Summer-long retail slump hits Saks Inc. share price hard

A little less than a year ago, consumers sensed the economy was picking up and took to the stores. As a result, the stock price of Saks Inc. (NYSE: SKS) and other department store retailers started creeping up, and by late April, had moved from $11 to nearly $18 per share.

Saks, the Alabama-based department store chain that owns the Younkers outlets at the Miller Hill Mall in Duluth and Superior’s Mariner Mall and Herberger’s stores in Virginia and Rice Lake, was a beneficiary of investor enthusiasm about the strength of the recovery. But since April peak, the story has changed drastically.

Saks stock has given back all the gains it made since last fall and analysts are warning investors away from clothing merchants like Younkers, Carson Pirie Scott, Herbergers, the Boston Store and the other department store chains in the Saks portfolio.

“Our sense was that July performance would be better,” wrote Prudential Equity Group analyst Lizabeth Dunn. “Yet sales were disappointing and we saw a number of downward earnings revisions across retail.” Prudential then posted an “unfavorable” rating on the textile apparel sector.

The moves clearly reflect a growing belief that earlier investor enthusiasm for department stores, was an overreaction. Doubts are creeping in as to the recovery’s staying power. One red flag was poor June and July retail sales reports. Two straight months of anemic consumer spending led to 60 percent of department stores coming in under the consensus analysts’ estimates for comparable store sales, according to Prudential’s Dunn.

This was accompanied by news that the U.S. economy added only 32,000 jobs in July, far less than expected and sparking fears that debt-laden consumers will continue to retrench.

Even though July is not considered an important month to retailers (they traditionally use it to hold clearance sales) the sales figures were alarming enough to focus Wall Street’s attention closely on the upcoming August and September back-to-school sales numbers. Higher gasoline prices and the end of the mortgage refinancing boom were cited as possible contributors to the situation, which, if true, will mean more of the same to come.

Saks, however, may be suffering unfairly by being in a tough sector. It is divided into two sectors: its Saks Fifth Avenue business, and the other chains it owns (which were the holdings of the former Proffitt’s Inc.). Saks Fifth Avenue did gangbuster business in July, as did many other luxury retailers, delivering a scorching 12.8 percent same-store sales increase. That more than made up for the lackluster 0.8 percent sales increase in its other stores — sales in the Midwest and Great Plains regions for them were especially poor. Cool weather was blamed by the company.

What that means for Saks’ stores in the region isn’t entirely clear. A spokeswoman at Saks’ Birmingham, AL., headquarters did not return a request for comment. In the past the company has refused to say anything about plans or sales for individual stores.

But Saks in recent years has shown a willingness to cut costs at the 50-store Younkers chain, which is based in Des Moines. Early last year Saks merged the chain’s home office operations with that of another subsidiary, Milwaukee-based Carson Pirie Scott & Co. Included in the move were Younkers’ merchandising and advertising-marketing functions.

Essentially, the Younkers chain ceased to exist as a separate entity at that point and became Carson Pirie Scott stores in everything but name. Saks said it’s saving $12 million per year as a result of the merger. About 270 positions were eliminated in Des Moines as a result of the move, as well as 25 jobs at Younkers’ furniture warehouse and distribution center in Green Bay.

Saks also has shown a willingness to close unprofitable Younkers stores in downtown areas and relocate to newer malls. The company last month announced the closing of its store in downtown Green Bay, a landmark retailing spot that for many years was the flagship of H.C. Prange department stores. A newer store has opened in a mall in suburban Ashwaubenon, WI.

Saks also has replaced struggling Younkers stores with newer stores in Eau Claire and Appleton.

At the Mariner Mall, however, Saks has signed a new five-year lease extension for its Younkers store, said John Severson, president of Quality Investments Inc., the mall’s St. Cloud, MN-based owner.

“The Mariner Mall Younkers is a nicely profitable one for Saks,” said Severson. “Their cost of doing business there is very inexpensive. They were one of the original retailers when the mall opened in 1980 and so they received very favorable terms. They made a wise decision to locate there.”

A spokeswoman for Miller Hill Mall refused to comment on the status of the Younkers lease there.