Birmingham, AL, January 10, 2006-- Saks Inc., shook up top management on Monday and said it may put its 40-store Parisian department store chain on the block.
The department store operator also said it plans to give shareholders a big payout when it books the $1.7 billion in cash from the sale of its moderate-priced department store group in the first quarter.
The company tapped Stephen Sadove, vice chairman and chief operating officer, to replace R. Brad Martin as chief executive. Martin is a 16-year veteran of Saks and will hold on to his chairman post until the end of the 2006 fiscal year.
The company also has eliminated the chairman and chief executive positions at Saks Fifth Avenue Enterprises, leaving Fred Wilson without a job. His resignation was effective immediately. Wilson had been unable to stimulate sales at the Saks Fifth stores since joining the company in 2003. He had been president and chief executive of Donna Karan.
Andrew Jennings is staying at Saks Fifth as president and chief operating officer of the chain, reporting to Sadove.
"We would not be surprised if more management positions were eliminated," Merrill Lynch analyst Stacy Turnof said in a note to clients.
Sadove said that the company has begun downsizing its corporate and back-office staffs in preparation of a smaller company.
The retailer, best known for its upscale namesake stores, has been transforming itself into a pure luxury merchant by shedding stores such as Proffitt's, McRae's, Carson Pirie Scott & Co., and Bergner's since last year.
The company sold the Proffitt's/McRae's stores to Belk Inc., for $623 million in July and is planning to close on the $1.85 billion deal to sell the others, grouped under the Northern Department Stores Group, to Bon-Ton Stores Inc.
During the third-quarter earnings call last summer, Martin said the company had decided to keep the Parisian stores, but put the Club Libby Liu concept on the block.
"The operating performance of Parisian has steadily improved over the last two years through solid comparable-store sales growth, gross margin expansion and careful expense management," Martin said. "We believe there is a significant growth opportunity for this unique business."
Breaking off both concepts will leave the company with 55 Saks Fifth Avenue stores, 50 Saks Off 5th outlet stores and saks.com. The Parisian stores are on track to ring up $700 million in sales in the 2005 fiscal year while Club Libby Liu's have been estimated at $30 million. The Saks Fifth stores are projected to ring up sales of $2.7 billion.
Bank of America Equity Research analyst Dana Cohen believes that a sale of the Saks Fifth enterprise is now suspect. "This leaves the door open to a possible Saks Fifth transaction, but perhaps further down the road," she said in a report.
"We have never ruled out a potential transaction for the Saks Fifth business; rather, we have thought valuation was the sticking point between management and potential suitors.
Given that management spent some time enhancing the margins at Parisian, then put the business on the market, we would not rule out a similar process for Saks Fifth," she added. "However, we think some time will be first devoted to turning the performance at the business.
As for the windfall from the Northern Group's sale, Sadove said shareholders can expect to see a "substantial portion" of the $1.7 billion proceeds from the sale to Bon-Ton. That's likely to come through a special cash dividend, share repurchase or a combination of both.
In December, Saks' board approved another 35 million in share repurchases for a total buyback of 70 million shares. Already 12.9 million have been bought for about $223.7 million.
