Hudson's Bay Co. T.HBC

TD Lowers Target To $31

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Hudson's Bay Co. (HBC-T) C$18.55 Q4/F15 Solid; Announces a Heightened Investment in Growth Event Hudsons Bay Co. (HBC) reported Q4/F15 Adjusted EBITDAR of $630mm that was ahead of our $600mm estimate. The guidance range for F2016 Adjusted EBITDAR and Adjusted EBITDA has been maintained. Additionally, HBC has introduced a higher capital expenditure profile for F2016, with the majority allocated toward future growth initiatives. This note provides an overview of the results. Although we have adjusted our financial forecasts after reviewing the financial statements and MD&A, we highlight that the conference call is scheduled to be held this morning. Should further information be provided on the call that varies from our preliminary review, we will update our estimates and target price as necessary. Impact: MIXED In a challenging retail environment HBC achieved Q4/F15 Adjusted EBITDAR that exceeded our expectation, anchored by a stronger-thananticipated sales performance. We view this outperformance positively as our investment thesis remains that improving Retail financial performance is required to surface the fair value of HBCs attractive Real Estate portfolio within the share price. Our impact is defined as mixed as the heighted capex being incurred raises our forecast net debt at the Opco level for forecast benefits that should be realized beyond our current valuation horizon resulting in a decline in our target price. TD Investment Conclusion We maintain our view that the operational improvement within the Retail segment should lead to investors allocating increasing value towards HBCs attractive real estate portfolio. The current growth initiatives being pursued should lead to improving Retail financial performance in H2/F16, and even more so in F2017/F2018 as new stores mature, pre-opening costs decline, and operating leverage takes hold. We are maintaining our BUY rating while lowering our target price to $31.00 from $33.00.