Hudson’s Bay (TSX:HBC) is a long way from its all-time highs near $30 per share. The company has been on a bit of a downward spiral since 2015, with many investors wondering whether they should be looking at the stock as an opportunity or trashing it for good.
But as Canadians continue to look for cheap stocks that will seriously bump up their TFSA or RRSP portfolios, HBC has a lot to prove with its next earnings release in June.
It’s no secret that the company’s Lord and Taylor business was pretty much a failure on HBC’s part. After CEO Helena Foulkes told investors it would be “exploring options” with the company to position HBC for “long-term success,” investors are now wondering if HBC will be selling the business or just making some massive changes.
While the selling of Lord and Taylor would bring in some much-needed cash, this isn’t a good sign for the company. HBC has already announced it would be shutting down its Home Outfitters chain and closing 20 Saks Off Fifth stores in the United States. Selling assets means the cash just isn’t there for the company to lean on.
Speaking of cash, the company has proven it doesn’t have much of it. During the last three of five quarters, the company has posted a net loss, with shares prices bottoming out every time. Most recently, its operating loss came in at $420 million, with net loss of $631 million for the 2018 year. Revenue also fell to $2.89 billion, with analysts hoping for more like $3.22 billion.
The company now needs every penny it can get, as it has to now settle a case for $4.5 million related to its advertising and pricing practices that were referred to as “deceptive.”
Sales were also down last quarter by 1.4% overall, with HBC stores falling by 5.2%, leaving net profit at $286 million. And this was after Foulkes stated that increasing its low-cost merchandise would increase profits. It didn’t work, with Foulkes saying they “took it too far.” Foulkes now says there are changes in the works, and hopefully they are some big ones.
Analysts are a bit more confident than me, to be honest, pegging the company’s 12-month growth around $10 to even $12 per share. That means shares could almost double in the next year. But given historical performance since 2015, I just don’t feel that’s a likely outlook. Having some cash on hand from selling real estate is nice, but now even sales are down — something the company needs to survive.
This company can’t be pushed aside for its lack of effort. It seems management is sincerely trying to come up with ways of increasing revenue and increasing share prices. But so far, it just hasn’t worked.
Honestly, even if this quarter is positive, HBC will have to prove it has a number of projects in the works before gaining shareholder trust again. Selling assets isn’t enough, the company needs to show it plans on investing in something worthwhile to create revenue over the long term. If it doesn’t, the oldest retail company in North America could be sunk.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned.