Saks 2Q performance misses analysts' estimates

Saks 2nd-quarter results miss Wall Street's view; takes some higher markdowns

Associated Press

NEW YORK (AP) -- Saks Inc.'s weak second-quarter earnings are raising concerns that a slowdown in spending is reaching into affluent circles.

Saks reported Monday that its second-quarter loss widened, burdened by some higher expenses and charges. The luxury retailer also faced higher markdowns of some goods and misjudged the timing of a key seasonal clearance sale.

The New York company's adjusted results and revenue fell short of analysts' estimates..

Saks joins other luxury retailers, including Ralph Lauren Corp. and Coach Inc., in reporting weak sales during the spring and early summer. Ralph Lauren said earlier this month that its first-quarter profit fell 6 percent because of unfavorable currency-exchange rates and sluggish sales at its stores. Coach reported late last month a 12 percent drop in fourth-quarter profit as the upscale handbag maker's North American business remained weak.

Last week, Wal-Mart Stores and Macy's Inc. were among major retailers catering to low-income to upper-middle-income shoppers that posted sluggish results and offered bleaker outlooks.

Many Americans are grappling with stagnant wage growth. On top of that, stores like Wal-Mart are seeing that their customers are dealing with a 2 percentage-point increase in the Social Security payroll tax since Jan. 1. That means take-home pay for a household earning $50,000 a year has been sliced by $1,000.

For stores like Macy's that cater to higher- income shoppers, analysts believe they are being challenged by a shift in spending preferences. Many shoppers are shifting toward bigger-ticket items like autos and houses as they feel more confident about taking on more debt. But that shift is leaving less to spend on nondiscretionary items like clothing.

Saks' results come after the company announced in late July it was being acquired by Canadian retailer Hudson's Bay in a $2.4 billion deal. Saks didn't offer an outlook because of the pending acquisition.

Saks lost $19.6 million, or 13 cents per share, for the three months ended Aug. 3. That compares with a loss of $12.3 million, or 8 cents per share, in the prior-year period.

The latest quarter included $5.2 million in charges tied to store closing costs, acquisition-related costs and other items.

Stripping these out, the company lost 10 cents per share.

Analysts polled by FactSet predicted a smaller loss of 8 cents per share.

Revenue edged up 1 percent to $707.8 million from $704.1 million. Wall Street expected revenue of $732.3 million

"While the second quarter was our fourteenth consecutive quarter of posting a comparable store sales increase, our sales growth was modestly below our expectations," Steve Sadove, chairman and CEO of Saks Inc., said in a statement.

Revenue at stores open at least a year, a key gauge of a retailer's health, climbed 1.5 percent, dramatically down from the 4.8 percent pace in the first quarter. The second-quarter figure was also smaller than a year ago, when Saks posted a 4.7 percent increase.

Revenue at stores open at least a year excludes results from locations recently opened or closed.

Sadove said that some of the strongest categories in the quarter included women's contemporary and designer clothing, dresses, women's shoes, handbags, fragrances, children's clothing, men's accessories, shoes and contemporary clothing.

Gross margin, a measure of profitability, fell to 36.6 percent from 37.2 percent. Sadove said in a statement that the decline was mostly because the company had to take increased markdowns in men's, women's shoes and handbags.

Sadove also said that delaying the start of Saks' end-of-spring clearance sale hurt its sales and gross margin

Saks currently runs 41 Saks Fifth Avenue stores and 68 Saks Fifth Avenue Off 5th stores.

Shares slipped 2 cents to $16.00 in early afternoon trading.

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