Saks Incorporated‘s(SKS) first-quarter 2012 earnings of 19 cents per share increased from the year-ago earnings of 17 cents per share. The Zacks Consensus Estimate for the first quarter of 2012 was 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.
Considering after-tax items of $0.6 million in the current quarter and $2.1 million in the year-ago quarter, Saks generated earnings of 18 cents a share in the first quarter 2012 versus 16 cents per share in the year-ago quarter.
Revenue and Margins
Net sales for the quarter grew 3.8% to $753.6 million from $726.0 million in the year-ago quarter, mainly due to a robust 4.8% growth in same-store sales. Sales missed the Zacks Consensus Revenue Estimate of $762.0 million.
The company’s stores and operations comprise Saks Fifth Avenue (these are principally free-standing stores in exclusive shopping destinations or anchor stores in upscale regional malls), Saks Fifth Avenue OFF 5Th (these stores primarily target value-conscious customers) and Saks Fifth Avenue e-commerce operations known as Saks Direct.
During the quarter, the company’s stores saw strong sales growth, particularly in women’s ‘Wear Now’ and contemporary apparel, shoes as well as men’s contemporary apparel, shoes, and accessories. The New York City flagship store sales were in line with the company’s total comparable store sales.
Saks’ gross margin expanded 30 basis points to 44.4% in the quarter, compared with 44.1% in the year-ago quarter. This also led to a rise in operating margins to 8.6% of sales in the first quarter from 8.3% of sales in the year-ago quarter.
Other Financial Updates
Saks ended the first quarter with cash in hand of approximately $189.0 million and long-term debt of $373.0 million. As of April 28, 2012, inventories totaled $793.5 million, an increase of 8.4% from the year-ago period, and a 6.5% increase on a comparable stores basis.
As of April 28, 2012, funded debt including capitalized leases, senior notes, and the debt and equity components of convertible debentures was $408.0 million, and debt-to-capitalization was 25.2%.
During the quarter, Saks’ net capital spending was $14.3 million.
Guidance Update
Saks anticipates same-store sales and same store inventory levels to progress in the mid-single digit range for the second quarter and the remaining part of 2012.
The company expects the gross margin rate for the second quarter of 2012 to decline approximately 100 to 125 basis points from the year-ago period. However, it expects gross margin to increase 25 to 50 basis points in the second half of fiscal 2012.
The company expects 30 to 50 basis points of SG&A expense deleverage in the second quarter and approximately 50 to 75 basis points in the second half of fiscal 2012.
With respect to the current capital structure, Saks expects interest expense of $10 million for the second quarter of 2012 and $19 million for the second half of 2012. The company’s effective tax rate is expected to be in the range of 40.0% to 41.0% for fiscal 2012.
Saks anticipates capital expenditures in the range of $110 to $120 million for 2012.
We are encouraged by the company’s plans to expand its distribution and fulfillment capacity by investing in omni-channel initiatives and strategies which should help the company achieve its long-term financial targets and enhance shareholder value. Positive comparable store sales were reported over the past 27 months fuelled by strong sales of women’s and men’s apparel, handbags, fine jewelry, fragrances, and especially in men’s accessories
However, the ever-changing demands of consumers, increased volatility in the financial markets and the overall uncertainty in the macroeconomic environment are matters of concern. Saks is a close competitor of Macy’s Inc. (M). Currently, we have a long term Neutral recommendation on Saks, which carries a Zacks #3 Rank (Short term Hold rating).
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