We recently reiterated our Neutral recommendation on
Saks Inc.
(
SKS
), which operates traditional and luxury departmental stores in
the U.S., following its second quarter fiscal 2013 results.
The company reported second quarter loss of 5 cents per share,
in-line with the prior-year quarter. However, it was narrower
than the Zacks Consensus Estimate of a loss of 9 cents per share,
due to improved revenues.
Net revenues in the quarter rose 5.1% to $704.1 million from
$670.2 million in the year-ago quarter, mainly due to a 4.7%
increase in same-store sales. The strong performance of women's
'Wear Now' and contemporary apparel, shoes as well as men's
contemporary apparel, shoes, and accessories drove comparable
store sales in the quarter.
In addition, Saks anticipates same-store sales and same-store
inventory levels to progress in the mid-single digit range for
the second half of 2012.
We are encouraged with Saks' omni-channel retailing concept,
which has enabled consumers to experience shopping through all
available shopping channels such as mobile Internet devices,
computers, television, catalog, and other.
The company has also expanded its distribution and fulfillment
capacity by adding a new facility in Tennessee in July 2012, in
order to support the company's omni-channel strategy and planned
sales growth in Saks Direct. These investments in omni-channel
initiatives and strategies are expected to help the company
achieve long-term financial targets and enhance shareholder value
in the years ahead.
Moreover, Saks has invested in some operational initiatives
and other strategies in calendar year 2012, such as the project
evolution systems implementation, hold and flow, and other local
marketing business plans, which are expected to lead to cost
savings in calendar year 2013 and beyond.
The company has also encouraged private labeling rather than
third-party brands. Moreover, the company has undertaken
initiatives to create more online, mobile and social media
marketing programs as a part of its strategy to develop
integrated campaigns. The project evolution initiative is also
going to be beneficial over the next few years.
However, Saks primarily focuses on its luxury retail sector,
which makes it vulnerable to the incremental volatility in
financial markets and the overall uncertainty in the
macroeconomic environment. In addition, Saks faces the risk of
reduction in the number of consumers who can afford to purchase
discretionary items. The low disposable income of the consumers
lead to lower consumer footfall at the stores, ultimately
resulting in decline in sales and margins.
Though the company expects gross margins to expand year over
year in the second quarter, rising input costs and the overall
economic slowdown keep us on the sidelines.
Saks carries a Zacks #2 Rank (short-term Buy rating).
SAKS INC (SKS): Free Stock Analysis Report
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