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Saks Incorporated’s second-quarter 2013 loss of 10 cents per share was wider than the year-ago loss of 5 cents per share as well as the Zacks Consensus Estimate of a loss of 8 cents . Loss widened due to soft sales and weak margins during the quarter. The adjusted earnings excluded after-tax charges of $9.3 million or 3 cents per share.

Revenues and Margins

Net sales for the quarter rose 0.5% year over year to $707.8 million.. Quarterly revenues missed the Zacks Consensus Estimate of $729.0 million.

Comparable store sales (comps) grew 1.5%, much weaker than the year-ago growth of 4.7% and lagged the company's expectations as well. Soft comps combined with a delayed annual spring clearance sale hurt the top line in the quarter.

However, categories like women's and men's contemporary apparel and advanced designer apparel; dresses; women’s shoes; handbags; children’s apparel; and men’s accessories, shoes, and contemporary apparel performed decently during the quarter.

Gross margin contracted 60 basis points (bps) to 36.6% due to higher markdowns in men’s, women’s shoes and handbags. Operating margin declined 240 bps to 3.4% due to increase in selling, general and administrative expenses, investment in omni channel initiatives and planned launch of Saks’ official website, saksoff5th.com.

Other Financial Updates


Saks ended the second quarter with $10.1 million in cash and equivalents, compared with approximately $20.1 million as of May 4, 2013. Long-term debt stood at $239.6 million compared with $216.3 million as of May 4, 2013. During the quarter, the company did not repurchase any common stock.


Merger with Hudson’s Bay

Saks has decided to sell itself to Canada’s private retailer Hudson’s Bay for $2.9 billion, including debt. It has entered into a merger agreement with the company in Jul 2013.

Hudson’s Bay, parent of apparel chains like Lord & Taylor’s in U.S. and Hudson’s Bay in Canada, will pay $16.0 per share to secure the transaction, which is expected to close by the end of calendar 2013, subject to approval by Saks’ shareholders and other regulatory approvals..

Saks will operate independently with its headquarters in New York. Also, its marketing, merchandising and store operations teams will remain in place even after the deal closes.

The acquisition will bring premium brands like Saks Fifth Avenue and Hudson’s Bay-owned Lord & Taylor and the mid-tier brand, Hudson’s Bay, under one roof. This will give the combined entity a lead in the North American apparel retail sector with a broad spectrum of consumers across luxury, mid-tier and outlet retail sectors. Saks has not withdrawn its previously announced fiscal 2013 due to the pending merger.

Saks currently holds a Zacks Rank #3 (Hold). Other stocks in the retail and wholesale sector worth considering include The Gap Inc.(GPS - Analyst Report), Express Inc. (EXPR - Snapshot Report) and The Buckle Inc. (BKE - Snapshot Report). All these companies carry a Zacks Rank #2 (Buy).

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