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Saks Urges Caution For Fall Season
New York-based luxury retailer Saks, Inc. (NYSE:SKS) produced a mixed second quarter, with increased sales but a net loss. The loss, however, was substantially less than its second quarter a year ago, though the company urged caution in its forecast for this fall's retail season. (To learn more, check out Analyzing Retail Stocks.)
TUTORIAL: Earnings Quality
Second Quarter Shopping
Saks posted a loss for the quarter of $8.4 million, or a loss of 5 cents a share, compared to a loss of $32.2 million, or a loss of 21cents of share for last year's second quarter. Sales increased however, due to full pricing and much less promotional spending. The quarter featured strong sales of clothing and accessories. Revenue for the quarter was $670 million compared to $593 million in the year ago quarter. Same store sales increased by 15.5%, while gross margin rose to 38% from 37.3%.
Saks, like most retailers, is facing higher input costs from the rising commodity prices of raw materials for the goods it sells. Its cost of goods rose to $415.6 million from $371.9 million in the year ago quarter. SG&A costs also rose to $183.4 million from $170.6 million.
Luxury Still in Full Swing
These have been good times for luxury retailers and many department store chains that have emphasized fashion and apparel. Nordstrom (NYSE:JWN) recently reported strong sales with revenue up 11.7% and a same-store sales increase of 7.3%. The leading fashion specialty retailer was able to boost gross margin even with the specter of rising operating expenses. Macy's (NYSE:M), while now more a department store chain which caters to middle-income consumers, had a tremendous quarter with continued bright prospects. Tiffany (NYSE:TIF), much like Saks, continues to draw in the luxury shopper, while Coach (NYSE:COH) had a good quarter with its fine accessories still drawing eager shoppers. There are questions whether even the luxury consumer will maintain this pace, given the stock market swoon and the uncertain economy, but so far the luxury end of the retail spectrum has held up.
Saks' Prospects
Saks plans to continue its lesser promotion and full pricing approach. The company expects high single-digit gains in same store sales, following the robust gains in the first half of the year. Saks does plan to increase its flash sales program, with plans to run as many as nine such sales a week.
The stock is lodged below the middle of its 52-week range, as it traded at around $8.70 after its earnings report came out. It carries a current P/E Ratio of nearly 25, with a forward P/E of about 18.
While the company is obviously executing its selling very well, as show by its strong sales and revenue, the concerns about both the rising commodity input costs, as well as the potential for the luxury consumer to finally start pulling back, are real. Thus far, luxury retail has boomed after the recession and has carried Saks and other such retailers far from the trauma of the economy's free fall in 2008 and 2009, but things may get a little bit more complicated now. Even the lower stock market can have an effect on the wealthiest, so although the wealthy have shopped with vigor, that vigor may not be inexhaustible. (For more about investing in the retail sector, 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!
TUTORIAL: Earnings Quality
Second Quarter Shopping
Saks posted a loss for the quarter of $8.4 million, or a loss of 5 cents a share, compared to a loss of $32.2 million, or a loss of 21cents of share for last year's second quarter. Sales increased however, due to full pricing and much less promotional spending. The quarter featured strong sales of clothing and accessories. Revenue for the quarter was $670 million compared to $593 million in the year ago quarter. Same store sales increased by 15.5%, while gross margin rose to 38% from 37.3%.
Saks, like most retailers, is facing higher input costs from the rising commodity prices of raw materials for the goods it sells. Its cost of goods rose to $415.6 million from $371.9 million in the year ago quarter. SG&A costs also rose to $183.4 million from $170.6 million.
These have been good times for luxury retailers and many department store chains that have emphasized fashion and apparel. Nordstrom (NYSE:JWN) recently reported strong sales with revenue up 11.7% and a same-store sales increase of 7.3%. The leading fashion specialty retailer was able to boost gross margin even with the specter of rising operating expenses. Macy's (NYSE:M), while now more a department store chain which caters to middle-income consumers, had a tremendous quarter with continued bright prospects. Tiffany (NYSE:TIF), much like Saks, continues to draw in the luxury shopper, while Coach (NYSE:COH) had a good quarter with its fine accessories still drawing eager shoppers. There are questions whether even the luxury consumer will maintain this pace, given the stock market swoon and the uncertain economy, but so far the luxury end of the retail spectrum has held up.
Saks' Prospects
Saks plans to continue its lesser promotion and full pricing approach. The company expects high single-digit gains in same store sales, following the robust gains in the first half of the year. Saks does plan to increase its flash sales program, with plans to run as many as nine such sales a week.
The stock is lodged below the middle of its 52-week range, as it traded at around $8.70 after its earnings report came out. It carries a current P/E Ratio of nearly 25, with a forward P/E of about 18.
While the company is obviously executing its selling very well, as show by its strong sales and revenue, the concerns about both the rising commodity input costs, as well as the potential for the luxury consumer to finally start pulling back, are real. Thus far, luxury retail has boomed after the recession and has carried Saks and other such retailers far from the trauma of the economy's free fall in 2008 and 2009, but things may get a little bit more complicated now. Even the lower stock market can have an effect on the wealthiest, so although the wealthy have shopped with vigor, that vigor may not be inexhaustible. (For more about investing in the retail sector, 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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