Hudson's Bay investor threatens to remove directors following $201M loss


An activist investor in Hudson's Bay Co. threatened Wednesday to seek the removal of company directors unless it takes bold action to address the chain's lacklustre performance after it posted $201 million in losses in the second quarter.

HBC governor and executive chairman Richard Baker said the company continues to explore ways to extract value from its properties during a conference call Wednesday morning to discuss its latest earnings.

That wasn't good enough for Land & Buildings Investment Management, which has urged the company to tap into its real estate holdings, including the Saks Fifth Avenue flagship store in New York alone estimated to be worth $3.7 billion.

The investor criticized a "lack of urgency" by the company given that its net loss grew more than 40 per cent in the second quarter amid rapidly shifting industry trends, lower store traffic and deep promotions.

It also attacked HBC for not being transparent about whether the board is evaluating a potential go-private offer from management.

"This is why we believe HBC must act boldly and decisively for the good of all shareholders to unlock the substantial value currently trapped in its real estate," it said in a news release.

"Otherwise it will be clear that other steps will be needed including potential change at the board level through the calling of a special meeting to remove directors."

In a statement issued Wednesday evening, HBC said it welcomes feedback from shareholders and shares Land & Buildings Investment Management's view "that the public markets do not fully reflect the intrinsic value of HBC's global businesses, powerful brands and unique assets."

"To drive shareholder value now and over the long term, we are actively evaluating the best use of our retail and real estate portfolio and are focused on making the right decisions to improve performance, grow through our all-channel strategy, and identify opportunities for accretive real estate transactions," it said.

Earlier, the chain (TSX:HBC) said it was hopeful that cost-cutting and investments will bear fruit in the busy fall and holiday season.

"While the performance is still very disappointing – and I wouldn't paint it any other way in the second quarter – as we look to the future we see continued improvement," chief executive Jerry Storch said during the Wednesday conference call.

The retail giant has responded to its persistent losses with major restructuring that is forecast to generate $350 million in annual savings by the end of fiscal 2018.

These include the cutting of 2,000 jobs throughout North America, the expansion of its online offerings, and looking at ways to unlock more value from its vast real estate holdings.

Shares of HBC closed up 92 cents, or 8.16 per cent, to $12.19 on Wednesday.

The retailer has also seen significant changes at the top recently, with its president of HBC International departing, and new appointments for the chief financial officer and the president of Hudson's Bay.

The company said its investments in online sales is showing growth, with a 1.2 per cent increase in overall sales to $3.3 billion in the quarter.

Nearly 20 per cent of sales came from digital department store sales. That's well above the industry average and on par with online rivals such as Amazon, Storch told analysts.

"We're making the moves that we think we need to make in order to be forward looking and provide great customer experiences online and in-store which is the answer to the online-only threat," Storch added.

Same-store sales were up 0.4 per cent but comparable sales at Saks grew 1.7 per cent excluding currency fluctuations, the most in more than two years.

HBC continues to invest in its physical stores as well, opening a Hudson's Bay branded store in Amsterdam Tuesday, and scheduled on Friday to open a renovated designer floor of its flagship Saks Fifth Avenue store in New York.

In response to analyst questions about real estate plans, Baker said the company has a history of squeezing more out of stores by adding other uses such as Pusateri's fine foods hall in Saks, Topshop in Hudson's Bay, Sephora in Germany and exclusive rights to Kleinfeld bridal gowns in Canada.

Hudson's Bay is the oldest company in North America. It employs more than 66,000 people and operates more than 480 stores under banners such as the Bay, Saks Fifth Avenue, Lord & Taylor, Gilt, and Saks Off 5th.