Saks: 'High End Consumers Have Fallen Dramatically'

 |  Includes: BID, HSBC, JWN, NILE, SKS, TIF
by: Judy Weil

Macro, retail and credit card trends that emerge from Saks Inc.’s Q308 conference call:

The rich are no longer richer:

During the quarter we experienced a greater decline among our high end customers consistent with the performance of the financial markets. This is in contrast to the stronger trends among this group that we had seen earlier in the year... I don’t think any of us anticipated that the high-end consumer was going to fall off as dramatically as they have.

Saks and the stock market:

If you were to do a correlation between the Dow Jones performance and our performance, it’s almost a 0.9 something our square in terms of the trend.

I was talking a year or two ago to all of you about the single best predictor and this was when the Dow was at 12 or 13, the best predictor of our performance is tell me where the Dow is at and I’ll tell you how we’re doing and I said at that time if we got down to 9 or 9500 I’d be very concerned and now we’re down at a level well below that.

Our consumer [has] seen a major hit on their portfolios and they [are] in a frozen mode, shell shocked relative to how they feel about their portfolio.

Saks and the city:

In previous quarters comp store sales performance of the New York City flagship store which comprises approximately 20% of our total company revenues, meaningfully outperformed the balance of the store base.

We saw this trend change in the third quarter with the New York store sales performance only slightly better then the company average. October was a more difficult month for this location as the financial markets worsened, news of bank failures and additional layoffs took hold, and tourism slowed.

Bank is helping Saks drum up sales and credit card use:

[We have] a major purchase account promotion where with a minimum $2,000 purchase in a single day across the store an individual can get no interest, no payments for a year on their purchases. We’ve seen a very good response on the part of the consumer to it… We are doing it across the board.

HSBC (HBC) is funding this. It’s not a liability on our part and we feel very good about the partnership, its part of the partnership that we have with HSBC and I think its something that’s going to help us during this holiday season.

Pension trouble:

As we began 2008 [our pension] plan was slightly overfunded. However… the plan has experienced a significant decline in asset value during 2008.

We will not know the impact on the 2009 expense for funding requirements until some time in January of 2009. However, barring an unforeseen dramatic rebound in the financial markets over the next month and a half, we expect a significant increase in annual pension expense in 2009.

Our current estimate will be an increase in the range of $12 million to $14 million. And we may have to make a cash contribution to the plan in order to maintain an 80% funding level. We would currently estimate the 2009 funding requirement to be in the $5 million to $15 million range.