SAKS, TIFFANY’S, GAP POST SOLID RESULTS
NEW YORK — Saks Fifth Avenue, Tiffany’s and Gap Inc. posted solid third-quarter figures Thursday, beating or meeting Wall Street estimates and reinforcing visions of a robust holiday season.
Saks Holdings, parent of Saks, topped Wall Street’s estimates of operating net by a penny a share, and Tiffany’s beat the estimates by 2 cents. Gap’s 15 percent profit gain was right on target, and Lands’ End, reporting an operating net of 22 cents, blew away consensus estimates of 10 cents.
“We are well-positioned for and look forward to the upcoming holiday-selling season,” said Philip B. Miller, Saks chairman and chief executive officer, said in a statement. He said the company has been able to grow profits at a faster rate than sales.
Millard S. Drexler, Gap president and ceo, said in a statement, “Our third-quarter results are a tribute to the balance we have in our businesses. Each of these brands — Gap, Banana Republic and Old Navy — contributed to total sales growth with exceptional sales results at Old Navy, leading to our record third-quarter earnings.”
Others topping Wall Street numbers: Buckle Inc., which beat estimates by 5 cents a share, and Carson Pirie Scott, with operating results 1 cent ahead.
The stock market reaction was mixed. Saks was off 1/2 to 34 3/4, Tiffany drooped 2 5/8 to 35 1/2, and Gap slipped 1/2 to 31 3/8. But Lands’ End jumped 2 1/4 to 24 7/8, Buckle rose 2 3/4 to 31 3/4, and Carson’s gained 7/8 to 24 3/8.
Saks’ operating income in the quarter was up 87 percent to $31.7 million from $16.9 million. Adjusted for the company’s initial public offering in May, net income was $15.8 million, or 25 cents a share, against $1.5 million, or 2 cents. Before adjustment, net income for the quarter was $9.4 million, or 15 cents, after an extraordinary charge of $6.5 million. A year earlier, the loss was $35.3 million before adjustment.
Sales were up 14.4 percent to $476.3 million from $408 million. Same-store sales rose 9.2 percent.
Stacy Pak, analyst at CS First Boston, an underwriter of the IPO, said it was a “good, solid quarter” that should spill into Christmas. “Saks does not promote all over the place like some other retailers. It has only two promotions, so margins should hold up pretty well.”
Pak noted that in a conference call, Saks disclosed that due to the success of its Main Street unit in Greenwich, Conn., the company has identified seven sites in California and estimates about 20 sites in the U.S. for the format, a pared-down version of Saks’ full line stores.
For the nine months to Nov. 2, operating income was up 159 percent to $48.2 million from $18.6 million. Adjusted net income for the nine months was $1.4 million, or 2 cents, against a loss of $22.3 million. Before adjustment, the company lost $19.6 million against a loss of $91.7 million.
Sales rose 16 percent to $1.3 billion against $1.1 billion. Same-store sales were up 12.3 percent.
Duff & Phelps has assigned a B rating to $276 million of Saks convertible subordinated notes and double-B-minus to the company’s $350 million bank credit. The rating agency said while leverage remains high, and financing a potential acquisition of Barneys remains a question mark, the company has shown “significant financial improvement.” At Gap, “exceptionally strong” sales at Old Navy pushed third-quarter earnings up 14.9 percent to $134.3 million, or 48 cents, meeting Wall Street estimates. A year ago, it earned $116.8 million, or 41 cents.
With continuing strength in women’s apparel but weaker men’s results, sales rose 19.6 percent to $1.38 billion from $1.15 billion. Overall, same-store sales were ahead 1 percent. Same-store sales at The Gap stores division sank 5 percent, offset by a 5 percent same-store gain at Banana Republic. GapKids same-store sales rose 3 percent. Gap said it is increasing 1997 expansion plans to 275 stores from about 200, according to Maura Hunter Byrne, analyst with J.P. Morgan. She attended a Gap analysts’ meeting here Thursday. Gap now plans to open 70 Gap and 70 GapKids stores, 30 Banana Republics, 75 Old Navy and 30 international stores.
Byrne noted that the company is testing NBA licensed children’s apparel in 34 stores in four cities, a switch from recent non-apparel introductions including bath products, shoes, sunglasses, jewelry and stationery. Byrne said stationery was not successful, there’s a renewed focus on shoes and “it’s too soon to judge the sunglasses and jewelry.”
She expects Gap to earn 60 cents this quarter and $1.59 for the year and said gross margins in the quarter were 39.4 percent of sales compared to 39.6 percent a year ago. “Merchandise margins dropped by 100 basis points, offset by better occupancy expense leverage due to higher Old Navy sales,” she said.
Tiffany’s strong overall results, particularly overseas, ran up third-quarter earnings 49 percent to $9.3 million, or 26 cents, from $6.3 million, or 19 cents.
Sales for the three months ended Oct. 31 gained 12.4 percent to $211 million, from $187.8 million.
U.S. retail sales increased 14 percent to $99.7 million, reflecting same-store gains of 9 percent. Direct marketing sales grew 8 percent to $22.5 million. International sales rose 11 percent to $88.7 million.
In Japan, Tiffany’s largest international market, sales in local currency climbed 22 percent with same-store sales up 6 percent.
With long-term strategies focused on expanding worldwide distribution, William R. Chaney, chairman, noted in a statement that marketing and merchandising initiatives in the U.S. and abroad have increased consumer awareness of Tiffany’s offerings. Chaney said he saw “substantial growth opportunities ahead.” These include new designs and collections, as well as its new TV advertising in the New York market.
Lands’ End Inc., despite a special charge of $840,000, reported third-quarter earnings more than tripled to $6.2 million, or 19 cents, from $1.8 million, or 5 cents.
The year-ago quarter included a gain of $1.4 million from currency exchange. Sales for the three months ended Nov. 1 gained 21.8 percent to $287.4 million from $235.9 million. Earnings in the latest quarter included an after-tax charge of $840,000, or 3 cents, from the sale of a subsidiary, MontBell America Inc.
The company cited sales increases in foreign operations and improved catalog productivity, or sales per page, notably in specialty catalogs leading to a decrease in selling, general and administrative expenses to 40.3 percent of sales from 41.3 percent.
The company also cited a gross margin increase due to lower merchandise costs from sourcing changes, higher initial markups and reduced markdowns on liquidations. Gross margin grew to 43.9 percent of sales from 42 percent.
At Carson’s, strong sales, improved gross margins and diligent operating expense control pushed third-quarter operating earnings up 26.8 percent to $5.2 million, or 31 cents, from $4.1 million, or 24 cents. However, the $6.4 million County Seat writedown produced a $1.2 million net loss.
Sales for the three months ended Nov. 14 rose 7 percent to $266.2 million from $248.9 million, while same-store sales gained 3.5 percent.
Stanton J. Bluestone, chairman and ceo, said women’s and men’s apparel, coats, cosmetics and furniture generated strong sales and margins.
Operating expense stayed at 30.3 percent of sales despite a $2.2 million charge related to store openings. The special charge was offset by a 50 percent reduction in bad debt expense as well as productivity gains.
The Buckle Inc., the Kearney, Neb.-based apparel retailer, reported third-quarter net income gained 35.6 percent to $4.8 million. Sales for the three months ended Nov. 2 rose 21.4 percent to $61.1 million from $50.3 million. Same-store sales were up 14.4 percent.