Saks Incorporated recorded net income of $12.4 million, or $.09 per share, for the third quarter ended November 1, 2003, compared to net income of $1.9 million, or $.01 per share, last year.
Included in net income for the third quarter ended November 1, 2003 was a net gain of $5.5 million (net of taxes), or $.04 per share, resulting from a tax credit recorded following the resolution of federal income tax issues, partially offset by charges related to lease liability settlements, the disposition of certain long-lived assets, and severance costs. Included in the comparable prior year period were certain charges totaling $2.6 million (net of taxes), or $.02 per share, primarily related to divisiona consolidation activity and the then pending sale of the Company's private label credit card portfolio.
For the third quarter, total sales grew 4.3%, and comparable store sales increased 3.1% on a consolidated basis (1.8% for SDSG and 5.0% for SFAE).
At quarter end, the Company had approximately $280 million in cash on hand, no borrowings on its $700 million revolving credit facility, and a debt-to-capitalization ratio of 37.6%.
During the quarter, the Company purchased approximately 1.1 million shares of common stock (for approximately $12.6 million), bringing the total repurchased under its 35-million-share repurchase authorization programs to 12.9 million shares.
The Company currently operates two business segments, Saks
Department Store Group (“SDSG”) and Saks Fifth Avenue Enterprises
(“SFAE”). SDSG consists of the Company's department stores under the
Parisian, Proffitt's, McRae's, Younkers, Herberger's, Carson Pirie
Scott, Bergner's, and Boston Store nameplates and Club Libby Lu
specialty stores. SFAE is comprised of the Saks Fifth Avenue luxury
department stores and Saks Off 5th outlet stores.
For the nine months ended November 1, 2003, the Company recorded
net income of $1.0 million, or $.01 per share, compared to a net loss
of $43.9 million, or $.30 per share, last year. Included in net income
for the current year nine months was a net gain of $10.0 million (net
of taxes), or $.07 per share, comprised of the $11.1 million tax
credit and a $3.2 million gain on the sale of the private label credit
card portfolio partially offset by $4.3 million of charges primarily
related to settling lease liabilities associated with closed stores,
the disposition of certain long-lived assets, and severance costs.
Included in the comparable prior year period were certain charges
totaling $49.9 million (net of taxes), or $.34 per share, primarily
related to the cumulative effect of a change in accounting for
goodwill.
Operating income (loss) by segment (in millions) was as follows:
Quarter Ended Nine Months Ended
----------------- -----------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
------- ------- -------- --------
SDSG $20.9 $20.6 $57.9 $79.1
SFAE 27.3 26.9 38.2 48.3
Other (11.6) (9.1) (27.6) (25.1)
Certain items not allocated ( 8.8) (4.2) ( 6.8) ( 7.5)
------- ------- -------- --------
Total $27.8 $34.2 $61.7 $94.8
For the quarter, operating income improved modestly at both
business segments due to increased sales and gross margin rates,
partially offset by higher SG&A expense.
Third Quarter Comments
R. Brad Martin, Chairman and Chief Executive Officer of Saks
Incorporated, commented, “The Company's third quarter operating
performance reflected:
-- a total sales increase of 4.3% and a consolidated comparable
store sales increase of 3.1% (comprised of an 1.8% increase at
SDSG and a 5.0% increase at SFAE),
-- an 80 basis point improvement in our gross margin rate, and
-- reduced year-over-year interest expense due to lower
borrowings and interest rates, offset by
-- a $40 million increase in SG&A expense, primarily reflecting
expenses associated with increased sales in existing and new
stores, a reduction in the net private label credit card
contribution, and charges related to settling lease
liabilities and severance."
Inventories at November 1, 2003 totaled $1.75 billion. Both total
and comparable store inventories increased approximately 3% over last
year. Comparable store inventories were down approximately 3% at the
end of the third quarter last year.
The Company ended the quarter with approximately $280 million of
cash on hand and no borrowings on its $700 million revolving credit
facility. Total debt at November 1, 2003 was approximately $1.3
billion, and debt-to-capitalization was 37.6%.
Subsequent to quarter end, the Company announced an exchange offer
for the $452 million outstanding balance of its 8-1/4% Notes due 2008.
For details on the exchange offer, refer to the Company's press
release dated November 4, 2003. Depending upon the degree of
subscription, the Company anticipates it will incur a fourth quarter
charge related to the early debt extinguishment and that interest
expense will be reduced in future periods.
During the third quarter, the Company purchased approximately 1.1
million shares of Saks' common stock (for a total price of
approximately $12.6 million). On a year-to-date basis, the Company has
purchased approximately 7.7 million shares (for a total price of
approximately $71.7 million). The Company has approximately 22.1
million shares remaining under its 35-million-share repurchase
authorization programs.
Additional Company Information
Sales Detail
Total sales numbers below represent owned department sales and leased
department commissions. Total sales (in millions) for the third
quarter ended November 1, 2003 compared to last year's third quarter
ended November 2, 2002 were:
Total Comparable
This Year Last Year Increase Increase
--------- --------- -------- ----------
SDSG $ 866.0 $ 841.0 3.0% 1.8%
SFAE 601.1 565.1 6.4% 5.0%
--------- --------- -------- ----------
Total $ 1,467.1 $ 1,406.1 4.3% 3.1%
Total sales (in millions) for the nine months ended November 1, 2003
compared to the nine months ended November 2, 2002 were:
Comparable
Total Increase
This Year Last Year Increase (Decrease)
--------- --------- -------- ----------
SDSG $ 2,416.0 $ 2,414.6 0.1% (0.9%)
SFAE 1,670.1 1,655.0 0.9% 0.5%
--------- --------- -------- ----------
Total $ 4,086.1 $ 4,069.6 0.4% (0.3%)
Leased department commissions included in the total sales numbers
above were as follows (sales in millions):
Quarter Ended Nine Months Ended
------------------------ -------------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
----------- ---------- ---------- -----------
SDSG leased
commissions $3.8 $3.7 $12.0 $12.1
SFAE leased
commissions 5.1 4.4 15.8 13.7
----------- ---------- ---------- -----------
Total leased
commissions $8.9 $8.1 $27.8 $25.8
Store News
During the quarter, SDSG opened Younkers stores in Lansing,
Michigan and Green Bay, Wisconsin, and SFAE opened Saks Fifth Avenue
stores in Indianapolis, Indiana and Richmond, Virginia. At quarter
end, Saks operated SDSG with 243 department stores with 26.7 million
square feet and SFAE with 62 Saks Fifth Avenue stores with 6.5 million
square feet and 53 Off 5th units with 1.5 million square feet. During
the third quarter, the Company opened three Club Libby Lu stores
bringing the number of stores to 16.
SAKS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands, Except for Per Share Data)
(UNAUDITED)
Three Months Ended
-------------------------------------
November 1, 2003 November 2, 2002
------------------ ------------------
Net sales $1,467,147 100.0% $1,406,142 100.0%
Cost of sales 896,498 61.1% 870,111 61.9%
----------- -----------
Gross margin 570,649 38.9% 536,031 38.1%
Selling, general and
administrative expenses 388,653 26.5% 348,576 24.8%
Other operating expenses:
Property and equipment
rentals 54,802 3.7% 55,534 3.9%
Depreciation & other
amortization 58,294 4.0% 55,423 3.9%
Taxes other than income
taxes 36,633 2.5% 36,159 2.6%
Store pre-opening costs 2,730 0.2% 2,848 0.2%
Integration charges (557) 0.0% 2,305 0.2%
Losses from long-lived assets 2,293 0.2% 999 0.1%
----------- -----------
Operating income 27,801 1.9% 34,187 2.4%
Other income (expense):
Interest expense (26,161) -1.8% (30,826) -2.2%
Other income (expense), net 321 0.0% (285) 0.0%
----------- -----------
Income before provision
(benefit) for income taxes 1,961 0.1% 3,076 0.2%
Provision (benefit) for income
taxes (10,392) -0.7% 1,154 0.1%
----------- -----------
Net income $12,353 0.8% $1,922 0.1%
=========== ===========
Basic earnings per common share: $0.09 $0.01
Diluted earnings per common
share: $0.09 $0.01
