Saks Incorporated (SKS) delivered fourth-quarter 2010 earnings (excluding one-time items) of 13 cents per share, compared with 6 cents in the year-ago quarter. The Zacks Consensus Estimate was a net loss of 8 cents. The year-over-year improvement in the quarter reflects same-store sales growth and gross margin rate expansion.

On a reported basis, the company posted net loss of 14 cents per share, compared with net loss of 3 cents in the year-ago quarter.

For fiscal year 2010, the company reported earnings of 30 cents per share. Excluding the non-recurring items, the net gain was 19 cents per share compared to a net loss of 40 cents. The Zacks Consensus Estimate was for a net loss of 14 cents.

Revenue and Margins

Net sales for the quarter grew 6.8% to $866.3 million from $811.3 million in the year-ago quarter, mainly due to an 8.4% growth in same-store sales. The Zacks Consensus Estimate was $856 million.

For the full fiscal year net sales went up by 5.9% to $2,785.7 million from $2,631.5 million in the same period a year ago. Comparable store sales rose by 6.4% for full year 2010. The Zacks Consensus Estimate for the year was $2,776 million.

Saks’ gross margin shot up 130 basis points to 37.8% in the quarter, compared with 36.5% in the prior-year quarter, portraying tight inventory management, higher pricing and lesser promotional activities. For the full year, gross margin exceeded management expectation and shot up by 350 basis points to 40.1% to 36.6%.

Quarterly operating income improved to 5.9% on sales from 3.6% in the prior-year quarter. For fiscal year 2010, the company’s operating margin improved to 3.9% on sales compared to 0.8% a year ago.

Other Financial Updates

Saks ended the year with cash on hand of $197.9 million and no direct outstanding borrowings on its revolving credit agreement.

At the end of the fiscal year 2010 Saks reported total inventories worth $671.4 million which were up by 3.4% from the prior year period. On the comparable store basis, inventories grew 5.8% at the end of the quarter.

The company had a debt-to-capitalization of 32.9% at the end of the year. During the quarter, Saks’ net capital spending was $18.9 million.

Guidance Update

Saks anticipates same-store sales to progress at the mid-single digit rate for the full year. Similarly, the company projects inventories on the basis of same-store sales to go up by a mid single digit range throughout the year.

The company forecasts a gross margin of 40.1% for full fiscal year 2011. The company’s gross margin is typically higher in the first half than in the second half of the fiscal year.

With respect to the current capital structure, Saks expects an interest expense of $51 million to $53 million for the fiscal year 2011. The company’s effective tax rate is expected to be 40.0% at the end of fiscal 2011.

Saks anticipates net capital expenditures to be in the range of $65 million to $75 million for the full year.

Saks, which faces stiff competition from Macy’s Inc. (M), maintains a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.

 
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