Hudson's Bay Co. HBAYF

Scotiabank Securities Dec 6th updated HBC report

[las5513]

OUR TAKE: Q3 results delivered a large EPS loss (-$1.11) as negative SSS weighed on profitability. While HBC indicated positive SSS at Saks and Hudson's Bay, other banners seriously underperformed with overall SSS -3%. Q3 actually saw both GM (41.6%) and SG&A of $1.26B better than our orecast of 41% / $1.28B. However, retailers need top line to drive gross profit. EBITDAR/EBITDA were down YOY to $228M/$34M, falling far short of expectations. Workforce reductions related to company's Transformation Plan resulted in operational challenges in Q3. These impacted digital primarily and have now largely been addressed. On C/C, management noted "pleased with Black Friday" trends. HBC also announced the close of the $500M US equity investment by Rhne Capital, which provides HBC the means to strengthen its balance sheet. HBC continues to put major effort behind improving store productivity, but these are proving slow to deliver. We expect HBC shares will remain under pressure and see no upside until such time as real estate catalyst or improved retail ops emerge. There is limited visibility on the former, and the latter looks set back yet again. Lower retail profitability drives lower sum-of-the-parts valuation and target to $12.