Troubles continue to mount at Hudson's Bay Co., which Thursday reported disappointing year-end results and said it couldn't meet its long-term financial targets.
The country's oldest department store retailer said its crucial Christmas season fell flat — and it still can't quite figure out why so few people visited its stores in December, particularly in the key Ontario market.
Meanwhile, the company, which runs the Bay, Zellers and Home Outfitters, declined to provide any further financial forecasts after having had to lower its fiscal 2005 outlook twice. And yet its executives insist they're sticking with their strategy because they are convinced it will eventually bear fruit.
“Clearly we were disappointed and somewhat surprised with December,” George Heller, chief executive officer at HBC, told an analyst conference call. “However, we were not alone ... Notwithstanding that, we remain committed — and by that I mean both the management and board — to our strategy. We too are sometimes frustrated at the pace of the bottom-line benefits.”
For the 12 months ended Jan. 31, HBC's profit slipped to $59.7-million or 86 cents a share from $59.9-million or 87 cents the previous year. Sales dropped to $7.07-billion from $7.29-billion.
After excluding one-time items for both years, share profit in the latest year stood at 77 cents, down from 98 cents.
The company had revised its 2005 profit forecast last month, expecting between 80 and 83 cents. It had initially targeted between $1.15 and $1.25.
HBC has been struggling for years to improve its performance, in the process attracting would-be buyers that have considered snapping up the retailer.
South Carolina businessman Jerry Zucker has been buying up HBC shares for more than a year, and now holds a 19.99 per cent stake. At more than 20 per cent, he would have to bid for the entire company under the HBC shareholders agreement.
Robert Johnston, a spokesman for Mr. Zucker, said he continues to be disappointed in the short-term results.
Moreover, he said Mr. Zucker finds it disconcerting that the company has decided to stop providing guidance and has pushed out the time it will need to meet its long-term forecast. That worries him because the company contends that its business strategy is sound and the December problems were an anomaly.
“We're concerned with the way things are being portrayed,” Mr. Johnston said. “In the face of a vacuum, speculation will creep in and I don't think that's good for this or any company.”
Nevertheless, he wouldn't say what Mr. Zucker's next move will be.
Mr. Zucker isn't the first to mull a takeover.
Last summer, HBC was in talks with U.S.-based discounter Target Corp., although the discussions fell apart, sources said. Others have sniffed around, contemplating buying HBC and selling off pieces of it to others — Target among them — sources have said.
Analysts were also disappointed with HBC's latest results.
“Clearly the results aren't very good,” said Peter Holden, an analyst at Veritas Investment Research Corp. “The results of the past few years give me very little confidence that [the company] can deliver.”
The fiscal 2005 financial results, meanwhile, also show that HBC generated all its operating profits from its financial services division — and not from its core retailing business, he and other analysts said.
“On a merchandising level, it doesn't look like they made any money,” said Jamie Spreng, an analyst at Fraser Mackenzie Ltd.
In the latest results, an HBC spokeswoman said the company made adjustments to its profit that cover the past 20 years because it has changed its accounting for leasing arrangements.
Many North American retailers have made the same changes to comply with regulatory requirements.
In an ambitious five-year plan unveiled in September of 2003, the company said it would triple annual profit-per-share — excluding one-time items — to $2.85 and boost sales by 20 per cent to $9-billion.
The improvements would come through such initiatives as carrying more furniture and appliances and operating as one “seamless” retailer, consolidating a raft of functions among the banners.
Company executives said Thursday that progress in some areas, such as the appliances and furniture business, has not been as speedy as they would have liked.
But Mr. Heller seemed stumped as to why customer traffic had slumped in December, which is considered a retailer's most significant month.
“I'm a bit mystified,” he said. “We're disappointed and somewhat surprised by it. Something happened that is hard to explain.”
For example, HBC management still can't figure out why sales of high-end fragrances and cosmetics were “way off” target — an area in which the Bay dominates, he said. “That happened in many places, and it was really pronounced in Ontario.”
But he added that retail competition has become much more intense over the past five years, making it tougher to woo customers.
He also said the weak customer traffic in December was “more of an aberration” because trends in the two preceding months and the two following months were more robust.
As well, he said business was hurt by a huge snowstorm in Ontario just days before Christmas and new corporate taxes in that province.
At Zellers, company executives said they have backed off an “everyday low pricing” strategy on some items, such as boxed bras and cookware, because customers expect markdowns.
Zellers had adopted the pricing strategy several years ago in a bid to take on giant Wal-Mart Canada Corp. Wal-Mart led the way in this strategy, which offers generally low prices all the time, rather than regular marked-down specials to try to lure customers.
Mr. Heller said customers can't be weaned off markdowns. “They still like to be tickled.”
© The Globe and Mail
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