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The week isn't yet over, but Saks (UNKNOWN: SKS.DL2 ) has posted two-day stock gains that double the returns of the last two years. Up more than 20% this week, the company posted a strong earnings release on Tuesday, sending the stock up over double digits. Then, rumors swirled once more that the luxury department store would be acquired and/or subject to a merger, sending the stock soaring again. Unfortunately, the current price leaves prospective investors with a price tag akin to those on the store's clothing, but let's take a closer look to find out just how strong this company is performing.
Who said department stores are bad?
J.C. what? Saks Fifth Avenue laughs in the face of issues plaguing its lower-income-targeting department store brethren. As it turns out, when a wealthy woman wants to throw down a couple of G's for a cocktail dress, she isn't quite ready to buy it on the Internet. At least, that's what Saks' latest earnings would lead you to believe.
For the first quarter ended in early May, Saks brought in $20 million, or $0.13 per share, in net income. Included in this was a more than $10 million one-time impairment charge due to store closings and a non-cash loss on extinguished debt. Adjusted net income comes in at $0.19 per share, or $30.1 million. This still comes in lower than the prior year's $32.7 million, though neither investors nor analysts seemed too worried about the drop.
Much more appealing was same-store sales, which soared just under 6% for the quarter, compared to the prior year's. Even more impressive is that this number comes in light of last year's 4.8% increase. On a store-by-store level, Saks appears to be one of the strongest in retail.
Like other retail operations trying to adapt in today's environment, Saks is putting a great deal of focus on its omnichannel expansion. Essentially, omnichannel retailing is an attempt to streamline the customer experience across all media -- increasingly important with the shift to mobile device shopping. Saks management believes that, though this may cause near-term pressure on profits, the expenses will pay off in the long term with continued sales growth.
As mentioned, earnings were not the only thing to set the buy button on fire for Saks stock.
After Tuesday's big-time earnings and strong prospects for the future, rumors flew that Goldman Sachs had been hired to shop around Saks to prospective buyers, as well as a rumor that buyout firm KKR (NYSE: KKR ) is a potential suitor for the company. Then, Bloomberg reported that KKR's potential plan would be to merge Saks with peer Neiman Marcus a move that would create a juggernaut luxury department store with more than $7 billion in total sales.
The news delighted investors and analysts, sending the stock up more than 13% in the day's trading.
Will the buyout/merger happen? At this point, it's speculation. A Saks buyout is not a new concept, as there were reports in 2010 that the company would be an attractive target with its valuable real estate and conservative balance sheet.
Overall, Saks is firing on all cylinders, and current investors should be delighted. If you haven't jumped on the train yet, though, I wouldn't advise doing so now. At nearly 30 times earnings, this company is far, far too richly valued for an entry point.
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.