Saks cuts losses in 3Q despite sales decline

Staff -- Home Textiles Today, 12/2/2002 12:00:00 AM

BIRMINGHAM, AL —

Getting a boost from significantly improved gross margins as well as several cost-cutting measures, Saks Inc. reversed a $21.8 million loss from the 2001 third quarter and posted net income of $1.9 million in the third quarter ended Nov. 2, 2002.

Saks restored profitability to its quarterly operations despite a 1.2 percent dip in its overall sales, which finished at $1.4 billion for the quarter. The company posted a 29.9 percent pickup in its operating profit, which reached nearly $187.5 million for the third quarter. This gain in operating profit came largely from the Saks Fifth Avenue sector of its operations, which turned around from a third-quarter 2001 operating loss of $18.9 million to record an operating income of $26.8 million this year.

Commenting on the company's performance, Brad Martin, chairman and ceo, said, "The year-over-year increase principally was driven by a significant improvement in the gross margin rate and diligent expense control." Indeed, Saks pumped up its average gross margin by 260 basis points in the third quarter, to 37.7 percent. Its diligence resulted in a 50-basis-point decline in its ratio of selling, general and administrative expenses to sales, to 24.4 percent.

Martin credited the gross margin improvement to "carefully controlled inventories and reduced levels of clearance merchandise and promotional activity." He also noted that the company was able to continue investing in key strategic initiatives even while monitoring its expenses. Also crucial to Saks' relatively strong third quarter was its ability to reduce its debt-to-capitalization ratio by 330 basis points, to 38.9 percent at the quarter's end.

Saks said the consolidation of Younkers' operations into the Carson Pirie Scott headquarters would take place in January 2003 and should trim operating expenses by a pretax $12 million at the beginning of the new year. January should also see the consummation of the credit card operation sale to Household.

During the third quarter, Saks opened a Parisian replacement store in its home city of Birmingham, AL; a new Parisian in Rochester Hills, MI; a Carson Pirie Scott replacement store in Rochester, MN; and a Saks Fifth Avenue replacement store in Las Vegas. As of the end of the quarter, the company had 244 department store group locations and 61 Saks Fifth Avenue stores.

Saks Inc.