Saks Kills SFA Spinoff

Saks Inc. (Birmingham, Ala.) has announced that it will not be spinning off its Saks Fifth Avenue division by spring, as had been planned. Instead, the New York-based luxury retailer will be run as a separate operation – independent of the organization's other nameplates (including Proffitt's, Carson Pirie Scott, Parisian, Younkers, McRae's, Herberger's, Boston Store and Bergner's) – with separate management. It would, however, continue to participate in the corporation's back-room functions.

“Changing market conditions” prompted the move, according to Saks Inc. chairman R. Brad Martin, suggesting that with the recent sales and economic slowdowns luxury retailers were no longer getting premium values in the market.

The once high-flying Saks Inc. (formerly Proffitt's Corp. until it acquired Saks Fifth Avenue in 1998 and incorporated its name) has been struggling lately. Last month, it announced it was selling nine of its stores to May Department Stores (St. Louis). Earlier that month, it had had its Moody's Investor Services rating downgraded to below investment grade, the equivalent of a junk bond rating.

Saks Fifth Avenue, by contrast, had been sailing along successfully on the winds of the powerful economy. Saks Inc., its own stock falling, thought it could benefit from the high multiples other luxury retailers, like Neiman Marcus and Tiffany's, were getting. Then the stock market slowed down, and so did Saks Fifth Avenue. It reported a 3.4 percent decline in same-store sales for the fourth quarter of 2000. It was the first negative quarter the 60-store chain had had in more than three years.

Although the official statement from Saks Inc. cited a “sharpened focus” as the company “reviewed and strengthened (its) business plan,” analysts reacted skeptically. “Clearly,” said Shari Schwartzmann Eberts, a senior analyst at J.P. Morgan Securities, “the decision to terminate the spinoff was related to poor operating performance at the Saks Fifth Avenue business in the fourth quarter.”Christina Johnson, who had been ceo of Saks Fifth Avenue stores (the first woman ceo in Saks'history), was named president and ceo of Saks Fifth Avenue Enterprises (which includes the Saks Fifth Avenue and Off Fifth stores). Philip Miller, whom Johnson replaced as ceo last fall, will continue as chairman, which he has been since 1993.