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Luxury Drives Saks to Quarterly Profit, Nordstrom Leaps 75.6%

NEW YORK — Luxe led the way.<br><br>Propelled by a robust bounce back from its Saks Fifth Avenue luxury division, Saks Inc. reversed year-ago losses and ran contrary to expectations of a loss with a small but sorely appreciated third-quarter...

NEW YORK — Luxe led the way.

Propelled by a robust bounce back from its Saks Fifth Avenue luxury division, Saks Inc. reversed year-ago losses and ran contrary to expectations of a loss with a small but sorely appreciated third-quarter profit.

Like Saks, Nordstrom provided solid numbers after the markets closed Tuesday as its income for the quarter bounded ahead 75.6 percent.

Net income ascended to $1.9 million, or 1 cent a share, for the period ended Nov. 2. This compared with year-ago losses of $21.8 million or 15 cents. The most recent quarter was weighed down by aftertax special items of $2.6 million, or 2 cents a share, without which earnings per share would have been 3 cents. The year-ago period included an aftertax gain of $1.8 million, or 2 cents.

Wall Street had been looking for a loss of 3 cents a share for the quarter, a mark the firm’s adjusted profits of 3 cents beat by 6 cents.

In anticipation of the firm’s results, released after the equity markets closed, investors traded down shares of the firm 18 cents, or 1.6 percent, to $10.91, on the New York Stock Exchange Tuesday.

Special items during the quarter related to the previously reported consolidation of the Younkers’ divisional headquarters into the Carson Pirie Scott headquarters and the pending sale of the majority of Saks’ private label credit card accounts and balances to Household International, now expected to close in January.

Sales for the three months dipped 1.2 percent to $1.41 billion from $1.42 billion a year ago. Comparable-store sales inched up 0.1 percent.

“The year-over-year increase principally was driven by a significant improvement in the gross margin rate and diligent expense control,” said R. Brad Martin, chairman and chief executive, in a statement. Gross margins expanded by 270 basis points to 37.7 percent of sales. Selling, general and administrative expenses slid 50 basis points to 24.4 percent of sales and were down 3.1 percent on a total basis to $342.9 million. Inventories, on a comp store basis, were down approximately 3 percent at the end of the quarter.

While smaller on a sales basis, the firm’s 61-unit Saks Fifth Avenue luxury division was the quarter’s bottom-line winner. The division drove its operating profits, before special items, up to $26.9 million. This compared with year-ago losses of $18.9 million.

Sales for the division tiptoed up 0.5 percent to $565.1 million from $562.4 million a year ago. Comp sales, however, were up a more robust 5.2 percent, benefiting from the comparison with the year-ago Sept. 11-related slump.

Saks’ 244-door department store division, which includes, among other operations, the Parisian, Proffitt’s and McRae’s chains, saw operating profits, before extraordinary items, slide 4.6 percent to $20.6 million from $21.6 million a year ago. Sales for the division eased 2.3 percent to $841 million from $861.1 million a year ago. Comps were off 3 percent for the quarter.

Salomon Smith Barney analyst Deborah Weinswig said she was “impressed” by the results and noted, “The Saks Fifth Avenue piece of it is really what pulled them through.” Inventory and expenses were other areas she pointed toward as strengths.

“They’ve just been smart — smart in how they’re scheduling labor,” she said. “When it’s busy, they have the sales help that they need on the floor.”

For the nine months, losses narrowed to $43.9 million, or 30 cents a diluted share, from $53.6 million, or 38 cents, a year ago. Exclusive of special items in each period, including an accounting change, Saks managed to post profits of $6 million, or 4 cents, against year-ago losses of $48.4 million, or 34 cents a share.

Overall sales for the year-to-date period slumped 2.1 percent to $4.07 billion from $4.16 billion a year ago. Comps descended 0.3 percent.

NORDSTROM

Boosted by women’s apparel sales and improved gross margins, Nordstrom reported a 75.6 percent increase in its third-quarter profits.

The Seattle-based specialty retailer said net income soared to $18.4 million, or 14 cents a diluted share, hitting reduced expectations, for the three months ended Oct. 31. That compares with income of $10.5 million, or 8 cents, reported in the comparable period last year.

The company on Nov. 12 lowered its earnings expectations to a range of 13 to 14 cents a share, versus its previous guidance of 16 cents, reflecting record-keeping changes associated with the company’s transition to a new inventory management system and isolated increases versus plan in selling and distribution center expenses.

Sales for the quarter perked up 6.8 percent to $1.32 billion from $1.23 billion and picked up 2.6 percent on a same-store sales basis. The company’s comps have been in positive territory for the past six months.

Peter Nordstrom, president of the full-line stores, said the recent sales trend came because of an improvement in the balance of the merchandise assortment to reflect an appropriate mix of brands, fashion and price points. Key merchandise categories included cosmetics, accessories, women’s activewear and women’s apparel, including designer, contemporary and bridge, all of which exceeded the 2.6 percent company comp average.

Nordstrom president Blake Nordstrom said on an afternoon conference call that the 143-door chain will continue to focus on improving its customers’ experience through its sales people, great merchandise and great value.

“The merchandise team is working hard to make sure we have exactly what our customer wants to find in our stores everyday,” he said.

Over the summer, Nordstrom implemented a new perpetual inventory system that accounts for markdowns and tracks merchandise on a unit basis. Previously, the company logged each item at the selling price but is now required to book them at the original price, which in many cases is higher, Daniel Barry, an analyst with Merrill Lynch, wrote in a research note.

The new system resulted in the company taking higher markdowns, hurting gross margins in the process. The company had expected gross margins to improve in the third quarter because stores were less promotional, with lower markdowns than last year, but markdowns surpassed expectations.

Jennifer Black, an analyst with Wells Fargo Securities, said, “I think these are growing pains that will move the company ahead further down the road,” referring to the new inventory system and the new stores. “The underlying fundamentals are the merchandise assortment, which are good.”

Michael Koppel, chief financial officer, noted gross margin was less than anticipated because of the impact of a new inventory management system, and not a reflection of a fundamental change in the business. Gross margins grew 149 basis points compared with last year.

Year-to-date net income depreciated 59.2 percent to $30.2 million, or 22 cents a diluted share, versus income of $73.9 million, or 55 cents. Sales edged up 5.5 percent to $4.22 billion from $4 billion and moved ahead 1.2 percent on a comp basis.

Sales for the quarter perked up 6.8 percent to $1.32 billion from $1.23 billion and picked up 2.6 percent on a same-store sales basis. The company’s comps have been in positive territory for the past six months.

Peter Nordstrom, president of the full-line stores, said the recent sales trend came because of an improvement in the balance of the merchandise assortment to reflect an appropriate mix of brands, fashion and price points. Key merchandise categories included cosmetics, accessories, women’s activewear and women’s apparel, including designer, contemporary and bridge, all of which exceeded the 2.6 percent company comp average.

Nordstrom president Blake Nordstrom said on an afternoon conference call that the 143-door chain will continue to focus on improving its customers’ experience through its sales people, great merchandise and great value.

“The merchandise team is working hard to make sure we have exactly what our customer wants to find in our stores everyday,” he said.

Over the summer, Nordstrom implemented a new perpetual inventory system that accounts for markdowns and tracks merchandise on a unit basis. Previously, the company logged each item at the selling price but is now required to book them at the original price, which in many cases is higher, Daniel Barry, an analyst with Merrill Lynch, wrote in a research note.

The new system resulted in the company taking higher markdowns, hurting gross margins in the process. The company had expected gross margins to improve in the third quarter because stores were less promotional, with lower markdowns than last year, but markdowns surpassed expectations.

Jennifer Black, an analyst with Wells Fargo Securities, said, “I think these are growing pains that will move the company ahead further down the road,” referring to the new inventory system and the new stores. “The underlying fundamentals are the merchandise assortment, which are good.”

Michael Koppel, chief financial officer, noted gross margin was less than anticipated because of the impact of a new inventory management system, and not a reflection of a fundamental change in the business. Gross margins grew 149 basis points compared with last year.

Year-to-date net income depreciated 59.2 percent to $30.2 million, or 22 cents a diluted share, versus income of $73.9 million, or 55 cents. Sales edged up 5.5 percent to $4.22 billion from $4 billion and moved ahead 1.2 percent on a comp basis.