Saks rallies 6% on same-store sales growth
Is there more than meets the eye to Saks' recent success?
Saks (SKS) is riding high on its comparable store sales increase of 4.7%. That figure inspired a rally that moved shares more than 6% Tuesday. Is this a sign of things to come for the upscale retailer?
It could be -- but there are a few points worth noting. For starters, Saks decided to follow in the footsteps of its competitors and will no longer report monthly same-store sales results. Saks also announced that gross margins fell to 37.2% in the second quarter from 38% a year earlier. Saks blames the decline on "incremental second quarter markdowns in certain merchandise categories needed to move through the company's normal clearance cycle."
The retail industry is cyclical, so it is not too surprising to see that investors seemed more interested in the sales increase. That said, it is important to note that Saks' increase is much lower than it was a year earlier. Saks grew sales by 15.5% in the second quarter of 2011 and 12.7% during the first six months of 2011. In 2012, sales rose by only 4.7% for both the quarter and the first six months.
This decline could be blamed on a variety of issues (stiff competition, economic turmoil, etc.), but the cause is not as important as the outcome. For the time being, Saks' growth appears to be slowing.
Year-to-date, Saks' shares have practically redefined what it means to be a roller coaster stock, dropping 10% in the first week of January. In the following weeks, Saks gained 30%. Its growth was short-lived, however, as the stock struggled to maintain its year-to-date high of $11.89, which was achieved on Feb. 28.
Aside from a brief spike in May, Saks spent most of the spring season fighting a downward trend that took another 10% off the stock. As it stands, Saks is still trading higher than it was when the year began. However, the retailer may not be able to sustain its share price if its sales growth continues to decline.
Investors should keep a close eye on Saks in the coming months, especially during the holiday shopping season.
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Before you get all "giddy" over the same store sales being up by 4.7% you have to understand what caused this. Was it because Saks sold more merchandise or was it because they raised their retail prices which then gives the illusion that things are improving. My bet...is that they raised prices and it was probably by double digits so for their comp store sales to by up 4.7% actually is a negative trend. Once again, the media "spin doctors" want to portray to the public that things are great but the truth of the matter is they are not.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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