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Saks Posts Flat 1Q Earnings

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Saks Incorporated reported first-quarter 2013 earnings of 19 cents per share (excluding after-tax charges of $10.1 million or 6 cents per share). The results were consistent with the year-ago level due to a modest same-store sales growth and a steady gross margin rate. Earnings were also in line with the Zacks Consensus Estimate.

Revenues and Margins

Net sales for the quarter rose 5.3% year over year to $793.2 million  excluding the extra week in 2013, mainly on account of a solid 4.2% increase in same-store sales. Quarterly revenues also came well above the Zacks Consensus Estimate of $779.0 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 and advanced designer apparel; dresses; women’s shoes; handbags; children’s apparel; and men’s accessories, shoes, and contemporary apparel.

Gross margin remained flat at 44.4% compared to the year-ago level as higher sales were offset by higher cost of sales during the quarter. Operating margin declined 160 basis points to 7.0% due to increase in selling, general and administrative expenses and investment in omni channel initiatives.

Other Financial Updates

Saks ended the first quarter with $20.1 million in cash and equivalents, compared with approximately $80.4 million as of Feb 2, 2013. Long-term debt stood at $216.3 million compared with $260.6 million as of Feb 2, 2013. As of May 4, 2013, consolidated inventories were $856.4 million compared with $822.9 million at the end of Feb 2, 2013.

During the quarter, the company repurchased shares worth $250,000 at an average price of $10.52.

Guidance Update

Saks expects same-store sales to grow in the range of 4% to 6% in 2013 instead of the 3% to 5% announced previously. The company expects the gross margin to be relatively flat for the rest of year. Same-store inventory levels are expected to progress in the 4% to 5% range through the year instead of the 3% to 5% range announced previously.

With respect to the current capital structure, Saks expects interest expense of $23 million to $24 million for the year. The company's effective tax rate is expected to be 41.0% for 2013 instead of 40% as expected previously.

Saks anticipates capital expenditure to be in the range of $145 million to $155 million for the full year instead of $140 million to $150 million as anticipated previously.

Saks currently holds a Zacks Rank #3 (Hold). Other stocks in the retail and wholesale sector worth considering include Stein Mart Inc. with a Zacks Rank #1 (Strong Buy), and both The Gap Inc. (GPS - Free Report) and The Buckle Inc. (BKE - Free Report) with a Zacks Rank #2 (Buy).

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