Hudson’s Bay Company announced results for the fourth quarter and for the year ended January 31, 2005.
Operating income or earnings before interest and income taxes (EBIT) for the 13-week period ended January 31, 2005 decreased 11.8 per cent to $160 million. Prior to normalizing for non-comparable items, net earnings and earnings per share in the fourth quarter of 2004 increased respectively to $106 million and $1.53 per share from $103 million and $1.48 per share in the 2003 fourth quarter.
After normalizing non-comparable items in the quarter, EBIT decreased $30 million to $153 million from last year’s levels. The decrease in normalized EBIT in the quarter reflected the comparable sales decline of 2.6 per cent and a gross margin decline of 160 basis points, offset in part by lower operating costs. Normalized earnings per share excluding the non-comparable items in both fiscal years decreased by $0.06 to $1.44 per share for the quarter.
Sales and revenue for the 13-week period ended January 31, 2005 decreased 7 percent from $2,431 million to $2,260 million. Excluding the extra week in the fourth quarter of 2003 sales decreased 3.6 per cent with most of the decline experienced in the Ontario market, in the month of December.
In the 52 week period ended January 31, 2005, sales and revenue was $7,070 million, a decrease of 3.1 per cent (1.9 per cent after excluding the extra week in 2003) as compared to the previous year. Earnings per share were $0.86 per share compared to $0.87 last year.
After excluding non-comparable items in both years, normalized earnings per share for fiscal 2004 were $0.77 per share versus $0.98 per share last year.
As previously disclosed, the Company conducted a review of its lease accounting practices in light of the recent clarification of appropriate policies by the SEC in the United States. The Company has retroactively adjusted its results for a change in its lease accounting practices. For the year ended January 31, 2005 and January 31, 2004, the correction resulted in a decrease in basic earnings per share of $0.04 and $0.02, respectively. Retained earnings were adjusted by $20 million and $18 million at February 1, 2004 and 2003, respectively.
Free cash flow for fiscal 2004 was $90 million, reflecting continued strong cash management and a capital expenditure program of $213 million, $75 million higher than last year. Net debt levels declined during 2004 by $64 million to $442 million at January 31, 2005 and debt/equity ratio declined to 0.20 to 1 from 0.23 to 1 last year.
Commenting on the Fourth Quarter and Full Year results, George Heller, President and C.E.O. of Hbc commented: “We are obviously disappointed in our sales and margin rates in the fourth quarter and the negative impact this had on our year. The decline, which was experienced across the department store sector, was in contrast to strong October and November sales trends across Hbc’s formats. Those initiatives related to our strategy continued to perform well, and we remain committed to the execution of our strategic plan as the best opportunity to realize value on behalf of all our stakeholders. Despite the disappointment in our 2004 results and the minor setback to the realization of our long term growth targets, we continue to make fundamental improvements to the Company and remain convinced that pursuit of our plan will realize the growth potential inherent in our franchise.”
Given Hbc’s results this year, the Company recognizes that the financial targets for 2006 and 2008 released in the fall of 2003 will not be achieved in the time frame originally suggested.
The Company has determined it will not provide specific earnings guidance going forward. The Company expects given a declining growth rate of retail real estate and some evidence of the stabilization of apparel pricing that sales trends will improve towards the back half of 2005. The Company expects to deliver higher normalized earnings in 2005, partly the result of continued strong discipline around gross margin and cost management.
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