Saks posts surprise 3Q profit as it cuts costs, scales down promotions and clearance sales

By Betsy Vereckey, AP
Tuesday, November 17, 2009

Saks surprises Wall St. with 3rd-qtr profit

NEW YORK — Luxury retailer Saks Inc. eked out a quarterly profit for the first time in six quarters by trimming expenses and scaling back on promotions and clearance discounts even as sales fell, the company reported Tuesday.

Instead of deep discounting, Saks is selling more luxury brands starting at lower prices to capture consumers’ dollars. The company has been working with suppliers to lower prices on designer goods.

“I think there have been some changes in the luxury consumer,” Chief Executive Steve Sadove said on a call with analysts. “People are very much focused on value.”

The retailer, which hadn’t turned a profit since the first quarter of 2008, earned $1.9 million, or 1 cent per share, in the three months that ended Oct. 31.

That compares with a loss of $43.7 million, or 32 cents per share, a year earlier.

Revenue fell 8.5 percent to $631.4 million. Sales at stores open more than a year declined 10.1 percent.

Analysts surveyed by Thomson Reuters forecast a loss of 11 cents per share on revenue of $625.6 million.

Saks said its Manhattan flagship did much better than earlier this year, but sales at the location were still weak. Higher spending from tourists helped the results and bodes well for the holiday season, Sadove said.

Customer visits fell by a low single-digit percentage, compared with a rate in the teens earlier.

“I’d hate to say that things are great. I’d say that things are a lot less bad,” Sadove said.

Among the items that sold better in the third quarter were outerwear, jewelry and sales of “gold range” apparel, or designer sportswear, which includes labels such as Escada and Max Mara.

Saks Off 5th, its outlet chain, was another bright area with strong sales at stores open more than a year.

Selling, general and administrative expenses declined by $18 million, more than the company expected. Saks said in January it would cut 1,100 jobs, or about 9 percent of total staff.

In the current quarter, Saks expects sales at stores open at least a year, a key measure of a retailer’s financial health, to decline in the high single digits.

Saks’ luxury consumers are still shopping less frequently, said Lazard Capital Markets analyst Todd Slater, who rates the stock “Sell.”

Shoppers are making fewer purchases, and when they do buy, they’re buying lower-priced merchandise, said Slater, who expects Saks to post losses over the next year.

Shares of the company rose 16 cents, or 2.5 percent, to $6.58.

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