The squeeze demonstrates the pressure Hudson’s Bay is under. The company has long taken a more aggressive approach to deal-making and financing than its department store peers. That model, though, has left it with a debt-load that has proven cumbersome as its sales have declined.
Prior to the Rhone and WeWork deal, Hudson’s Bay was leveraged around 12 times its earnings before interest, taxes, depreciation and amortization, compared with 1.6 times for Nordstrom and 2.4 times for Macy’s, according to Capital IQ. Retailers typically eschew high leverage, because of the unpredictability of sales seasons.
Its use of real estate to finance its transactions has also hit a snag as the retail industry has turned. Hudson’s Bay has helped fund its deals through joint ventures with Simon Property and RioCan Real Estate Investment Trust. HBC has said it would consider taking those investments public to bring in cash. An IPO, though, is “unlikely at this point” because of market conditions, RioCan founder and Chief Executive Edward Sonshine previously told Reuters.
Baker, who spoke to CNBC about the Rhone and WeWork transaction, stressed the financial graces it offered to the company.
“Most important, perhaps, is what this does for HBC’s financial condition,” Baker said. “This drives in a tremendous amount of cash and allows us to pay down $1.6 billion in debt … This sets us up to be really strong financially going forward, as we execute what’s really a difficult retail environment.”
Richard Baker has long held tight control of the company. He ran NRDC Equity Partners, the private equity firm that bought Hudson’s Bay and took it public, and is a principal shareholder in the company through his investment in L&T B (Cayman).
Other significant shareholders include Abu Dhabi Investment Council and the Ontario Teachers’ Pension Plan Board.
Hudson Bay has faced management turnover as of late. CEO Jerry Storch steps down Wednesday without a successor named, following announcement of his planned departure last month. Earlier this year, the company saw the the departure of CFO Paul Beesley and President of HBC International Don Watros.
Baker, who previously worked as CEO, has taken over for Storch on an interim basis.