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Things to Like About Hudson’s Bay Co.’s Results

Hudson’s Bay Co. (TSX: HBC) had strong fourth-quarter and year-end results that have demonstrated some promising and exciting trends for the retailer. Let’s see why these trends should get investors excited about the stock.

Saks Off 5th going strong

Same-store-sales growth at Saks was 2.6% and at Saks Off 5th was 12.1%. This growth has not gone unnoticed and management is directing a big chunk of its capital investment dollars to this banner going forward. The company will expand this banner in the U.S., as it represents a significant opportunity that delivers “true fashion and real value.” There are also plans to open two Saks Fifth Avenue stores in Toronto in the spring of 2016, and management sees room for seven full line Saks Fifth Avenue stores and up to 25 Saks Off 5th locations in Canada in the next few years.

Although there is risk in coming to the Canadian marketplace, as seen in the epic failure of Target in Canada, it appears that Saks has the right formula to attract Canadian consumers, particularly Saks Off 5th, because it has a value proposition that Canadians should love. It is not without risks, as luxury retailer Nordstrom is currently entering the Canadian market, and it remains to be seen whether the market can support three luxury retailers (Holt Renfrew, Saks, and Nordstrom).

Online sales increased 35.1%

Online sales in the fourth quarter totaled $304 million, an increase of 35.1%, and represented 11.6% of total sales. This is an important part of the company’s strategy of being present in all retail channels.

Strong margin performance

Gross margin in the quarter was 41% compared to 36.8% in the same period last year. Normalized SG&A was essentially flat versus the fourth quarter of last year, at 28.2%. This despite the big investments that the company has made in digital and higher occupancy costs. HBC is on track to achieve $100 million in synergies, consistent with the company’s goal.

Real estate portfolio

The company’s real estate portfolio is valued at $9.2 billion.

2015 outlook

Management is forecasting total sales for 2015 to total between $9-9.3 billion, representing a year-over-year growth rate of between 9.8-13.4%, one that is higher than what analysts have been expecting. Management’s expectation are that the company will achieve a full year low single digit same-store-sales growth rate.

Although the company’s balance sheet is still highly leveraged, with a debt to capital ratio of 59.3%, these trends are promising and can give investors comfort in the retailer’s future.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas owns shares of Target.

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