M Macys Inc

By Suzanne Kapner 

Hudson's Bay Co. reported Monday that sales and profits surged during its year-end period, driven by its acquisition of a large German department store chain.

Sales jumped 70% to 4.5 billion Canadian dollars (US$3.44 billion) in the three months to Jan. 30, while profit more than tripled to C$370 million. In September, the retailer completed the purchase of Galeria Kaufhof Group, the parent of German department store chain Kaufhof.

Hudson's Bay's Chief Executive Jerry Storch said in an interview that the retailer's strategy to build out operations in different geographic markets and at different price points is "working well in this environment." It now has a sizable business in the U.S., Canada and Germany at the luxury, midprice and off-price tiers of the market, Mr. Storch said.

Hudson's Bay has outperformed rivals, including Macy's Inc. and Neiman Marcus Group, which posted lackluster sales for their recent quarters. Yet its shares are down 31% over the past 12 months in a sign of the pressure facing retailers as they grapple with changes in consumer buying habits that include more online purchases and a greater share of disposable income going to restaurants and travel.

On Monday, Hudson's Bay's shares closed up less than 1% to C$18.55. The company is scheduled to hold a conference call with investors Tuesday morning to discuss its results.

The company is continuing to expand in other markets. Saks Fifth Avenue recently opened its first two stores in Canada, and it plans to build 40 Saks Off 5th locations, which sell name brands at discounted prices, in Germany beginning in 2017, according to Richard Baker, Hudson's Bay's chairman.

As previously reported in February, sales at existing stores excluding currency fluctuations rose 1.8% in the year-end period. That figure included a 4% gain at its department store group, which consists of its namesake stores and Lord & Taylor, a 2% gain at Saks Off 5th, and a 0.4% rise at Galeria Kaufhof. That helped offset a 1.2% decline at Saks Fifth Avenue.

Digital sales increased 23% excluding currency moves. In January, Hudson's Bay bought online flash-sale site Gilt Groupe for $250 million. Such sites, which offer deep discounts on designer goods for a limited time, have struggled amid fiercer competition.

The owner of Beyond the Rack, which had raised millions of dollars in venture capital financing, filed for protection last month from creditors after negotiations with a potential buyer fell through.

Mr. Storch said online flash-sale sites work better when they are joined with brick-and-mortar retailers that can help them clear excess inventory and handle returned merchandise. Gilt shoppers can now return goods to Saks Off 5th stores, a policy that Mr. Storch said has been well received by customers.

Hudson's Bay has also been working to cash in on the value of its real estate, a strategy that Macy's is now pursuing at the urging of activist investor Starwood Value LP.

Last year, Hudson's Bay began creating joint ventures with mall operators that it eventually plans to spin off into a real-estate investment trust. Meanwhile, Hudson's Bay has been selling off pieces of its stake in some of the ventures and using the proceeds to pay down debt, including one such deal announced last week in which it sold $50 million of equity in a venture with Simon Property Group.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

April 04, 2016 19:20 ET (23:20 GMT)

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