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.

“Since last August, we’ve seen a turning of both our department stores and the luxury stores,” Sadove explained. “We see this positive momentum continuing as we go into the middle of the year. The company is coming off a weaker first quarter of a year ago, when the economy had not really turned, so comparisons are easier, but in the later part of the year, we go up against tougher comps, so we will not see such outsized growth trends, though we will still see significant growth.”

While both businesses showed marked improvement in the first quarter, Saks Fifth Avenue was the standout, as operating income vaulted 48.1 percent to $48.8 million and sales jumped 17.1 percent to $682.4 million. Moreover, in an impressive run of comps, Saks Fifth Avenue’s same-store sales rose 15.3 percent, notching its fourth consecutive quarter of growth by that all-important measure.

Asked what he attributes the quarter’s success to, Saks Fifth Avenue Enterprises’ chairman and ceo Fred Wilson replied: “We systematically and substantially reduced promotional activity over the quarter. We were able to get deliveries earlier than before, and we certainly beefed up our merchandising and marketing team. We are going to continue to get earlier deliveries, and we will react to trends as quickly as possible.”

However, on a more ominous note, A.G. Edwards & Sons analyst Robert Buchanan said the company needs to rein in costs.

“Although Saks is posting big earnings gains these days against the backdrop of robust upscale sales, earnings will ‘head south,’ in our view, once the environment deteriorates, unless Saks attacks its costs,” Buchanan wrote in a report following the company’s earnings release.

As for Penney’s, like Saks, private brands were a key factor in driving above-plan sales, margin growth and earnings in the first quarter. And, although charges from the sale of the Eckerd drugstore business caused profits to plunge almost a third, income from continuing operations soared 490 percent, leading Penney’s to surpass Wall Street’s estimate by 4 cents.

For three months ended May 1, the Plano, Tex.-based retailer reported net earnings decreased 32.8 percent to $41 million, or 13 cents, versus year-ago earnings of $61 million, or 20 cents. Excluding Eckerd’s operations in both periods, earnings skyrocketed to $118 million, or 38 cents, from $20 million, or 5 cents, last year.
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