20.05.2008 12:00:00
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Saks Incorporated Announces Results for the First Quarter Ended May 3, 2008
Retailer Saks Incorporated (NYSE: SKS) ("Saks”
or the "Company”)
today announced results for the first quarter ended May 3, 2008.
Overview of First Quarter Results
Saks recorded net income of $18.3 million, or $.13 per share, for the
first quarter ended May 3, 2008.
For the prior year first quarter ended May 5, 2007, the Company recorded
net income of $11.0 million, or $.07 per share. The prior year first
quarter included the following after-tax items totaling net charges of
$17.6 million, or $.12 per share:
expenses of approximately $13.5 million for retention, severance, and
transition costs related to the Company’s
downsizing following the disposition of its Saks Department Store
Group (SDSG) businesses,
expenses of approximately $1.0 million associated with the previously
disclosed investigation by the Securities and Exchange Commission
(which has been concluded) and the Office of the United States
Attorney for the Southern District of New York, and
a loss on extinguishment of debt totaling $3.1 million related to the
repurchase of $95.9 million of senior notes.
Comments on the First Quarter
Stephen I. Sadove, Chairman and Chief Executive Officer of the Company,
noted, "Overall, I am pleased with the Company’s
first quarter performance in light of the ongoing challenging
macroeconomic and increasingly competitive retail environment. Our
customers responded to our merchandise selections and targeted increased
promotional activity, driving an 8.4% comparable store sales growth for
the quarter. We made great progress in reducing and better positioning
our inventory levels.
"Our aggregate first quarter sales performance
was among the best in the industry as many retailers posted negative
comparable store sales for the period. Customers responded to our
merchandise selections and incremental promotions which included a more
extensive Friends & Family event and the acceleration of a spring season
clearance event into the last week of April this year from the first
week of May last year.” Management estimates
that, excluding these promotional changes, comparable store sales for
the first quarter would have increased by mid-single digits.
Some of the strongest merchandise categories for Saks Fifth Avenue
during the quarter included handbags; shoes; jewelry; and men’s
apparel, shoes, and accessories. The New York City flagship store
continued to outperform the company average, and several of the Company’s
newly-renovated stores posted outsized revenues. In the aggregate, the
number of transactions increased for the quarter while the average
dollars per transaction decreased slightly.
The increased promotional activity negatively impacted the Company’s
first quarter performance as the gross margin rate decreased by 320
basis points, with approximately 175 basis points of the deterioration
related to clearance markdowns accelerated into the first quarter. As a
percent of sales, first quarter year-over-year SG&A expense (excluding
prior year certain items) was flat. The Company achieved 60 basis points
of leverage on Other Operating Expenses (depreciation, rents, and taxes
other than income taxes) for the period. Primarily as a result of the
gross margin deterioration, operating income (excluding prior year
certain items) declined approximately 30% to $40.1 million for the
quarter.
Both Saks Direct and Off 5th posted outsized sales growth for the
quarter. Sadove noted, "The Saks Direct
customer is continuing to respond to our constantly expanding designer
merchandise offerings, a myriad of innovative and interactive features
on the site, and service enhancements.” The
Direct business also benefited from increased promotional activities.
Revenues grew by approximately 40% for the first quarter on top of last
year’s 50% first quarter growth.
Sadove added, "Off 5th is becoming a
preferred shopping channel for value and trend conscious consumers. Our
merchandise selections continue to improve with more direct purchases
from core vendors and additional Saks Fifth Avenue label product. We
opened our prototype store in Orlando in April, which has been extremely
well received by our customers.” Balance Sheet Highlights
Consolidated inventories at May 3, 2008 totaled $841.1 million, an
approximate 3.6% increase from the prior year on both a total and
comparable stores basis. Sadove noted, "We
began the fiscal year with a 9% comparable store inventory increase. Our
customers responded to our merchandise offerings and promotional efforts
during the quarter, and consequently, inventories are more in line with
our future sales expectations.”
At quarter end, the Company had approximately $124.5 million of cash on
hand and no direct outstanding borrowings on its $500 million revolving
credit facility. Funded debt (including capitalized leases) at May 3,
2008 totaled approximately $571.1 million, and
debt-to-capitalization was 32.6% (without giving effect to cash on
hand), down from 33.9% one year ago.
In the first quarter, the Company repurchased approximately 1.2 million
shares of common stock at an average price of $11.96. The Company has
remaining availability of approximately 34.4 million shares under its
existing repurchase authorization programs.
Kevin Wills, Executive Vice President and Chief Financial Officer,
commented, "We believe that our invested
cash, our cash flow, and the unfunded liquidity in our revolving credit
facility will provide flexibility for additional investments in our
business and may provide opportunities to further strengthen our balance
sheet and to purchase additional common stock.”
Management believes it is appropriate to target ongoing financial
leverage with a Funded Debt to EBITDA (Earnings before Interest, Taxes,
Depreciation, and Amortization) ratio of less than 2.5x.
Net capital spending for the quarter ended May 3, 2008 totaled
approximately $25 million.
Outlook for the Balance of 2008 and
Beyond
Sadove noted, "I remain optimistic about the
longer-term outlook for the luxury channel and for Saks Fifth Avenue in
particular. We are staying the course with our strategies and
initiatives as we are confident that these are right for the long term.
However, we believe the challenging macroeconomic and promotional
environment will continue for the balance of 2008 and that our 2008
operating margin (excluding certain items) will remain relatively flat
with 2007.”
Certain information provided in the Company’s
fiscal year end earnings release dated March 5, 2008 under the heading, "Outlook
for 2008,” is repeated or modified as
necessary below.
The Company’s financial expectations for 2008
(excluding the impact of certain items) are built on the following
assumptions:
Comparable store sales growth of mid-single digits for the full year,
with low-single digit comparable store sales growth in the second
quarter and mid-single digit comparable store sales growth in the
second half of the year. Comparable store sales assumptions for much
of the store base are flat in the aggregate, with somewhat higher
growth expected from the New York City flagship store, capital-aided
Saks Fifth Avenue locations, Saks Direct, and Off 5th.
Inventory levels are expected to generally remain in-line with the
Company’s sales growth expectations
throughout the year.
A modest decrease in the year-over-year gross margin rate for the full
year, with modestly improved gross margin rates in the second, third,
and fourth quarters, partially offsetting the gross margin decline
realized in the first quarter.
Modest SG&A expense leverage as a percent of sales for the full year,
excluding the impact of certain items, with more leverage expected in
the second half of the year.
Relatively flat Other Operating Expenses (rentals, depreciation, and
taxes other than income taxes) for the full year as a percent of sales.
Interest expense approximating $39 million.
Depreciation and amortization of approximately $143 million.
An effective tax rate of approximately 40.0%.
A diluted common share count of approximately 140 to 145 million,
assuming the convertible debenture is not convertible and therefore no
related share equivalents are added to the share count.
Annual capital expenditures of approximately $125 million, which will
include store renovations, maintenance capital, and ongoing
information technology enhancements.
Sadove concluded, "I continue to be
optimistic regarding our long-term plans and believe we can deliver
operating expansion in the years ahead as we benefit from our ongoing
strategic initiatives. I remain confident that we can grow the Company’s
operating margin to 8% and beyond over time.” Sales Detail
Total sales numbers below represent owned department sales and leased
department commissions for SFA and Club Libby Lu. Total sales (in
millions) for the first quarter ended May 3, 2008 compared to last year’s
first quarter ended May 5, 2007 were:
Total
Comparable
This Year Last Year Increase Increase
$862.4
$792.7
8.8%
8.4%
Leased department commissions included in the total sales numbers
above were as follows (sales in millions):
This Year Last Year
$7.6
$7.1
Conference Call Information
Management has scheduled a conference call at 10:00 a.m. Eastern Time on
Tuesday, May 20, 2008 to discuss first quarter results. To participate,
please call (706) 643-1966 (10 minutes prior to the call). A replay of
the call will be available for 48 hours following the live call. The
dial-in number for the replay is (706) 645-9291 (conference ID number
30476864).
Interested parties also have the opportunity to listen to the conference
call over the Internet by visiting the Investor Relations section of
Saks Incorporated’s corporate website at http://www.saksincorporated.com/investor_relations.html.
To listen to the live call, please go to the address listed at least 15
minutes early to register, download, and install any necessary audio
software. For those who cannot listen to the live broadcast, a replay
will be available shortly after the call, and a transcript will be
posted on the Company’s web site within 24 to
48 hours.
To be placed on the Company’s e-mail
notification list for press releases, SEC filings, certain analytical
information, and/or upcoming events, please go to www.saksincorporated.com,
click on "Investor Relations,”
click on "e-mail Alerts,”
and fill out the requested information.
About the Company
The Company currently operates Saks Fifth Avenue ("SFA”)
which is comprised of 54 Saks Fifth Avenue stores, 48 Saks Off 5th
stores, and saks.com. The Company also operates Club Libby Lu
specialty stores.
Forward-looking Information The information contained in this press release that addresses future
results or expectations is considered "forward-looking”
information within the definition of the Federal securities laws. Forward-looking information in this document can be identified through the use of
words such as "may,” "will,” "intend,” "plan,” "project,” "expect,” "anticipate,” "should,” "would,” "believe,” "estimate,” "contemplate,” "possible,”
and "point.” The
forward-looking information is premised on many factors, some of which
are outlined below. Actual consolidated results might differ
materially from projected forward-looking information if there are any
material changes in management’s assumptions. The forward-looking information and statements are or may be based on
a series of projections and estimates and involve risks and
uncertainties. These risks and uncertainties include such factors
as: the level of consumer spending for apparel and other
merchandise carried by the Company and its ability to respond
quickly to consumer trends; adequate and stable sources of merchandise;
the competitive pricing environment within the retail sector; the
effectiveness of planned advertising, marketing, and promotional campaigns;
favorable customer response to relationship marketing efforts of
proprietary credit card loyalty programs; appropriate inventory
management; effective expense control; successful operation of the
Company’s proprietary credit card strategic
alliance with HSBC Bank Nevada, N.A.; geo-political risks;
changes in interest rates; and fluctuations in foreign currency and
exchange rates. For additional information regarding these and
other risk factors, please refer to the Company’s
filings with the SEC, including its Annual Report on Form 10-K for the
fiscal year ended February 2, 2008, its Quarterly Reports on Form 10-Q,
and its Current Reports on Form 8-K, which may be accessed via EDGAR
through the Internet at www.sec.gov. Management undertakes no obligation to correct or update any
forward-looking statements, whether as a result of new information,
future events, or otherwise. Persons are advised, however, to
consult any further disclosures management makes on related subjects in
its reports filed with the SEC and in its press releases.
SAKS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Dollars In Thousands, Except for Per Share Data)
(UNAUDITED) Three Months Ended May 3, 2008 May 5, 2007
Net sales $ 862,352 100.0 % $ 792,747 100.0 % Cost of sales
533,064
61.8 %
464,467
58.6 % Gross margin 329,288 38.2 % 328,280 41.4 %
Selling, general and administrative expenses 204,747 23.7 % 212,845 26.8 % Other operating expenses: Property and equipment rentals 28,298 3.3 % 28,337 3.6 % Depreciation & other amortization 32,644 3.8 % 31,798 4.0 % Taxes other than income taxes 23,057 2.7 % 22,220 2.8 % Store pre-opening costs 287 0.0 % 136 0.0 % Impairments and dispositions
138
0.0 %
384
0.0 %
Operating income 40,117 4.7 % 32,560 4.1 %
Other income (expense): Interest expense (10,057 ) -1.2 % (11,980 ) -1.5 % Loss on extinguishment of debt - 0.0 % (5,222 ) -0.7 % Other income, net
947
0.1 %
2,835
0.4 %
Income before provision for income taxes 31,007 3.6 % 18,193 2.3 %
Provision for income taxes
12,730
1.5 %
7,156
0.9 %
Net income $ 18,277
2.1 % $ 11,037
1.4 %
Per-share amounts - Net income Basic earnings per common share: $ 0.13 $ 0.08 Diluted earnings per common share: $ 0.13 $ 0.07
Weighted average common shares: Basic 139,904 140,242 Diluted 140,830 156,274
SAKS INCORPORATED CONSOLIDATED BALANCE SHEETS (Dollars In Thousands)
(UNAUDITED) May 3, May 5, 2008 2007 ASSETS Current assets Cash and cash equivalents $ 124,523 $ 158,325 Merchandise inventories 841,068 811,577 Other current assets 141,677 133,700 Deferred income taxes, net
41,428
28,359 Total current assets 1,148,696 1,131,961
Property and equipment, net 1,081,785 1,095,218 Goodwill and intangibles, net 290 317 Deferred income taxes, net 96,459 142,438 Other assets
50,902
40,937 TOTAL ASSETS $ 2,378,132 $ 2,410,871
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 204,382 $ 236,826 Accrued expenses and other current liabilities 255,254 259,654 Dividend payable 1,475 3,813 Current portion of long-term debt
88,980
235,757 Total current liabilities 550,091 736,050
Long-term debt 482,130 351,428 Other long-term liabilities
162,543
177,399 Total liabilities 1,194,764 1,264,877 Commitments and Contingencies - - Shareholders' Equity
1,183,368
1,145,994 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,378,132 $ 2,410,871
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