Saks posts wider-than-expected loss, shares drop

NEW YORK (Reuters) - Saks Inc (SKS.N) posted a much worse-than-expected quarterly loss on Tuesday, as the luxury U.S. department store operator slashed prices to lure upscale shoppers who have curbed spending.

The operator of Saks Fifth Avenue stores has seen a precipitous drop in sales since a financial markets crisis prompted more of its shoppers to seek its sale racks rather than pay full price. Company shares fell 28 percent.

"Clearly, our consumers have taken a major hit on their portfolios and they're not in the mood to shop," Saks Chief Executive Stephen Sadove said on a call with investors. "The consumer is in a frozen mode."

Saks is "not adverse" to closing stores as the company looks for ways to slash expenses and improve margins, Sadove said.

Management is "going through the exercise of understanding every store and whether it makes sense and what are the opportunities, if there are opportunities, to modify the terms or to close stores here or there," Sadove said.

Saks has responded to the economic downturn with price markdowns to entice customers, which knocked its gross margin back 6.4 percentage points to 35.6 percent in the quarter. The company warned of further gross margin declines in the last three months of its fiscal year.

Saks will need to "promote aggressively" well into the first half of the year, "as the spread between inventory growth and sales growth continues to widen," wrote Morgan Stanley analyst Michelle Clark in a research note.

"We become more concerned about Saks given the pace of deterioration in operating fundamentals," Clark wrote.

LOSS NEARLY DOUBLES

The New-York based company's net loss nearly doubled to $42.8 million, or 31 cents per share, in the third quarter that ended November 1, from $21.6 million, or 14 cents per share, a year earlier.

Excluding one-time items worth $24.5 million, including costs to close its unprofitable Club Libby Lu chain, Saks' loss was 13 cents per share. On that basis, analysts on average were expecting a loss of 3 cents per share, according to Reuters Estimates.

Quarterly net sales fell to $698 million from $796.1 million a year earlier. Sales at stores open at least a year fell 11.5 percent, compared to an 11.4 percent gain in last year's third quarter.

It expects a charge of $18 million to $27 million in its fourth quarter related to severance costs, inventory liquidation, store closure and lease termination costs.

Comparable store inventory levels are expected to be up in the low single-digit range by the end of its fiscal year. The company has ordered 15 percent less inventory for spring.

The company forecast capital spending of $75 million in 2009, a substantial decrease from its 2008 spending level of about $125 million.

Saks believes it has solid existing debt facilities, and has no short-term maturities of senior debt.

Saks shares have shed around 84 percent of their value since the beginning of the year, far worse than the Standard & Poor's Retail Index .RLX, which is down 41 percent for the year.

Saks' shares dropped $1.05 to $2.80 in early afternoon trade on Tuesday.

(Additional reporting by Martinne Geller, editing by Maureen Bavdek, Derek Caney and Gunna Dickson)