Saks Incorporated Announces Results for Third Quarter and Nine Months Ended October 29, 2005

Business Wire, Nov 15, 2005

BIRMINGHAM, Ala. -- Retailer Saks Incorporated (NYSE:SKS) ("Saks" or the "Company") today announced results for the third quarter and nine months ended October 29, 2005.

The Company operates two business segments, Saks Department Store Group ("SDSG") and Saks Fifth Avenue Enterprises ("SFAE"). SDSG consists of department stores under the Younkers, Herberger's, Carson Pirie Scott, Bergner's, and Boston Store nameplates (collectively the "Northern Department Store Group" or "NDSG"); Parisian specialty department stores; and Club Libby Lu specialty stores. On October 31, 2005, the Company announced it had agreed to sell NDSG to The Bon-Ton Stores, Inc. for $1.1 billion in cash plus the assumption of approximately $85 million of liabilities. The Company expects to complete this transaction early in the first fiscal quarter of 2006. SFAE is comprised of Saks Fifth Avenue luxury department stores, Saks Off 5th outlet stores, and saks.com.

On July 5, 2005, the Company sold substantially all of the assets directly involved in the Company's Proffitt's and McRae's department store operations to Belk, Inc. for approximately $622 million in cash plus the assumption of approximately $1 million of liabilities. Please refer to the Company's July 5, 2005 press release for additional information.

Prior period financial information contained in this release has been restated to reflect adjustments primarily related to improperly collected markdown allowances at an SFAE merchandising division, the timing of recording of vendor markdown allowances, and lease accounting methods (related to accounting for rent holidays, tenant allowances, and symmetry of lease terms). Please refer to the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2005 for additional information.

Earnings Overview

Saks Incorporated recorded net income of $0.2 million, or $.00 per share, for the third quarter ended October 29, 2005. The quarter included a net after-tax gain of $5.5 million, or $.04 per share, primarily comprised of (amounts are net of taxes):

--a gain of $10.0 million, or $.07 per share, related to the estimated insurance settlement on the Saks Fifth Avenue New Orleans store that was damaged by Hurricane Katrina, offset in part by

--expenses of $4.5 million, or $.03 per share, of asset impairments and additional transaction costs associated with the sale of the Proffitt's/McRae's business to Belk.

The quarter also included approximately (amounts are net of taxes):

--expenses of $4.6 million, or $.03 per share, related to legal and other costs associated with the recently completed investigations by the Audit Committee of the Company's Board of Directors of improper collections of vendor markdown allowances at Saks Fifth Avenue and other previously disclosed items and the ongoing investigations by the Securities and Exchange Commission and the Office of the United States Attorney for the Southern District of New York;

--expenses of $6.2 million, or $.04 per share, related to retention (as the Company must maintain adequate staffing to support its operations and to fulfill the obligations under its interim support services agreement with Belk and its anticipated interim support services agreement with Bon-Ton) and severance (as the Company begins downsizing its central organizational structure);

--expenses of $1.6 million, or $.01 per share, related to the insurance deductible for the SFAE New Orleans store; and

--income of $2.2 million, or $.02 per share, relating to the Company's estimated share of proceeds from the $3 billion Visa/MasterCard antitrust litigation settlement.

The Company recorded a loss of $30.4 million, or $.22 per share, for the prior year third quarter ended October 30, 2004, which included after-tax charges of $20.0 million, or $.15 per share, primarily related to asset impairments and the disposition of assets associated with SFAE store closings.

For the current year third quarter, consolidated comparable store sales increased 2.7%. Total revenues declined 11.2% for the quarter, reflecting the sale of the Proffitt's/McRae's business. The consolidated gross margin rate was flat with last year, and year-over-year selling, general, and administrative expenses were also flat with the prior year as a percent of sales. Excluding the expenses related to the investigations, retention/severance, and the insurance deductible for New Orleans and the income from the Visa/MasterCard settlement, year-over-year SG&A leverage would have improved by approximately 130 basis points.

For the nine months ended October 29, 2005, the Company recorded net income of $24.6 million, or $.17 per share. The nine months included a net after-tax gain of $64.0 million, or $.44 per share, primarily comprised of (amounts are net of taxes):

--a gain of $75.5 million, or $.52 per share, on the sale of the Proffitt's/McRae's business (including an $88.0 million non-cash write-off of goodwill) and

--a net gain of $10.0 million, or $.07 per share, related to the estimated New Orleans store insurance settlement partially offset by