By  on November 15, 2006

NEW YORK — The mood continues to brighten at Saks Fifth Avenue.

On Tuesday, parent Saks Inc. posted $12.5 million in income from continuing operations for the third quarter ended Oct. 28, versus a $13.5 million loss in the year-ago quarter, providing tangible signs of progress with turnaround efforts. That translated to a 9-cent-per-share gain, versus a 10-cent-per-share loss a year ago.

Saks' sales in the third quarter increased 8 percent, to $697 million, versus $645.2 million a year ago, with an 8.8 percent rise in comp-store sales.

Before charges and gains mostly related to asset sales, management downsizing and legal costs from government investigations, operating income totaled $26.5 million in the third quarter, compared with a loss of $9.9 million in the prior year. Net income — including a loss of $6.3 million related to the sale of Parisian to Belk — totaled $6.2 million, or 5 cents, versus $225,000 a year ago.

The numbers had Saks chief executive officer Steve Sadove in an upbeat mood. "I certainly like the growth prospects and competitive dynamics in the luxury sector," Sadove said during a conference call. He also said, "We believe we are on track to achieve our three- to four-year operating margin goal of 8 percent," which would be quadruple the rate of recent years. Saks Fifth Avenue should have sales of $3 billion this fiscal year.

According to Sadove, "substantial progress" is being made at Saks Fifth Avenue. "We are increasing our understanding of core customers by market. Our customer service, clienteling and marketing efforts have never been stronger. We are undergoing a cultural transformation. We have a more inclusive culture with a focus on collaboration and a renewed sense of teamwork throughout the organization."

He is looking forward to the fourth quarter, projecting a mid-single-digit comparable-store sales increase, improved gross margin rate and modest sales, general and administrative expenses leverage.

Since completing sell-offs of its department store group over the past year, executives have been able to focus on fixing the core Saks Fifth Avenue business. Under Sadove's regime, there have been sweeping changes in how Saks stores are merchandised, with a particular focus on tailoring individual store assortments, broadening the target audience and getting staff from buying, planning and store operations to work closer.

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