Saks Incorporated Announces Results for the Second Quarter Ended August 2, 2008

Business Wire, August 19, 2008

NEW YORK -- Retailer Saks Incorporated (NYSE: SKS) ("Saks" or the "Company") today announced results for the second quarter and six months ended August 2, 2008.

Overview of Results for the Second Quarter and Six Months

Saks recorded a net loss of $31.7 million, or $.23 per share, for the second quarter ended August 2, 2008. The second quarter included the following after-tax items totaling $1.0 million, or $0.01 per share:

* $0.8 million related to asset impairments and dispositions (primarily the Saks Fifth Avenue Ft. Lauderdale store closing) and

* expenses of approximately $0.2 million for severance costs related to the Ft. Lauderdale store closing.

For the prior year second quarter ended August 4, 2007, the Company recorded a net loss of $24.6 million, or $.17 per share. The prior year second quarter included the following after-tax items totaling $4.3 million, or $.03 per share:

* expenses of approximately $2.0 million for retention, severance, and transition costs related to the Company's downsizing and consolidation following the disposition of its Saks Department Store Group (SDSG) businesses,

* $2.0 million related to asset impairments and dispositions, and

* a loss on extinguishment of debt totaling $0.2 million related to the repurchase of $10.4 million of senior notes.

For the six months ended August 2, 2008, Saks recorded a net loss of $13.4 million, or $.10 per share. The six months included the following after-tax items totaling $1.0 million, or $0.01 per share:

* $0.8 million related to asset impairments and dispositions (primarily the Saks Fifth Avenue Ft. Lauderdale store closing) and

* expenses of approximately $0.2 million for severance costs related to the Ft. Lauderdale store closing.

For the prior year six months ended August 4, 2007, the Company recorded a net loss of $13.6 million, or $.10 per share. The prior year six months included the following after-tax items totaling $22.2 million, or $.16 per share:

* expenses of approximately $15.6 million for retention, severance, and transition costs,

* a loss on extinguishment of debt totaling $3.4 million related to the repurchase of $106.3 million of senior notes,

* $2.2 million related to asset impairments and dispositions, and

* expenses of approximately $1.0 million associated with the previously disclosed investigations.

Comments on the Second Quarter and Six Months Ended August 2, 2008

Stephen I. Sadove, Chairman and Chief Executive Officer of the Company, noted, "While business became much more challenging in the second quarter, I believe our organization has responded well to the changing environment.

"Comparable store sales for the second quarter would have been slightly positive excluding the shift of a spring season clearance event into the first quarter this year from the second quarter last year. Comparable store sales for the spring season increased 2.7%. While substantially slower than the robust growth we had experienced over the last two years, this performance was still among the best in the industry. In addition, we have made substantial progress in reducing our inventory levels from where they were at the beginning of the fiscal year."

Sadove continued, "During the quarter, we experienced a softening across nearly all geographies and merchandise categories, although generally the better performing geographies and categories in prior quarters were still the better performing areas in the second quarter. Some of the strongest merchandise categories for Saks Fifth Avenue during the quarter included shoes; jewelry; accessories; and men's contemporary apparel, shoes, and accessories. We experienced widespread weakness in women's apparel. The New York City flagship store continued to outperform the company average, and certain of the Company's newly-renovated stores continued to post better-than-average results."

Both Saks Direct and Saks Fifth Avenue OFF 5TH ("OFF 5TH") continued to post outsized sales growth for the quarter. Saks Direct revenues grew over 30% for the second quarter on top of last year's 40% second quarter growth.

The Company's gross margin rate declined by 60 basis points in the quarter. Second quarter year-over-year SG&A expense (excluding certain items) increased 140 basis points as a percent of sales, and Other Operating Expenses (depreciation, rents, and taxes other than income taxes) increased 60 basis points as a percent of sales for the period. The comparable store sales decline was the principal driver of the expense deleverage during the quarter. The previously noted spring season clearance event shift not only impacted sales but other components of the income statement as well. Absent the event shift, management estimates that the second quarter gross margin rate would have declined by approximately 240 basis points, second quarter SG&A expense (excluding certain items) would have increased by approximately 50 basis points, and Other Operating Expenses would have been relatively flat as a percent of sales.

For the six months ended August 2, 2008, the Company's gross margin rate declined by 190 basis points, SG&A expense (excluding certain items) increased by 50 basis points, and Other Operating Expenses decreased by 10 basis points.