SPINOFF FALLOUT: SAKS STOCK DROPS

Byline: Evan Clark

NEW YORK — Digesting the abandonment of plans to spin off Saks Fifth Avenue, disappointing results in January and expected declines in fourth-quarter earnings, investors Friday pushed down Saks Inc. stock $1.86, or 13.7 percent, to close at $11.74 on the New York Stock Exchange.
Saks said its earnings per share during the fourth quarter, excluding charges, would be in line with Wall Street’s expectations of 73 cents, but considerably below year-ago profits of 98 cents. Sales during the period were $2.12 billion, an increase of 4 percent, said the company.
Brad Martin, chairman and chief executive, noted on a conference call Friday that monthly same-store sales for the first nine months of the year rose about 7 percent, while November and December saw comps come in flat or slightly down for the division.
However, last month, corporate same-store sales declined 1.2 percent and department store sales were off 0.4 percent, but Saks Fifth Avenue’s comps took a 2.5 percent hit for the five-week period ended Feb. 3.
Martin cited consumer behavior as the defining factor on the top line and said its effects were “pretty evident among a number of the other high-end retailers during that same period of time.”
Additionally, he said an $8 million aftertax loss on its e-commerce initiative, translating to 6 cents a share, hurt results, but was “pretty much as expected.”
Shari Schwartzman Eberts, an analyst with J.P. Morgan Securities, reiterated a “market performer” rating on the company as “poor sales and operating performance seesaw” from the department store group to Saks Fifth Avenue. The analyst described the fundamental outlook for the company as “challenging.”
“Consumer spending has slowed across the board, and you see weakness both at the high end and the discount segment during the holiday season,” she told WWD.
During the last 12 months, the firm’s stock traded as high as $15.06 on March 16 and as low as $7.63 on Dec. 7. The decision to abandon the spinoff was announced after the market closed on Thursday.
Martin said the firm was taking a cautious view of the first half and working that into the budget, being aggressive on cost and diligent on inventory control.
With “moderate” comps during the first half, he said the company can achieve its financial objectives and carry it through to the fourth quarter, when comparisons will ease.
“This is a corporation that we built in a relatively short period of time with some organic growth and a lot of acquisition,” Martin said when asked what he’d learned from the aborted spinoff. “I think we could have put in place some better leadership and some better structure to insure that we met all of our operating objectives while we were also growing the business.
“We have set out to make sure that the [management] team is in place and to insure that we have the organizational structure and processes that permit that team to perform at a high level,” continued the ceo.

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