Hudson’s Bay Co. files for initial public offering of shares

Canada’s oldest company, Hudson’s Bay Co. will soon be in public hands again after the storied retailer said Wednesday it is going to make a return to the stock market following an upscale makeover.

The owner of the Bay, Home Outfitters and U.S. retailer Lord and Taylor filed a preliminary prospectus for an initial public offering of its shares Wednesday.

“We are in the process of executing a transformation of our business that has resulted in significantly enhanced sales productivity and significant earnings growth,” the company said in its preliminary prospectus.

“Sales productivity has been enhanced through improved brand and merchandise strategies and the revitalization of our stores.”

The price and number of shares to be sold were not disclosed.

Jennifer Radman, a portfolio manager at Caldwell Investment Management, said a rare Canadian retail asset like HBC could fetch “huge demand” from investors, though stock markets are still volatile.

“A lot of investors, they buy stocks based on what they know, so I think from that standpoint there will be a lot of demand, regardless of the valuations that are placed on the stock,” she said.

HBC last traded on the Toronto Stock Exchange in 2006 before it was taken private by U.S. businessman Jerry Zucker, who later died unexpectedly.

New York-based NRDC Equity Partners acquired the company in 2008 for $1.1 billion from Zucker’s widow.

In terms of an initial valuation, Radman looked at where some of its U.S. peers are trading, like Macy’s, which trades at 13.5 times earnings and TJX Group — owner of T.J. Maxx, Winners and Marshall’s stores, which trades at 18 times earnings.

She estimated HBC could get away with pricing itself at between 12.5 and 17 times earnings.

HBC had profitable years in 2011 and 2010 following a loss in 2009, according to financial statements included in the prospectus, accessed through DisclosureNet.

For the first 26 weeks of its 2012 financial year, which doesn’t include the important back-to-school, Christmas and New Year shopping periods, the company posted a total net loss of $147.8 million including $53.6 million from continuing operations.

A year earlier, the company had a $13.3-million net profit overall, although its continuing operations had a $34.4 million net loss for the 26 weeks ended July 30, 2011.

Retail sales have grown seven per cent year-over-year for the first 26 weeks of this year, with $1.76 billion in sales until July 28, compared to $1.65 billion for the period ended July 30, 2011, according to the filings.

The company sold leasing rights last year on more than 200 Zellers locations to U.S. retailer Target in a move that was seen by some as a prelude to an initial public offering.

HBC has made efforts to revitalize its Bay stores with the introduction of The Room boutique — a sleek space dedicated to luxury brands — at downtown stores, as well as obtaining the rights to produce uniforms and merchandise for Canada’s Olympic athletes.

The retailer also hired former Holt Renfrew executive Bonnie Brooks as president and chief spokeswoman for the Bay. She was in Vancouver on Wednesday for the launch of a Topshop boutique within a downtown Bay store.

Brooks — who was recently a guest judge on Project Runway — has overseen the transformation of the Bay into a shopping destination for high profile designers from Rachel Roy to Proenza Schouler.

The chain has been making a push not only into stocking higher-end clothing, but also trendy designers that offer more accessible lines — distinguishing itself from other department stores.

The move by HBC back to the public markets follows the success of a pair of other Canadian retailers.

Both athletic clothing retailer Lululemon Athletica Inc. (TSX:LLL) and discount retailer Dollarama Inc. (TSX:DOL) have seen the value of their shares take off since becoming publicly traded companies in recent years.

The Bay may not be growing in terms of square footage like Dollarama and Lululemon, Radman said. But it could be seen as a growth stock because it continues to transform itself into a higher-end department store.

However, the initial public offering comes as HBC gets set to face increased competition, not only from Target next year, but also chic U.S. retailer Nordstrom, which is opening of its first four Canadian stores in Toronto, Ottawa, Calgary and Vancouver starting in 2014.

Sears Canada, which has struggled, is also working to refresh and transform its stores in Canada by revamping its operations, cutting jobs and slashing prices in a bid to improve its position.