Luxury retail chain Saks, Inc. (SKS) reported Tuesday a profit for the third quarter that increased from last year, reflecting higher comparable store sales and sales growth. Adjusted earnings per share topped analysts' expectations, while quarterly revenues missed their estimates. The company also expects comparable-store sales for the fourth quarter to be relatively flat.
"In spite of the continued uncertain macro environment, we were pleased to post a modest year-over-year increase in operating income and net income for the third quarter," Chairman and CEO Stephen Sadove said in a statement.
"For the quarter, our gross margin rate deterioration was partially offset by modest SG&A leverage. The third quarter gross margin rate was slightly below our expectations, and the level of SG&A leverage modestly exceeded our expectations," Sadove added.
The New York-based operator of 50 Saks Fifth Avenue stores, 55 Saks OFF 5TH stores, and the website saks.com reported net income was $22.60 million or $0.14 per share for the third quarter, higher than $17.77 million or $0.11 per share in the prior-year quarter.
Excluding one-time items, adjusted earnings for the latest quarter would have been $19.3 million or $0.12 per share. On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.11 per share for the third quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter grew 3.0 percent to $713.22 million from $692.31 million in the year-ago period, but missed nine Wall Street analysts' consensus estimate of $726.14 million.
Comparable store sales increased 3.3 percent for the quarter, but below the company's initial expectation but was on top of a very solid 5.8 percent comparable store sales increase last year.
Operating margin for the quarter remained flat with last year at 5.7 percent as a 30 basis points decline in gross margin was partially offset by 20 basis points drop in SG&A expenses, as a percent of sales, as the company achieved leverage in the quarter.
Consolidated inventories stood at $927.1 million at the end of the third quarter, a 5.1 percent increase over the prior year. Inventories increased 2.5 percent on a comparable stores basis.
Updating on the Hurricane Sandy impact, the company revealed that eleven Saks Fifth Avenue stores out of its 45 stores were closed from one to seven days, including its New York flagship which was closed for two days. Fifteen of the company's 64 OFF 5TH stores were also closed for up to five days. However, none of the company's stores sustained material damage.
The company noted that it will focus on making the systems and infrastructure investments to evolve the business to more fully embrace omni-channel retailing. The company added that it continues to approach the future cautiously but very strategically as the overall macroeconomic environment remains very uncertain.
"We are confident that these investments will position us for the future and will generate incremental sales and operating margin improvement over time. We remain very optimistic about the outlook for luxury retailing and for Saks Fifth Avenue...Based on these current sales trends we are adjusting our outlook for the fourth quarter, which we believe represents a more realistic view of the business," Sadove noted.
Looking ahead to the fourth quarter, Saks expects comparable store sales to be relatively flat compared to last year.
SKS closed Monday's regular trading session at $9.88, down $0.18 on a volume of 2.38 million shares, higher than the three-month average volume of 1.99 million shares. In the past 52-week period, the stock has been trading in a range of $8.49 to $12.14.
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