We recently reiterated our Neutral recommendation on
), which operates traditional and luxury departmental stores in the
US. Earnings of 19 cents per share increased from the year-ago
earnings of 17 cents per share and also inched past the Zacks
Consensus Estimate of 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.
The company also reported positive same-store sales and total
sales for the month of May 2012, benefiting from the strong
performance of women's contemporary and "wear now" apparel.
Omni Channel retailing, which is a concept of Saks, enables
consumers to experience shopping through all available shopping
channels -- mobile internet devices, computers, television,
catalog, etc. The company has made plans to expand its distribution
and fulfillment capacity by adding a new facility in Tennessee by
August 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. The investments
in the omni channel business are expected to bear fruit as more and
more core customers are resorting to omni channel shopping, where
they are expected to spend more than shopping in just one
Moreover, Saks has planned to invest in some operational
initiatives and other strategies in the calendar year 2012, such as
the project evolution systems implementation, hold and flow, and
other local marketing business plans, which are expected to have a
meaningful beneficial impact in the calendar year 2013 and
The project evolution initiative will roll out new
merchandising, finance and HR systems over the next few years. The
company will also encourage private labeling rather than the
third-party brands. Moreover, the company has taken initiative in
creating more online, mobile and social media marketing programs as
a part of its strategy to develop integrated campaigns.
However, Saks primary 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. Saks may face a decline in sales and margins due to
lower consumer foot-fall in its stores.
In addition, Saks faces the risk of reduction in the number of
consumers who can afford to purchase discretionary items. The
scenario may thus induce Saks to increase the duration or frequency
of its promotional events and offer larger discounts to attract
Moreover, though the company believes that it has sufficient
levels of cash to sustain its level of operations, it does not
return value to its shareholders by paying dividends or through
share repurchases. Saks has not declared any dividends since last
five years and does not even anticipate declaring dividends in the
Currently, Saks carries a Zacks #3 Rank (short term Hold
SAKS INC (SKS): Free Stock Analysis Report
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