Department store retailer Hudson’s Bay Co. posted a deeper second-quarter loss on sluggish sales as the company battles an activist investor and general malaise in the traditional store-based retail sector.

Canada’s oldest retailer recorded a net loss of $201 million in the period ended July 29, or $1.10 per share, compared with a net loss in the same period last year of $142 million (78 cents per share). After adjustments, the company said its normalized net loss was 90 cents, compared with a loss of 67 cents a year ago. Sales rose 1.2 per cent to $3.29 billion, up from $3.25 billion a year earlier.

The hit was steeper than expected, with analysts predicting a loss of 60 cents per share and sales of $3.26 billion, according to Thomson Reuters.

Quarterly sales were hurt by lower traffic across multiple banners and a “highly promotional” retail environment, the company said in a statement after markets closed.

“While it was a tough second quarter as expected, we continue to make the smart decisions necessary to succeed in this rapidly evolving landscape,” said HBC governor Richard Baker. “As part of this, we are constantly evaluating the best use of both our retail and real estate assets to create value for shareholders.”

Comparable store sales, a key measure of retail strength that strips out the effects of year-over-year square footage changes edged up 0.4 per cent overall.

While comparable sales rose 1.7 per cent at Saks Fifth Avenue, they declined 1.6 per cent at its department store group, which includes Hudson’s Bay stores in Canada, and dropped by 2.3 per cent at its off-prices stores division, including Saks Off Fifth. Comparable sales at HBC Europe fell 1.3 per cent. Digital sales rose 12.7 per cent.

Hudson’s Bay, which opened the first of 10 stores under its eponymous banner in the Netherlands on Tuesday, has been a public target of activist investor Jonathan Litt, who owns 4.3 per cent of the company’s shares. Litt has threatened to mount a proxy war if HBC’s management does not hasten its efforts to monetize its real estate, which has an estimated value that far outstrips the company’s market cap, according to Litt.

The Toronto-based  retailer has begun streamlining operations and increasing efficiencies in order to realize about $170 million in savings during this fiscal year, a plan aimed at generating more than $350 million in annual savings if the plan is fully implemented by the end of fiscal 2018.

On Tuesday, prior to the post-market earnings announcement, Hudson’s Bay shares tumbled almost seven per cent to close at $11.27 amid investor jitters about weakness in the sector. Shares of Sears Holdings Corp fell 5 per cent, and Macy’s shares slipped 2.5 per cent.

The company’s gross profit as a percentage of retail sales was 40.2 per cent, a drop of 130 basis points compared with last year as HBC ramped up clearance sales at most of its store banners.

Financial Post

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