NEW YORK — Saks Fifth Avenue Enterprises, a unit of Saks Inc., said Friday it will close eight Saks Fifth Avenue stores and three Off 5th stores by early 2005 — reducing the unit’s total square footage by 7 percent — in order to beef up the company’s earnings.
About 700 associates will be affected by the closures. The company said the associates will either be offered a transfer or will receive severance packages.
Saks said it will take a pretax charge of $35 million over the next fiscal year. The charge will consist predominantly of noncash charges as well as $5 million in cash charges — offset by about $5 million in noncash gains from the expected sale of one owned store.
In addition, the company expects to take $25 million to $35 million in primarily pretax cash charges in future periods due to the closures.
Luxury analyst Kristen Bentz said according to her sources — some of whom are employees inside the company — Saks could be poised to close 20 underperforming stores eventually and possibly as early as the fourth quarter.
“They’ve had way too many stores for too long, including Saks Fifth Avenue,” said Bentz of Kinney + Kinnsella.
But Julia Bentley, a spokeswoman for Saks, said the company will always “open and close stores as a normal course of business.” She also said Saks has no current plans to divest or close any of the stores in its department store unit, despite some analyst speculation that they could be the next targets to improve profitability.
Most recently, Saks reported a wider consolidated second-quarter net loss, although the operating loss in its Saks Fifth Avenue Enterprises unit improved by nearly half.
Consequently, Bentz and retail sector analyst Richard Hastings of Bernard Sands LLC said the closings announced Friday are huge positives for Saks, and were overdue.
“It’s going to be easier for them to manage their business,” said Hastings. “It’s indicative of just how much retailing is in a state of overcapacity, and that overcapacity is fueling the real estate side of the business.”
In sum, the to-be-closed stores have almost $90 million in annual revenues, and make up less than 4 percent of Saks Fifth Avenue Enterprises’ total sales, the company said in a statement. Five of the Saks Fifth Avenue stores to be closed are in California, including the Carmel, La Jolla, Pasadena, Mission Viejo and Palos Verdes locations. New York’s Garden City location will close, as will the Fort Worth branch in Texas. Off 5th stores that will be closing are located in Worcester, Mass.; Grove City, Penn., and Nashville, Tenn. One Saks Fifth Avenue store in Hilton Head, S.C., will be converted to an Off 5th store. Most of the Saks Fifth Avenue stores are expected to be closed in January, while closing dates for two are to be determined.
When the closures are complete, the company will operate 56 Saks Fifth Avenue stores, making up 6.2 million square feet, and 52 Off 5th stores, comprising 1.5 million square feet.