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We recently reiterated our Neutral recommendation on Saks Inc. , which operates traditional and luxury departmental stores in the US. Earnings of 19 cents per share increased from the year-ago earnings of 17 cents per share and also inched past the Zacks Consensus Estimate of 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.
The company also reported positive same-store sales and total sales for the month of May 2012, benefiting from the strong performance of women’s contemporary and "wear now" apparel.
Omni Channel retailing, which is a concept of Saks, enables consumers to experience shopping through all available shopping channels -- mobile internet devices, computers, television, catalog, etc. The company has made plans to expand its distribution and fulfillment capacity by adding a new facility in Tennessee by August 2012, in order to support the company’s omni-channel strategy and planned sales growth in Saks Direct.
These investments in omni-channel initiatives and strategies are expected to help the company achieve long-term financial targets and enhance shareholder value in the years ahead. The investments in the omni channel business are expected to bear fruit as more and more core customers are resorting to omni channel shopping, where they are expected to spend more than shopping in just one channel.
Moreover, Saks has planned to invest in some operational initiatives and other strategies in the calendar year 2012, such as the project evolution systems implementation, hold and flow, and other local marketing business plans, which are expected to have a meaningful beneficial impact in the calendar year 2013 and beyond.
The project evolution initiative will roll out new merchandising, finance and HR systems over the next few years. The company will also encourage private labeling rather than the third-party brands. Moreover, the company has taken initiative in creating more online, mobile and social media marketing programs as a part of its strategy to develop integrated campaigns.
However, Saks primary focuses on its luxury retail sector, which makes it vulnerable to the incremental volatility in financial markets and the overall uncertainty in the macroeconomic environment. Saks may face a decline in sales and margins due to lower consumer foot-fall in its stores.
In addition, Saks faces the risk of reduction in the number of consumers who can afford to purchase discretionary items. The scenario may thus induce Saks to increase the duration or frequency of its promotional events and offer larger discounts to attract customers.
Moreover, though the company believes that it has sufficient levels of cash to sustain its level of operations, it does not return value to its shareholders by paying dividends or through share repurchases. Saks has not declared any dividends since last five years and does not even anticipate declaring dividends in the foreseeable future.
Currently, Saks carries a Zacks #3 Rank (short term Hold rating).