  Monday, July 29, 2013. Saks Inc. agreed to sell itself to Hudson's Bay Co., the Canadian parent of upscale retailer Lord & Taylor, for about $2.4 billion in a deal that will bring luxury to more North American locales. (AP Photo/Richard Drew)
A woman carries her purchases as she leaves Saks flagship store on New York's Fifth Avenue, Monday, July 29, 2013. (AP Photo/Richard Drew)

More than a year into her tenure as chief executive, Hudson’s Bay Co.’s Helena Foulkes says the company is “stronger and more capable” than when she started, with Saks Fifth Avenue serving as an especially bright spot.

HBC, which reported earnings Wednesday morning, saw revenues slip 1.6 per cent in the fourth quarter of 2018 as overall sales fell across the board, with the exception of Saks Fifth Avenue. Fourth quarter revenues fell $167 million to $2.9 billion when compared to the same time in 2017, which included an extra week. Excluding the 53rd week, revenues declined 1.6 per cent, or $47 million.

But while revenues fell, the company managed to improve its cash position, returning to positive operating cash flow of $460 million, a 63 per cent boost from the same time last year. HBC’s stock was up as much as nearly six per cent in early morning trading on Wednesday.

Overall comparable store sales for the fourth quarter also fell 1.4 per cent. And while comparable sales growth dropped 5.2 per cent in the company’s department store business, which includes Hudson’s Bay and the soon-to-be defunct Home Outfitters, Saks Fifth Avenue saw comparable sales jump by 3.9 per cent in the quarter.

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On a conference call with analysts on Wednesday, Foulkes said the foundation of the Saks business is “solid,” crediting the success at the division in part to more fashion-forward merchandising decisions and an increased focus on personalized shopping experiences.

Saks Fifth Avenue remains “a bright spot” for the company, says Bruce Winder, a partner at the Retail Advisors Network, but there’s still more work to be done to improve sales across the rest of HBC’s business.

“They’ve started to generate positive cash flow from operations, and Saks Fifth Avenue is up and a bright spot,” Winder said.

“I think there’s some positive momentum here and, so far, Foulkes has done a good job of cleaning up the mess, but now she has to get the engine running to grow some comparable sales across a few banners.”

One of those banners will be Hudson’s Bay, which reported disappointing sales in the quarter.

Foulkes told analysts that HBC’s decision to shift its focus to lower-priced inventory in an attempt to attract former Sears customers following its closure contributed to the weaker performance.

“I think we took it too far,” she said. “In our premiere locations, we were taking the best category of merchandise out of our stores, and that led us to really be not as differentiated as we wanted with the customer.”

Foulkes noted the issue is “fixable” and the company’s new chief merchant officer has already began making strides to fix it.

In February, the Toronto-based retailer announced that it was closing its Home Outfitters businesses as well as reviewing its 133 Saks Off Fifth stores while shuttering 20 U.S. locations. The company said at the time the decision to shrink its profile was part of a “strategic plan to reduce costs, simplify the business and improve overall profitability.”

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