06/12/2013 07:59 EDT | Updated 08/12/2013 05:12 EDT

Hudson's Bay's strong Canadian sales help offset lower US performance

TORONTO - Stronger Canadian sales helped Hudson's Bay Co. (TSX:HBC) reduce its first quarter loss and boost revenue despite the dampening effect of unseasonably cold weather on its U.S. operations.

"We're disappointed with how the sales trends did in the U.S.," chief executive Richard Baker told analysts Wednesday on a conference call.

"We're performing very much in line with our peers, especially our peers that relate to the (U.S.) Northeast."

HBC attributed its strong Canadian sales to several recent efforts to boost the company's performance, including improvements in store productivity, increased e-commerce sales, and a partnership with Topshop/Topman.

Sales at Hudson's Bay were driven by strong performance of men's apparel, ladies' shoes, cosmetics, handbags, accessories and certain home categories.

Online sales also contributed to sales growth in the quarter, rising almost 33 per cent to $31.1 million amid a push by the Toronto-based company to grow its e-commerce channel.

"We've achieved excellent same store sales growth at Hudson's Bay, and continue to set the standard for our peers," Baker said.

Lord & Taylor's sales, however, were affected by unfavourable weather trends, and its underperformance in ladies' apparel and shoes offset strength in men's apparel, handbags, accessories and cosmetics. Lord & Taylor had also disappointed in the fourth quarter, when it faced setbacks from hurricane Sandy.

"Certain categories, whether it's sandals or other warm-weather merchandise, certainly in the first quarter, has not sold the way it sold the previous year," Baker said.

"Of course, last year we had unusually warm weather and I think a sandal trend that was really stronger and more impactful than what we are seeing this year."

The colour denim trend also worked against the company.

"It was so big and so hot last year and it just went away much faster than we or anyone else believe," Baker said.

"It's a combination of those issues that has affected retailers of our type throughout the northeast United States."

While the weather was similar in northeastern Ontario, he added, HBC's coast-to-coast business helped reduce exposure north of the border.

For the quarter ended May 4, Canada's biggest department store reported a net loss of $80.7 million, including $59.5 million from discontinued operations. That was down from a net loss of $129.7 million in the first quarter of 2012, including $82.7 million from discontinued operations.

The company's adjusted, or normalized, loss for the period was $14.3 million or 12 cents per diluted share — compared with a loss of $23.3 million or 22 cents per share in the first quarter of 2012.

The adjusted loss was deeper than the consensus estimate of nine cents per share but revenue was higher than expected.

Shares in HBC rose sightly to $16.20 on the Toronto Stock Exchange after hitting $16.95 earlier in the day, as retail sales rose by 4.2 per cent to $884 million from $848.2 million in the comparable 13-weeks ended April 28, 2012. The consensus estimate was $863.6 million in revenue. The retailer returned to the public stock markets in November.

Hudson's Bay stores in Canada had 7.6 per cent same-store sales growth, offset by a 1.4 per cent decline at Lord & Taylor stores in the United States.

Tal Woolley of RBC Capital Markets said the company's sales figures beat expectations, as did Canadian same stores sales, which analysts had pegged at three per cent growth.

"We are less focused on earnings for this quarter as this metric will become more relevant after HBC has reported a full year of earnings as a public company, providing for meaningful year-to-year comparisons," Woolley wrote in a note Wednesday.

The company has been revamping its operations since announcing a nationwide store renovation project that also sought exclusivity agreements with companies outside Canada.

HBC has tried to keep its footing in an increasingly competitive market by becoming a go-to shopping destination for certain brands. It has been reworking its image for years, but it doubled its efforts ahead of the Canadian launch of Target as well as that of high-end U.S. retailer Nordstrom.

Baker said Hudson's Bay plans to push ahead with its renovations and a focus on its women's apparel and shoe departments, which have been a top priority.

"The big opportunity for us at the Bay it's very strong, it's even bigger better margin opportunity at the Bay," he said. "Our issue is getting the space allocated to women's apparel — we think there's a lot more growth there, we just have to continue to work through the remodel and get the most space we can."

Hudson's Bay Co. is the longest continually operated company in North America. It runs 90 HBC locations in Canada, as well as 69 Home Outfitters stores. It also has 48 Lord & Taylor department stores in the U.S.