June 13, 2019 / 11:38 AM / 3 months ago

UPDATE 4-Hudson's Bay Co sales slump, optimistic about China trade impact

(Adds details from earnings call, updates share price)

By Melissa Fares and Shanti S Nair

June 13 (Reuters) - Canadian department store operator Hudson's Bay Co on Thursday posted a wider-than-expected loss as sales at its Lord & Taylor unit fell, but said it was optimistic about its ability to deal with the impact of U.S. tariffs on Chinese goods.

Shares of the company were up about 1% at C$9.39 in afternoon trading.

Hudson's Bay, which also owns Saks Fifth Avenue, said earlier this week it is evaluating a C$1.74 billion ($1.3 billion) take-private cash offer as it competes with discount direct-to-consumer brands and e-commerce behemoths like Amazon.com Inc.

The offer was put together by Executive Chairman Richard Baker and the retailer's other shareholders.

Hudson's Bay Chief Executive Officer Helena Foulkes, who is not part of the shareholder bid group, highlighted the company's success at Saks, particularly in its fast-growing men's business, and at Hudson's Bay, due to investments in improving the mobile app and its buy-online pick-up-in-store business.

Foulkes told Reuters she expects to see the benefits of cost-cutting, including from the shuttering of underperforming shops, in the second half of the year.

Company executives told investors on an earnings call that Hudson's Bay had not seen any impact from U.S. tariffs on Chinese imports and that it expects to use aggressive inventory and supply chain management to offset a potential further round of American tariffs on Chinese goods.

U.S. President Donald Trump has threatened to impose up to 25% tariffs on an additional $300 billion in Chinese imports if the two sides cannot reach a trade deal.

"Our merchants are prepared to work with the vendor community to lessen the impact on HBC and our customers," Chief Financial Officer Edward Record said. "We hope the tariffs don't go in place, but if they do, we think we are well-positioned, given the more than 70% of revenue we have in Canada and in luxury retail."

Hudson's Bay, North America's oldest company, also said earlier this week it would sell its stake in its real estate joint venture in Germany to Signa Retail Holdings in a deal valued at C$1.5 billion, with the proceeds to be used to pay down debt.

Lower debt would also make Baker's take-private deal easier to finance.

The company said first-quarter comparable sales decreased 2.1%. Excluding Lord & Taylor and Home Outfitters, which are both undergoing strategic reviews, same-store sales rose 0.3%.

Same-store sales at its namesake stores tumbled 4.3% in the quarter.

The bright spot for Hudson's Bay in the first quarter was its upscale Saks Fifth Avenue business registering a 2.4% rise in same-store sales as customers spent more on men's and women's apparel. The retailer's off-price business, Saks Off Fifth, saw a 4.4% bump in same-store sales due to investments made in targeted marketing and product assortment.

Rivals Macy's Inc's off-price Backstage business and Nordstrom Inc's Nordstrom Rack discount stores have also hit a sweet spot with shoppers on the hunt for a good bargain.

The company reported net profit from continuing operations of C$275 million ($206.80 million), or C$1.15 per share, in the first quarter ended May 4, compared with a loss of C$132 million, or 72 Canadian cents per share, a year earlier.

First-quarter net income was buoyed by a C$817 million gain from the sale of its iconic Lord & Taylor Fifth Avenue flagship building in New York to WeWork and partner Rhône Capital.

Excluding items, the company posted a loss of 87 Canadian cents per share, wider than the 56 Canadian cents loss based on average estimates from two analysts, according to IBES data from Refinitiv.

Total revenue fell to C$2.12 billion from C$2.19 billion a year earlier.

Shares of the company had fallen 12.6% this year before Baker's offer earlier this week pushed shares up by as much as 48%.

($1 = 1.3302 Canadian dollars)

Reporting by Melissa Fares in New York and Shanti S Nair in Bengaluru; Editing by Paul Simao and Lisa Shumaker

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