income of $25.0 million, or 14 cents per share, in the fourth quarter. The year-ago period included a net loss of $4.6 million, or 3 cents per share.
The latest quarter includes an after-tax gain of $3.4 million, or 1 cent per share. The gain consisted of
a net gain of $5.4 million primarily related to Saks Fifth Avenuestore closings and a $2.0 million non-cash pension charge related to excess lump sum
distributions during 2010.
Excluding this net gain, the company would have recorded net income of
$21.6 million, or $.13 per share, for the fourth quarter ended January
29, 2011.
The year-ago loss included the following after-tax items totaling $14.8 million, or $.09
per share:
charges of $17.3 million related to asset impairments,
a $3.1 million non-cash pension charge related to excess lump sum
distributions during 2009 primarily resulting from the Company's 2009
reductions-in-force, and
a net gain of $5.6 million related to federal and state tax
adjustments.
Excluding these items, the Company would have recorded net income from
continuing operations of $10.2 million, or $.06 per share, for the prior
year fourth quarter ended January 30, 2010.
Overview of Results for the Fiscal Year Ended
January 29, 2011
For the fiscal year ended January 29, 2011, the Company posted net
income of $47.8 million, or $.30 per share. The results included an
after-tax gain of $17.2 million, or $.11 per share, comprised of the
following items:
charges of $7.5 million primarily related to store closings and asset
impairments,
the aforementioned $2.0 million pension charge, and
a $26.7 million gain related to the reversal of certain estimated
income tax reserves deemed no longer necessary.
Excluding this net gain, the Company would have recorded net income of
$30.6 million, or $.19 per share, for the fiscal year ended January 29,
2011.
For the fiscal year ended January 30, 2010, the Company posted a net
loss of $57.9 million, or $.40 per share. Those results included the
following after-tax items totaling $10.4 million, or $.07 per share:
charges of $17.3 million related to asset impairments,
charges of $3.1 million related to the pension expense described
above, and
a net gain of $10.0 million related to federal and state tax
adjustments.
Excluding these items, the Company would have recorded a net loss of
$47.5 million, or $.33 per share, for the prior fiscal year ended
January 30, 2010.
Comments on the Fourth Quarter and Fiscal Year
Ended January 29, 2011
Stephen I. Sadove, Chairman and Chief Executive Officer of the Company,
noted, “I am very pleased with our fourth quarter and full year
operating performance. The meaningful year-over-year improvement
resulted from comparable store sales increases and gross margin rate
expansion. Our team executed very well during the year as we
strategically moved from defense to offense.”
“We achieved comparable store sales increases in each month of 2010,
with our strongest performance in the fourth quarter,” Sadove commented.
Comparable store sales rose 8.4% in the fourth quarter, exceeding the
Company's expectations. For the full fiscal year, comparable store sales
increased 6.4%.
In the Saks Fifth Avenue stores, several merchandise categories showed
relative strength during the fourth quarter, including women's and men's
apparel, handbags, and shoes. For the quarter, the sales increase in the
New York City flagship store was modestly below the Company's aggregate
comparable store sales performance.
Saks Direct posted an approximate 36% comparable store sales increase in
the quarter and an approximate 28% increase for the fiscal year. OFF
5TH's comparable store sales performance was below the Company's
aggregate comparable store sales performance for both the fourth quarter
and the year.
The Company generated year-over-year gross margin rate improvement in
the fourth quarter, up 130 basis points to 37.8% this year from 36.5% in
last year's fourth quarter. For the year, the gross margin rate was
40.1% in the current fiscal year versus 36.6% in the prior year, a 350
basis point improvement. The improvement exceeded management's
expectations and resulted from increased full-price selling and a
reduced level of promotional activity.
Managing Selling, General, and Administrative expenses (SG&A)
continues to be a key priority. For the fourth quarter (excluding
certain items), the Company achieved modest leverage. As a percent of
sales, SG&A expenses were 23.4% this year compared to 23.5% in the prior
year. This leverage was achieved in spite of incurring planned
incremental expenses to support the growth in Saks Direct as well as an
increase in workers' compensation expense during the quarter. In
addition, the Company's year-over-year proprietary credit card income
was lower primarily due to previously announced term changes with HSBC;
this income reduction was approximately $0.2 million and $5.2 million in
the fourth quarter and fiscal year, respectively. For the full year, as
expected, the Company experienced modest year-over-year deleverage of 20
basis points, with current year SG&A expenses totaling 25.6% of sales in
the current year compared to 25.4% last year.
The Company generated operating income (excluding certain items) of 5.9%
of sales in the current year fourth quarter compared to 3.6% in the
prior year fourth quarter. For the fiscal year ended January 29, 2011,
the Company's operating margin was 3.9% of sales, an improvement over an
operating loss of 0.8% in the prior year.
2010 Accomplishments
Sadove noted, “2010 was a year of good progress for Saks. We returned to
prudently and profitably growing the business while making investments
for the longer term. Some of the 2010 accomplishments we are most proud
of include:
We carefully managed our inventory, reduced our promotional activity,
and generated more full-price selling, which enabled us to achieve a
year-over-year 350 basis point improvement in gross margin rate.
We continued our focus on growing our assortment of exclusive,
differentiated, and limited distribution product at Saks Fifth Avenue,
taking that number to over 10% of sales. One of our biggest successes
in this area has been the Saks Fifth Avenue Men's Collection.
Remaining committed to the '9-box' grid and our 'good, better, best'
model, we appropriately balanced our inventory to customer trends by
store. We made inventory commitments in high-potential growth areas
such as shoes and handbags.
We improved the Saks Fifth Avenue in-store customer experience by
redefining store management roles and responsibilities, allowing
management to spend more time on the selling floor with customers and
developing sales associates. Sales associates received enhanced
product and service training and have begun taking more control of
their own business growth through the implementation of their
individual business development plans.
On the marketing front at Saks Fifth Avenue, each store took ownership
of expanding its market share by creating and executing its
comprehensive local business development plan which facilitates
acquiring, developing, and retaining customers. We became even more
targeted and deliberate with our marketing spend. Our creative
campaign, 'I'm going to Saks' was very well received by our customers
and the vendor community.
We made substantial progress in real estate rationalization by closing
six underperforming Saks Fifth Avenue stores, and we announced plans
for another closing in early 2011. Closing these locations will allow
us to focus our resources on our most productive locations.
We implemented important systems and process enhancements. We made
significant investments in demand chain management systems, including
Hold & Flow, focused on improving the allocation of merchandise to the
stores. We installed an advanced robotics system for fulfilling Saks
Direct orders which has increased productivity, improved space
utilization, and improved customer service. Approximately 40% of Saks
Direct's orders were being fulfilled on the new system by the end of
2010; the system is expected to be fully operational by mid-2011.
We continued our focus on expense control while making targeted
investments in areas such as Saks Direct with outsized growth
potential.
We meaningfully grew the Saks Direct business by increasing the
breadth and depth of our product offerings, personalizing our online
marketing, and substantially improving the customer experience through
website and process enhancements. Additionally, we launched numerous
off-price flash sale events called Fashion Fix. Saks Direct revenues
grew approximately 28% over the prior year.
At OFF 5TH, we opened four new stores and renovated one location. We
continued to strengthen and expand our product offerings, with more
emphasis on private brand and exclusive products. We continued to
extend our marketing reach through our MORE! customer loyalty program.
Our balance sheet remained strong. We ended the fiscal year with no
borrowings on our revolving credit facility and a year-over-year
increased cash position. We made a voluntary contribution of
approximately $20 million (in Saks common stock) to the Company's
frozen defined benefit pension plan which significantly strengthened
the funded status of the plan and will reduce future pension
contributions.”
Balance Sheet Highlights
Consolidated inventories at January 29, 2011 totaled $671.4 million, a
3.4% increase over the prior year. Inventories increased 5.8% on a
comparable stores basis.
At fiscal year end, the Company had approximately $197.9 million of cash
on hand and no direct outstanding borrowings on its revolving credit
facility.
Net capital spending for the fourth quarter and fiscal year ended
January 29, 2011 totaled approximately $18.9 million and $48.4 million,
respectively.
Outlook for and Approach to 2011
Sadove noted, “With improvement in the financial markets, we experienced
a more stable and predictable operating environment in 2010. We are
cautiously optimistic about the overall tone of business and the way our
customers are responding to our initiatives. As we move into 2011, we
remain committed to our core strategies. We will continue to take
balanced risks, making key targeted investments in inventory and
infrastructure where we believe the biggest opportunities are to drive
sales and profit growth. All of our strategies and initiatives are
focused on the customer and on providing a personalized, distinct, and
differentiated shopping experience. Some specific areas of focus for
2011 will be:
Saks Fifth Avenue Merchandising – we will continue to manage the
appropriate allocation of good/better/best merchandise by store,
expand our assortment of exclusive and differentiated product, and
focus on core businesses with outsized growth potential.
Saks Fifth Avenue Service – we will continue to elevate our customers'
in-store service experience through additional associate training and
execution of individual associate business development plans.
Saks Fifth Avenue Marketing – we will enhance marketing at the local
level, increasing our Customer Relationship Management (CRM) efforts
and by refining and executing our by-store local business development
plans.
Saks Direct – we will continue to drive growth in key merchandise
categories, expand Fashion Fix, and further enhance the shopping
experience.
OFF 5TH – we will drive additional growth in key merchandise
categories and expand into new categories, further develop and
leverage our loyalty and outreach programs, renovate select stores,
and add new store locations as appropriate.”
The Company's assumptions for 2011 are outlined below. Variation from
the sales trends, up or down, could materially impact the other
assumptions listed.
Comparable store sales are expected to grow in the mid-single digit
range for the full year.
Comparable store inventory levels are expected to be up in the
mid-single digit range throughout the year.
Based upon current inventory levels and the Company's promotional
calendar and permanent markdown cadence, the Company expects the gross
margin rate for the full fiscal year to be modestly above the 40.1%
rate achieved in 2010. The Company's gross margin rate is typically
higher in the first half than in the second half of the fiscal year.
As a percent of sales, year-over-year SG&A expenses (excluding certain
items) are expected to be flat to down slightly for the full fiscal
year, with modest deleverage in the first half of the fiscal year and
modest leverage in the second half of the fiscal year. SG&A dollar
increases primarily are expected to arise from incremental variable
costs associated with planned sales growth (primarily sales
associates' commissions), targeted investment spending to support Saks
Direct growth, targeted incremental media spending, and an increase in
employee benefit expense.
Other Operating Expenses (rentals, depreciation, and taxes other than
income taxes) are expected to total approximately $305 million to $310
million for the full fiscal year. Depreciation and amortization, which
is included in the above amount, should approximate $120 million for
the full year.
Based on existing debt arrangements and interest rates, interest
expense should approximate $51 million to $53 million for the full
fiscal year.
An effective tax rate of approximately 40.0% for the year.
A basic common share count of approximately 157 million and a diluted
common share count of approximately 160 million for the full fiscal
year. Share counts used in earnings per share calculations are
expected to fluctuate by quarter based on income levels, convertible
debt, and stock options.
Net capital expenditures of approximately $65 million to $75 million
for the full year.
Sadove concluded, “Our team is very focused on the future and is
committed to the innovation, creativity, and superb execution of our
strategies necessary to achieve our long-term financial and operating
goals and to further enhance shareholder value.”
Sales Detail
Total sales numbers below represent owned department sales and leased
department commissions for Saks Fifth Avenue stores, OFF 5TH stores, and
Saks Direct. Total sales (in millions) for the fourth quarter and fiscal
year ended January 29, 2011 compared to last year's fourth quarter and
fiscal year ended January 30, 2010 were:
|
|
|
Total |
Comparable |
||||||||||||
|
|
|
This Year |
|
|
Last Year |
|
|
Increase |
|
|
Increase |
||||
Fourth Quarter |
|
|
$ |
866.3 |
|
|
$ |
811.3 |
|
|
6.8 |
% |
|
|
8.4 |
% |
Fiscal Year |
|
|
$ |
2,785.7 |
|
|
$ |
2,631.5 |
|
|
5.9 |
% |
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Leased department commissions included in the total sales numbers above
were as follows (sales in millions):
|
This Year |
Last Year |
||||||
Fourth Quarter |
|
|
$ |
11.4 |
|
|
$ |
9.8 |
Fiscal Year |
|
|
$ |
31.8 |
|
|
$ |
27.2 |
|
|
|
|
|
|
|
|