Saks Inc. reported a net loss of $4.6 million, or 3 cents per share, in the fourth quarter of fiscal 2009, compared to a net loss of $99.7 million, or 72 cents per share, in the year-ago period. The results include after-tax items totaling $14.8 million, or 9 cents per share, stemming from charges of $17.3 million related to asset impairments; a $3.1 million non-cash pension charge related to excess lump sum distributions during 2009 primarily resulting from the companyâ€s 2009 reductions-in-force; and a net gain of $5.6 million related to federal and state tax adjustments.

For the fourth quarter of fiscal 2008, excluding the after-tax loss from discontinued operations of $15.8 million, or 11 cents per share, the company recorded a net loss from continuing operations of $83.9 million, or 61 cents per share.

For the fiscal year ended Jan.30, 2010, the company posted a net loss of $57.9 million, or 40 cents per share, compared to a net loss of $158.8 million, or $1.15 per share, in the year-ago period.

Excluding an after-tax loss from discontinued operations of $300,000, the company recorded a loss from continuing operations of $57.7 million, or 40 cents per share, for Q409. Those results included the following after-tax items totaling $10.4 million, or 7 cents per share.

Stephen I. Sadove, Chairman and Chief Executive Officer of the company, noted, “Excluding certain items, we were able to post a modest fourth quarter profit due to the substantial improvement in our gross margin performance and diligent expense control. These results were achieved in spite of our comparable store sales decline.”

Comparable store sales declined 4.8% in the fourth quarter, in line with the Companyâ€s expectations. For the full fiscal year, comparable store sales fell 14.7%.

In the Saks Fifth Avenue stores, several merchandise categories showed relative strength during the fourth quarter, including womenâ€s designer sportswear, handbags, shoes, and jewelry. For the quarter, sales trends in the New York City flagship store were better than the Companyâ€s aggregate comparable store sales performance, a meaningful improvement from trends experienced earlier in 2009.

Saks Direct posted an approximate 23% comparable store sales increase in the quarter and an approximate 13% increase on a year-to-date basis. OFF 5THâ€s comparable store sales performance showed relative strength during the quarter and full year.

The company generated substantial year-over-year gross margin rate improvement in the fourth quarter, up 1,530 basis points to 36.5% this year from 21.2% in last yearâ€s fourth quarter. The improvement exceeded managementâ€s expectations and resulted from controlled inventory levels and a disciplined promotional and clearance cadence. For the full fiscal year, the gross margin rate was 36.6% in 2009 versus 32.2% in the prior year.

Sadove commented, “Managing Selling, General, and Administrative expenses continues to be a key focus for the company. For the fourth quarter, we expected year-over-year SG&A dollars (excluding certain items) to be approximately flat; however, we were able to reduce SG&A by approximately $8.7 million for the period.”

The company achieved SG&A leverage in the fourth quarter in spite of the comparable store sales decline. As a percent of sales, SG&A (excluding certain items) was 23.5% in the current fourth quarter compared to 23.7% in last yearâ€s fourth quarter. For the full 2009 fiscal year, the company delivered a flat year-over-year SG&A rate (excluding certain items) of 25.4%, even though comparable store sales declined 14.7%. Excluding certain items, the company reduced SG&A by approximately $105 million for the fiscal year and by approximately $155 million over the last six quarters.

In spite of the sales decline, the companyâ€s operating margin (excluding certain items) expanded to 3.6% in the quarter from a 12.2% operating loss in the prior year fourth quarter.

For the full fiscal year (excluding certain items), the company narrowed its operating loss to 0.8% from 3.7% in 2008.

Balance Sheet Highlights

Consolidated inventories at Jan. 30, 2010 totaled $649.2 million, a 10.9% decrease over the prior year. Inventories decreased 11.0% on a comparable stores basis.

At fiscal year end, the company had approximately $147.3 million of cash on hand and no direct outstanding borrowings on its revolving credit facility. During the fourth quarter, the company amended and restated its $500 million revolving credit agreement, extending the maturity date to November 22, 2013.

Effective at the beginning of the fiscal year (February 1, 2009), the company adopted FASB Accounting Standard Codification 470 related to accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) which requires that issuers of convertible debt instruments separately account for the liability and equity components in a manner that will reflect the entityâ€s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.

The discounts (the difference between the convertible rate and a nonconvertible borrowing rate on each issuance) on the companyâ€s two series of convertible notes are being accreted to interest expense through the note maturity dates. Accordingly, at January 30, 2010, $35.1 million of the $230 million 2.0% convertible notes balance and $19.4 million of the $120 million 7.5% convertible notes were classified in equity. The new accounting pronouncement required retroactive application; consequently, the prior year amounts have been revised.

Funded debt (including capitalized leases, borrowings on the revolving credit facility, and the equity component of the convertible debentures) at January 30, 2010 totaled approximately $575.7 million, and debt-to-capitalization was 36.1% (without giving effect to cash on hand).

Net capital spending for the fiscal year ended January 30, 2010 totaled approximately $59.0 million.

Outlook for and Approach to 2010

Sadove noted, “We remain optimistic about the long-term outlook for Saks Fifth Avenue and for the luxury sector as a whole. We believe there is more stability and predictability in our business compared to this time last year; however, the overall environment remains somewhat uncertain and challenging, and we are approaching 2010 with continued caution.

“Notwithstanding the ongoing macroeconomic conditions, we are implementing several initiatives that we believe will drive growth in 2010 and beyond. Specific areas of focus for 2010 will be:

�Merchandising � we will continue to manage the appropriate allocation of good/better/best merchandise by store and to expand our assortment of exclusive and limited distribution product.

�Service � we will continue to increase utilization of point-of-sale/clienteling systems and finalize implementation of process and organizational changes that will permit associates to spend more time on the sales floor.
�Marketing � we will seek to reduce the number of promotional days during the year, enhance Customer Relationship Management (CRM), and execute our by-store local business development plans.
�Saks Direct � we will continue to drive growth in key merchandise categories and vendors while further enhancing the shopping experience.
�OFF 5TH � we will drive additional growth in key merchandise categories and expand into new categories, further develop our loyalty and outreach programs, and add new store locations as appropriate.”

The Companyâ€s assumptions for 2010 are outlined below. Variation from the sales trends, up or down, could materially impact the other assumptions listed.

�Comparable store sales growth in the low-to-mid single digit range for the full year, with better performance in the second half of the year than the first half.

�Comparable store inventory levels are expected to be down in the low-single digit percentage range at the end of the second quarter of 2010 and up modestly throughout the second half of 2010.
�Based upon current inventory levels and the Companyâ€s promotional calendar and permanent markdown cadence, the Company expects gross margins in the 37.5% to 38.0% range for the full fiscal year, with similar margins in the first half and second half of the fiscal year.
�Year-over-year net SG&A dollars (excluding certain items) are expected to increase 50 to 75 basis points (as a percent of sales) for the year. SG&A dollar increases are expected to arise from incremental variable costs associated with planned sales growth (primarily sales associates†commissions), expenses related to new OFF 5TH stores, and a reduction in proprietary credit card income primarily related to previously announced term changes with HSBC (estimated at approximately $10 million to $12 million). In addition, the Company will make some targeted investment spending to support Saks Direct growth and incur a modest increase in expenses related to its selling and local marketing/business plan initiatives.
�Other Operating Expenses (rentals, depreciation, and taxes other than income taxes) are expected to total approximately $310 million for the full fiscal year. Depreciation and amortization, which is included in the above amount, should total approximately $120 million for the full year.
�Based on existing debt arrangements and interest rates, interest expense should approximate $58 million to $60 million for the full fiscal year.
�An effective tax rate of approximately 36.0% for the year.
�A basic common share count and a diluted common share count of approximately 153 to 155 million each for the full fiscal year.
�Net capital expenditures of approximately $55 million for the full year.

Sadove concluded, “While we will certainly continue our attention on controlling expenses and being fiscally conservative, we are keenly focused on future revenue growth, gross margin expansion, and a return to profitability. Our team is committed to the innovation, newness, and creativity required to achieve our long-term financial and operating goals and to enhance shareholder value.”

Sales Detail

Total sales numbers below represent owned department sales and leased department commissions for Saks Fifth Avenue stores, OFF 5TH stores, and Saks Direct. Total sales (in millions) for the fourth quarter and fiscal year ended January 30, 2010 compared to last yearâ€s fourth quarter and fiscal year ended January 31, 2009 were:

 
 
                                                                 Total         Comparable
         
This Year
Last Year
(Decrease) (Decrease)
Fourth Quarter
$
811.3
$
839.6
(3.4 %) (4.8 %)
Fiscal Year
$
2,631.5
$
3,043.4
(13.5 %) (14.7 %)