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Saks Fifth Avenue Narrows Loss

Retailer plans to close two more stores.

Same-store sales gains and increased full price selling helped Saks Inc. narrow its loss for the second quarter to $32.2 million, or 21 cents a diluted share, from $54.5 million, or 39 cents, in last year’s period.

This story first appeared in the August 18, 2010 issue of WWD.  Subscribe Today.

The luxury retailer also said Tuesday that its 121,000-square-foot unit in Plano, Tex., and the 98,000-square-foot Mission Viejo, Calif., store will close on Aug. 21 and Oct. 23, respectively.

Last month, Saks closed units in Portland, Ore.; San Diego, and Charleston, S.C. The five closings led to $12.8 million in after-tax charges in the second quarter, primarily from lease termination and severance costs, and represented $50 million in annual revenue and 400,000 square feet of space. Excluding these charges, the company would have recorded a net loss of $20.5 million, or 13 cents a share, for the second quarter. The 65 associates in the Plano store and 60 employees in Mission Viejo will be offered transfers or severance packages.

In some cases, retailers are seeing less traffic since spring as consumers worry about their jobs and the economy. When asked if business is getting any tougher, Stephen I. Sadove, Saks’ chairman and chief executive officer, told WWD, “If you look at the forecast in terms of sales it’s for midsingle digits, about the same as the first half. It is a tough economic environment. I think it’s fragile. The high-end consumer is tied to how they feel about their net worth in the markets, but our forecast is roughly the same kind of environment that we were living through in the first half….We anticipate continuing to try to reduce promotions over time.”

Saks predicts comparable-store sales growth in the midsingle digits for the second half and year. Comp-store inventories are seen up in the low- to midsingle digits in the second half. Gross margins are seen at about 39 percent for the second half and 39.5 percent for the year.

Saks, which operates 50 full-line stores and 55 Off 5th outlets, is expected to close more full-line stores, though Sadove stressed during a conference call, “I don’t think you are going to see lots more. There could be another one or two maybe [this year] but I’m not going to commit to that. We expect at most only a few more potential Saks Fifth Avenue closings.”

He characterized the Plano and Mission Viejo stores as “two of the most troubled stores” in the chain and “not inexpensive to close.”

On the brighter side, Sadove said he was “pleased with the meaningful improvement in our operating performance” for the second quarter and the half, which ended July 31. He cited comp-store sales, which were up 4.6 percent in the last quarter, and significant gross margin expansion. The operating loss in the quarter narrowed to $44.4 million last quarter from $67.7 million and, for the half, there was an operating profit of just over $1 million, from a $65.5 million loss a year ago.

“The economic recovery will be slow and gradual with continued periods of volatility,” Sadove said. Given the climate, “We have started to move cautiously and selectively from defense to offense,” with targeted investments, including Saks Direct, shoes, handbags and the “hold and flow” technology that enables warehouses to hold back orders and direct them to the right locations closer to need.

He also cited a new strategy of empowering branches to make more marketing decisions tailored to their communities and said the company has hired in excess of 35 local marketing managers. On the sales floors, associates are building their own business development plans to obtain more clients and get them to shop more. They work out the plans with department managers. Saks’ new clienteling system provides “scorecards” on customers’ spending habits and purchases. “We are giving them the tools at a micro level to develop a game plan,” Sadove said.

Last quarter, the best-performing categories were shoes, handbags, women’s designer and Wear [bridge] apparel, men’s tailored clothing and accessories and fashion jewelry. Categories lagging were fine jewelry, contemporary sportswear and denim. Gross margins were up 700 basis points to 37.3 percent from 30.3 percent in last year’s second quarter, which Saks attributed to “carefully managed inventory levels, increased full-price selling and a reduced level of promotional activity.”