Slowdown in luxury spending may hit Saks
Reuters
NEW YORK (MarketWatch) -- A slowdown in U.S. high-end spending that has hurt retailers from
Saks fell 3% to $10.56, trading opposite to broader markets, after it was cut to underperform from neutral by Bank of America-Merrill Lynch analyst Lorraine Hutchinson.
So far this year through Thursday, Saks (SKS) shares had risen 12%, outperforming the 6.1% increase of the S&P 500
(SPX)
. It also had beat its luxury counterparts. Tiffany (TIF) had fallen 23% during the same period.
"Sales trends across luxury have begun to slow and we think the recent volatility in the stock market could create near-term headwinds for Saks' customer," the analyst said.
She lowered her second-half same-store sales estimate on Saks to a 4% increase from a 5% gain.
Other analysts have also issued concerns about high-end spending. Citigroup in late June cut its rating on Nordstrom, Saks, and Macy's. See related story on high-end retailers clouded by spending concern.
The stock market volatility as a result of uncertainty in the global economy is "the biggest risk" to Saks' sales, Hutchinson said, adding the company's same-store sales have demonstrated a 76% correlation to the S&P 500 performance since 2003.
Saks sales also have had a 78% correlation to those from Tiffany's New York flagship, where sales turned negative and dropped 4% in the first quarter.
It "adds some risk" to the Saks New York flagship, over 20% of the company's total sales, she said. "This is a relevant indicator as we expect Tiffany's NYC flagship (comparable sales) to remain under pressure for the remainder of 2012."
Macy's upscale chain Bloomingdale's also saw sales begin to slow in May, while Neiman Marcus saw sales slow toward the end of the first quarter, the analyst noted, adding Neiman Marcus has pointed to weak European tourist traffic at its Bergdorf Goodman store in New York.
A sign of caution can also be seen at luxury labels.
As an early sign that sales could be slowing for Saks, the retailer's women's designer apparel sales failed to meet company expectations, she said.
"Sales at Saks have held up remarkably well despite a slowdown in tourism and Wall Street spending, but we expect this trend to become more difficult to maintain in the second half of the year," she said.
Saks also has the biggest exposure, should the U.S. luxury spending slow down because of its domestic concentration, the analyst said. In comparison, Tiffany generates about half of its sales overseas while Coach has about 30% of total internationally.
Saks operates 45 Saks Fifth Avenue stores and 63 Off 5th discount outlets in the U.S. It has some licensed locations overseas from Dubai to Mexico.
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