By  on June 5, 2008

ATLANTA — Saks Inc. is targeting overseas expansion as a key strategy as the U.S. economy falters and took another step in that direction Wednesday with the opening of a Saks Fifth Avenue men's store in Dubai.

Stephen I. Sadove, chairman and chief executive officer, said at the annual shareholders meeting here Wednesday that the retailer is looking at more opportunities in the Middle East and in Shanghai, as well as other markets. A Saks Fifth Avenue store is scheduled to launch in Jeddah, Saudi Arabia, in November.

The 15,000-square-foot men's store is located in The Walk at the Jumeirah Beach Residences, complementing an 80,000-square-foot full-line Saks store in Dubai's Bur Jaman Centre that opened in 2004. Saks launched a store in Riyadh, Saudi Arabia, in 2001, and has another unit in Mexico City that opened in November 2007.

The new men's store, like the nearby full-line store, is licensed. Sadove told the annual meeting at the Ritz-Carlton Buckhead that the criteria for international growth are: right location, right local partner and right brands.

"If we do that, we believe there are a number of markets we can expand to," he said.

In the face of the soft retail environment, Saks is projecting flat operating margins, mid-single-digit comparable-store growth and a modest gross margin rate decrease in fiscal 2008. The company is carefully managing inventories, while also targeting Saks Direct and Off 5th for growth.

"This is a difficult environment and the luxury consumer has been cutting back as well [as other consumers]," Sadove said. "You're seeing more sales on promotion than full price. The luxury consumer is more affected by stock markets and their net worth than rising gas prices."

Sadove said Saks continues to focus on growth in women's but is carefully editing selection. The retailer's bridge business has been difficult and the company is reinventing the area through changes in merchandise and visual display, Sadove said.

The company ended 2007 with a comps increase of 11.7 percent, compared with a 5.7 percent increase at Neiman Marcus and a 3.9 percent increase at Nordstrom. Saks outperformed its closest competitors again in the first quarter of 2008 with an 8.4 percent increase in comps, compared with a 2.5 percent decline at Neiman Marcus and a 6.5 percent drop at Nordstrom.Operating income in 2007 more than doubled to $139.2 million. "It was a year of great progress," he said.

A stockholder questioned Sadove about the disparity in operating margin between Saks and Neiman Marcus. He answered that Saks wasn't making money three years ago and the average Saks store does about one-third less in productivity than the average Neiman Marcus store. "As we increase that to Neiman Marcus' productivity level, we'll be closing the profitability level between the two. Productivity means having the right brands in the stores and improving the matrix."

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