By  on March 2, 2006

NEW YORK — Will Saks Fifth Avenue ever be righted?

The luxury chain, struggling for years and dogged by speculation that it's destined to be sold, posted huge declines in operating income Wednesday, which dragged its parent, Saks Inc., to a $2.2 million loss in the fourth quarter ended Jan. 28. This compares with net income of $96.6 million in the year-ago period.

At the core SFA division, fourth-quarter operating income totaled $7.6 million, a $50.4 million decline from the prior year. Sales totaled $802 million, versus $839.9 million a year ago, and comps increased 1.4 percent.

For the year, SFA's operating income fell to $22.3 million from $118.8 million, comp sales rose 4 percent while total sales were $2.73 billion versus $2.74 billion.

At Saks Inc., which includes its department store group, net income fell 63.5 percent to $22.3 million from $61.1 million, sales were $5.95 billion versus $6.44 billion and comp sales were up 2.1 percent.

While Stephen Sadove, the new chief executive officer of both Saks Inc. and Saks Fifth Avenue, admitted the fourth-quarter numbers were "unacceptable," he outlined some of the key planks in his vision for turning around the chain. They include:

  • Focusing more on SFA's core 35- to 50-year-old customer after years of trying to take the chain younger, including the reintroduction of some brands, possibly even the private label Real Clothes line or similar merchandise;

  • Fine-tuning the merchandise door by door with store personnel, buyers and planners collaborating better;

  • Making Saks Fifth Avenue competitive with Neiman Marcus at the luxury end as well as with Bloomingdale's and Nordstrom at the more contemporary and less-expensive sides of the upscale market;

  • Improving the operating numbers, beginning in the current fiscal year for which Sadove projected low- to mid-single-digit sales growth.
But Saks has to act fast since the competition is moving more onto its turf. Nordstrom, Neiman Marcus, Barneys New York and Bloomingdale's are all expanding and pumping up contemporary and designer offerings.

"2006 will be a transition year," Sadove said, involving asset sell-offs, unusual one-time costs, organizational changes and expected improvements in performances.

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