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RAPAPORT... Saks Inc. reported that its revenue barely improved, rising just 0.5 percent year on year to $707.8 million for the second quarter that ended on August 3. Same-store sales rose 1.5 percent. Cost of sales increased 1.5 percent to $448.7 million and gross margin slipped to 36.6 percent from 37.2 percent one year ago. The retailer reported a loss of $19.58 million compared with a loss of $12.3 million one year earlier.
Pending the $2.9 billion merger with Hudson’s Bay Company, which was announced on July 29, there is a 40-day “go-shop” period; however, Saks does not anticipate disclosing any developments. Given the proposed merger, Saks did not hold its regularly scheduled conference call following results this morning and it has discontinued providing forward-looking guidance.
The quarterly results included after-tax charges totaling $5.2 million and comprised of $1.1 million of store closing costs, a $1.6 million non-cash pension settlement and $2.5 million of expenses related to the pending merger. Excluding these items, Saks contended that its loss would have been $14.4 million.
Stephen I. Sadove, the chairman of Saks, noted that sales growth was modestly below expectations and contributed to the gross margin rate decline. He added that several merchandise categories showed strength during the second quarter, including women’s contemporary and advanced designer apparel; dresses; women’s shoes; handbags; fragrances; children’s apparel; and men’s accessories, shoes, and contemporary apparel.
“Our gross margin deterioration in the second quarter was principally due to higher levels of markdowns in men’s, women’s shoes and handbags. Sales in these areas were meaningfully above the company average but fell below our level of inventory investments in these categories. Consequently, we incurred higher year-over-year markdowns as we progressed through our normal second quarter clearance period. In addition, we delayed the start date of our annual end-of-spring-season clearance sale and in hindsight, we believe this negatively impacted our sales and gross margin performance for the quarter,” Sandove said.
Additionally, Saks experienced deleverage in the quarter and six months primarily related to incremental expenses needed to support its omni-channel and ''Project Evolution'' technology initiatives and its planned launch of saksoff5th.com, as well as additional marketing expenses targeted to maximize omni-channel revenue. At the company's main website, saks.com, sales continued to outpace its store sales and these online sales carry a higher level of overhead expenses.
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