Saks Incorporated updates outlook for balance of 2010

19 May '10

5 min read

Excluding the aforementioned store closing costs, the Company's operating margin expanded to 7.1% in the quarter from 0.4% in the prior year first quarter.

Outlook for the Balance of 2010
Sadove noted, "We remain optimistic about the long-term outlook for our Company and for the luxury sector as a whole. While our first quarter results exceeded our expectations, we still believe the overall environment remains uncertain, and we are approaching the remainder of 2010 with continued caution. However, our assumptions for the balance of the year reflect a somewhat stronger forecast than we had at the beginning of the year."

The Company's assumptions for the balance of 2010 are outlined below. Variation from the sales trends, up or down, could materially impact the other assumptions listed.

• Comparable store sales growth in the mid-single digit range for the full year, comprised of low-to-mid-single digit growth in the second quarter and mid-single digit growth in the second half of the fiscal year.
• Comparable store inventory levels are expected to be relatively flat at the end of the second quarter of 2010 and up modestly throughout the second half of 2010.
• Based upon current inventory levels and the Company's promotional calendar and permanent markdown cadence, the Company expects gross margins to approximate 39% for the full fiscal year, with second quarter gross margins in the 35.5% to 36.0% range and second half 2010 gross margins in the 38.2% to 38.7% range.
• The Company expects SG&A deleverage for the balance of the year. Year-over-year net SG&A dollars (excluding certain items) are expected to increase approximately 50 basis points (as a percent of sales) for the full fiscal year. SG&A dollar increases are expected to arise from incremental variable costs associated with planned sales growth (primarily sales associates' commissions), expenses related to new OFF 5TH stores, and a reduction in proprietary credit card income primarily related to previously announced term changes with HSBC (estimated at approximately $10 million to $12 million for the full year; approximately $2.0 million was recognized in the first quarter). In addition, the Company is making some targeted investment spending to support Saks Direct growth and incurring a modest increase in expenses related to its selling and local marketing/business plan initiatives.
• Other Operating Expenses (rentals, depreciation, and taxes other than income taxes) are expected to total approximately $75 million for the second quarter of 2010 and approximately $158 million to $160 million for the second half of 2010, bringing the full fiscal year to approximately $310 million to $312 million. Depreciation and amortization, which is included in the above amounts, should total approximately $120 million for the full fiscal year.
• Based on existing debt arrangements and interest rates, interest expense should total approximately $15 million for the second quarter of 2010 and approximately $29 million to $30 million for the second half of 2010, bringing the full year interest expense to approximately $58 million to $60 million.
• An effective tax rate of approximately 40.0% for the year.
• A diluted common share count of approximately 158 million to 160 million for the full fiscal year.
• Net capital expenditures of approximately $55 million for the full year.

Saks Incorporated

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