Hudson’s Bay Losses Widen on Transformation Missteps, American Eagle Soars on Jeans and Aerie

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Hudson’s Bay Company

In a nutshell: Cuts at Hudson’s Bay Company created additional issues for the retail group that could ill afford more. The company attributed many of its challenges to the layoffs and reorg that were key to its transformation plan. The “operational disruptions” affected the marketing and merchandising teams in particular, with digital taking the biggest hit. During the company’s earning’s call it admited it could have done “a better job” with some aspects of the transition. The plan is expected to deliver the $350 million in annual savings that was previously announced, though the benefit is largely expected to be felt next year.

The company is focused on growing its private-label collections, with additional skus in existing lines as well as new labels, the first of which will launch next fall. The hope is that these collections will help improve margins and shorten lead times.

Amid the company’s poor performance for the quarter, HBC continued to tout the opportunities it sees from two big initiatives announced during the timeframe. Last month, the retailer announced it would partner with Walmart to sell through its online channel starting in the spring. While the assortment will be edited for Walmart.com, HBC noted it will reflect the brands available at its stores. Through the sale of its Lord & Taylor flagship to WeWork, HBC looks to drive traffic and create cashflow. Announced separately today, the $500 million equity investment behind the deal from Rhône Capital closed, allowing HBC to pay down its revolving facility. The group also received a $75 million deposit related to the sale. 

Sales: The company recorded a retail sales decline of 4.2% to $3.2 billion in the third quarter. Comp sales for the group declined by 3.2% in the period. Saks eked out its second consecutive comp sales increase while same store sales at Hudson’s Bay continued to grow for the 29th consecutive quarter. HBC Europe comps were down 3 percent while the off-price channel fell by 7.6%.

Digital sales, excluding Gilt.com, fell by 9 percent, which the company attributed to the reduction in headcount under its transformation plan.

Earnings: HBC reported a net loss of $243 million for the quarter, compared to a $125 million loss during the prior-year period. Lower gross margin dollars were among the reasons the company gave for the poor performance.

CEO’s Take: “We think that we have a large opportunity with our partner, Walmart, to expose our Lord & Taylor brand to a larger population. The walmart.com site has almost 20x the traffic of the demographic cohort that shops at Lord & Taylor. Walmart is also making a very concerted effort on walmart.com to move their offering up and to have a more diversified offering,” said Interim CEO and Executive Chairman Richard Baker. “…we do not believe that our Lord & Taylor customer will have negative impact on our existing Lord & Taylor stores because of our association with Walmart. We’re living in a world now where all types of different products are available to customers in all types of different places and all types of different ways.”

American Eagle Outfitters

In a nutshell: Strong traffic and healthy transactions propelled American Eagle Outfitters in the third quarter. AEO is eyeing opportunities to take market share as the industry continues to struggle, particularly in bottoms and jeans, which has achieved positive comps for 17 quarters, and its Aerie line.

To focus more directly on its jeans business, the company rolled out the AE Studio store format this quarter, which also offers a customization station and product collaborations.

Guidance for the fourth quarter sees earnings per share between 42 cents and 44 cents, based on an anticipated comp store sales increase in the mid single digits.

Sales: Revenue increased by 2 percent to a third quarter record of $960 million, up from $941 million last year. Digital sales penetration increased by 25 percent. Comparable store sales for the group grew by 3 percent.

Comps at American Eagle were up 1 percent in the quarter. The retail chain boosted margins with fewer promotions and bested mall traffic rates. Aside from accessories, all product categories across men’s and women’s performed well.

Same-store sales for Aerie increased by 19 percent, on top of 21 percent from the prior-year period. The company reported strong performance across categories including core intimates, apparel, active and swim.

Earnings: Net income was reported to be $63.7 million, or 36 cents per diluted share, compared to $75.8 million, or 41 cents per diluted share, during the same period last year.

CEO’s Take: CEO Jay Schottenstein said,We continue to see consistency in our top line growth which reflects the multi-year investments we made in product leadership, innovation, quality and our brands. Progress was also apparent within profit margins where we experienced quarter over quarter sequential improvement. In the fourth quarter, we are seeing business momentum continue.”

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