Retail Renewal Carries Saks

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The economy giveth, and the economy taketh awayeth. After some hard times, Americans are opening their wallets at a record pace, despite disturbing signs that the spending is a bit dangerous. You might think that consumers would remain jittery about the economic upturn and confine their spending to discounters like Wal-Mart (NYSE: WMT), Target (NYSE: TGT), and the "lovely"TJX (NYSE: TJX). But upscale retailers such as Saks (NYSE: SKS) have been hitting their stride lately.

This week's retail sales report for February shows good gains for Saks, with a 16% total sales jump and 14.7% same-store sales gain. Its premium competitors also exhibited strength during the year's shortest month, with Neiman Marcus Group (NYSE: NMGB) posting a 24% gain in comps and total sales, and Nordstrom (NYSE: JWN) notching a 12% comps uptick.

Saks also recently reported fourth-quarter and full-year 2003 numbers that demonstrate that recent sales increases, along with restructuring, have repositioned the firm to deliver earnings growth. The bottom line for the fourth quarter shows net profit of $0.57 per share, a 21% bump over the same period last year.

Because of red ink earlier in the year, full-year earnings were just $0.58 per share, though that nearly tripled last year's skimpy $0.17 per stub. There were many charges and credits baked into the results for both years -- too many to detail here -- but the firm's prognosis looks favorable.

Saks's shares have more than doubled over the past year to around $17 a ticket. While that seems fair to me given the retailer's vastly improved operations, I wouldn't dive into the waters just now. Increased cash and reduced debt, along with margin improvements, indicate a firm that's serious about digging profits out of existing sales. But retail competition is fierce, and American consumers are easily spooked. Given these facts, and that Saks is still in a nascent earnings growth recovery, I'd like to see a few more solid quarters before investigating it further.

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Fool contributor Seth Jayson isn't the kind of guy who invests in retail companies, so he has no stake in any firm mentioned here.