Hudson’s Bay Company Reports Holiday Sales Results and Provides Update on Fiscal 2016 Outlook

TORONTO & NEW YORK–(BUSINESS WIRE)–Hudson’s Bay Company (“HBC” or the “Company”) (TSX:HBC)
today announced its comparable sales results for the nine week period
ending December 31, 2016, and provided an update on its financial
outlook for Fiscal 2016.

Jerry Storch, Chief Executive Officer, HBC commented, “Our holiday sales
trend improved considerably from what we experienced in the third
quarter. On a constant currency basis, the comparable sales trend
improved for the Company overall and across every banner, led by strong
digital sales growth of 21.7% at our department store banners. However,
the sales improvement that we experienced was not strong enough to
achieve the results we had expected. Also, while we were pleased with
our performance at Hudson’s Bay in Canada, the retail environment has
remained challenging in the U.S. and Europe and the significant
promotional activity during the holiday period had a negative impact on
our margins. This margin pressure was compounded by a declining value of
the Euro compared with the Canadian dollar which impacts our translated
earnings from HBC Europe. As we head into the new fiscal year, we are
focused on continuing to delight our customers with exclusive product
offerings and custom all-channel shopping experiences, and by creating
exciting retail destinations to increase foot traffic in our stores. The
retail environment is clearly changing, and we continue to work
diligently across all of our banners to adapt rapidly. This involves
evaluating all opportunities to increase the profitability of HBC, and
we expect to provide further details on this process in the coming
months.”

Comprehensive operational review

HBC continues its focus on improving its business operations as it
adapts to a changing retail environment. Late in 2016, the Company
launched a comprehensive review of its business operations to identify
efficiencies, streamline processes and improve back of store
productivity, while also enhancing customer service. Management expects
that these initiatives will provide opportunities to increase
profitability while ensuring that the Company is prepared to meet the
challenges of an evolving retail environment. Over the coming months,
the Company expects to provide additional details as work progresses.

Comparable Sales

For the nine week period beginning October 30, 2016 and ending December
31, 2016(1)

  • On a constant currency basis, consolidated comparable sales decrease
    of 0.7%

    • DSG (Hudson’s Bay, Lord & Taylor and Home Outfitters) comparable
      sales increase of 1.2%
    • Saks Fifth Avenue comparable sales decrease of 0.5%
    • HBC Off Price (Saks OFF 5TH and Gilt) comparable sales decrease of
      5.2%
    • HBC Europe (GALERIA Kaufhof, Galeria INNO and Sportarena)
      comparable sales decrease of 0.6%
  • Total digital sales, which include Gilt on a pro forma basis, increase
    of 14.7% on a constant currency comparable basis. Excluding Gilt,
    total digital sales increase of 21.7% on a constant currency
    comparable basis.
  • Including the impacts of foreign exchange, consolidated comparable
    sales decrease of 2.0%

(1) Comparable sales are a Non-IFRS Measure. For the
definition of comparable sales results expressed on a constant currency
comparable basis, see “Non-IFRS Measures” below.

Outlook

The following outlook is fully qualified by the “Forward-Looking
Statements” section of this press release.

The Company’s previously disclosed Fiscal 2016 outlook was based on
management’s expectations of flat to low single digit overall comparable
sales growth, calculated on a constant currency basis, during the
remainder of Fiscal 2016, which included the holiday selling period.
Given the Company’s sales results for the holiday selling period and
lower than expected gross margins realized to date during the fourth
quarter, management is reducing its sales, Adjusted EBITDAR and Adjusted
EBITDA outlooks for Fiscal 2016(2). This outlook reflects,
among other things, the Company’s performance to date and an updated
exchange rate assumption for the EUR/CAD.

(Canadian dollars)   Fiscal 2016
 
Sales $14.4 to $14.6 billion
Adjusted EBITDAR $1,340 to $1,390 million
Adjusted EBITDA $615 to $665 million

The Company now expects total capital investments, net of landlord
incentives, to be between $660 million and $710 million, which is
approximately 4.5%-4.9% of the midpoint of the Sales outlook. Included
in these amounts is the capital expenditure associated with the recent
acquisitions of the GALERIA Kaufhof, Galeria INNO, Sportarena and Gilt
banners.

The above outlook reflects exchange rate assumptions of USD:CAD = 1:1.32
and EUR:CAD = 1:1.45. Any variation in these foreign exchange rate
assumptions and/or other material assumptions and factors described in
the “Forward-Looking Statements” section of this press release could
impact the above outlook.

(2) Adjusted EBITDAR and Adjusted EBITDA are Non-IFRS
Measures. See “Non-IFRS Measures” section for additional details.

Non-IFRS Measures

EBITDA and EBITDAR are non-IFRS measures that the Company uses to assess
its operating performance. EBITDA is defined as net (loss) earnings
before finance costs, income tax benefit, share of net loss in the
Company’s two real estate joint ventures (the “Joint Ventures”), gain on
contribution of assets to Joint Ventures, gain on sale of investments in
Joint Ventures, dilution gains from investments in the Joint Ventures,
non-cash pension expense, depreciation and amortization expense,
impairment and other non-cash expenses and non-cash share based
compensation expense. EBITDAR is defined as EBITDA before rent expense
to third parties and net rent expense to Joint Ventures.

Adjusted EBITDA is defined as EBITDA adjusted to exclude: (i) business
and organization restructuring/realignment charges; (ii)
merger/acquisition costs and expenses; and (iii) normalization and joint
venture adjustments, including those related to purchase accounting, if
any, related to transactions that are not associated with day-to-day
operations. Adjusted EBITDAR is defined as Adjusted EBITDA excluding
third party rent expense, cash rent to Joint Ventures and cash
distributions from Joint Ventures.

The Company has included EBITDA, Adjusted EBITDA and Adjusted EBITDAR to
provide investors and others with supplemental measures of its operating
performance. The Company believes EBITDA, Adjusted EBITDA and Adjusted
EBITDAR are important supplemental measures of operating performance
because they eliminate items that have less bearing on the Company’s
operating performance and thus highlight trends in its core business
that may not otherwise be apparent when relying solely on IFRS financial
measures. The Company also believes that securities analysts, investors,
rating agencies and other interested parties frequently use EBITDA,
Adjusted EBITDA and Adjusted EBITDAR in the evaluation of issuers, many
of which present similar metrics when reporting their results. The
Company’s management also uses Adjusted EBITDAR in order to facilitate
retail business operating performance comparisons from period to period,
prepare annual operating budgets and assess its ability to meet its
future debt service, capital expenditure and working capital
requirements and our ability to pay dividends on our Common Shares. As
other companies may calculate EBITDA, Adjusted EBITDA or Adjusted
EBITDAR differently than the Company, these metrics may not be
comparable to similarly titled measures reported by other companies.

This press release makes reference to certain comparable financial
results expressed on a constant currency basis, including comparable
sales and comparable digital sales. The Company calculates comparable
sales on a year-over-year basis from stores operating for at least 13
months and includes digital sales and clearance store sales. In
calculating the comparable sales change, including digital sales, on a
constant currency basis, prior year foreign exchange rates are applied
to both current year and prior year comparable sales. Additionally,
where an acquisition closed in the previous twelve months, comparable
sales change on a constant currency basis incorporate results from the
pre-acquisition period. This enhances the ability to compare underlying
sales trends by excluding the impact of foreign currency exchange rate
fluctuations as well as by reflecting new acquisitions. Definitions and
calculations of comparable sales and comparable digital sales differ
among companies in the retail industry. The Company notes that results
from acquisitions are only incorporated in the Company’s reported
consolidated financial results from and after the acquisition date.

About Hudson’s Bay Company

Hudson’s Bay Company is one of the fastest-growing department store
retailers in the world, based on its successful formula of growing
through acquisitions, driving the performance of high quality stores and
their all-channel offerings and unlocking the value of real estate
holdings. Founded in 1670, HBC is the oldest company in North America.
HBC’s portfolio today includes ten banners, in formats ranging from
luxury to premium department stores to off price fashion shopping
destinations, with more than 480 stores and 66,000 employees around the
world.

In North America, HBC’s leading banners include Hudson’s Bay, Lord &
Taylor, Saks Fifth Avenue, Gilt, and Saks OFF 5TH, along with Home
Outfitters. In Europe, its banners include GALERIA Kaufhof, the largest
department store group in Germany, Belgium’s only department store group
Galeria INNO, as well as Sportarena.

HBC has significant investments in real estate joint ventures. It has
partnered with Simon Property Group Inc. in the HBS Global Properties
Joint Venture, which owns properties in the United States and Germany.
In Canada, it has partnered with RioCan Real Estate Investment Trust in
the RioCan-HBC Joint Venture.

Forward-Looking Statements

Certain statements made in this news release are forward-looking within
the meaning of applicable securities laws, including, among others, with
respect to improving the efficiency of the organization and
opportunities to increase profitability, the Company’s commentary on and
revised outlook in respect of sales, Adjusted EBITDA and Adjusted
EBITDAR, and other statements that are not historical facts. Often but
not always, forward-looking statements can be identified by the use of
forward-looking terminology such as “may”, “will”, “expect”, “believe”,
“estimate”, “plan”, “could”, “should”, “would”, “outlook”, “forecast”,
“anticipate”, “foresee”, “continue” or the negative of these terms or
variations of them or similar terminology.

Implicit in forward-looking statements in respect of sales, Adjusted
EBITDA and Adjusted EBITDAR, are certain current assumptions, including,
among others, the Company achieving additional savings from operational
initiatives, the Company’s anticipated total capital investments, net of
landlord incentives, between $660 million and $710 million, the Company
opening new stores in North America, the Company maintaining a
significant ownership interest in the HBS Joint Venture and the
RioCan-HBC Joint Venture, and assumptions regarding the overall retail
environment and currency exchange rates for Fiscal 2016. Specifically,
we have assumed the following exchange rates for Fiscal 2016: USD:CAD =
1:1.32 and EUR:CAD = 1:1.45. These current assumptions, although
considered reasonable by the Company at the time of preparation, may
prove to be incorrect. Readers are cautioned that actual future
operating results and economic performance of the Company, including
with respect to our anticipated sales, Adjusted EBITDA and Adjusted
EBITDAR, are subject to a number of risks and uncertainties, including,
among others described below, general economic, geo-political, market
and business conditions, changes in foreign currency rates from those
assumed, the risk of unseasonal weather patterns and the risk that the
Company may not achieve the contemplated cost savings and synergies, and
could differ materially from what is currently expected as set out above.

Although HBC believes that the forward-looking statements in this news
release are based on information and assumptions that are current,
reasonable and complete, these statements are by their nature subject to
a number of factors that could cause actual results to differ materially
from management’s expectations and plans as set forth in such
forward-looking statements for a variety of reasons. Some of the factors
– many of which are beyond the Company’s control and the effects of
which can be difficult to predict – include, among others: ability to
execute retailing growth strategies, ability to continue comparable
sales growth, changing consumer preferences, marketing and advertising
program success, damage to brands, dependence on vendors, ability to
realize synergies and growth from strategic acquisitions, ability to
make successful acquisitions and investments, successful inventory
management, loss or disruption in centralized distribution centres,
ability to upgrade and maintain our information systems to support the
organization and protect against cyber-security threats, privacy breach,
risks relating to our size and scale, loss of key personnel, ability to
attract and retain qualified employees, deterioration in labour
relations, ability to maintain pension plan surplus, funding requirement
in Saks’ pension plan, funding requirement of the HBC Europe pension
plans, limits on insurance policies, loss of intellectual property
rights, insolvency risk of parties which we do business with or their
unwillingness to perform their obligations, exposure to changes in the
real estate market, successful operation of the Joint Ventures to allow
the Company to realize the anticipated benefits, loss of flexibility
with respect to properties in the Joint Ventures, exposure to
environmental liabilities, liabilities associated with Target
Corporation and its affiliates and other third parties who have assumed
leases from the Company, changes in demand for current real estate
assets, increased competition, change in spending of consumers including
the impact of unfavourable or unstable political conditions and
terrorism, international operational risks, fluctuations in the U.S.
dollar, Canadian dollar, Euro and other foreign currencies, increase in
raw material costs, seasonality of business, extreme weather conditions
or natural disasters, ability to manage indebtedness and cash flow,
risks related with increasing indebtedness, restrictions of existing
credit facilities reducing flexibility, ability to maintain adequate
financial processes and controls, ability to maintain dividends, ability
of a small number of shareholders to influence the business,
uncontrollable sale of the Company’s Common Shares by significant
shareholders could affect share price, constating documents discouraging
favorable takeover attempts, increase in regulatory liability, increase
in produce liability or recalls, increase in litigation, developments in
the credit card and financial services industries, changes in accounting
standards and other risks inherent to the Company’s business and/or
factors beyond the Company’s control which could have a material adverse
effect on the Company.

HBC cautions that the foregoing list of important factors and
assumptions is not exhaustive and other factors could also adversely
affect its results. For more information on the risks, uncertainties and
assumptions that could cause HBC’s actual results to differ from current
expectations, please refer to the “Risk Factors” section of HBC’s annual
information form dated April 28, 2016, as well as HBC’s other public
filings, available at www.sedar.com
and at www.hbc.com.

The forward-looking statements contained in this news release describe
HBC’s expectations at the date of this news release and, accordingly,
are subject to change after such date. Except as may be required by
applicable Canadian securities laws, HBC does not undertake any
obligation to update or revise any forward-looking statements contained
in this news release, whether as a result of new information, future
events or otherwise. Readers are cautioned not to place undue reliance
on these forward-looking statements.

Contacts

Hudson’s Bay Company
INVESTOR RELATIONS:
Kathleen de
Guzman, 646-802-7070
kathleen.deguzman@hbc.com
or
Elliot
Grundmanis, 646-802-2469
elliot.grundmanis@hbc.com
or
MEDIA
CONTACTS:

Andrew Blecher, 646-802-4030
andrew.blecher@hbc.com