Saks' Price Tag Too High

I love a good turnaround play.

For instance, I'm champing at the bit waiting for evidence that things are improving at Gap (GPS Quote). Wal-Mart (WMT Quote) is dirt cheap for a reason, but investors could be rewarded if its enormous house gets in order. And McDonald's (MCD Quote) has shown remarkable success in shifting its image from an artery-clogging fast-food joint to a healthier restaurant with a great cup of joe in addition to Big Macs.

Now another well-known brand, Saks (SKS Quote), has found its footing. The luxury retailer reported better-than-expected first-quarter numbers Monday, confirming that its improvement is progressing.

But I don't love this turnaround play. The fix is already priced into Saks' stock -- and then some.

Margin Miscues

In the first quarter, Saks earned $11 million, or 7 cents a share, down from $77.9 million, or 57 cents a share, a year earlier, because of the divestiture of its department-store division. Excluding one-time items, Saks earned 19 cents a share in the quarter, topping Wall Street's estimate of 16 cents.

Sales rose 16% to $793 million, beating analysts' average estimate of $787 million. Same-store sales for the quarter jumped a sizzling 14.4%, coming off an easy comparison of a 1.9% decline last year.

However, a 6-basis-point improvement in gross margin to 41.4% was viewed as something of a disappointment. Morgan Stanley's Michelle Clark, for one, expected gross margin to come in at 42.1%.