Saks Incorporated Announces Results for the Second Quarter and Six Months Ended July 29, 2006

Business Wire, August 15, 2006

BIRMINGHAM, Ala. -- Retailer Saks Incorporated (NYSE: SKS) ("Saks" or the "Company") today announced results for the second quarter and six months ended July 29, 2006.

Overview of Results

Saks Incorporated recorded a net loss of $51.9 million, or $.38 per share, for the second quarter ended July 29, 2006. The quarter included net after-tax charges totaling $13.9 million, or $.10 per share, primarily consisting of (i) a $12.8 million, or $.09 per share, non-cash charge related to the treatment under Financial Accounting Standard 123R ("FAS 123R") of the anti-dilutive adjustment made to outstanding options related to the Company's $4 per share dividend and (ii) a $1.1 million, or $.01 per share, charge primarily related to asset impairments and dispositions.

In accordance with the provisions of FAS 123R, which became effective at the beginning of the Company's fiscal year, the Company recorded an after-tax non-cash $12.8 million charge related to the adjustment of the number of stock options and their associated exercise prices. As a result of the May 1, 2006 $4 per share dividend, the Human Resources Committee of the Company's Board of Directors exercised its discretion under anti-dilution provisions of the Company's employee stock option plans to adjust the exercise price and number of stock options to reflect the change in the share price on the May 2, 2006 ex-dividend date. The option holders received no incremental economic value from the anti-dilution adjustment; however, the application of the FAS 123R revaluation requirements resulted in a $12.8 million after-tax non-cash charge.

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

--expenses of approximately $0.8 million, or $.01 per share, related to legal and other costs associated with the previously disclosed investigations by the Securities and Exchange Commission and the Office of the United States Attorney for the Southern District of New York, which are ongoing, and

--expenses of approximately $3.6 million, or $.03 per share, related to retention and severance as the Company downsizes its organizational structure.

The Company recorded net income of $8.2 million, or $.06 per share, for the prior year second quarter ended July 30, 2005. This net income included an after-tax gain on discontinued operations of $77.8 million, or $.54 per share, related to the Proffitt's/McRae's business, partially offset by an after-tax loss of $18.8 million, or $.13 per share, primarily related to a loss on debt extinguishment. The prior year second quarter also included legal and other expenses related to the investigations totaling approximately $3.3 million (net of taxes), or $.02 per share, and approximately $3.5 million (net of taxes), or $.02 per share, of severance and retention expenses. Since the transition service agreements related to Proffitt's/McRae's with Belk, Inc. have ended, the Proffitt's/McRae's business has now been classified as "discontinued operations" in the prior year financial statements.

For the six months ended July 29, 2006, the Company recorded net income of $26.0 million, or $.19 per share. The period included a net after-tax gain of $52.8 million, or $.39 per share, primarily related to the gain on the sale of NDSG of $69.0 million, or $.51 per share, partially offset by the FAS 123R charge noted above and asset impairments and dispositions of $3.4 million, or $.03 per share.

The six months also included (amounts are net of taxes):

--expenses of approximately $1.8 million, or $.01 per share, related to legal and other costs associated with the previously disclosed investigations;

--expenses of approximately $7.6 million, or $.06 per share, related to retention and severance; and

--income of approximately $2.5 million, or $.02 per share, due to the favorable conclusion of certain tax examinations.

The Company recorded net income of $24.4 million, or $.17 per share, for the prior year six months ended July 30, 2005. This net income included an after-tax gain on discontinued operations of $80.2 million, or $.56 per share, related to the Proffitt's/McRae's business, partially offset by an after-tax loss of $17.3 million, or $.12 per share, primarily related to the aforementioned loss on debt extinguishment. The prior year six months also included legal and other expenses related to the investigations totaling approximately $5.6 million (net of taxes), or $.04 per share, and approximately $3.5 million (net of taxes), or $.02 per share, of retention expenses.

For the current year second quarter, consolidated comparable store sales increased 2.9%. Total revenues declined 37.4% for the quarter, primarily reflecting the sale of the NDSG business. The consolidated gross margin rate declined by 160 basis points from last year, principally due to the sale of NDSG. The gross margin rate at both Parisian and SFAE was essentially flat on a year-over-year basis for the quarter. As a percent of sales, SG&A expenses increased by approximately 160 basis points over the prior year; however, excluding the charge associated with the FAS 123R ($19.6 million on a pre-tax basis), SG&A expenses would have declined approximately 100 basis points year-over-year. Other operating expenses (depreciation, rent, and taxes other than income taxes) increased 100 basis points as a percent of sales since these expenses typically are higher as a percent of sales for SFAE and Parisian than at the SDSG businesses that were sold.