By  on February 25, 2002

NEW YORK -- Reading the tea leaves of Saks Inc.'s preliminary fourth-quarter results, investors saw hope for a comeback in 2002 and pumped up the stock 15.7 percent Friday.

Shares of the Birmingham, Ala.-based firm picked up $1.53 to close at $11.25 on the New York Stock Exchange on Friday. The stock has recovered steadily since hitting a 52-week low of $4.60 on Sept. 27 last year. Its high in the past year dates back to last March 20, when it briefly traded at $13.95.

Ladenburg, Thalmann & Co. equity analyst Eric Beder said management was "very cautiously optimistic" about 2002 and "the Street is reacting to that." He said there was "a little euphoria" on the part of investors who hoped to see some "upside to drive up the stock."

Certainly, 2001 results set the bar pretty low for Saks over the next year.

Although numbers are slated to be reported on March 7, preliminary data for the fourth quarter indicated a 48.1 percent drop in profits to about $54 million, or 37 cents a share, against $104.1 million, or 73 cents, a year ago. Excluding charges to reorganize the firm's direct business and close stores, among other initiatives, earnings would be about $72 million, or 50 cents a share. The per-share figure is a couple of pennies ahead of Wall Street's expectations of 48 cents.

Overall, sales for the three months ended Feb. 2, which Saks reported with its January comparable-store sales figures, fell 6.2 percent, to $1.89 billion from $2.02 billion a year ago. Comparable-store sales slid 2.5 percent.

Both the firm's department stores and Saks Fifth Avenue Enterprises units felt the pain of the flagging economy. Operating profits for the department stores dropped 19.3 percent to $146 million while SFAE plummeted 72.2 percent to $10 million for the quarter.

In a statement, chairman and chief executive Brad Martin said the firm's department store unit, which had a 2 percent comp decrease, outperformed the competition on the strength of its "customer-focused strategies and the geographic diversity of our trading markets."

He added of the luxury unit, "comparable-store sales declined 3.4 percent for the fourth quarter, reflecting a recovery in this business from the severely depressed third-quarter performance" which took a body blow from Sept. 11.Beder noted, "The company has really done everything they can do in terms of non-sales related items to drive profits." He said the largest part of this fat-reducing drive was a new distribution center in Steele, Ala., which replaced three other facilities last spring, and the integration of the Saks direct business into the core.

Saks Inc. is "preparing for earnings upside when the economy comes back," said Beder. "They just need a little bit of top-line momentum to get earnings rolling again. If the high-end consumer comes back, they will handily beat every Wall Street estimate, but that's not going to happen now." Total 2001 sales for SFAE dropped 7.1 percent to $2.42 billion while those for the department stores fell 6.3 percent to $3.6 billion.

Since luxury consumption is concentrated in the first and third quarters, he said, fall is the earliest that the top line could recover. As to the likelihood of that happening, he noted, "There's some stirring, but not enough to tell people to go out and buy Saks' stock."

For the year, Saks broke even after charges of approximately $24 million, or 17 cents a share. Results compared to year-ago earnings of $132.7 million, or 93 cents. Sales for the year decreased 6.6 percent to $6.02 billion from $6.45 billion a year ago.

Martin noted, "While our macroeconomic outlook for 2002 remains cautious, we expect to generate substantial improvements in operations of each business." For the first half of the new year, total comp sales are projected to decline in the low-single digits on a flat performance at the department stores and a mid-single digit decrease for the luxury unit. "In the second half of 2002, we expect sales to improve based upon a strengthening economy and weak comparisons from the second half of 2001."

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