Hudson`s Bay Company

Hudson’s Bay Company
Scotiabank Back to School Conference
September 17, 2013
Forward Looking Statements / Non-IFRS Measures
This Presentation contains forward-looking statements about HBC’s current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future
events or developments. Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may”
and “should” and similar expressions. Forward-looking statements reflect current estimates, beliefs and assumptions, which are based on HBC’s perception of historical trends, current conditions and expected
future developments, as well as other factors management believes are appropriate in the circumstances. HBC’s estimates, beliefs and assumptions are inherently subject to significant business, economic,
competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. HBC can give no assurance that such estimates, beliefs and assumptions will prove to be
correct.
Numerous risks and uncertainties could cause the combined company’s actual results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forward-looking statements,
including, but not limited to: failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies from the combined company’s major initiatives, including those from
restructuring; failure to realize benefits from investments in the combined company’s IT systems, including the combined company’s IT systems implementation, or unanticipated results from these initiatives;
the inability of the combined company’s IT infrastructure to support the requirements of the combined company’s business; significant competition in the retail industry; changing consumer preferences;
changing consumer spending; the prospect of unfavourable economic and political conditions; the seasonal nature of the combined company’s business; unseasonable weather conditions or natural disasters;
the combined company’s ability to continue to improve same store sales; the combined company’s ability to retain a senior management team who possess specialized market knowledge, the combined
company’s dependence on its ability to attract and retain quality employees and maintaining good relations with non-unionized and unionized employees; the inability of the combined company to manage
inventory to minimize the impact of obsolete or excess inventory and to control shrink; the impact of potential environmental liabilities; failure to respond to changes in consumer tastes and buying patterns;
reliance on the performance and retention of third-party service providers including those associated with the combined company’s supply chain; supply and quality control issues with vendors; other disruptions
to the combined company’s distribution operations or supply chain; damage to the reputation of brands promoted by the combined company, or to the reputation of any supplier or manufacturer of these brands;
product quality and product safety risks which could expose the combined company to product liability claims and negative publicity; increased commodity prices, including for cotton, that may affect the
combined company’s profitability; the combined company’s ability to execute its plan to reduce operating expenses; the combined company’s ability to comply with the covenants in its credit facilities; breaches
of privacy; fluctuations in the value of the C$ dollar in relation to the US$; the combined company’s significant level of indebtedness; risks associated with doing business abroad; risks associated with operating
freehold and leasehold property; the combined company’s ability to maintain the brand value of its various retail banners; current store locations may become less desirable; inability to protect trademarks and
other proprietary rights; risks related to size and scale; insurance related risks; risks related to the combined company’s ability to maintain financial and management processes and controls; volatile market
price for the combined company’s Common Shares; the combined company’s ability to pay dividends is dependent on our ability to generate sufficient income; changes in the combined company’s income,
commodity, other tax and regulatory liabilities including changes in tax laws, regulations or future assessments; any requirement of the combined company to make contributions to its registered funded defined
benefit pension plans, post-employment benefits plan or the multi-employer pension plans in which it participates in excess of those currently contemplated; the risk that the combined company would
experience a financial loss if its counterparties fail to meet their obligations in accordance with the terms and conditions of their contracts with the combined company; the inability of the combined company to
collect on its credit card receivables; failure of the combined company to lease or obtain suitable store locations on economically favourable terms; and events or series of events may cause business
interruptions.
Readers are cautioned that the foregoing list of factors is not exhaustive. Other risks and uncertainties not presently known to HBC or that HBC presently believes are not material could also cause actual
results or events to differ materially from those expressed in its forward-looking statements. Additional information on these and other factors that could affect the operations or financial results of HBC are
included in reports filed by HBC with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect HBC’s expectations only as of the date of this Presentation. HBC disclaim any obligation to update or
revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
This Presentation makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further
understanding of HBC’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under
IFRS. We use non-IFRS measures to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when
relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management also
uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our future debt service, capital
expenditure and working capital requirements.
1
HBC Today
2
Hudson’s Bay Company
Full-Line /
Outlet(1)
90 / 1
48 / 4
69
138 / 74(2)
2012 Retail
Sales
$2.3B
$1.5B
$0.3B
$4.1B
2012
Normalized
EBITDA
2012 Same
Store Sales
$310MM
5.4%
____________________
(1) Store counts as of Q2 2013.
(2) Includes Home Outfitters as part of the outlet store count.
(3) Calculated in local currency. L&T Q4’12 impacted by Hurricane Sandy.
2.2%(3)
4.0%
3
Historical Evolution
HBC event
1978: HBC acquires Zellers
1978: HBC acquires Simpsons
2008: NRDC, owners of US
retailer Lord & Taylor,
purchases balance of HBC
1998: Zellers acquires
Kmart Canada
1670: Hudson’s Bay
Company (HBC) is
founded by Royal
Charter of King
Charles II
1991: All remaining
Simpson's stores are
folded into the Bay
brand
2006: Lord & Taylor
purchased by NRDC
Equity Partners
L&T event
2011: HBC sells 189
Zellers leases to Target
Corp. for ~$1.8bn
2012: HBC
completes IPO
at $17.00 per
share
1670 1826 1914 1978 1986
1826: Lord &
Taylor is founded
1990
1995
2000
2006
2008 2010 2011 2012 2013
2013: HBC
agrees to acquire
Saks Incorporated
1986: May
Department Stores
acquires Lord &
Taylor
2012: HBC acquires
Lord & Taylor
1914: Lord &
Taylor moves to
current 5th Avenue
flagship location
1993: HBC
acquires
Woodward's
1999: HBC launches
new Home Outfitters
store chain
2006: HBC is taken private
by Jerry Zucker; NRDC
subsequently acquires a
20% stake in the business
2010: HBC sponsors
Vancouver Olympics
4
Lord & Taylor
Store Footprint
Overview
(2)
One of the first U.S. department store chains and one of the most
recognized banners in the northeastern United States
48 Full-line Stores
4 Outlet Stores
Operates 48 full-line department stores and 4 outlet stores on the
East Coast and the Midwest
1
2
Owns / ground leases 41 locations including flagship New York
store on 5th Avenue
11
1
1
4
4
2
12
4
2
4 1
FY 2012 retail sales of $1.5 billion and same store sales of
2.2%(1)
Offers top-tier brands with superior shopping experience and
customer-edited merchandise assortment
Dominates Top-Tier Suburban Shopping Experience
Brand Portfolio
Introduction of more affordable
brands
New brands generating ~25% of
sales
Value Proposition
Lower
Higher
Positioning
3
Focus on high volume and
leading brands
Customer Experience
Mainstream
Unique
____________________
(1)
Calculated in local currency. Q4’12 impacted by Hurricane Sandy.
(2)
As of Q2 2013.
5
Hudson’s Bay
Store Footprint
Overview
Ontario + Quebec =
62% of Canadian Population
Canada’s largest national branded department store and one of
the country’s most iconic, recognizable banners
90 full-line department stores across Canada and 69 home
specialty stores (sold Zellers stores to Target in 2011)
(1)
British
Columbia
18
Alberta
Manitoba
15
3
New Foundland
Saskatchewan
Ontario
Owns / ground leases 13 retail properties, including flagship
locations in Toronto, Vancouver and Montreal
FY 2012 retail sales of $2.6 billion and same store sales of 5.4%
2
34
Quebec
16
Total Full-Line Stores = 90
Prince
Edward
New
Island
Brunswick
Nova Scotia
2
Offers broad range of mid-tier brands and high-quality,
fashionable merchandise at compelling values
Valuable Locations in Attractive Markets
Brand Portfolio
Added ~330 new brands since
2008
Discontinued over 900 brands
since 2009
Value Proposition
Lower
Higher
Positioning
New brands generating ~20% of
sales today (since 2008)
Customer Experience
Mainstream
Unique
____________________
(1)
As of Q2 2013. Excludes 1 outlet store.
6
Strategic Investments Creating Improvements
More than $250 million invested over the past three years
Dedicated to investing in high IRR projects
Intelligent, Disciplined Capital Allocations
7
Unique Platform Facilitates Strategic Partnerships
Strategic Partnerships Drive Strong Sales Growth
Five TopShop locations through 2012
and additional five planned for 2013
Partnering with Kleinfeld to redefine
Canadian bridal shopping
The Room concept features designer
clothing in an upscale environment
8
HBC Performance
Lord & Taylor Sales / Sq. Ft. (US$)
Successful integration of Hudson’s Bay and Lord
& Taylor led by current management team
$250
$240-$250
Same-store sales growth has significantly
$218
$175
outperformed average of peers
Achieved significant increases in sales
productivity with room for further upside
'09
'12
3-5 Yr.
Target
'12 N. A.
(2)
Peer Group
Doubled EBITDA from $156 million in FY 2009 to
Hudson’s Bay Sales / Sq. Ft. (C$)
$310 million in FY 2012
Reduced SG&A expense by 350 bps over the
$250
past three years
C$122
'09
____________
(1) Excludes Vancouver Olympics sales.
(2) Includes Belk, Bon-Ton, Dillard's, J.C. Penney, Kohl's, Macy’s, Neiman Marcus, Nordstrom, Saks, Sears Holdings and Sears Canada.
C$140
'12
(1)
C$170-C$180
3-5 Yr.
Target
'12 N. A.
(2)
Peer Group
9
Current Quarter Performance
Q2
Sales
Gross Profit
SG&A
Normalized EBITDA
(1)
YTD
Q2 2012
Q2 2013E
$911.9
$947.7
4%
Sales
364.6
368.1
1%
Gross Profit
345.5
359.6
4%
SG&A
58.9
58.0
Q2 2012
∆
(2%)
Consolidated same store sales grew 3.5% y-o-y, or +3.0% on a
constant currency basis, driven by:
Normalized EBITDA
Q2 2013E
Δ
$1,760.1
$1,831.7
4%
705.7
724.3
3%
726.8
731.3
1%
85.0
89.0
5%
(1)
Consolidated same store sales grew 3.8% y-o-y, or +3.1% on a
constant currency basis, driven by:
Hudson’s Bay up 6.2%
Hudson’s Bay up 6.9%
Lord & Taylor down 1.2% on a US$ basis
Lord & Taylor down 1.3% on a US$ basis
Gross profit margin of 38.8%, below Q2 2012 rate of 40.0%
Gross profit margin of 39.5%, below YTD 2012 rate of 40.1%
Normalized SG&A as % of sales of 36.8%, compared to 36.9% in
Q2 2012
Normalized SG&A as % of sales of 39.0%, compared to 38.7% in
YTD 2012
Normalized EBITDA was down $900,000 to $58 million
Normalized EBITDA was up $4 million to $89 million
____________
(1) Reflects adjustments for stock-based compensation, impairment and non-cash expenses, restructuring charges and acquisition-related costs.
10
Saks Acquisition
11
Saks Business Overview
Overview
Saks Fifth Avenue
Leading U.S. luxury retailer operating through 41 full-line Saks
Fifth Avenue stores, 68 OFF 5th stores and Saks Direct
eCommerce website
41 stores average ~125K sq. ft.
$3.1 billion in revenue and $290 million in Normalized EBITDA in
FY 2012
Luxury men and women’s apparel, accessories, cosmetics and gifts
Supported by highly personalized customer service
Rightsizing and remodeling store base
Omni-Channel transformation underway
Saks Direct
SaksFirst loyalty program relaunched in early 2013
saks.com
Store Footprint
(1)
Upcoming launch of OFF 5th website
Continued enhancements driving transformation to omni-channel
luxury retailer
1
1
1
2 7
1
1
3
1
2
5 10
1
455454_1.wor
(NY007C5C)
1
1
1 2
1
3 9
Saks Fifth Avenue
OFF 5th
____________________
Source: Company filings.
(1)
As of Q2 2013.
2
2
1
1
2
2
1
2
1
MA
CT
2
2 2
1
1
1
NJ
2
2
1
1
Experiencing rapid growth
OFF 5th
68 stores average ~30K sq. ft.
2
1
1 2
1
10
7
Licensees operate
5 Full-Line stores in
Bahrain, Kazakhstan,
Mexico (2) and U.A.E.
Discount designer clothing and accessories
Collections available at everyday savings of 40% to 70%
Branded selection supplemented by private label
Opened 12 stores since 2009
12
Leading North American Retailer
(Pro Forma)
Full-Line /
Outlet(1)
90 / 1
48 / 4
41 / 68
179 / 142(2)
2012 Retail
Sales
$2.6B
$1.5B
$3.1B
$7.2(2)
$290MM
$600MM
2012
Normalized
EBITDA
2012 Same
Store Sales
$310MM
5.4%
2.2%(3)
3.2%(3)
Transaction creates a leading North American retailer that addresses a broad
consumer spectrum across the luxury, mid-tier and outlet retail sectors
____________________
(1) Store counts as of Q2 2013.
(2) Includes Home Outfitters within combined outlet store count and retail sales
(3) Calculated in local currency. L&T and Saks’ Q4’12 impacted by Hurricane Sandy.
13
Leading North American Retailer (cont’d)
Coast-to-Coast Footprint
Hudson’s Bay
Lord & Taylor
Saks Full-Line
OFF 5TH
14
Enhanced Growth Potential
Maximize eCommerce
1
Online Sales Penetration
Bring Saks to Canada
Up to 7 full-line stores
20%
Nearly $600mm in combined eCommerce
sales growing at 30% CAGR since 2010
Up to 25 outlet stores
10% +
7%
Roll-out of Canadian eCommerce site
2%
HBC
2
L&T
SKS
Nieman
Maximize eCommerce
Store Productivity Opportunity(1)
Opportunity in Mid-Tier
3
Continued Rollout of OFF 5th
Opportunity in Luxury
Sales / Sq. Ft. (2012)
Sales / Sq. Ft. (2012)
$629
$250
$218
C$140
4
$437
Drive Store Productivity
Bay
L&T
____________________
(1)
Reflects total sales for FY 2012 divided by the gross leasable area.
(2)
Includes Belk, Bon-Ton, Dillard’s, JC Penney, Kohl’s, Macy’s, Neiman Marcus, Nordstrom, Saks, Sears Holdings and Sears Canada.
Dept.
Dept.
Store
Store
Avg.
Avg.(2)
SKS
Nieman
15
Significant Operating Synergies
Run-Rate Synergy Breakdown ($100 million)
$100 Million of Annual Synergies by Year 3
COGS
15%
Category
Description
85%
Administration and
Other Shared
Services
Expand existing shared service organization to
include Saks
Driven primarily through operational
efficiencies, back-office consolidation and
adoption of common IT systems
Store Expenses
Non-merchandise purchasing scale
HBC has track record of successful
acquisition integration and achieving
financial targets
Infrastructure
Fully leverage tech infrastructure
COGS
Leverage OFF 5TH infrastructure to more
efficiently clear HBC residual product
SG&A
Doubled Normalized EBITDA over 3
years
Reduced SG&A as a % of sales by
~350 bps post HBC / L&T integration
Leverage existing multi-banner shared service organization to reduce expenses
16
Highly Valuable Real Estate Portfolio
Saks adds 25 owned and ground
leased stores, including a number of
marquee assets, to HBC’s already
robust portfolio
Notable properties include:
Saks Fifth Ave. flagship in NYC
and Wilshire Boulevard in Beverly
Hills
L&T Fifth Ave. flagship in NYC,
Manhasset and Eastchester
Flagship HBC properties in
Vancouver, Toronto and Montreal
Combined total of more than 17 million
square feet of owned and ground
leased properties
Real Estate Portfolio(1) GLA (sq. ft. Millions)
Fee-Owned
Ground
Leased (2)
Leased
Total
Hudson’s Bay
3.7
1.3
11.1
16.1
Lord & Taylor
3.6
2.5
0.7
6.8
Saks Full-Line
1.6
1.8
1.7
5.0
Full-Line
8.9
5.6
13.5
27.9
Outlet
-
-
2.0
2.0
Home Outfitters
-
-
2.5
2.5
DCs, Office & Other
2.8
-
3.6
6.5
Total
11.7
5.6
21.6
38.9
____________
(1) As of August 1, 2013.
(2) Average years of control for Hudson’s Bay and Lord & Taylor portfolios are 65 and 59, respectively.
17
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