On May 3, 2013, we maintained our Neutral recommendation on
), a traditional and luxury departmental chain. This was in view
of the strong same-store sales reported by the company
consecutively for two years as well as the fourth-quarter 2013
earnings, which surpassed estimates. However, net sales rose only
1% year over year and operating margin shrank due to higher
Ongoing macroeconomic challenges and reduction of discretionary
spending by consumers under a higher tax burden following
sequestration in anticipation of fiscal cliff are matters of
Why the Reiteration?
Saks reported 2013-fourth quarter earnings of 17 cents per share
(excluding after-tax charges of 4 cents per share), which was
flat compared with the year-ago level. However, earnings beat the
Zacks Consensus Estimate by 2 cents. Efficient cost management
was offset by lower sales during the quarter.
Net sales for the quarter rose 5.6% year over year to $976.6
million. However, quarterly revenues lagged the Zacks Consensus
Estimate of $969 million. Excluding the effect of extra week
during the quarter, net sales rose only 1.0% year over year.
Following the release of 2013-fourth quarter earnings, the Zacks
Consensus Estimate for fiscal 2014 went up by 2.3% to 44 cents.
For fiscal 2015, the estimate went down by 1.92% to 52 cents. Due
to limited estimate revisions, Saks currently holds a Zacks Rank
Sales were negatively affected by the closure of many New York
flagship stores in the North Eastern markets of the company due
to Hurricane Sandy during the quarter. Operating margin shrank 20
basis points to 5.8% due to higher selling, general and
The company has been reporting positive comparable store sales
for more than two years consecutively. While comparable store
sales went up 11.0% in fiscal 2011, it rose 9.5% in fiscal 2012.
Strong comparable store sales resulted in top-line growth. The
company has been regularly witnessing strong sales in the women's
and men's contemporary apparel, women's and men's shoes, fashion
and fine jewelry, and cosmetics and fragrances categories at Saks
Fifth Avenue stores.
Saks primarily focuses on the luxury retail sector and has
relationships with leading American and European fashion houses.
However, with a growing concern about increased volatility in the
financial markets and the overall uncertainty in the
macroeconomic environment, Saks is expected to face decline in
sales and margins due to lower consumer footfall in its stores.
Moreover, approximately 8%-10% higher tax burden due to
sequestration following concerns of a fiscal cliff is creating a
pressure on the pockets of the high-end consumers, as a result of
which, they have reduced their discretionary spending. This has
started affecting the company's high-end jewelry sales.
Saks currently holds a Zacks Rank #3 (Hold). Other favorable
stocks in the retail and wholesale sector that are worth
Sears Holding Corporation
Green Mountain Coffee Roasters Inc.
) all holding a Zacks Rank #1 (Strong Buy).
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