August 16, 2011 / 12:21 PM / 6 years ago

Saks says market turmoil warrants caution

NEW YORK (Reuters) - Luxury department store operator Saks Inc SKS.N forecast same-store sales growth and better margins for the rest of the year even as the volatile financial markets give it reason to be cautious about fall sales.

Shares were down 28 cents, or 3.1 percent, at $8.79 in morning trading on the New York Stock Exchange.

Stock market volatility has made the company more careful about expenses and how much inventory to carry to be prepared in the event shoppers cut back, Saks Chief Executive Steve Sadove said on Tuesday.

“Severe market corrections or prolonged downturns have historically negatively affected us,” Sadove told analysts on a call with analysts, noting that so far shoppers were behaving as usual.

In a rare intramonth sales update, Sadove said that same-store sales, or sales at stores open at least one year, for August were so far in line with Saks’ fall forecasts.

Last week, U.S. stock markets fluctuated by as much as 5 percent on some days.

Saks forecast that same-store sales would rise by a mid-to-high single-digit percentage in the second half of the fiscal year, which includes the holiday season when Saks gets 30 percent of its annual sales.

During the 2008-09 financial crisis, Saks had to slash prices after amassing too much inventory, leading to losses and according to many industry analysts, hurting its prestige.

Saks said inventory levels on a comparable basis would be up by a mid-single-digit percentage, while same-store sales are expected to rise by a mid-to-high single-digit percentage, lowering the odds it would need to offer profit-sapping discounts.

“It’s a good sign they’re being careful about their inventory,” said Morningstar analyst Paul Swinand.

    Saks’ gross margin, which measures the profitability of the items it sold, rose 0.7 percentage points to 38 percent, largely because it was able to sell more items at their full prices. Saks expects its gross margin to improve between 0.4 and 0.7 percentage points in the second half of the year.

    Saks reported a net loss of $8.4 million, or 5 cents per share, for the quarter ended July 30, compared with a loss of $32.2 million, or 21 cents per share, a year earlier, and the 9-cent loss expected by Wall Street analysts, according to Thomson Reuters I/B/E/S.

    Sales rose 13 percent to $670 million during the second quarter, traditionally Saks’ slowest quarter of the year. Same-store sales rose 15.5 percent, reflecting a rebound in U.S. luxury sales also enjoyed by Nordstrom Inc (JWN.N) and Neiman Marcus Group NMRCUS.UL.

    Saks is not the only upscale chain to forecast strong business for the fall and holiday season. Last week, Polo Ralph Lauren (RL.N), Nordstrom and Macy’s Inc (M.N), which owns the Bloomingdale’s chain, raised their sales forecasts.

    Saks has closed seven of its full-service department stores in the past year and a half, helping lift same-store sales. It has instead expanded its Off 5th chain of outlet stores. Saks operates 46 Saks Fifth Avenue stores and 59 Off 5th stores.

    Editing by Gerald E. McCormick, Robert MacMillan and Gunna Dickson

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