NEW YORK (
has made a remarkable recovery since the depths of the recession, as the luxury shopper returns quicker than even the company's chief executive ever imagined.
CEO Steve Sadove told
that Saks took advantage of the recession, making significant changes that are now starting to bear fruit.
Earlier this week, the high-end department store reported significantly higher third-quarter profit, as sales rose and margins increased due to a pull-back in discounting.
During the quarter, Saks earned $36.3 million, or 20 cents a share, compared with $6.3 million, or 4 cents, in the year-ago period. Excluding items, the company actually earned 6 cents a share, better than the 3 cents analysts predicted.
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Sales grew 4.3% to $658.8 million, while same-store sales shot up 5.7%. Gross margin widened to 42.6% from 40.3% from more full-price selling.
Looking ahead to the holiday season, Saks is expecting fourth-quarter sales to grow in the mid-single-digit range.
This recovery has caught the attention of investors and last month Italian businessman Diego Della Valle raised his stake in Saks to 19% -- a move that prompted yet another flurry of takeover speculation. Sadove declined to comment on these rumors.
But while Saks has bounced back from its lows, becoming one of the standouts in the retail sector, Sadove still has trepidations.
Read on to see what will calm Sadove's lingering fears and his outlook for the luxury consumers.
TheStreet: What did Saks learn from the recession?
Sadove: When the recession hit the company and the sector took an enormous punch to the stomach, you saw the entire sector go down 20% to 25%. We stole a line from Rahm Emanuel, "Don't let a good recession go to waste."
We challenged everything about our business: cost structure, the product mix, marketing and how we sell the products. We knew we were going to come through the recession, but what did we want to look like at the other end? We took about $155 million in cost out of the company over an 18 month period out of a controllable cost space of about $900 million. So we took out 13-14% of costs.
On the product side we went to the vendor community and bought about 20% to 25% less product than before the recession. We found the vendor community was very, very willing to work with us in terms of changing the product mix. We went to the marketing side of it and became much more local in the way we went to market. We have a marketing plan for every store, which is totally different than how we operated before the recession and different than the way most retailers are operating. We changed the way we operate in stores in terms of the roles and responsibilities and how we train associates. On the product side, we have a lot more in the way of differentiated, exclusive product.
So when you look at the results now, what you find is we are in an environment where you are starting to see a lot of these things comes to fruition. I think when I look at the results of today, it is really the byproduct of a lot of these actions that have been brewing over the past couple of years and a culture that has been evolving.
TheStreet: What's your outlook for the high-end consumer?
Sadove: I think that the luxury consumer is feeling better, but I would not get euphoric. There are a lot of clouds on the horizon; the economy is still fragile. The high-end consumer is very much tied to how they feel about their net worth, and that means how is the stock market doing. So there is a very high correlation between the markets and our consumer. Right now we are feeling OK. A Dow at 11,000 plus is a lot better than when it was at 6,500, but it's not the same as when it was at 14,000 either.
Click below to listen to when Sadove will start to feel more optimistic on the luxury consumer.
TheStreet: What's the sweet spot for how much shoppers are currently willing to spend?
Sadove: It's interesting. When the recession started, people were shopping their closets and they weren't shopping the stores. Then you saw people who loved their brands and didn't want to trade down but were trading to lower price points within their brands. Now what you're finding is people are buying more of the specialty pieces. You are seeing more sales of special jewelry pieces, higher-end bags, a comeback in some of what I call the "best" price points, the higher price points, as well as some strength in the good/better price sales. There's growth across the board, but more of a resurgence than I would have expected at this point at the higher end.
TheStreet: What is the promotional environment for the holiday season?
Sadove: We have been consistently reducing the amount of promotions. So if you look at the first half of the year we were probably down about 30% in the amount of promotions we were doing. When we refer to promotions we are talking about the number of brands that are included in events and the value. So when we ran our Friends and Family event we decreased the sale from 25% off to 20%.
It's also a matter of cutting back on the number of days of a promotion. We are not starting to lap this reduction in promotions, having started cutting back on discounting in the fourth-quarter of last year. The industry over the last year has gotten in line in terms of inventory, so we have seen less promotion over the course of the year.
Click below to listen to Sadove explain the impact of sourcing costs on Saks business.
TheStreet: Saks recently launched its mobile Web site. What is the future of mobile for the business?
Sadove: More broadly speaking, the Internet is an enormous area of growth for us. We have seen 20%-plus growth this year in our Internet business and we see continued growth as our customer is shopping multi-channels. We are making sure that the online experience is even easier, and mobile is one way of doing that. We are also making improvements on the Web site with product reviews and one-click shopping. We are cautiously making some bets -- on inventory in certain categories, like shoes and handbags -- and on the Internet.
--Written by Jeanine Poggi in New York.
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