Hudson's Bay to sell Lord & Taylor for $100 million to clothing rental service Le Tote - CNBC

Hudson's Bay is selling Lord & Taylor to clothing rental subscription service Le Tote for $100 million.

The deal, announced Wednesday, allows the department store chain to continue operations. Its flagship New York store on Fifth Avenue and other stores closed earlier this year.

Hudson's Bay will be paid $99.5 million Canadian dollars ($75 million) in cash after the deal closes and a secured promissory note of CA$33.2 million ($25 million) is payable in cash after two years. Hudson's Bay will also receive an equity stake in Le Tote, two seats on its board and certain rights as a minority shareholder.

HBC's stock rose 1.5% on the Toronto Stock Exchange.

"We're excited to have reached an agreement with Le Tote that creates a new model for Lord + Taylor, bringing together fashion rental subscriptions with traditional retail," said Hudson's Bay CEO Helena Foulkes. "Following an extensive review of strategic alternatives, Le Tote's leadership and innovative approach is the best path forward for Lord + Taylor, its loyal customers and dedicated associates. For HBC, this transaction builds upon our previous bold actions, further enabling us to focus on our greatest opportunities, Saks Fifth Avenue and Hudson's Bay."

Under the deal, Le Tote will acquire Lord & Taylor's brand and intellectual property and assume operations of 38 stores, its digital channels and its inventory.

The company also said that beginning in 2021, Hudson's Bay will be allowed to reassess the use of Lord & Taylor locations and recapture certain stores to determine their best use. It can also redevelop stores into "mixed-use properties" with a variety of services, experiences and retail offerings.

In the past two years, Hudson's Bay has taken a number of steps to unwind the empire put together by its chairman, Richard Baker, through deals, including selling flash sale site Gilt and European department store Galeria Kaufhof. Hudson's Bay struck with Work Property Advisors and Rhone Capital in 2017 to sell its flagship Lord & Taylor building in New York. It later left the property entirely.

Baker, along with a group of shareholders who collectively own 57% of the company, including Rhone Capital and WeWork Property Advisors, put forward an offer earlier this year to take the company private.

That Le Tote, which was founded as a start-up in 2012, was able to snag the longstanding department store chain, speaks to how far department stores have fallen. Lord & Taylor's footprint fell to 45 department stores as of Feb. 2, down from 50 a year ago.

Department stores as a sector have been struggling to grow sales, as falling foot traffic in malls hurts chains. Earlier this month, luxury chain Barneys New York filed for bankruptcy and J.C. Penney announced it is working with restructuring advisers to lessen its debt.

Le Tote allows subscribers to rent clothes for $79 a month. The deal is also a sign that Le Tote is looking for physical storefronts to boost its presence and stay top of mind with consumers.

Hudson's Bay and the joint venture it is part of, HBS Global Properties, will retain ownership of all owned and ground-leased Lord & Taylor real estate assets as part of the deal. Hudson's Bay expects to be liable for roughly CA$77 million ($58 million) in total cash rent annual for those properties, net of distributions, for the first three years of the deal.

Le Tote is still in the process of securing financing for the deal, the companies said. If it is unable to obtain committed financing within 45 days of signing, Hudson's Bay has the right to terminate the agreement.

In fiscal 2018, Lord & Taylor generated $1.4 billion, or roughly 14% of Hudson's Bay's $9.4 billion in retail sales. Hudson's Bay has a market value of CA$1.8 billion ($1.35 billion).

The company said it retained PJ Solomon as its financial advisor for review of Lord & Taylor's sale.

Retailers such as Gap's Banana Republic and Urban Outfitters have recently jumped into the apparel rental market. According to a report from data analytics firm GlobalData, the rental subscription market was valued at around $1 billion in 2018 and is expected to grow more than 20% a year, reaching $2.5 billion by 2023.

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https://www.cnbc.com/2019/08/28/hudsons-bay-to-sell-lord-taylor-for-100-million-to-le-tote.html

2019-08-28 14:04:56Z
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