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Hudson's Bay looks to luxury, online as Saks helps boost sales in Q1

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TORONTO - The Hudson's Bay Company hopes a trend toward luxury goods will continue to boost its bottom line after swinging to a first-quarter profit on strong sales from Saks Fifth Avenue.

"We've been seeing a very strong, positive trend in luxury items _ the more unique, the more expensive, the more special a product is, the greater the demand we seem to be getting, so that bodes well for Saks," HBC Governor and CEO Richard Baker said during a conference call Tuesday to discuss first-quarter results.

HBC is on track to bring two Saks locations to Canada by the spring of 2016, he added, since the company sees "a substantial untapped opportunity for both luxury and off-price in Canada."

The Toronto-based retailer completed its acquisition of luxury U.S. retailer Saks late in 2013 for $2.9 billion including debt.

Hudson's Bay reported first-quarter net earnings of $176 million, up from a net loss of $22 million in the year ago period as retail sales jumped to $1.85 billion, an increase of $971 million year-over-year.

Digital sales, important to the company's future growth, were $207 million in the quarter and included sales at Hudson's Bay Company, Saks and Lord & Taylor.

They accounted for 11 per cent of the company's overall sales in the quarter _ a figure HBC is hoping to raise to 20 per cent over the next five years. One of the reasons HBC bought Saks last year was that its digital capabilities were more developed.

"The overall macro trend is greater movement of sales online, so I think we're very well-positioned for that," Baker said.

"HBC digital continues to show outstanding growth and we are already leveraging the team across the organization for this important channel," said Baker, adding that HBC expects customers to increasingly do online shopping as it adds to its digital offerings.

The national retailer's banners _ Hudson's Bay, Lord & Taylor, Saks Fifth Avenue and Saks Fifth Avenue OFF 5TH _ offer clothes, accessories, shoes, beauty and home merchandise.

Lord & Taylor had the weakest performance out of all of HBC's banners, although Baker said those results were consistent with that of its peers and reflective of the competitive retail environment that department store segment deals in.

Unlike many of its competitors, HBC didn't put too strong an emphasis on the impact the winter's harsh weather had on its sales, although it did say the biggest hit from the weather was in the U.S., not Canada.

The first-quarter earnings amounted to 97 cents per share, compared with a loss of 19 cents in the quarter a year ago, while same stores sales were up 2.8 per cent year-over-year. Combined sales at HBC and Lord & Taylor grew by 2.5 per cent, while Saks Fifth Avenue saw a 2.6 per cent increase OFF 5TH rose by 1.5 per cent.

HBC (TSX:HBC) also said it completed the sale and lease back of its Queen Street flagship store and Simpson Tower office complex in Toronto for a purchase price of $650 million and used most of the net proceeds to reduce debt.

Hudson's Bay has 90 full-line locations in Canada, one outlet store and thebay.com. Lord & Taylor operates 49 full-line locations primarily in the northeastern and mid-Atlantic U.S., four Lord & Taylor outlet locations and lordandtaylor.com.

Saks Fifth Avenue has 39 U.S. stores, five international licensed stores and saks.com. OFF 5TH offers value-priced merchandise at 75 U.S. stores and saksoff5th.com.

HBC's Home Outfitters is Canada's largest kitchen, bed and bath specialty superstore with 69 locations.

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