Saks: down $26M in Q2

Brent Felgner, Don Hogsett, August 25, 2003

With margins thinning out in a promotional environment, costs climbing higher and same-store sales slipping, department store retailer Saks Inc. recorded a sharply widening second-quarter loss of $25.8 million, deeper by more than a fourth than a year-ago deficit of $20.4 million.

Sales at the retailer — parent of Saks Fifth Ave as well as Proffitt's, Younkers and Carson Pirie Scott — were virtually flat at $1.2 billion. But same-store sales dipped by 0.6 percent as weakening comps at the department store group, down 1.7 percent, offset a 1.0 percent increase at Saks Fifth Ave.

Taking a bite out of the bottom line, average gross margin thinned under markdown pressure, declining by 20 basis points, or two-tenths of a percentage point, to 36.5 percent from 36.7 percent a year ago. Adding another layer of pressure, costs jumped up by about $10 million, or 3.1 percent, to $327.3 million from $317.5 million last year. The extra $10 million in operating costs, the retailer said, stemmed from a $16 million reduction in credit contribution after the retailer sold its credit card business to Household International. Excluding the credit contribution, the retailer said, costs actually dropped from year-before levels.

Acting as an offset to some of the operating weakness, the retailer posted a gain of $2.7 million tied to the sale of closed stores. In a further boost to the bottom line, Saks recorded an income-tax credit of $14.8 million resulting from earlier losses.

Sales in the department store group slipped by 0.6 percent in the second quarter, to $750.8 million from $755.4 million last year, but operating profits, under markdown pressure, tumbled by 30.5 percent. Saks Fifth Avenue posted a widening loss of $22.1 million from $13.8 million last year, even though sales improved slightly, rising by 0.9 percent to $486.3 million.

Saks Inc.

Qtr. 8/2 (x000) 2003 2002 % change
a-Second-quarter results include integration charges of $70 million; a $4.2 million gain from long-lived assets; miscellaneous expense of $76 million vs. miscellaneous income of $196 million in the year-ago quarter; and a $14.8 million income-tax benefit, compared with a prior-year tax benefit of $12.2 million.
b-Six-month results include integration charges of $535 million; a gain from long-lived assets of $2.0 million, compared with a prior-year loss of $926,000; miscellaneous income of $5.0 million vs. $581,000 last year; and an income-tax benefit of $6.5 million vs. $113,000 a year ago. The year-ago six months included $709,000 gain on the retirement of debt.
Sales $1,237,104 $1,237,232 0.0
Oper. income (EBIT) 36,670 50,867 -27.9
Net income (25,777)a (20,400)a
Per share (diluted) (0.18) (0.14)
Average gross margin 36.5% 36.7%
SG&A expenses 26.5% 5.7%
Six months
Sales 2,618,964 2,663,459 -1.7
Oper. income (EBIT) 139,437 167,405 -16.7
Net income (11,340)b (45,792)b
Per share (diluted) (0.08) (0.02)
Average gross margin 37.2% 37.4%
SG&A expenses 25.3% 24.6%


Qtr. 8/2 (x000) 2003 2002 % chg
Saks Department Stores
Sales $750,784 $755,377 -0.6
Same-store sales -1.7
Operating income 12,515 18,007 -30.5
Saks Fifth Avenue
Sales 486,320 481,855 0.9
Same-store sales 1.0
Operating profits (22,112) (13,780)

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