Saks Rallies 5% on Comp Store Sales


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Saks (NYSE: SKS ) is riding high on its comparable store sales increase of 4.7 percent. That figure has inspired a rally which has seen shares move more than five percent. Is this a sign of things to come for the upscale retailer? It could be -- but there are a few points worth noting. For starters, Saks decided to follow in the footsteps of its competitors and will "no longer report monthly comparable store sales results on a go-forward basis." Saks also announced that it experienced gross margin deterioration, dropping from 38 percent during the second-quarter of 2011 to 37.2 percent during the second-quarter of 2012. Saks blames the decline on "incremental second quarter markdowns in certain merchandise categories needed to move through the company's normal clearance cycle."

Most investors realize that the retail industry is cyclical, so it is not too surprising to see that investors may be more interested in the company's sales. That said, it is important to note that Saks' increase is much lower than it was during the same period last year. Saks raised its sales by 15.5 percent in the second-quarter of 2011 and 12.7 percent during the first six months of 2011. In 2012, the company grew only 4.7 percent for both the quarter and the first six months.

This decline could be blamed on a variety of issues (stiff competition, economic turmoil, etc.), but the cause is not as important as the outcome. For the time being, Saks' growth appears to be slowing.

Year-to-date, Saks' shares have practically redefined what it means to be a roller coaster stock, dropping 10 percent in the first week of January. In the following weeks, Saks gained 30 percent. Its growth was short-lived, however, as the stock struggled to maintain its year-to-date high of $11.89, which was achieved on February 28.

Aside from a brief spike in May, Saks spent most of the spring season fighting a downward trend that took another 10 percent off the stock. As it stands, Saks is still trading higher than it was when the year began. However, the retailer may not be able to sustain its share price if its sales growth continues to decline.

Investors should keep a close eye on Saks in the coming months, especially during the holiday shopping season.

Follow me @LouisBedigianBZ

(c) 2012 Benzinga does not provide investment advice. All rights reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas

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