Hudson's Bay earnings miss expectations despite first profit in 8 quarters

By Nichola Saminather

TORONTO (Reuters) - Canadian department store operator Hudson's Bay Co <HBC.TO> on Wednesday posted its first profit in eight quarters, but missed expectations as a tough retail environment ate into comparable sales and margins.

The owner of the Saks Fifth Avenue luxury retailer said it had net income of C$84 million (46.11 million pounds), or 39 Canadian cents per share, in the fourth quarter, which ended Feb. 3, compared with a net loss of C$152 million, or 83 cents, a year earlier. The increase was primarily due to a tax benefit on recent U.S. tax reforms, the company said in a statement.

Adjusted net income excluding one-time items was C$20 million, missing analyst expectations of C$120.18 million, according to Thomson Reuters I/B/E/S.

The company, which also operates Lord & Taylor in the United States and GALERIA Kaufhof in Europe, has been trying to extract value from its substantial real estate holdings as it wrestles with a shift in consumer preferences away from department stores to e-commerce and off-price offerings.

"While we are not pleased with our recent performance, we continue to capitalise on the value of our real estate portfolio and are taking action to improve our operating results," Executive Chairman Richard Baker said in a statement.

Moody's Investors Service in January downgraded Hudson's Bay's ratings, saying the changing consumer behaviour is increasing the need for department store operators to improve their technological capabilities and operational execution.

Comparable sales in Hudson's Bay's digital division, including its Gilt online store, rose 2.8 percent in the three months. Comparable sales in its European division, which includes Kaufhof, Germany's largest retail chain, and new stores in the Netherlands, fell 3.4 percent. They also fell across all other divisions except Saks Fifth Avenue, where they rose 2.1 percent.

The company reported a loss of C$581 million, or C$3.04 per share, for the full year, compared with C$516 million, or C$2.83, in the prior period.

Canada's oldest company said last month it had rejected Austrian property and retail group Signa Holding GmbH's 3 billion euro bid for the Kaufhof unit, and that Signa had withdrawn its offer, a day after Hudson's Bay named CVS Health veteran Helena Foulkes chief executive officer.

German magazine Manager Magazin last week reported that Kaufhof was set to post a loss of more than 100 million euros for the fiscal year that ended Jan. 31, due to rental increases of 50 million euros annually imposed by Hudson's Bay, which is also Kaufhof's main landlord.

Hudson's Bay does not provide a breakdown of the earnings of individual divisions.

Gross margin across the company fell 50 basis points to 39.7 percent from a year earlier, largely due to declines in HBC Europe and HBC Off Price, it said.

As part of its effort to monetize its well-located real estate assets, the company has put its downtown Vancouver store, which it owns in a joint venture with Canadian retail property trust RioCan <RIO_u.TO>, up for sale. That follows the sale of its flagship Lord & Taylor building on Manhattan's Fifth Avenue to Softbank-backed WeWork Companies Inc for $850 million.

(Reporting By Nichola Saminather; Editing by Chizu Nomiyama)