Saks Incorporated Announces Results for the First Quarter Ended April 29, 2006; Results Include Gain from NDSG Transaction

Business Wire, May 16, 2006

BIRMINGHAM, Ala. -- Retailer Saks Incorporated (NYSE: SKS) ("Saks" or the "Company") today announced results for the first quarter ended April 29, 2006.

The Company currently operates Saks Fifth Avenue Enterprises ("SFAE") which is comprised of 54 Saks Fifth Avenue luxury department stores, 50 Saks Off 5th outlet stores, and saks.com. The Company also operates Saks Department Store Group ("SDSG") consisting of 38 Parisian specialty department stores and 60 Club Libby Lu specialty stores.

On July 5, 2005, the Company sold substantially all of the assets directly involved in the Company's SDSG Proffitt's and McRae's department store operations to Belk, Inc., and on March 6, 2006, the Company sold substantially all of the assets directly involved in the Company's SDSG Northern Department Store Group ("NDSG") business to The Bon-Ton Stores, Inc. In January 2006, the Company announced that it is exploring strategic alternatives for Parisian. This process is currently underway.

Earnings Overview

Saks Incorporated recorded net income of $81.5 million, or $.60 per share, for the first quarter ended April 29, 2006. The quarter included a net after-tax gain of $70.3 million, or $.52 per share, primarily related to the gain on the NDSG transaction of $72.8 million, or $.54 per share, partially offset by asset impairments and dispositions of $2.6 million, or $.02 per share.

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

--expenses of approximately $1.0 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;

--expenses of approximately $4.0 million, or $.03 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 agreements with Belk and Bon-Ton) and severance (as the Company downsizes its organizational structure); 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 $16.2 million, or $.11 per share, for the prior year first quarter ended April 30, 2005, which included an after-tax gain of $1.4 million, or $.01 per share, primarily related to the disposition of assets associated with certain SFAE store closings. The prior year first quarter also included legal and other expenses related to the investigations totaling approximately $2.2 million, or $.02 per share.

For the current year first quarter, consolidated comparable store sales declined 1.9%. Total revenues declined 32.9% for the quarter, primarily reflecting the sale of the Proffitt's/McRae's and NDSG businesses. The consolidated gross margin rate declined by 20 basis points from last year, primarily related to the timing of the sale of the NDSG business (see "Comments on the Quarter" below). As a percent of sales, selling, general, and administrative expenses increased by approximately 60 basis points over the prior year. Excluding the impact of expenses related to the aforementioned investigations and retention/severance as well as expenses in the prior year related to litigation and supply chain initiatives (see "Comments on the Quarter - SDSG" below), the SG&A rate as a percent of sales would have been approximately 40 basis points higher than the prior year.

First Quarter Segment Performance and Commentary

For the first quarter ended April 29, 2006, operating income (loss) by
segment (in millions) was as follows:

                                Quarter Ended            Quarter Ended
                                Apr. 29, 2006            Apr. 30, 2005
                                -------------            -------------

SDSG                                  $ (1.8)                   $20.1
SFAE                                    39.7                     40.8
Items not allocated                    189.1                     (8.9)
                                       -----                    ------
   Total                              $227.0                    $52.0

Items not allocated to the business segments are comprised of the gain on the sale of the NDSG business (totaling $211.3 million on a pre-tax basis for the quarter ended April 29, 2006); the cost of certain services performed on behalf of the entire company; and those items not considered by corporate management in assessing segment operating performance, such as impairments, gains or losses on long-lived assets, certain store closing charges, debt restructuring charges, and certain retention and severance costs. Expenses associated with the investigations have been allocated to SFAE.

Comments on the Quarter

SDSG

For the first quarter, SDSG generated an operating loss of $1.8 million compared to operating income of $20.1 million last year. Operating income on a year-over-year basis was negatively affected by approximately $40 million from the sale of the Proffitt's/McRae's and NDSG businesses and positively affected by approximately $7 million related to prior year litigation and supply chain initiatives expenses. Excluding the impact of these items, SDSG's operating income would have significantly improved over last year.