Smaller inventories help Saks narrow loss in 2Q

By Reuters
Posted Aug. 17, 2010 at 3:29 p.m.

Saks Inc. posted better-than-expected quarterly results Tuesday, helped by an uptick in luxury spending and selling fewer items at a discount. That sent its shares up more than 3 percent.

Saks said sales at stores open at least one year, or same-store sales, rose 4.6 percent, with its flagship department store on Manhattan’s Fifth Avenue performing well.Across the Saks Fifth Avenue chain, shoppers sought shoes, handbags, women’s designer apparel and men’s tailored clothing, among other categories.

However, Chief Executive Stephen Sadove cautioned that the U.S. economy is fragile and that the company would continue to be conservative in how it manages inventory.

“We believe that economic recovery will be slow and fragile with potential periods of increased volatility,” Sadove said on a call with analysts.

Saks reported a second-quarter net loss of $32.2 million, or 21 cents per share, compared with a loss of $54.5 million, or 39 cents a share, a year earlier.

Excluding one-time items, Saks reported a loss of 13 cents per share. On average, analysts expected a loss of 17 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 5.1 percent, to $593.1 million, ahead of the $585.2 million that analysts expected.

Gross margins rose 7 points from a year earlier to 37.3 percent as tighter inventories reduced the need for price markdowns.

Saks sees same-store sales rising in the “mid-single digit” percentage range for the remainder of its fiscal year, outpacing a “low-to-mid single digit” increase in same-store inventory levels.

It forecast improved gross margin rates, saying they would hit 39 percent in the second half of its fiscal year.

Saks has been vigilant in managing its inventory to avoid a repeat of the deep discounts it offered in late 2008 to clear merchandise in the financial crisis.

“It’s wise to drain inventories right now a little bit because the third quarter is going to be very soft,” said Milton Pedraza, chief executive of the Luxury Institute, a consulting firm. “That promotes price and margin stability.”

Similarly, off-price retailer TJX Cos Inc , which operates T.J. Maxx and Marshalls, said inventory was down 13 percent in the quarter. CEO Carol Meyrowitz said the company will further reduce markdowns.

A number of major department store chains such as Macy’s Inc., Nordstrom Inc. and Kohl’s Corp. have enjoyed strong same-store sales increases in recent months, putting pressure on off-price channels and outlet stores.

Saks, which operates 50 Saks Fifth Avenue stores and 55 OFF 5th outlets, said same-store sales growth at its outletsĀ  was lower than the companywide average, though those outlets were up against tougher numbers to beat.

Saks has also been shutting underperforming stores, with five closed this year.

Sadove said it might close a few more Fifth Avenue stores. The company plans to open a handful of its lower-priced OFF 5th outlets annually in the next few years.

Saks shares were up 26 cents, or 3.4 percent to $7.87 in afternoon trading, while TJX shares were up 86 cents, or 2.1 percent, to $42.23.

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