Saks Inc. posted a good third quarter but, looking ahead, there are some concerns about women’s designer apparel going into the holiday season.
This story first appeared in the November 16, 2011 issue of WWD. Subscribe Today.
Getting an assist from shoppers buying more at full-price, the retailer posted net income of $17.8 million, or 11 cents a diluted share, for the third quarter ended Oct. 31.
“We had fewer promotions,” Stephen I. Sadove, chairman and chief executive officer of Saks Inc., told WWD. “We eliminated cosmetics from a ‘friends and family’ promotion and we had one less day on our point event during October.”
Sadove also said that operating income in the quarter rose to 5.7 percent of sales from 4.8 percent last year. “I am especially pleased with our 160-basis-point improvement in our third-quarter gross margin rate,” to 44.2 percent, Sadove said.
The best-performing categories last quarter were women’s contemporary apparel, women’s shoes, handbags, jewelry and men’s apparel, shoes and accessories. Also, Florida stores did very well.
However, women’s designer apparel had some issues. “There was a little bit of a slowdown in certain businesses in women’s apparel. There were several delivery-related issues,” Sadove noted. “The business had been very robust,” in the first half of this year, he said, adding that he didn’t believe there was any underlying softness in the women’s business.
Having said that, Sadove warned, “We may have to take more markdowns in women’s apparel” in the fourth quarter.
According to Ron Frasch, president, a “modest” decline in gross margins is expected in the fourth quarter, related to increased investments in shoes as well as the performance in women’s designer. The executives would not comment on whether the fourth quarter would be any more or less promotional than last year, citing competitive concerns.
Total sales in the 2011 quarter rose 5.1 percent to $692.3 million from $658.8 million a year ago. Comparable-store sales increased 5.8 percent. Sadove forecast mid- to high-single-digit comparable-store sales gains and a mid-single-digit inventory increase in the fourth quarter, and added that sales held up during the third quarter, though they were not as robust as in the first half. In a conference call, he said, “The macroeconomic environment continues to be challenging and the financial markets have been especially volatile, which has resulted in deceleration in our sales trends, versus the very robust first half of the year. However, our overall business remains healthy.…We will continue to approach the future both cautiously and strategically.”
In the third quarter of 2010, Saks earned $36.3 million, or 20 cents a share, but that included a $26.7 million, or 14 cents a share, gain related to the reversal of certain estimated income tax reserves deemed no longer necessary. Excluding this gain, Saks would have recorded net income of $9.7 million, or 6 cents a share, last year.
Aside from the good results, executives cited some other accomplishments in the third quarter, among them: renovating and recasting the Wear Now bridge floor at the Fifth Avenue flagship; enabling visitors to saks.com to now see what Saks stores carry products they’re interested in, and completing an extensive renovation of the Palm Desert, Calif., store.
Saks Direct posted a 24 percent sales increase for the third quarter, while the Off 5th outlet division’s comparable-store sales performance was below the company’s aggregate comparable-store sales performance.