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Saks Benefits From Luxury Surge
Luxury department store chain Saks (NYSE:SKS) turned in a stellar quarter, with earnings up over 50% and sales up 9%. The retailer benefited by a strong performance from its flagship New York City store, and from the rebound in the financial markets, which boosted its affluent customers' confidence and spending.
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A Luxurious Quarter
Net income for the quarter was $28.4 million, or 16 cents per diluted share, compared to $18.8 million, or 11 cents per diluted share. Excluding certain one-time items, net income would have been $30.5 million or 17 cents a share in the quarter just ended.
Total net sales for the quarter were $726.7 million, compared with $667.4 million in the year ago quarter. This is an 8.8% increase and a 10.2% comparable increase. Full-price selling boosted gross margins by 100 basis points, to 44.1% from 43.1% in the year ago quarter. Apparel, handbags and shoes were all strong sellers during the quarter.
The growth in Saks Direct was 25% in comparable sales for the quarter. SG&A grew slightly from 24.5% to 24.6%, reflecting the spending initiatives for Saks Direct. Off 5th's comparable sales performance was sub-par compared to the overall company comps, though Saks didn't break these figures out in its earnings release.
Retail Picture Mixed, Cloudy
While Saks is basking in the resurgence of the luxury trade, joined by Nordstrom's (NYSE:JWN), and Macy's (NYSE:M), the story is starting to look a bit different at the other end of retail. TJX (NYSE:TJX), which owns the TJ Maxx chain, found the going a bit rougher, as it reported under the consensus estimates. Although this was in part due to currency exchange, TJX's results show the lower end of retail may be turning more sluggish. (For related reading, see Analyzing Retail Stocks)
While it's too early to tell what the effect on the consumer will be across the board, the speculation that the rise in fuel prices and persistently high unemployment has begun to hurt the lower end of retail is a reasonable one. The retailers' mixed results beyond the department stores and discounters suggests the consumer is at least wary.
Hewlett Packard (NYSE:HPQ) had another bad quarter, while Lowe's (NYSE:LOW) was affected by poor seasonal weather. Dick's Sporting Goods (NYSE:DKS), meanwhile, had disappointing comps. Again, this is a recent pattern for retailers, though not enough to show that it's a full trend. Consumers seem to be cutting back in some areas, spending in others.
Luxury Trend
Management's outlook for Saks is that the trend in luxury shopping should continue. It sees comparable store sales growth in the high single-digits for the next quarter and the mid-high single-digit range for the remainder of the fiscal year after that. The company expects gross margins to grow through the year. Inventories stood at $732 million at the end of the quarter, an increase of 4.3% over the prior year, 6.2% on a comparable store basis.
The Bottom Line
For Saks, its stock is within roughly 10% of its 52-week high. The stock has been holding steady in that area since it shot up last October. To go much further, the market would probably have to spike up, as the company is doing all it can with its results. (To learn more about retail stores, see The 4 R's Of Investing In Retail.)
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TUTORIAL: Introduction To Accounting
A Luxurious Quarter
Net income for the quarter was $28.4 million, or 16 cents per diluted share, compared to $18.8 million, or 11 cents per diluted share. Excluding certain one-time items, net income would have been $30.5 million or 17 cents a share in the quarter just ended.
Total net sales for the quarter were $726.7 million, compared with $667.4 million in the year ago quarter. This is an 8.8% increase and a 10.2% comparable increase. Full-price selling boosted gross margins by 100 basis points, to 44.1% from 43.1% in the year ago quarter. Apparel, handbags and shoes were all strong sellers during the quarter.
The growth in Saks Direct was 25% in comparable sales for the quarter. SG&A grew slightly from 24.5% to 24.6%, reflecting the spending initiatives for Saks Direct. Off 5th's comparable sales performance was sub-par compared to the overall company comps, though Saks didn't break these figures out in its earnings release.
While Saks is basking in the resurgence of the luxury trade, joined by Nordstrom's (NYSE:JWN), and Macy's (NYSE:M), the story is starting to look a bit different at the other end of retail. TJX (NYSE:TJX), which owns the TJ Maxx chain, found the going a bit rougher, as it reported under the consensus estimates. Although this was in part due to currency exchange, TJX's results show the lower end of retail may be turning more sluggish. (For related reading, see Analyzing Retail Stocks)
While it's too early to tell what the effect on the consumer will be across the board, the speculation that the rise in fuel prices and persistently high unemployment has begun to hurt the lower end of retail is a reasonable one. The retailers' mixed results beyond the department stores and discounters suggests the consumer is at least wary.
Hewlett Packard (NYSE:HPQ) had another bad quarter, while Lowe's (NYSE:LOW) was affected by poor seasonal weather. Dick's Sporting Goods (NYSE:DKS), meanwhile, had disappointing comps. Again, this is a recent pattern for retailers, though not enough to show that it's a full trend. Consumers seem to be cutting back in some areas, spending in others.
Luxury Trend
Management's outlook for Saks is that the trend in luxury shopping should continue. It sees comparable store sales growth in the high single-digits for the next quarter and the mid-high single-digit range for the remainder of the fiscal year after that. The company expects gross margins to grow through the year. Inventories stood at $732 million at the end of the quarter, an increase of 4.3% over the prior year, 6.2% on a comparable store basis.
The Bottom Line
For Saks, its stock is within roughly 10% of its 52-week high. The stock has been holding steady in that area since it shot up last October. To go much further, the market would probably have to spike up, as the company is doing all it can with its results. (To learn more about retail stores, see The 4 R's Of Investing In Retail.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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