Hudson’s Bay Co (TSX:HBC) nosedived 6.78% on Tuesday following the release of an abysmal second quarter, which saw a disastrous $201 million loss — up from a $142 million loss reported during the same period last year. The retail giant is now down ~61% from all-time highs, and it looks like more downside could be on the horizon as the management team scrambles to find a way to stop the bleeding.
Will major restructuring initiatives help HBC turn around?
The company has undergone a restructuring with hopes of reducing losses, but it doesn’t look like such initiatives are going to dig Hudson’s Bay out of the hole it’s dug. The company recently laid off 2,000 employees across North America, planned to unlock more value from its real estate assets, and made plans to beef up its e-commerce platform. These major changes may sound somewhat promising, but I don’t believe they’ll be meaningful enough to stop the bleeding over the long term.
The rise of e-commerce is making things very difficult for retailers, especially fashion retailers like Hudson’s Bay. The brand is iconic in Canada, yet the company is still bleeding cash like there’s no tomorrow.
Sure, Hudson’s Bay can beef up its online offerings, but even if such an initiative stopped the magnitude of losses, there will still be a tonne of brick-and-mortar stores that are not being put to good use. The online platform has shown some strength, accounting for ~1.2% of overall sales, but the only way I believe shares of HBC can rebound is if the management team can innovate and find a reason for customers to return to its physical stores.
The management team stated that it’s planning on investing in its brick-and-mortar locations going forward. A new HBC store opened in Amsterdam recently, and a newly renovated store is scheduled to open in New York. I’m not convinced that the company can win back customers by renovating its stores; it needs to really innovate and revamp its product lineup and marketing strategy, or I expect stores will continue to be deserted.
The New York HBC location on Saks Fifth Avenue is reportedly worth a whopping $3.7 billion, so stay tuned for a potential HBC REIT, as it’s likely to outperform its parent over the long term.
Bottom line
The pain continues for HBC, and I’m not convinced that the management team’s restructuring will stop the bleeding. I believe HBC is going to continue to suffer, and many store closures could be in the cards over the next few years.
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