Q2 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the Hudson's Bay Company presents Q2 2019 earnings Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call may be recorded I would now like to introduce your host for today's conference Ms., Jennifer Bewley, Vice President of Investor Relations at HBC, Ma'am you may begin.
Thank you and good morning, everyone. We appreciate you joining us today.
This morning, we issued our second quarter results, which have been posted to CR.
In a moment I'll pass the call over to Lena folks HBC CEO and backing group, our interim CFO to make a few comments on our results and then we'll open up the call to questions.
Before doing so allow me to provide a disclaimer regarding forward looking statements.
Certain statements made during this conference call regarding Hsbcs current and future plans expectations and intentions result.
Levels of activity performance goals or achievements or any other future events or developments and other statements that are not historical facts constitute forward looking statements.
Forward looking statements are based on current estimates and assumptions made by management in light of its experience and perception of historical trends current conditions and expected future developments as well as other factors that management currently believes are appropriate and reasonable in the circumstances.
However, there can be no assurances that such estimates and assumptions will prove to be correct.
Many factors could cause hccs results to differ materially from those expressed or implied by forward looking statements.
For a discussion of these factors we refer you to the risk factors set forth in the company's annual information form dated May Threerd 2019, the recent mdna as well as HPC other public filings available on SEDAR at Cedar Dot com and our own website H.B.C. Dot com.
Listeners should not place any undue reliance on forward looking statements made on this call.
Before we discuss our results I'd like to briefly comment on the process that we announced in early June .
Our board of Directors has formed a special committee of independent Directors to review and evaluate a nonbinding proposal of a take private transaction received from a majority shareholder group.
Although the special committee and its financial and legal advisors have completed significant work since June we remain unable to comment while the special Committee and the board conduct their review and there can be no assurances that any definitive agreement in respect of the take private proposal will be approved or the transaction will be consummated.
With that I'll turn the call over to Alina to discuss our second quarter results.
Thank you, Jennifer and Hello, everyone.
The aim of our retail operations is to deliver amazing customer experiences, which in turn enables us to drive growth and ultimately financial performance.
With Saks Fifth Avenue, and Hudsons Bay is the cornerstones of our company, we have simplified H.B.C.'s retail portfolio to brands that have meaning to customers and that benefit from scale and unique positions within growing markets.
To that end, we're pleased to have concluded our extensive review of strategic alternatives for Lord and Taylor with an agreement for live choke to acquire the business.
Bringing together lets host fashion rental subscription service with Lord and Taylor as traditional retail business will create a new model and a first of its kind experience for the mid tier retail segment. While the structure is somewhat unconventional there are several clear advantages to the deal.
We believe the toads leadership and innovative approach is the best path forward for Lord and Taylor its customers and associates.
HPC read receives approximately $100 million of cash at closing a $33 million promissory note and 25% equity stake in the new venture for let's hope, we are providing approximately $284 million worth of inventory and $77 million of net rent per year for three years.
Importantly, we maintain ownership of the Lord and Taylor real estate with nearly the same day, one flexibility to unlock value that we would have had on our last day of operations.
While the potential for larger redevelopment begins late in 2021, when HBC and look to have options to reassess the Lord and Taylor store network.
HPC has hired a team of seasoned professionals to lead the planning and execution of any possible redevelopment, which is inherently complex capital intensive and a long term undertaking.
And finally, we look forward to the transaction closing before the holiday season pending with totes ability to acquire financing.
As I look back over the last year and a half its remarkable how much we've accomplished while firmly understanding that we are in the early stages of what we can become.
There are distinct opportunities for our two businesses at Saks Fifth Avenue, we feel strongly about our position amid an increasingly competitive environment and remain committed to driving further upside for this business.
For Hudson's Bay, we're continuing to fix the fundamentals within our merchandise strategy and service model and there is more to be done as we work to reinvigorate our presence in the market to appeal to customers.
The second quarter delivered many positives a step change in our digital growth the ninth consecutive quarter of comp growth at Saks fifth Avenue at another quarter of growth for Saks off fifth we continue to concentrate on controlling the controllables investing in our future improving our cost structure and continuing our disciplined management of inventory as a component of strengthening operations and improving free cash flow.
Our Q2 challenge was our gross margin performance.
Approximately two thirds of the margin decline was due to transitions in our store footprint vendor relationships and merchandise the impact of which is expected to lessen during the remainder of the fiscal year.
The balance can be attributed to the intense promotional activity in north American luxury under the promotional environment in Canada, which reduced our opportunity for greater full price selling.
While it was clear that tax had breakaway sales performance in the first quarter. It was unclear that the market would turn to aggressive discounts in an attempt to catch us. Despite the change in the competitive environment. What is sex deliver in the second quarter, we expanded the number of top customers.
Buck the industry trend to achieve a 7.3% two year stack comp and accelerated our digital growth.
By elevating our service model digital experience and merchandise assortment Saxa strategy continues to resonate with luxury consumers.
At our New York City flagship construction related to the Grand renovation continued during the quarter, we opened a new men shoe experience, which is the first step in Saks his strategy to double down on mens, which remains one of our strongest categories and an example of how were making strategic investments to capture even greater market share.
Just this month.
We opened the vault hi, fine jewelry experience housed in a reclaim space on the lower level of the flagship jewelry and watches account for 38% of the worldwide personal luxury market yet for snacks, it's only 6% of our sales, creating a true greenfield opportunity for 95 year old brand.
So far this year six of our 10 floors have had some renovation disruption we're thrilled to arrive at this holiday season with a true physical representation of the new luxury strategy for visitors and residents of New York City.
The Saks flagship will be filled with exclusive services and merchandise and high touch customer service.
All of which will drive the kind of excitement and experiences boost fitting this luxury landmark during the holiday season.
And Hudsons Bay as we expected comparable sales decreased in the second quarter down, 3.4%, which still was a sequential improvement for them from the first quarter and a continuation of our progress as we dealt with the consequences of a late wet spring in Q2, the better performance was driven by a sharp improvements in our digital channel supported by more effective marketing and our recently launched App.
Even so on a two year stack basis, Hudson's Bay comp declined 4% a clear signal that we have more work to do.
We are adjusting our merchandising strategy to deliver a sharper and more exciting assortment that appeals to both existing and prospective customers in store and online.
Our first step was correcting previous merchandise missteps and to date, our team has exited more than 300 unproductive brands, while adding 100, new and emerging brands to help reset and elevate the fall assortments.
This season, we will have unique initiatives and experiences.
Featuring new product exclusives and partnership with brands like Anthropologie home Ll Bean and Mango. We're also introducing a range of international premium women's wear designers, including a focused initiative to introduce Scandinavian style to our customers feast featuring fashion forward brands stand studio and rotate by Burger Christiansen among others.
In addition, we will introduce ethically and sustainably minded Maggie, Maryland from New Zealand and Harris Wharf, London's re imagined wardrobe staples.
The small also brings exclusive signature stride Cup collaborations with color me, Courtney Novus and Hunter.
Looking ahead as we further refine the base merchandise strategy, we will seek out opportunities to rightsize and drive productivity for more traditional brands, while we continue to introduce new styles to our customers.
These changes will be gradual and may take time to resonate in the market as we better position Hudson's Bay to recapture market share.
For Saks off fifth new customer acquisition continued to drive topline performance posting a 3.4% comp sales increased in the second quarter.
Once again, we grew the right way using new marketing tactics that better targeted recommendations to potential customers.
The effectiveness and increasing sophistication of our digital marketing programs amplify all touch points with Saks off fifth customer accounts growing in store online and for those customers using all of our channels.
We implemented a new strategy in 2018 focused on fixing the fundamentals and providing fashionable on trend items at a great value, which meant shifts in our buying marketing and service model.
From a financial perspective, we knew our improved performance at Saks off fifth would be more apparent this year and we are just about right, where we expected to be with additional strategic improvements continuing to rollout.
Digital sales were standout for HPC this quarter, increasing sharply up 19% year over year, improving upon our 10% growth rate a year ago and 14% in the first quarter for the first time in HPC history, our combined mobile in App revenue surpassed our desktop revenue.
We've tightened integration with marketing, which made our new data driven strategies more effective and our smart investments are starting to pay off including the addition of new leadership launching an app for Hudson's Bay driving continued customer adoption of the Saks App and testing new personalization tactics.
In addition, we've invested in fixing the fundamentals the team has been working on ensuring that we're holding inventory in the most advantageous locations for our customers, resulting in fewer out of stocks and improvement in cancelled orders through online channels, providing another boost to our digital performance.
Over the last year and a half we've made bold moves to reposition HPC for long term success, we've divested guilt agreed to sell our European retail and real estate entered into an agreement for Lord and Taylor closed home Outfitters and are currently optimizing the saks off fifth footprint.
Our go forward portfolio includes three distinct segments with nearly half of our sales and luxury more than one third in Canadian retail and about 15% in off price. While we're still in the early stages of what HPC can become our top priorities remain one making focused investments to drive growth at Saks and Hudsons Bay.
Two enhancing the customer experience across all channels.
Three reducing operating costs and complexity, while continuing to fix the fundamentals and for capitalizing less than the value of our real estate.
All of these actions are crucial and ensuring we can operate from a position of strength as we work to improve performance was charted our course and our promises to do everything within our power to deliver on the extraordinary heritage and potential of HPC.
For more details on our financial performance I will turn the call over to Becky.
Thank you Selena and good morning, everyone.
First I would like to make you aware that following the company's agreement to sell Lord and Taylor to let tote, Lord and Taylor has been classified as discontinued operations and its financial results are not included in my remarks, including any impacts related to Lord and Taylor comp inventory or lease obligations.
As Helene and mentioned gross profit was a challenge during the quarter and I'd like to expand on what we believe caused this result.
Second quarter gross profit declined year over year by 101 million and gross profit margin was down 530 basis points to 34%.
The year over year decline contained strategic transitional and market driven impacts.
First the strategic.
We are actively streamlining our retail portfolio and approximately $20 million or 110 basis points of the year over year decline can be attributed to our store closings.
While those closings negatively impacted our gross profit. These decisions also have provided SGN a benefits.
In the second quarter, the SJ SG nice savings, which resulted from store closures completely offsets the 20 million decline in gross profit.
Home Outfitters closed on schedule at the end of the second quarter for Saks off fifth we announced 15 closures one location closed in the second quarter 13 have or will close in the third quarter and one will close in the fourth quarter.
Once these are completed we will have 245 locations across three distinct businesses in North America, and a store footprint with a significant concentration in top markets that are characterized by population density and higher than average household incomes.
Changes in our vendor relationships accounted for approximately $21 million for another 110 basis points of the year over year gross profit margin declined.
In the fall season, we expect the impact to gross profit will lessen.
In the long term, we believe the change will contribute positively to our gross profits as weve created a win win model, where it makes economic sense for HPC and our vendors.
As you know we have targeted inventory efficiency as a key component of strengthening operations and improving free cash flow.
At the end of the second quarter comparable inventory declined by 5% year over year slightly ahead of our full year target for a low single digit decline.
In the second quarter, we made strategic needs to use our store closings to clear aged inventory from Hudsons Bay and Saks off fifth.
At the end of the quarter HCPCS, aged inventory was down 10% year over year and we are entering the fall season, with a much cleaner and fresher inventory position compared to last year.
In the second quarter $21 million or about 110 basis points of the gross profit decline can be attributed to inventory.
Saks off fifth on Hudson's Bay are holding less inventory and Saks fifth avenues inventory was essentially flat.
And finally, the last 180 basis points is largely due to the change in market dynamics Polina described.
There was clearly an industry wide apparel inventory overhanging, which digital and traditional retailers aggressively addressed earlier in the second quarter than last year.
Moving onto SGN AG in the second quarter as chicken, a expenses declined $34 million year over year, resulting in an SG at a margin of 36.7% an improvement of 170 basis points.
SGN a expense reductions were widespread with corporate store operations and close stores contributing to the year over year improvement.
As it relates to the Lord and Taylor sale, if completed HP say, we'll have some stranded corporate costs that can be reduced but not on day one.
As we said on our last call we expected adjusted EBITDA to be lower in the first half of the year compared to last year, we expect adjusted EBITDA to improve through the balance of the year as the expected benefits from our previously described strategic initiatives fully take effect in the fall season.
Even slow the second quarters, North American retail financial performance was a setback.
With an adjusted EBITDA loss of $5 million.
We expect full year adjusted EBITDA from North American retail operations to top last year, excluding Lord and Taylor discontinued operations. However, our expectation for improvement carries more risk than we anticipated at the end of the first quarter.
In terms of controlling the Controllables, we are working as quickly as possible to further align in store scheduling with customer demand.
Advanced our digital operations and further improve our marketing mix.
On the real estate side, adjusted EBITDA totaled $57 million from joint ventures in the second quarter.
Our pending European real estate and retail transaction recently received regulatory approval.
If completed as expected in the fall, we anticipate real estate adjusted EBITDA will be diminished by approximately 40 million in 2019.
In Q2, our net loss from continuing operations totaled $462 million, including a non cash 150 million impairment of Canadian deferred tax assets.
$89 million of transaction and restructuring costs, and a 17 million impairment related to the Saks off fifth store closures.
On a normalized basis, we posted a net loss of 171 million.
Moving onto our balance sheet.
At today's exchange rates, we'd have permanently reduce our U.S term loan by 221 million.
We have eliminated the $509 million, Lord and Taylor mortgage.
And we ended the quarter with $107 million in lower outstanding borrowings on our ABL.
With the pending sale of our European real estate and retail operations for 1.5 billion, we anticipate eliminating the balance of our 429 million outstanding on our term loan at the close.
Capital investments were $138 million during the second quarter of 2019, a decline from $188 million from the same quarter a year ago.
While work is still being completed this year on facts Grand renovation, the spending last year was substantially higher than this year.
In addition to the work at socks, and strategic improvements at Hudson's Bay stores, we continue to modernize and cloud enable our technology platform and fix the fundamentals of our digital operations, including improving site speed.
Order processing and checkout.
Order fulfillment.
And delivery speed.
Our capex expectations for the year are unchanged at 300 to 325 million net of landlord incentives as compared to 346 million in 2018 on a like for like basis.
That concludes my remarks, operator, we will now open it up for questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key once again to ask a question. Please press star and then one now.
And our first question comes from Patricia Baker from Scotia Bank. Your line is open.
Thank you and good morning, everyone I have three questions. Okay first of all going back to the gross margin and thank you for a delineating the impact of all of the factors in the corner its very helpful.
So you mentioned that the transitions and vendor relationships relationships account for 110.
Basis points and that we that would lessen in the back half and over the long term I I get that that will positively impact gross margin do you believe Molina that you are where you need to be with respect to vendor relationships and you've completely Donna.
A thorough review or are you likely to make some further tweaks and changes you know going forward.
Sure do you want.
You want me to answer that one you said you had a couple of others, yes, yes, Sir thanks Patricia.
I think the team did a nice job delineating as you say so.
Where where this is coming from.
We feel very clear that we quantified the impact of the vendor transitions and.
As you can imagine we spent a lot of time thinking about this so the in some cases, we're moving away from the traditional wholesale model and as you know there is over time and inventory benefit of that move and a gross margin rate improvement, but we are going through that transition now and as we said that will lessen over time. So we're very clear about that and then under other vendor relationships I think we have a good handle on as well we are transitioning inventory as you know, but I think we've got that piece pretty well quantified.
Okay. Thank you and then secondly.
Oh, yes, a lot of detail and color on just what you are changing at the B and revamping the merchandising strategy, they're adding a lot of new interesting brands and you said that that would take some time to roll that out. So are you facing those in.
And when when do think we will see the be having that that full offer and completely re merchandise.
Sure I definitely expect improvement in the second half, but it will also take time, we are modernizing the mix and I'm trying to give you a sense in some of those brands of that modernization I'm really encouraged by the fact that as brands emerging brands and traditional brands, even want to come to the Canadian market, they're seeing Hudson's Bay as a place to come and you could see that from Anthropologie home and Ll Bean and mango as well as the other brands that I mentioned, but where this is an overall mix move that we're making in terms of modernizing and returning I would call. It two more slightly up scale. As you know we went a little too down scale as we chased the Sears customer and so I'm very pleased and I can see in the early results of fall, where those moves are having an impact but I will also say that in some of the more traditional classic brand.
We have work to do to reposition those and so we are really working on how do we.
A transition those classic brands at the right pace and how do we find all of these new and emerging brands to replace some of that volume and as I said I think it's a real strength for us that brands want to be at Hudson's Bay. We are everywhere. The Canadian consumer is and we're known for being stylish and quality driven and so these things don't happen over overnight, but I can see the progress and just a follow up on that Atlanta. When you named a number of those brands in your opening remarks in a lot of those would be new to the Canadian market and I would assume that you you know you'd be the.
In many respects have exclusive.
Yes, exactly and I think one of the things that we've been talking about as a team is.
We tend to be a little modest we need to be bolder in terms of taking credit for that exclusivity. So Patricia I know you are good at shopping our stores when you're over a Queen Street, you'll notice lots more signage for example that highlights. The fact that these are brands that are now exclusive to us and Canada, Okay exactly and then thirdly in the just the financial discussion and I was interested in.
The phrase that was used that you have an outlook for the.
The the the rest of the year, but theres more risk attached to that kind of forecast can you just talk about what specifically you see as those incremental risk.
I think concentra ships, Becky and thank you for joining us this morning.
I think that as we mentioned we are disappointed in our second quarter performance and it left us with just a little bit lower starting point for the rest of the year and that's what's really driving those remarks.
Oh, Okay. So okay, great. That's good thanks, so much.
Thank you.
Our next question comes from Oliver Chen from Cowen Your line is open.
Hi, Thank you regarding the promotional environment, what do you see going forward in terms of what's happening and also which parts of the portfolio, but was most impacted and are you pleased with the inventory cleanliness at this point and the and the evolution of what you're seeing in the marketplace.
Also with Coke and thinking more broadly about re commerce, which includes subscription as well as circular.
Players such as real real Castle, Posh, Mark and others, what how you think that will manifest throughout your other banners and how might synergize that relationship strategically and financially.
Right Okay. Thanks Oliver.
Yes, so the promotional intensity was most felt et cetera.
And this was a result, and I think in many ways look we were we've been leading the market from a topline perspective and as I said I think we were surprised to see really.
Starting in June .
Online and store players breaking their clearance sales early and deeper.
And it's pretty simple.
We had to respond to that and we did and that had the impact that we're describing to you.
I think that Thats less of an issue in the third quarter, just given the cycle of the luxury market. Traditionally obviously don't have markdowns in the third quarter as you're still in the fall selling season.
And as we look to the fourth quarter last year it really started.
So I think we have less of a comp issue as we go into the second half as we think about promotional intensity, we're not expecting necessarily that it declines were just saying we started to see some of this last year.
As it relates to inventory, we're really pleased with our inventory position I have to tell you our aged inventory.
Has never been in such a good start our overall inventory is down and I think it shows up for the customer in a win win on visiting stores and I'll use the Bay as an example, the added is much more clear I mean, if you're there right now youre just not seeing the level of clearance goods. We had last year, it's more clear on the style point of view that we have and we've also positioned inventory in those businesses to be ready for a dramatically stronger e-commerce sales.
So I feel really good about a better inventory position.
As it relates to let tote look we were very very pleased to be able to announce that deal.
First I would just want to thank all of our colleagues and the Lord and Taylor team they've been tremendous through all of this strategic review and they were thrilled because they now are part of a team that is very forward looking its a new model as you said and I know you understand it really well Oliver.
We think that the opportunity for a customer to be able to walk inside a store and think about either renting or buying is really innovative.
And we're certainly looking at that not just for Lord and Taylor, but thinking hard about the customers, we serve and our other banners.
And the opportunity for us to bring them, new services, whether it's rental or resell or or subscription and the idea of being a brand that brings you. What's relevant for you is what's on our mind. So we have nothing to announce there's nothing imminent, but we continue to look very hard at those emerging places within retail because we think thats what the customer alone.
Okay and our last question is about the e-commerce growth, which was impressive.
Was it traffic or conversion led it looks like you made some great progress on both of those.
As e-commerce the ball.
How are you thinking about doing your best to maximize margins and minimize of split shipments and other items as well as some speed.
B, that's so important given that the reality of inventory as well as the customer demand. So would love your thoughts on the hurdles ahead and e-commerce .
Sure, Yes, again, I'm I'm really proud of the team they've made a lot of real progress you recall last year.
We made leadership changes in tech in digital specifically in marketing and you can start to see the results coming together.
I think that a lot of this is back to fixing the fundamentals. So the team has a daily stand up call looking at net promoter score customer feedback and where we're falling down and fixing it real time and thats been things like site speed checkout experience, we've had a real focus on delivery times to your point.
That's a place where a year ago, we were falling down and it was taking too long to get product in a world where the customers expectations are going up dramatically we need to deliver on those expectations. So we spent a lot of time fixing delivery.
As well as.
Through our marketing finding new customers. So it's been both traffic and conversion as you know as the world moves to mobile.
Conversion is lower on mobile, but overall.
Across all of our.
Channels within digital conversion is going up and so our net promoter score is going up so let's look were very very happy with it but we also know we have plenty of opportunity and so we're quite confident that we are going to continue to grow. The other thing I would highlight that I'm really pleased with is the integration of digital with our stores and I think that's really where the magic can happen for an omni channel retailer. So at the Bay I would point out that 97% of our turn.
From ecommerce come to our stores, that's a terrific opportunity for us to give her what she is looking for when she comes back to stores and it speaks to how much those customers signed the convenience of the Hudson's Bay shopping experience.
And it snacks, we are rolling out digital tools every single week to our stylists, who are using them to serve their customers in stores I'm very impressed with how that team has embraced the digital tools and is really using it to understand what their customers are looking for and to bring new to their customers. So it's not a standalone digital ecommerce activity only it's a real integration with our stores, which is fueling some of this.
Thank you best regards.
Thanks.
Thank you. Our next question comes from Cyber Hot Khan from RBC capital markets. Your line is open.
Thanks, and good morning, just a little follow up on the commentary on the men's category that you mentioned I was just going to entail and maybe more square footage or changing burn and then I guess in terms of competition are you finding a lot of your competitors are also undertaking that strategy. So I don't understand the opportunity there and how you're in Reston lawn.
Sure well look the mens womens category. It is our fastest growing category.
And I think the team has done a great job really focus on Sac.
The flagship store in particular, since we mentioned it and I would love for all of you to go see it because it really looks spectacular.
I think what the what they did really nicely was they brought the shoe business, which had been split across two floors together and in the center of the floor with locks new Brent lots of new brands and exclusive product. It also opens up the sight line to invite you into the rest of the product and so.
We're off to a very strong start as I as I mentioned and were very pleased with where we're going.
You know the the categories that.
And the brands that are growing are sort of traditional brands I'll call them high high end designer brands, but also new and emerging brands and so you really see a nice mix of customers on that floor and it's not just in the fifth Avenue store in New York City, but across the chain really nice progress. The team has made and when I talk to the supplier community what they're really talking about is sacks for them has now started to sand out to have a point of view on fashion for men, which they see as unique in the marketplace and I think thats why were winning.
All right Great and then just one on the Hudson's Bay, you mentioned some store rationalization across some of your other banners I guess, how are you feeling about the current Hudson's bay footprint than kind of given some of the growth that you are seeing on the online side I do feel all the stores are.
Complementary or netsuite or how you're thinking about that over the next well.
Yeah, we did a thorough review of the fleet when we made our choices that we announced a couple of quarters ago to sort of reduce store count and all of our Hudson's Bay stores, our four wall profitable and so there are no plans to change anything with a fleet. What I will say is I think the real estate teams done a very nice job, helping us think about new uses of space within the store and the we work partnership, particularly in Queen Street is very exciting to me it allows us to take.
One and a half floors on that store and really converted over and workspace.
That's interesting to us and other places so we're not so much looking at the number of stores. This may be thinking about space within our stores I talked before about how brands are coming to Canada and thinking about using Hudson's Bay, how do we use some of our retail square footage to invite them in and we're open to lots of different things. So we're overall pleased with the portfolio where for 50% of Canadians we live.
They live within 16 kilometers of our store I think that speaks to just the overall brands that we have in the country.
Hi, great. Thank you.
Thank you and again, ladies and gentlemen to ask a question. Please press star and then one now.
And our next question comes from margin willing from S&P.
Your line is open.
Hello, Good morning, just one on running from S&P announced them I've got some questions with regard to the Netherlands.
Dutch media reports about the company, leaving the country by the end of the year.
Video store.
There are also many documents about the conduct enable layoff can you elaborate some more on that are there are there plans to leave the Netherlands.
And what about what's the status of the plan.
Thank you so much for the question this is Jennifer.
I think we've been pretty clear that our strategy is focused on North America doesn't went Netherlands businesses going under a strategic review and we don't have any update to offer at this time.
It has been an underperforming business and Theres a possibility that we closed some stores, even before we regained 100% ownership of that business.
The biggest liability for US is the number one is actually in our leases so.
10 year lease guarantees and we're in year two of those guarantees that's about $75 million in total rent per year in the Netherlands, and so we definitely suggests that people think through that liability and ER and the probability of when that liability could potentially mean, but theres no big there's been no firm decisions made on the Netherlands occurred places that we just don't have an update.
Okay.
One final follow up question about the Netherlands.
Second quarter loss in Europe six nine.
Sorry, 96 million Canadian dollar what part of that is coming from the analysts.
We we don't break that out.
Okay.
Thank you.
Thank you and our next question comes from Hana Man from T. Agee. Your line is open.
Hi, Good morning, this is Brian .
Just got a question on the.
Special Committee process.
I Miss <unk> update on this I think when <unk>.
It was made.
About the special Committee.
Timing guidance was September and the sense was in conjunction with or ahead of earnings maybe I misunderstood.
Please update us on that.
Sure Hi, Brian It's Jennifer So the special Committee has announced that we would be receiving an independent valuation work from TD securities in September , but they have not announced anything beyond that so you know as much as we do with that announcement there was never a connection between earnings and the special Committee and so as you can appreciate since the process is ongoing and we don't have anything to share.
So.
That is where we are.
Understood. Thanks.
Thank you.
And I am showing no additional questions from our phone lines I now like to turn the conference back over to Jennifer Bewley for any closing remarks.
Thank you so much for your time today and interest in Hudson's Bay for further questions. Please give me a call and Investor relations can be added to our Q have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a wonderful day.