Tags: SKS | Saks Fifth Avenue | Off 5th | GPS | GAP | retail | apparel

Saks Profits Big as High Earners Spend

By Constance Gustke   |   Wednesday, 08 Jun 2011 12:52 PM

Some retailers are struggling to get footholds in a soft market. But high-end stores like Nordstrom (JWN) and Tiffany & Co. (TIF) are thriving. Saks Fifth Avenue (SKS) is among that vaunted group. The 87-year-old chain spreads a wide net: 46 traditional Saks stores and 57 value-conscious outlets.

Its mission is to cater to affluent folks with pricey labels, including Burberry, Chanel, and Prada. They tend to scoop up these brands even during recessions, say analysts, giving Saks pricing power. Lower-priced retailers such as Gap (GPS ) are pressured by rising cotton costs and declining middle incomes.

To grow, Saks is opening more of its Off 5th discount stores. Strong men and women’s apparel sales at Saks stores also help. First-quarter same-store sales grew 10.2 percent year over year. Net income soared to $28.4 million, or 16 cents per diluted share, versus $18.8 million last year. First-quarter gross margins also shot up 100 basis points to 44.1 percent.

Can Saks keep the sales pipeline flowing? Executives say yes. They’re projecting mid-to-high single digit sales growth this year, along with higher gross margins.

More holds, fewer buys

Short-term, analysts are bullish on Saks. Goldman Sachs recently raised its earnings per share estimates for the retail chain through 2013, citing rising sales that can lift earnings. Long-term, Saks is rated neutral, though.

Of nine analysts tracked by Thompson/First Call, only two have strong buy recommendations, with six holds and one underperform.

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Some retailers are struggling to get footholds in a soft market. But high-end stores like Nordstrom (JWN) and Tiffany Co. (TIF) are thriving. Saks Fifth Avenue (SKS) is among that vaunted group. The 87-year-old chain spreads a wide net: 46 traditional Saks stores and 57...
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