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Hudson’s Bay Co.: Is it Time to Go Bottom Fishing?

Hudson’s Bay Co. (TSX:HBC) has been on the decline for about two years now with the stock plummeting over 66% during this span. There’s no question that Hudson’s Bay is an iconic Canadian brand, but with the fall of retail and the death of the shopping mall, Hudson’s Bay is struggling to keep its store traffic from falling.

The rise of e-commerce has been painful for brick-and-mortar retail stores like Hudson’s Bay, but there are many traditional retailers that are still doing well, despite the increased pressures from the rise of digital retailers. Some well-run Canadian companies that thought ahead of the game and were able to adapt are now thriving, while peers are on their knees. Unfortunately, Hudson’s Bay is not one the companies adapted in time, and the company is continuing its decline into the abyss.

Cost cuts will allow Hudson’s Bay to survive, but can it thrive?

Gerald Storch, CEO of Hudson’s Bay, stated that the company will undergo $75 million worth of operational cuts and $150 million in capex cuts to better prepare for a harsher retail environment which may be sticking around for the long haul. It’s a defensive move by the management team, but it will do nothing to improve the future prospects of the company.

More recently, Hudson’s Bay cut about 2,000 jobs as a part of the reorganization initiative to reduce costs following an abysmal $221 million loss in Q1 2017. The company expects $350 million worth of annual savings once the reorganization plan is finished.

These cuts will allow Hudson’s Bay to lessen the bleeding, but what the company needs to do is to formulate a strategy to get the company out of its funk. Cost savings are nice, but the management needs to find a way of balancing cost cuts and investing in catalysts that may help Hudson’s Bay become a great retailer again.

Is it too late for Hudson’s Bay to adapt?

Richard Baker, HBC governor and executive chairman, stated, “we are taking steps to adapt, beginning with our transformation plan announced today.” Mr. Baker went on by stating that the company is investing in the company’s online platform “to accelerate the opportunity we see online.”

I think Hudson’s Bay is late to the party in jumping on the online retail platform. I believe the “adaptation” move will provide a slight boost to sales, but in the end, Hudson’s Bay is a brick-and-mortar retailer, and the management team needs to find ways of bringing customers back to its physical locations to become a serious rebound candidate.

I’m not a huge fan of the bottom-fishing investment strategy, but if you believe the company can successfully adapt late in the game, then I’d start buying incrementally over the next few months.

Stay smart. Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette has no position in any stocks mentioned.

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