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Saks Inc. Sets Growth Initiatives

The retailer on Tuesday posted a second-quarter net loss of $12.3 million, but the loss was smaller and the sales gain larger than expectations.

NEW YORK — Saks Inc. on Tuesday posted a second-quarter net loss of $12.3 million, or 8 cents a share, but the loss was smaller and the sales gain larger than expectations.

Saks reaffirmed its guidance for midsingle-digit comparable-store sales for fall, gross margin gains of 25 to 50 basis points, and reduced sales, general and administrative costs of 50 to 75 basis points as a percentage of sales, helping to lift its shares up 6 percent on the day to $11.52 from $10.85. Second-quarter retail numbers are typically weaker because it’s a markdown period, while companies make up ground in the third and fourth quarters, when the percentage of full-price selling is higher.

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“The luxury customer is healthy. The Dow is at 13,000 and spending has held up, but it’s not as robust as a year ago,” Saks Inc. chairman and chief executive officer Stephen I. Sadove told WWD. “There is a cautiousness and a fair amount of economic headwinds.”

The second-quarter results were impacted by after-tax charges of $4.3 million, including $1.5 million for a fulfillment center in Tennessee with a robotic system that opened last month, and $2.8 million of asset impairments and store closing costs. Excluding these costs, the company would have lost $8 million, or 5 cents a share.

Saks had a comparable-store sales increase of 4.7 percent in the second quarter, bringing the total volume up to $704.1 million from last year’s $670.2 million. Men’s and women’s contemporary apparel, men’s and women’s shoes, fashion and fine jewelry, and cosmetics and fragrances were the strongest-performing categories, though the company cited erosion in its gross margin rate and slightly higher SG&A costs in the quarter.

Saks has set $110 million to $120 million in capital expenditures this year, including $30 million to $40 million for omnichannel initiatives collectively called Project Evolution, which includes enabling the company to ship products from stores based on online orders. Another $50 million to $60 million will go for store renovations, and the balance of the capital expenditure budget is for general maintenance.

The $3 billion luxury chain is increasing inventories in shoes, handbags, the Wear Now bridge department and women’s contemporary apparel, where a good chunk of the capex budget is directed.

On the less-positive side, women’s designer apparel continues to be a letdown. “It’s primarily a fashion issue,” said Ron Frasch, Saks’ president and chief merchandising officer, during a conference call. “Traditional styles are not selling. Contemporary is. More classic brands have been more challenging. Fashion brands have done well. Brands with more color and more embellishment have done quite well. We have worked with vendors to address fashion issues and have adjusted fall receipts where there was flexibility. We continue to believe we are on the right track with merchandising initiatives,” Frasch said.

Among the initiatives for future growth cited by Saks were:

• Hold and flow inventory control, currently accounting for more than 10 percent of total inventory but getting bigger.

• Improving service for international customers by adding multilingual selling associates and signs in different languages. Saks will accept a Chinese debit card starting in September.

• Rolling out the 10022-Shoe concept to 14 stores, and unveiling the expanded shoe floor at the Fifth Avenue flagship, which increased its square footage by more than 40 percent.

• Targeted marketing at a more micro level, and with help from the 5one marketing firm. “We see that being an integral part of the plan for 2013,” Sadove said.

• Improved merchandise planning between channels, and enabling stores to fulfill online orders by fall 2013.

• Building the social-media strategy with Facebook, Twitter and Instagram. “It’s been more for brand building and imagery. It hasn’t been as much about monetization. Over time, we will see more of that monetization,” Sadove said.

• Drop shipping, which is in its early stages, with bedding, some food, electronics and shoes so far. “You don’t own the inventory, so it’s a positive,” Sadove said.

Saks expects comp-store sales to grow in the midsingle-digit range for the second half. The company will no longer report monthly sales, because it feels they present a limited picture of the performance.

In the call, Sadove also said the flagship is still running positive but not as robust as in the past. Increases in Chinese, Russian and Brazilian tourists are offsetting declines in visitors from Europe, he said. Sadove has been instrumental in industry lobbying efforts to get the government to expedite visas and said there has been some progress, with increased manpower at visa offices. “The wait times for current visa applicants has reduced dramatically, from 100 to 15 to 20 days. But that doesn’t solve the long-term need to have more visa offices,” Sadove said.

Store closings are still in the cards. “Clearly, we have a number of stores that we continue to monitor and close where we can,” Sadove said. “We closed eight over the last few years.…There are a few that we are looking at. Hopefully, we will close a few of those in the near term. It’s not a huge number.”

Saks’ “Fashion Fix” flash-sale format is “not a core of our business.…I wouldn’t say it’s been a needle mover one way or the other,” Sadove said. “The consumer wants off-price product whether in outlets or on flash-sale sites.”