Saks returns to profitability by reducing inventory

Cutting both promotions and inventory as its revenue rose helped luxury retailer Saks Inc. return to profitability in its first quarter and surpass Wall Street's expectations. Saks dramatically pulled back on ordering as the recession took hold, and it has worked with designers to lower its selling prices. Both moves have helped its results.

The upscale chain is considered a barometer of luxury spending, so industry watchers will closely check its performance for signs that its customers are resuming shopping as the economy begins to improve.The retailer indicated during a conference call with analysts that its shoppers are purchasing fewer items but at higher prices, a sign that high-end consumers are willing to spend more now for things they want.

For the period that ended May 1, Saks' net income was $18.8 million, or 11 cents per share. It reported a loss of $5.1 million, or 4 cents per share, a year earlier. Revenue climbed 7 percent to $667.4 million from $624.3 million as shoppers picked up women's and men's clothing, handbags, shoes and jewelry at its Saks Fifth Avenue stores. Excluding one-time charges of a penny per share mostly related to severance pay and store closing costs, Saks earned 12 cents per share.

Wall Street analysts polled by Thomson Reuters on average expected a smaller profit of 5 cents per share on revenue of $662.9 million. They typically exclude one-time items.

Revenue at stores open at least a year rose 6.1 percent. This figure is a key indicator of a retailer's performance because it isn't skewed by results from stores that opened or closed during the year.

Saks reduced its consolidated inventories by 9.9 percent to $702.1 million. The retailer also is honing its business by closing less profitable stores. The chain said Monday that it plans to shut its Saks Fifth Avenue store in Charleston, S.C., by July 17. It previously announced plans to close stores in Portland, Ore., and San Diego in July.

While pleased with the company's quarterly performance, Sadove said in a statement that Saks is approaching the rest of the year with caution because the economy remains uncertain. Saks predicts its revenue at stores open at least a year will rise by a percentage in the mid-single digits for the full year and for the second half of the year, but it forecasts slower growth in the current quarter.

Source: Inside the Bay Area - The Oakland Tribune By MICHELLE CHAPMAN AP Business Writer