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Saks' 1Q profits up, but revenue disappoints

Anne d'Innocenzio, AP Retail Writer

FILE - This Aug. 15, 2011 file photo shows Saks & Company in New York. Saks Inc. is expected to report its earnings Tuesday, May 15, 2012. (AP Photo/Seth Wenig, File)

NEW YORK (AP) -- Saks reported a 13 percent bump in first-quarter profit, but weak demand of women's designer merchandise helped to pull revenue below Wall Street estimates.

The New York company said Tuesday that it expects to add extra markdowns on women's designer clothing and certain other categories to clear out goods. That's expected to erode profit margins for the current quarter, the company said.

Like many luxury stores, Saks has seen its affluent shoppers return to spending freely on status goods since the recession. Saks emphasized that spending among the wealthy remains strong despite the recent weakening in the stock market. But executives see their well-heeled customers perhaps become a bit more frugal, in context, mixing up designer goods with less expensive items from other parts of the store.

"We're still selling expensive handbags. We're still selling $1,000 shoes," said Ron Frasch, Saks president and chief merchandising officer. "We do not see any slowdown in demand for those top brands. So the luxury consumer is still spending. In apparel, she is spending more intelligently and much broader across the stores than we've seen in some time. The designer customer is not tied to only shopping in the designer department."

Saks posted earnings of $32.1 million, or 18 cents per share, compared with $28.4 million, or 16 cents per share last year.

Excluding costs related to the construction of a new distribution center, Saks would have earned 19 cents per share. That edged out Wall Street expectations by a penny.

Revenue rose 3.8 percent to $753.6 million, short of the $761.7 million expected by analysts, according to a poll by FactSet. Revenue at stores opened at least a year rose 4.8 percent for the quarter compared with the year-ago period, when that figure was up 10.2 percent. The measure is considered a strong indicator of a retailer's health because it excludes the volatility from stores recently opened or closed.

"Year-over-year first quarter sales growth was solid but not as robust as in prior quarters," said Chairman and CEO Stephen Sadove.

Saks said it was working to fix the merchandising issues to reflect the new needs of its shoppers.

The company expects revenue at stores opened at least a year to be up in the mid-single digits for the current quarter and the second half of the fiscal year.

Saks also reiterated its plans to invest further in melding its online business with its brick-and-mortar stores. For example, Saks cannot ship inventory from stores to meet online demand. Sadove said that the company wants stores double as online distribution centers. That's expected to start happening next year.

"Better use of inventory is going to allow us to have better full-price selling," Sadove said. Shares of Saks Inc. slipped 3 cents to $10.03 per share in late morning trading.