By  on May 22, 2007

Saks Fifth Avenue's turnaround keeps gaining steam.

The department store retailer said Monday it is making up ground on the competition and pointed to strong first-quarter results released Monday as evidence.

Though net profits fell 86 percent in the quarter ended May 5, due to big gains a year ago from department store sell-offs and severance costs as a result of downsizings, operating income grew to $32.6 million in the quarter versus $12.2 million a year ago, and comparable-store sales rose a robust 14.4 percent. Total sales rose 15.9 percent to $792.7 million versus $684.1 million in last year's quarter.

"I can't remember the last time Saks had a comp-store increase that high,&" Stephen I. Sadove, Saks Inc.'s chairman and chief executive officer, told WWD. "I feel good about our report. It's good progress. But I keep reiterating we're early in our turnaround. There's a lot of recovery ahead.&"

Sadove said the operating profit margin should hit 4 percent this year and restated confidence in attaining an 8 percent operating margin in the next three years, which is still below the double-digit margins of competitors such as Nordstrom and Neiman Marcus. Nevertheless, Sadove characterized Saks' three-year target as "a respectable performance we need to aspire to, but not the end point.&"

Those heady comp gains will moderate somewhat as Saks projects low, double-digit increases in the second quarter and mid- to high-single-digit gains for fall. Saks Direct posted a sales increase of approximately 50 percent. Off 5th, the outlet division, was modestly up.

Not long ago, Saks was overstaffed and unfocused with a mix of luxury and middle-market store operations that were poorly merchandised. Now the company, through a variety of streamlinings and culling management, is directed toward the upscale, luxury market and driving traffic with remodels and investments in designer shops at key locations such as Beverly Hills and Fifth Avenue. Furthermore, Saks has been sharpening assortments at each door to better meet local demands, as it strives to narrow the performance gap with other upscale and luxury retailers.

"I feel great about handbags, shoes and accessories — all accessories — and the men's business, particularly tailored clothing, was exceptional,&" Sadove said, when asked to break down the best-performing categories in the first quarter. "We also did well in designer sportswear and jewelry,&" though designer eveningwear was "a little soft&" without experiencing any actual declines, he said.

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