Hudson’s Bay Co. (TSX: HBC), one of the largest retailers in North America and the company behind retail brands such as Saks Fifth Avenue, OFF 5TH, Lord & Taylor, Home Outfitters, and Hudson’s Bay, released third-quarter earnings on December 9 and its stock has responded by falling over 1.5% in the trading sessions since.
The stock now sits more than 6% below its 52-week high, so let’s take a closer look at the quarterly results and the company’s outlook going forward to determine if we should consider initiating long-term positions today.
Breaking down the quarterly results
Here’s a summary of Hudson’s Bay’s third-quarter earnings compared to its results in the year-ago period.
| Metric | Reported | Year-Ago |
| Earnings Per Share | ($0.07) | ($1.05) |
| Revenue | $1.91 billion | $984 million |
Source: Hudson’s Bay Co.
Hudson’s Bay reported a net loss of $13 million, or $0.07 per share, in the third quarter compared to a net loss of $125 million, or $1.05 per share, in the year-ago period, as its revenue soared 94.4%. The large increase in revenue was primarily attributable to the inclusion of Saks Fifth Avenue, which the company agreed to acquire in July 2013 and closed on in the fourth quarter of fiscal 2013. Also, consolidated same-store sales increased 2.7% for the quarter, including a 19.2% increase at Saks Fifth Avenue OFF 5TH, a 1.7% increase at Hudson’s Bay, Lord & Taylors, and Home Outfitters, and a 1% increase at Saks Fifth Avenue.
Here’s a quick breakdown of eight other highly important statistics and updates from the report compared to the year-ago period:
- Gross profit increased 98.7% to $787 million.
- Gross margin expanded 90 basis points to 41.1%.
- Operating profit increased 116.7% to $13 million.
- Operating margin expanded 10 basis points to 0.7%.
- Normalized EBITDA increased 84.1% to $116 million.
- Normalized EBITDA margin contracted 30 basis points to 6.1%.
- Paid out a quarterly dividend of $0.05 per share for a total of $9 million.
- Opened three OFF 5TH stores, one Hudson’s Bay Outlet store, and one Lord & Taylor store, bringing its total store count to 336.
Lastly, as a result of its performance in the first nine months of the year, Hudson’s Bay reaffirmed its full year outlook on fiscal 2014, calling for the following performance:
- Revenue in the range of $7.8 billion-$8.1 billion, an increase of 49.4%-55.2% from the $5.22 billion reported in fiscal 2013.
- Normalized EBITDA in the range of $580 million-$620 million, an increase of 42.6%-52.4% from the $406.8 million reported in fiscal 2013.
- Consolidated same-store sales growth in the low-to-mid single-digit percentage range.
Should you buy of Hudson’s Bay today?
Hudson’s Bay is one of North America’s largest retailers, and increased traffic at its many stores led it to a very strong third-quarter performance. However, general weakness in the market has sent its stock over 2% lower and it now sits more than 6% below its 52-week high of $24.65 reached a few days ago.
I think the recent weakness in Hudson’s Bay represents a buying opportunity, because its stock trades at fair current and forward valuations and has a solid 0.9% dividend yield, and because I think its acquisition of Saks Fifth Avenue will lead to better-than-expected top- and bottom-line growth in fiscal 2105 and beyond. With this information in mind, I think long-term investors should consider initiating positions in Hudson’s Bay and adding to them on any further weakness provided by the market.
