Saks Second Quarter Results Miss Estimates

(RTTNews) - Luxury retail chain Saks, Inc. (SKS), which is being acquired by Canadian department-store chain Hudson's Bay Co. (HBC.TO), reported Monday a loss for the second quarter that widened from last year, reflecting lower margins amid higher levels of markdowns. However, comparable store sales or sales at established stores, grew 1.5 percent from last year.

Adjusted loss per share came in wider than analysts' expectations, and quarterly revenues missed their estimates. The company also discontinued providing forward-looking guidance due to the pending Hudson's Bay deal.

Saks agreed on July 27 to be acquired by Hudson's Bay for $16 per share in an all-cash deal valued at about $2.9 billion, including debt. The deal, which has the approval of both the companies board of directors, is expected to close before the end of the calendar year.

Meanwhile, the terms of the deal provides for a 40-day "go-shop" period, during which Saks may solicit alternative proposals from third parties.

"While the second quarter was our fourteenth consecutive quarter of posting a comparable store sales increase, our sales growth was modestly below our expectations. This shortfall contributed to our second quarter year-over-year gross margin rate decline and SG&A expense deleverage," Chairman and CEO Stephen Sadove said in a statement.

The New York-based operator of 42 Saks Fifth Avenue stores, 66 Saks Fifth Avenue OFF 5TH stores, and the website saks.com reported a net loss of $19.58 million or $0.13 per share for the second quarter, wider than $12.30 million or $0.08 per share in the prior-year quarter.

Excluding one-time items, adjusted net loss for the quarter was $14.4 million or $0.10 per share, compared to loss of $8.0 million or $0.05 per share in the year-ago quarter.

On average, 13 analysts polled by Thomson Reuters expected the company to report a loss of $0.08 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter edged up 0.5 percent to $707.84 million from $704.12 million in the same quarter last year, but missed eleven Wall Street analysts' consensus estimate of $732.55 million.

Comparable store sales increased 1.5 percent for the quarter on top of a solid 4.7 percent increase last year.

"Several merchandise categories showed sales 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," Sadove added.

Operating margin for the quarter contracted 260 basis points as SG&A expenses, as a percent of sales, increased 260 basis points, and gross margin declined 60 basis points, due to higher levels of markdowns in men's, women's shoes, and handbags.

Consolidated inventories stood at $832.5 million at the end of the second quarter, an 11.1 percent increase over the prior year. Inventories also increased 12.7 percent on a comparable stores basis.

Looking ahead, the company said it is discontinuing the issuing of forward-looking guidance, owing to the pending transaction with Hudson's Bay.

SKS closed Friday's regular trading session at $16.02, down $0.01 on a volume of 1.53 million shares. In the past 52-week period, the stock has been trading in a range of $9.24 to $17.51.