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Hudson's Bay aims to become 'house of brands' with new renovations

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TORONTO - Hudson's Bay Co. says it's one-third of the way through its nationwide store renovation plans aimed at injecting new life into the department store operator.

Chief executive Richard Baker said Thursday he hopes the changes will help secure further exclusivity agreements with companies outside Canada as Hudson's Bay works to overhaul its reputation as a unique retailer in the face of heightened competition.

"We are a house of brands," Baker said in an interview after the company reported weaker fourth-quarter results.

"We think of each Bay store like a mall."

The evolution of the Hudson's Bay image has been in the works for several years, but as "discount chic" retailer Target rolls out stores across the country and high-end U.S. retailer Nordstrom prepares to enter the market, the company doesn't want to lose its footing.

Hudson's Bay sold off its Zellers locations to Target and while Baker said he hasn't seen any major impacts from the U.S. retailers presence yet, clearly he wants Hudson's Bay to find unique ways to lure in shoppers.

Last month, the retailer signed a pact with New York luxury brand Kleinfeld Bridal to open a "bridal salon" at its flagship store in downtown Toronto. The arrangement comes after it launched five stores under the banner of U.K. men's fashion retailer Topshop within its locations several years ago.

The openings marked another step towards the company's increasing emphasis on higher end labels like Burberry and Coach.

"Hudson's Bay's job is to have a reputation that is appropriate for this particular house of other people's brands," he added.

In the near term, Hudson's Bay (TSX:HBC) has to contend with several external factors that wore down its earnings in the fourth quarter including Lord & Taylor operations in the United States felt the impact of hurricane Sandy and winter weather that just hasn't quit.

The retailer, which returned to the public stock markets in November, said net earnings from continuing operations were down to $93.6 million or 81 cents per share for the 14 weeks ended Feb 28

That was down $5.6 million from the year-earlier quarter, when net income from continuing operations was $99.2 million or 95 cents per share over 13 weeks.

Adjusted earnings that exclude certain non-recurring items were $99.3 million or 86 cents per share in the most recent quarter, up from $94.8 million a year earlier.

For the fourth quarter, overall sales grew $86.89 million to $1.386 billion, with the 14th week contributing $50 million of the increase.

Online sales accounted for $58 million in the 14-week period ended Feb. 28, up from $35.6 million a year earlier. Lord & Taylor's same-store sales fell 2.9 per cent in U.S. dollars.

"Sandy inflicted enduring damage and disruption upon the communities where we had stores," Baker told analysts on a conference call.

"As a result, Sandy's impact on sales remained a factor for much of the quarter and resulted in an excess of inventory that subsequently forced us to escalate our clearance efforts."

Baker told analysts that sales continue to be pressured into the first quarter of this year, particularly at the Lord & Taylor stores.

"In our opinion, this sales weakness can be attributed to unseasonably cold weather compared to last year's unseasonably warm weather," he said.

Despite the weather challenges, HBC's retail sales were up 6.7 per cent year-to-year due to an extra week of selling, higher online sales and strength at its Canadian stores — which had a 6.1 per cent increase in same-store sales.

But Baker is looking beyond the quarterly earnings as the renovations continue.

To encourage more interest from outside brands, and Canadian shoppers, the company will perform a major facelift to four Hudson's Bay stores and open an outlet location near Toronto.

Smaller renovations will be made at all of its stores, and depending on the region, some will be more obvious than others. Stores with less traffic in smaller cities will get new lighting, furniture and a fresh coat of paint.

Near the top of the company's priorities are women's shoe departments, which will get a makeover at every location. In Toronto, the store at Yonge and Queen will open up the largest shoe department of any Hudson's Bay.

Another five Topshops are slated for stores across the country.

Outside Canada, the company plans to renovate four Lord & Taylor stores and open a new location in Florida this year.

The company says it expects same-store sales growth of between three and five per cent for the current financial year, which ends in early 2014.

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