Wall Street Journal
By Rachel Dodes
Luxury retailer Saks Inc. is cautiously rebalancing its merchandise toward its most expensive goods, as it grows more confident that sales will be driven by well-heeled customers paying full price.
The move marks a shift in how the high-end retailer is approaching its business as it moves further beyond the damage of the recession. Saks and its peers aggressively broadened their range in the aftermath of the downturn to add more entry-level prices as shoppers curbed spending during the financial crisis.
Now, however, Saks's core customers are picking up the slack, lifting the company's sales and margins for the quarter ended April 30.
Stephen Sadove, chairman and chief executive, said in a conference call Tuesday that "we are clawing our way back," after annual sales took a $600 million hit in the recession, which "came from the loss of the aspirational customer."
The New York-based chain of 46 full-priced stores and 57 Off Fifth outlets noted particular strength in women's and men's apparel, handbags and shoes. Mr. Sadove said it is Saks's core customers, not occasional aspirational shoppers, that are driving growth. As a result, the company is shifting its "good-better-best" product mix going forward by adding more merchandise into the "best" category.
The shift comes as prices are already rising due to higher material costs, labor expenses and exchange-rate moves. Ronald Frasch, Saks's president and chief merchandising officer, said such factors are pushing up the prices of some goods that will hit stores toward the end of the year in the range of 7% to 10%.
On Tuesday, Saks reported a fiscal first-quarter profit of $28.4 million, or 16 cents a share, up 51% from $18.8 million, or 11 cents a share, a year earlier. Sales rose 8.8% to $726 million. Sales at stores open at least a year, a key measure of retail health, rose 10.2%, the strongest gain since 2007 and the company's fifth consecutive quarterly increase following two years of declines.
Gross margin rose a full percentage point to 44.1%, exceeding the company's expectations. The company is forecasting a 30 to 50 basis point improvement in year-over-year gross margin rates for both the second quarter and second half of the year.
Mr. Sadove said the company plans to further increase inventory levels, up 4.3% in the first quarter, as sales levels have topped forecasts.
High-end retailers such as Saks have seen sales rebound strongly amid an influx of tourism and improving macroeconomic trends. Earlier this month, Bain & Co. forecast that luxury spending world-wide will rise 8% this year following a record year in 2010.
Saks expects sales at stores open at least a year to grow in the high single digit range in the second quarter, and in the mid-to-high single digit range for the second half of the fiscal year.
The company announced on Tuesday morning that it was adding four new Off Fifth outlet locations, a nod to the fact that some luxury buyers remain conscious of their spending.
