fashion-features
fashion-features

Firing On All Pistons: Strong Fashion Sales Drive Saks, Penney’s

Saks Inc. and J.C. Penney put out strong performances in the first quarter, but concerns persist over high gas prices and economic uncertainty.

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Steve Sadove

Steve Sadove

Photo By WWD Staff

NEW YORK — Torrid sales at the top and major strides in the middle shot Saks Inc. and J.C. Penney out of the gate.

But analysts remain concerned over the impact of higher oil prices and other economic uncertainties, which could muddy the track.

Outstanding demand for luxury goods at Saks Fifth Avenue Enterprises drove the parent company to a 52.6 percent gain in first-quarter profits.

Meanwhile, results from Saks Inc.’s department stores revealed strength in the moderate channel, a condition that was echoed by robust business at mainstream competitor J.C. Penney Co. Inc.

One quarter, however, does not a fiscal year make, and factors such as the looming interest rate hike and, especially, historically high oil prices leave prospects for the current and future quarters in question.

“Higher energy costs, while demand driven, will divert consumer incomes from other retail outlays,” said Steven Wieting, Smith Barney’s director of economic and market analysis, on a conference call. Also of concern, said Wieting, is that, while forecasts of consumers’ retrenching are “overstated and lack reasonable historical and fundamental perspectives, [the] extreme consumer stability through the recent downturn does not suggest a material acceleration in a business cycle recovery.”

Although no economist can predict with absolute certainty where consumers are headed, it is clear where consumers have been: at the mall.

For the quarter ended May 1, Birmingham, Ala.-based Saks said net income grew by more than half to $22 million, or 15 cents a diluted share, from $14.4 million, or 10 cents, last year. Excluding an aftertax charge of 2 cents for the write-off of some assets, Saks’ earnings matched the Wall Street estimate of 17 cents.

Net sales for the quarter increased 11.5 percent to $1.54 billion from $1.38 billion a year ago, and comparable-store sales grew 10.2 percent. Additionally, much lower promotional activity, especially in the luxury segment, allowed company-wide gross margin to expand 130 basis points, which magnified the top line’s effect on bottom-line results.

Saks Inc. vice chairman Steve Sadove noted that the overall earnings growth of 50 percent was earned despite having to absorb a 2 cent-a-share write-off of long-lived assets, as well as absorbing a $10 million charge for not having the credit card contribution. But, he added, “apples to apples, there was almost a doubling of earnings. We have very strong momentum in the franchise. Clearly, there is a positive fashion environment. Better brands are selling and the luxury sector continues to be extremely strong.
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