) first-quarter 2012 earnings of 19 cents per share increased from
the year-ago earnings of 17 cents per share. The Zacks Consensus
Estimate for the first quarter of 2012 was 18 cents.
Results were driven by robust operating performance, strong
same-store sales growth and gross margin expansion. In addition,
Saks continued to focus on controlling expenses. Saks restricted
Selling General & Administrative (SG&A) expenses to an
optimum level while making strategic investments in marketing and
opening its new stores.
Considering after-tax items of $0.6 million in the current
quarter and $2.1 million in the year-ago quarter, Saks generated
earnings of 18 cents a share in the first quarter 2012 versus 16
cents per share in the year-ago quarter.
Revenue and Margins
Net sales for the quarter grew 3.8% to $753.6 million from
$726.0 million in the year-ago quarter, mainly due to a robust 4.8%
growth in same-store sales. Sales missed the Zacks Consensus
Revenue Estimate of $762.0 million.
The company's stores and operations comprise Saks Fifth Avenue
(these are principally free-standing stores in exclusive shopping
destinations or anchor stores in upscale regional malls), Saks
Fifth Avenue OFF 5Th (these stores primarily target
value-conscious customers) and Saks Fifth Avenue e-commerce
operations known as Saks Direct.
During the quarter, the company's stores saw strong sales
growth, particularly in women's 'Wear Now' and contemporary
apparel, shoes as well as men's contemporary apparel, shoes, and
accessories. The New York City flagship store sales were in line
with the company's total comparable store sales.
Saks' gross margin expanded 30 basis points to 44.4% in the
quarter, compared with 44.1% in the year-ago quarter. This also led
to a rise in operating margins to 8.6% of sales in the first
quarter from 8.3% of sales in the year-ago quarter.
Other Financial Updates
Saks ended the first quarter with cash in hand of approximately
$189.0 million and long-term debt of $373.0 million. As of April
28, 2012, inventories totaled $793.5 million, an increase of 8.4%
from the year-ago period, and a 6.5% increase on a comparable
As of April 28, 2012, funded debt including capitalized leases,
senior notes, and the debt and equity components of convertible
debentures was $408.0 million, and debt-to-capitalization was
During the quarter, Saks' net capital spending was $14.3
Saks anticipates same-store sales and same store inventory
levels to progress in the mid-single digit range for the second
quarter and the remaining part of 2012.
The company expects the gross margin rate for the second quarter
of 2012 to decline approximately 100 to 125 basis points from the
year-ago period. However, it expects gross margin to increase 25 to
50 basis points in the second half of fiscal 2012.
The company expects 30 to 50 basis points of SG&A expense
deleverage in the second quarter and approximately 50 to 75 basis
points in the second half of fiscal 2012.
With respect to the current capital structure, Saks expects
interest expense of $10 million for the second quarter of 2012 and
$19 million for the second half of 2012. The company's effective
tax rate is expected to be in the range of 40.0% to 41.0% for
Saks anticipates capital expenditures in the range of $110 to
$120 million for 2012.
We are encouraged by the company's plans to expand its
distribution and fulfillment capacity by investing in omni-channel
initiatives and strategies which should help the company achieve
its long-term financial targets and enhance shareholder value.
Positive comparable store sales were reported over the past 27
months fuelled by strong sales of women's and men's apparel,
handbags, fine jewelry, fragrances, and especially in men's
However, the ever-changing demands of consumers, increased
volatility in the financial markets and the overall uncertainty in
the macroeconomic environment are matters of concern. Saks is a
close competitor of
). Currently, we have a long term Neutral recommendation on Saks,
which carries a Zacks #3 Rank (Short term Hold rating).
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