Luxury, Private Labels Offer Hope but Can’t Stem Saks’ Red Ink

Despite its second-quarter net loss of $11.3 million, Saks Inc. thinks luxury might be set to rebound and private labels can lift its department stores.

In a research note, J.P. Morgan Securities analyst Shari Schwartzman Eberts pointed out that, without credit revenues, Saks’ divisional operating margins relative to its peers were “quite disappointing.”

This season’s merchandising menace of markdown pressure also depleted the bottom line, as gross margin retracted 20 basis points to 36.5 percent of sales.

“Saks’ operational performance has been generally solid,” wrote Merrill Lynch analyst Daniel Barry in a research report. “Until the first quarter, earnings had been up for the previous four quarters (but against easy comparisons).”

He noted while improving, comps remain soft and, excluding the reduction in credit card contribution, the expense ratio has been down in five of the past six quarters while gross margin has improved in four of the past six.

By business segment, SDSG saw sales and comps decline, but still produced an operating profit, albeit a smaller one by almost a third. Conversely, SFAE had a fractional uptick in net and same-store sales, but its operating loss continued to widen. For the quarter, SDSG reported a 30.5 percent drop in operating income to $12.5 million on a 0.6 percent dip in net sales to $750.8 million. Comps decreased 1.7 percent. At SFAE, the operating loss ballooned to $22.1 million from $13.8 million as sales ticked up 0.9 percent to $486.3 million and same-store sales grew 1 percent.

Attempts to differentiate the department stores, however, are bearing fruit.

“Our private brands produced approximately 13 percent of our revenues at the department store group in the quarter versus 11 percent last year,” Martin said. “Overall, private brand sales improved by nearly 30 percent. Sales that we will generate from differentiated products will be over 25 percent of our revenues this year, up significantly from 17 percent just two years ago.”

The Jane Seymour private label and Ruff Hewn exclusive brand introduced last month have “terrific to-date sales,” the ceo noted.

His feelings about SFAE and the luxury market were similarly positive.

Whether Saks can properly exploit these moves with the personnel on hand is another matter, noted one observer.

“Saks is in the fairly unique position of potentially benefiting from both better-priced brand introductions in spring 2004 and emerging strength in luxury goods business,” wrote UBS analyst Linda Kristiansen. “A key question is Saks’ ability to take full advantage of these trends, as there have been several departures among merchandise managers.”
Page:  « Previous Next »
load comments


Sign in using your Facebook or Twitter account, or simply type your comment below as a guest by entering your email and name. Your email address will not be shared. Please note that WWD reserves the right to remove profane, distasteful or otherwise inappropriate language.
News from WWD

Sign upSign up for WWD and FN newsletters to receive daily headlines, breaking news alerts and weekly industry wrap-ups.

getIsArchiveOnly= hasAccess=false hasArchiveAccess=false