Hudson's Bay outlook disappoints; loss widens on Saks deal

By Solarina Ho

(Reuters) - Hudson's Bay Co cut its 2013 outlook on Wednesday on expectations of heavier holiday discounting and as overall sales were weaker than expected in the third quarter, depressing the retailer's stock 5 percent.

The company, which completed its $2.4 billion purchase of U.S. luxury chain Saks Inc last month, reported a wider net loss primarily due to costs related to the acquisition.

Excluding acquisition-related and restructuring costs, Hudson's Bay reported earnings that fell short of analysts' expectations.

Shares of the Lord & Taylor chain operator fell 94 Canadian cents to C$19.00 on the Toronto Stock Exchange. They had risen about 17 percent since its last quarterly report in September.

"We expect shares to weaken in trading. ... Despite the guidance reduction, we believe the foundation of the turnaround is in place," said RBC Capital Markets analyst, Tal Woolley in a client note.

"Without minimizing the impact of the reduced guidance announced this morning, we remain constructive on HBC shares."

Hudson's Bay, which traces its roots to the Canadian fur trade in the late 1600s, owns The Bay and Home Outfitters in Canada as well as lucrative real estate such as Lord & Taylor's flagship store on Fifth Avenue in Manhattan. The company has long indicated it might spin off some of its property into a real estate investment trust, but declined to provide a time frame.

"We're working with a variety of consultants to look at every possible scenario one could do with our real estate," Chief Executive Richard Baker told analysts during a conference call after the results were released.

The company's net loss widened to C$124.2 million, or C$1.04 per share, in the quarter ended November 2 from C$14.4 million, or 14 Canadian cents per share, a year earlier.

Finance costs more than quadrupled to $134.2 million, primarily due to the Saks acquisition.

Hudson's Bay, which went public in November 2013, posted earnings, excluding acquisition-related and restructuring costs, of C$8.9 million, or 7 Canadian cents per share. This was below analysts' average estimate of 10 Canadian cents per share according to Thomson Reuters I/B/E/S.

The company said expenses rose more than expected as it continued to develop online operations and its partnership with brands like Top Shop.

Consolidated sales rose 6 percent to C$984.1 million ($927 million).

REVISED OUTLOOK

HBC cut its fiscal 2013 target for normalized EBITDA, or earnings before interest, taxes and some other expenses, to between C$315 million and C$335 million. The previous forecast was C$360 million to C$390 million.

The company said competitive pricing pressures during the holiday season and immediately afterwards will be even greater than it had expected.

Sales growth at established stores for the year was projected to be 3.5 to 4 percent, compared with its previous forecast of 3 to 5 percent.

The retailer estimated overall fourth-quarter sales, excluding Saks, of C$1.37 billion to C$1.41 billion.

HBC executives said year-to-date sales growth has been strongest at its Canadian flagship Hudson's Bay department store and online operations, but softer at other chains.

Home Outfitters, in particular, has been impacted by the Canadian arrival of Target Corp this year, executives told analysts, while Lord & Taylor has felt the pressure of greater competition in the United States.

Third-quarter comparable-store sales increased 6.4 percent at the Hudson's Bay chain and 1.6 percent at Lord & Taylor, the first growth for the U.S. banner in four quarters.

Baker affirmed that the company can achieve its annual savings target of C$100 million following the Saks acquisition.

(Additional reporting by Sayantani Ghosh and Ashutosh Pandey; Editing by Jeffrey Hodgson and Richard Chang)

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