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Hudson’s Bay in joint venture with German department store giant

BY Marianne Wilson

Hudson’s Bay Company has entered into a deal that will result in the merger of Germany’s two biggest department store chains — Galerie Kaufhof and Karstadt — and help the Canadian retail giant pay down its debt.

HBC said it has formed a joint venture with Signa Retail Holdings, a leading European retail and real estate operator whose holdings include, to form a strategic partnership for its European retail and real estate assets. Signa is paying $616 million (Canadian dollars, or $468 million) to acquire a 50.01% stake in HBC’s European retail operations, and a 50% stake in HBC’s real estate in Germany

HBC Europe’s retail operations will merge with Signa’s Karstadt Warenhaus GmbH retail chain, with HBC taking a 49.99% interest in the combined businesses. This includes two iconic banners, Galeria Kaufhof and Karstadt, as well as other HBC and Signa banners to create a well-capitalized retailer positioned for improved profitability.

The new retail company, which will be comprised of about 243 stores, will be led by Dr. Stephan Fanderl, CEO of Karstadt. HBC and Signa will share six board seats and have joint oversight of all major decisions.

HBC’s European banners include Galeria Kaufhof, the largest department store group in Germany; Belgium’s only department store group Galeria INNO; Saks Off 5th in Germany; and the Netherlands and Hudson’s Bay in the Netherlands. (Its North American banners include, Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue, and Saks Off 5th, and Home Outfitters.)

“We are excited to bring together these iconic banners to create Germany’s leading retail business,” said Helena Foulkes, CEO of HBC. “We are creating a stronger retail entity that is better positioned to capitalize on market opportunities. This transaction builds on our recent efforts to streamline HBC and provides a clear path forward to improve our European operations.”

In a separate transaction, affiliate Signa Prime Selection AG is acquiring a 50% stake in Hudson’s Bay’s European real estate holdings, along with Kaufhof stores in Cologne and Dusseldorf, Germany. The deal will generate proceeds of $616 million (Canadian dollars) or $469 million, for HBC.

HBC will use the proceeds to help reduce its hefty debt, which is about $4.2 billion (Canadian dollars). It is one of the biggest moves so far by Foulkes, who took the reins of HBC in and has been working to improve the company’s sagging fortunes.

“This transaction creates significant value for our shareholders, enhances our balance sheet and provides a better operating platform for our European business,” she stated. “The creation of a stronger operator in Europe allows us to focus our attention on our North American banners, helping to ensure we are making the right strategic decisions to drive performance and profitability within those businesses.”

Richard Baker, HBC’s governor and executive chairman, said that the transaction highlights the significant value of the company’s German real estate assets, which are worth approximately $1.1 billion more than what it paid for Galeria Kaufhof in 2015.

“Our partnership with Signa will serve our business extremely well as it establishes a platform to further strengthen our European retail and real estate operations,” Baker stated. “This transaction reinforces our long-term focus of unlocking real estate value through strategic partnerships, redevelopment and enhancing the credit profile of retailer tenants along with managing a portfolio of retail banners.”

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Francesca’s Holdings Q2 misses; store renovation program continues

BY Marianne Wilson

Francesca’s Holdings Corp. reported second-quarter earnings and sales that missed expectations and provided a disappointing outlook amid “weak traffic trends.”

The jewelry and accessories retailer reported net income of $454,000, or 1 cent a share, for the quarter ended Aug. 4, down from $7.3 million, or 20 cents a share, in the year-ago period. Analysts were expecting 5 cents a share.

Sales declined 6% to $113.0 million, missing estimates of $120.8 million, Same-store sales fell 13%, greater than expected.

“Second quarter sales results were disappointing mostly due to weak traffic trends,” said Steve Lawrence, president and CEO, Francesca’s. “While we have made significant progress in our merchandising strategy, inventory discipline and store renovations, we know there is additional work to be done to win back our core customer. We did see some positives in the business, including improving conversion, very strong ecommerce sales growth, and a significant reduction in clearance inventory.”

Francesca’s ended the quarter with 742 locations. It expects to update 80 to 85 stores this year, along with opening 34 locations and closing 24 boutiques, and refreshing 80 to 85 boutiques in fiscal year 2018.

“I strongly believe that the steps we are taking in resetting our merchandising strategy, investing in our omnichannel and reformatting our stores to better showcase our product, were the right decisions for the business,” said Lawrence. “In addition, we are taking action to drive improved traffic trends through a number of marketing initiatives. That said, as we see the progress in our business coming at a more measured pace, we are reducing our annual guidance.”

For the third quarter, the company expects net sales of $105 million to $110 million, below analysts’ forecasts of $116.5 million, and same-store sales to decline 3% to 8%, compared with expectations of a 4.3% rise.

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Walgreens in pharmacy file deal with Fred’s

BY David Salazar

Walgreens will be purchasing the pharmacy patient files and related pharmacy inventory from 185 Fred’s stores in the southeastern United States, the two companies announced Monday.

The deal will see Walgreens paying an aggregate consideration of $165 million to the Memphis-based Fred’s for the files, subject to adjustment plus an amount equal to the value of the pharmacy inventory. Fred’s said that once the transaction is complete, it will still operate roughly 162 pharmacies across its approximate 600 stores.

“This agreement increases patient access to Walgreens pharmacies in the Southeastern United States and allows us to introduce more people to Walgreens trusted pharmacy services in these communities,” Walgreens president of operations Richard Ashworth said. “We look forward to welcoming Fred’s patients and team members who are hired into available Walgreens positions.”

The move comes as Fred’s — which announced it was shopping it retail pharmacy business in May — said it is looking to and monetize non-core assets in an effort to build shareholder value. Fred’s pharmacy staff at the closing locations will have an opportunity to apply for any available position at Walgreens, the companies said.

“With this agreement, we have taken a major step towards achieving one of our main goals of eliminating our debt balance,” said Joe Anto, interim CEO and CFO of Fred’s. “We look forward to partnering with Walgreens to transition our pharmacy patients in these locations as smoothly as possible.”

The companies said patients whose files are being transferred will receive a letter notifying them, and that they would work to make the transition smooth. Once the transition is complete, Walgreens said patients will have access to its pharmacy services across its roughly 9,800 pharmacies nationwide.

PJ Solomon is acting as exclusive financial advisor to Fred’s on the transaction.

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