Saks Kept at Neutral

We reaffirm our Neutral recommendation on Saks Inc ( SKS - Analyst Report ) following appraisal of its third quarter fiscal 2013 results.

Why the Reiteration?

Saks posted higher earnings and sales growth in the quarter driven by positive comparable sales growth. However, rising promotional costs and Hurricane Sandy impacted the results adversely.

On Nov 14, the company reported third quarter earnings of 12 cents, which increased by a penny from the prior-year quarter. The results were in line with the Zacks Consensus Estimate. Net sales in the quarter rose 3.0% to $713.2 million, but missed the Zacks Consensus Estimate of $725 million.

Sales increased year over year, mainly on account of a 3.3% increase in same-store sales. However, the increase was below than the company’s expectation of comparable store sales growth in the mid-single digit range, due to soft sales in Nov, impacted by Hurricane Sandy.

We are encouraged with the Saks’ investments in omni-channel initiatives and strategies which enabled consumers to shop through all available shopping channels such as mobile Internet devices, computers, television, catalog, and others.

Moreover, Saks’ initiatives such as the project evolution systems implementation, hold and flow, and other local marketing business plans are expected to lead to cost savings in calendar year 2013 and beyond. These investments are expected to help the company achieve long-term financial targets and enhance shareholder value in the years ahead.

However, Saks primarily focuses on the luxury retail sector, which makes it vulnerable to incremental volatility in financial markets and the overall uncertainty in the macroeconomic environment. In addition, the low disposable income of the consumers leads to lower consumer footfall at the stores, ultimately resulting in decline in sales and margins.

Other stocks in the retail and wholesale sector worth considering include Green Mountain Coffee Roasters, Inc ( GMCR - Analyst Report ) carrying a Zacks Rank #1 (Strong Buy), and Core-Mark Holding Inc ( CORE - Snapshot Report ) and Vitamin Shoppe ( VSI - Snapshot Report ) , both holding a Zacks Rank #2 (Buy).