Saks Sags

Posted by: Charles DuBow on May 20

Quick—what’s the difference between Saks (SKS) and Hermes (HRMS)? Well, that’s a bit unfair as there are many differences but both are high-end retailers. The difference I had in mind is that Hermes operates stores around the world while Saks is only in the U.S. That difference goes a long way towards explaining why Hermes was able to post a gain for its first quarter earnings on May 7, while Saks missed analyst expectations by four cents, causing its share price to drop almost 8%.

Saks did in fact see Q1 profits jump 66% but the stock still fell $1.08 to $13.05 in mid-day trading.

While most luxury retailers that have a strong presence in Europe and developing markets like Russia and India were all able to report relatively strong first-quarter earnings, those with a U.S.-only footing, like Saks will find themselves for more exposed to the wobbly U.S. economy. To be sure, tourists visiting the U.S. will be able to take advantage of hefty discounts thanks to the weak dollar but they won’t be able to replace the volume of American shoppers who have cut back on their discretionary spending.

Saks’ shareholders may be in for some relief, however. As BusinessWeek.com reported in January, Icelandic retail king Jón Asgeir Jóhannesson is reportedly looking at a possible takeover bid for Saks. His Baugur Group has a war chest of £1.5 billion and is actively looking to establish a presence in the U.S. As we reported in January, Baugur had already built up an 8% stake in Saks and could go higher.

Baugur has stakes in 20 retailers, with more than 3,900 outlets in 35 countries and total sales in excess of $19 billion.

Whether Baugur makes a move—or someone else does—it would seem that retailers like Saks need to expand their brands overseas where growth—and economies—are, for the time being, more robust.