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Saks Incorporated reported third quarter 2012 earnings of 12 cents per share (excluding after-tax items of $4.3 million), in line with the Zacks Consensus Estimate. Earnings increased by a penny from the prior-year quarter earnings of 11 cents on higher sales.

Revenue and Margins

Net sales for the quarter rose 3.0% to $713.2 million from $692.3 million in the year-ago quarter, mainly on account of a 3.3% increase in same-store sales. However, quarterly revenue lagged the Zacks Consensus Estimate of $725 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 witnessed strong sales growth, particularly in women's and men's contemporary apparel, women's and men's shoes, handbags, fine jewelry and fragrances.

Though gross profits increased 2.3% to $313 million, Saks' gross margin shrank 30 basis points to 43.9% in the quarter due to a slight increase in targeted promotional activity.

Other Financial Updates

Saks ended the third quarter with $74.2 million cash, compared with approximately $139.0 million in the last quarter. Long-term debt stood at $376.4 million compared with $374.3 million in the prior quarter. As of October 27, 2012, consolidated inventories were $927.1 million compared with $749.1 million at the end of July 28, 2012.

During the quarter, the company repurchased approximately 8.0 million shares at an average price of $9.90 per share.

Guidance Update

Saks anticipates same-store sales to be flat for the fourth quarter. The company expects the gross margin rate for the quarter to be flat to down 50 basis points. Same-store inventory levels are expected to progress in low-single digits at the end of the year.

With respect to the current capital structure, Saks expects interest expense of $10 million for the fourth quarter. The company's effective tax rate is expected to be 40.0% for fiscal 2012.

Saks anticipates capital expenditure of $115 million for the full year.

Saks’ competitor, Kohl’s Corporation (KSS - Analyst Report) posted earnings of 91 cents per share in the third quarter of 2012 on November 8, beating the Zacks Consensus Estimate by 4.6% and the prior-year quarter earnings by 14% owing to growth in revenues and comparable store sales.

Currently, we have a Neutral recommendation on Saks. The stock carries a Zacks #3 Rank (a short-term Hold rating).

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