Hudson's Bay Company Slashes 2,000 Jobs After Shrinking Q1 Sales

Following a significant, greater-than-expected first-quarter loss, Hudson's Bay Company (HBC), the Canadian retail company, will cut 2,000 jobs as part of its Transformation Plan to drive $259 million in annual savings. HBC operates stores under banners including Lord & Taylor, Hudson's Bay, Saks Fifth Avenue and Saks OFF 5th.

"This was a tough quarter for HBC. While the retail apparel market remains particularly challenging, we are taking steps to adapt, beginning with our Transformation Plan announced today," aid Richard Baker, HBC's governor and executive chairman. "This initiative will reshape our organization to accelerate delivery of a best-in-class all-channel experience to our customers while improving our cost structure.

"The Transformation Plan makes us more agile and better able to respond to evolving customer preferences and a rapidly changing retail landscape. We strongly believe that our model of combining world class real estate assets, which are less impacted by short-term trends, with our diverse retail businesses provides long-term value for the company and our shareholders," said Baker.

Jerry Storch, HBC's CEO, added, "We know we can do better and we are taking bold decisive action. Rather than chase the rapid industry changes, our Transformation Plan will reposition HBC to get ahead and stay ahead. This North American based initiative, the result of a process we began more than six months ago, is designed to increase synergies across our portfolio of businesses, sharpen capabilities that give the company a competitive edge and re-align our expenses to focus on growing our digital business.

"Savings from the changes we have announced today are required to help mitigate the pressures we are facing in the current environment," Storch continued. "As we have developed our plan, we have been determined to become not just a leaner company but also a better one. These changes include significant improvements to our organizational structure, store operations and procurement strategy, all of which better reflect the company's efforts to drive the business forward and deliver a best-in-class all-channel experience.

"Combined with our prudent management of capital expenditures, we believe that this improved structure will better position HBC for the future," Storch said.

HBC has largely completed the comprehensive review of its North American business operations started in late 2016. As part of this review, the company is implementing changes to drive its business forward and improve the company's all-channel business model. This Transformation Plan will increase operational synergies, sharpen capabilities and reduce expenses. Including the C$75 million in savings announced in February, annual savings from this Transformation Plan are currently expected to total more than C$350 million by the end of Fiscal 2018, with approximately C$170 million anticipated to be realized during this fiscal year.

Of this C$170 million, the actions necessary to secure C$125 million are complete as of today. As part of this initiative, the company will reduce total headcount by approximately 2,000 positions, including those previously announced in February. These savings are required to help offset revenue, margin and cost pressures the company is facing in the current retail environment. In addition to the severance charges incurred as part of the company's actions in February, HBC's expects one-time charges related to this initiative of approximately c$95 million over the next 12 months.

HBC's transformation plan
Creating two distinct leadership teams, one focused on Hudson's Bay and one dedicated to Lord & Taylor, to drive market-specific strategies. The Hudson's Bay leadership team will focus on accelerating plans to build upon its successful transformation in Canada, while the Lord & Taylor leadership team will focus on increasing the pace of change at that U.S. banner, with an emphasis on driving digital opportunities while operating its stores more efficiently.

• Integrating digital functions throughout the organization to develop and maximize the impact of all-channel solutions for marketing, operations and technology in order to deliver the most seamless in-store and online experience for HBC's customers.
• Realigning resources including IT and Digital, Store Operations & Visual Merchandising, Buying & Planning and Marketing to increase efficiencies and leverage scale, with world-class centers of excellence that support banners while preserving differentiation among the businesses.
• Optimizing in-store service and enhancing sales training for store associates to better serve HBC's customers.
• Reducing employee base by approximately 2,000 positions, including those previously announced in February, which will flatten the organization by removing layers to make HBC more nimble and streamline the decision-making process.
• Fully leveraging the size and scale of the company to optimize procurement and generate additional savings.

First quarter summary
Retail sales were C$3.203 million, a decrease of C$100 million, or 3.0 percent, from the prior year. The decrease is related primarily to lower overall comparable sales of approximately C$94 million. The remainder of the decrease was driven by a negative C$31 million foreign exchange impact on the translation of U.S. dollar and Euro denominated sales and a C$25 million impact from store closures, partially offset by the opening of four new Saks Fifth Avenue stores and 25 new Saks OFF 5TH stores during the last year, which contributed approximately C$50 million in sales.

Although overall comparable sales at many of its stores declined, sales increased at Hudson's Bay, primarily driven by strong overall digital sales. Active and ladies shoes continued to perform well while handbag sales declined and growth in home was lower year over year. Ongoing initiatives at Hudson's Bay include an increased focus on key categories such as active, dresses, home and men's, as well as focused digital marketing designed to drive all-channel sales.

At Lord & Taylor, in-store traffic remains challenging, though the company has seen an improvement in overall conversion. During the quarter, Lord & Taylor expanded The Dress Address initiative, and continues to heighten its focus on key categories such as active, dresses, denim and fine jewelry while investing in value-focused messaging and new and existing partnerships. Lord & Taylor is also dedicating additional resources to its digital business in an effort to drive performance of this channel.

The company is creating dedicated leadership teams for each of Hudson's Bay and Lord & Taylor. These teams will drive market-specific strategies that support plans for continued growth at Hudson's Bay in Canada and increase the pace of change at Lord & Taylor, with an emphasis on driving digital opportunities.

Lower comparable sales at Saks Fifth Avenue were primarily driven by lower traffic, a decline in international sales, and a shift in timing of two major promotional events. Saks continues to focus on injecting newness into the customer experience while investing in marketing initiatives in key markets through events, targeted marketing, and continued enhancements to our SaksFirst loyalty program.

Saks Fifth Avenue will also roll out several digital initiatives over the coming months and expects to expand its drop ship program in addition to rolling out "buy online, pick up in store" functionality at all stores.

Lower traffic at Saks OFF 5TH and Gilt primarily drove the comparable sales decline at HBC Off Price, though Gilt accounted for an outsized portion of the overall decline. The company continues to work on elevating the assortment at Saks OFF 5TH, while also growing the amount of exclusive product both in store and online. The integration of Gilt and Saks OFF 5TH is ongoing, with the expectation that Saks OFF 5TH assortments will be available on Gilt by the end of the third fiscal quarter, providing customers with more access to top designers, products, and categories at attractive values.

Digital sales increased by 5.6 percent from the prior year, with comparable digital sales on a constant currency increasing by 5.4 percent. Excluding Gilt, comparable digital sales on a constant currency basis increased by 13.2 percent, reflecting the company's continued strategic focus on growing this channel.