By  on August 22, 2007

When it comes to making money, Saks Fifth Avenue lags the luxury industry. But the retailer is gaining ground and made that clear Tuesday by posting top- and bottom-line improvements for the second quarter ended Aug. 4.

Saks Fifth Avenue narrowed its net loss in the quarter to $24.6 million, or 17 cents a share, from $51.9 million, or 39 cents, the previous year. Comp-store sales rose 13.2 percent in the quarter, while total sales increased 14.9 percent to $694.1 million from $603.8 million.

But Stephen I. Sadove, Saks' chairman and chief executive officer, admitted the retailer faces tougher gross margin comparisons in the second half and won't see the same kind of improvement as in the first six months. The outlook pushed Saks' stock down $1.11, or 6.2 percent, to $16.83 on the New York Stock Exchange Tuesday.

Overall, the second-quarter results demonstrated that Saks' turnaround efforts, orchestrated by Sadove and Ron Frasch, president and chief merchandising officer, are bearing fruit, though the game is far from won.

"Clearly we are less productive than some of the competition, such as Neiman Marcus," Sadove told WWD. "We have a lot of catching up to do, but the way you catch up is through outsized comp-store growth."

Sadove believes the 13.2 percent comp-sales lift tops most, if not all, of retailing. Gross margins widened 270 basis points due to fewer markdowns and better full-price selling. Saks in the past has been notorious for slashing prices.

The company also reduced sales, general and administrative expenses 60 basis points and the operating loss narrowed to $32.6 million from $77 million, and executives said store renovations are paying off.

"We really didn't see any weakness in any categories or geographies across the country," Sadove said. Other retailers, notably Macy's Inc., have shown recent sales declines and particular weakness in Florida.

Saks did sound some less upbeat notes for the rest of the year. While expecting continued solid same-store sales in August, September and November partly due to calendar shifts, there will be weaker growth in October and December, the company said. For 2007 overall, same-store sales are seen in the high-single-digit range.

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