Saks Incorporated reported net loss for the first quarter ended May
2, 2009 was $5.1 million, or 4 cents per share. Excluding the after-tax
loss from discontinued operations of $200,00 million, the company
recorded a loss from continuing operations of $4.9 million, or 4 cents
per share.

For the prior year first quarter ended May 3, 2008, the company
recorded net income of $17.3 million, or 12 cents per share. Excluding
the after-tax loss from discontinued operations of $1.6 million, or 1
penny per share, the company recorded net income from continuing
operations of $19.0 million, or 13 cents per share.

Comparable store sales declined 27.6% in the first quarter.
Excluding the shift of a spring season clearance event into the second
quarter this year from the first quarter last year, management
estimated that comparable store sales would have declined approximately
25.0% for the first quarter.

Saks Fifth Avenue stores experienced continued weakness across all
merchandise categories, geographies, and channels of distribution
during the quarter. Consistent with the fourth quarter, the sales
decline in the New York City flagship store was higher than the
company’s aggregate comparable store sales decline.

Saks Direct posted a 14.6% comparable store sales decline in the
quarter (also negatively impacted by the aforementioned event shift),
versus an increase of over 40% in last year’s first quarter. OFF 5TH’s
comparable store sales performance continued to show relative strength
during the period.

The company realized a year-over-year 40 basis point improvement in
gross margin rate for the quarter. Management estimates that the
previously mentioned clearance event shift negatively impacted the
prior year first quarter gross margin rate by approximately 175 basis
points, so on an adjusted basis, management estimates that the gross
margin rate would have decreased by approximately 135 basis points for
the current year first quarter. This adjusted gross margin rate
decrease principally was due to increased markdowns as a percent of
sales as well as deleverage on the buying and distribution components
of cost of sales.

The clearance event shift will positively impact sales and negatively impact the gross margin rate for the second quarter.

The company reduced first quarter SG&A expenses by approximately
$44 million, a 22% decline from the prior year. SG&A as a percent
of sales was 25.0% in the current first quarter compared to 23.5% in
the prior year first quarter.

Primarily due to the sales decline, the company’s operating income
decreased to $2.2 million in the current year first quarter from $42.6
million of operating income for the same period last year.

Balance Sheet Highlights

Consolidated inventories at May 2, 2009 totaled $779.5 million, a
7.3% decrease over the prior year. Inventories decreased 7.4% on a
comparable stores basis. Stephen I. Sadove, Chairman and Chief
Executive Officer of the company stated, “We remain on track to more
closely align our inventories with consumption trends by the beginning
of the third quarter.”

The previously mentioned clearance event shift distorted
quarter-end comparable store inventories. Excluding the shift,
comparable store inventories would have declined approximately 11%.

At quarter end, the company had approximately $10.3 million of cash
on hand and $195 million of direct outstanding borrowings on its
revolving credit facility.

Effective at the beginning of the fiscal year (February 1, 2009),
the company adopted a new accounting pronouncement which requires that
issuers of such instruments separately account for the liability and
equity components in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods.

A portion of the carrying value of the $230 million 2.0%
convertible debenture (approximately $71.9 million) was reclassified to
equity as of the March 2004 issuance date, representing the equity
component of the proceeds from the notes calculated assuming a 6.25%
non-convertible borrowing rate.
The discount is being accreted to interest expense over the
10-year period to the first put date of the notes. Accordingly, at May
2, 2009, $40.5 million of the convertible debenture balance was
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 May 2, 2009 totaled approximately $677.2 million, and
debt-to-capitalization was 41.7% (without giving effect to cash on
hand).

Sadove commented, “We have flexibility under our existing debt
facilities, with no short-term maturities of senior debt.” The
company’s revolving credit facility terminates in September 2011, and
the company is subject to no financial covenants unless the
availability falls below $60 million. At that point, the company is
subject to a fixed charge coverage ratio of at least 1:1.

Based on the company’s operating plans and cash management
actions, the company expects to have ample availability on its
revolving credit facility throughout the year and to be free cash flow
positive for 2009. The company does not expect to be subject to the
fixed charge coverage ratio at any time during the year.

The Ccmpany’s senior notes total $192.3 million and mature as
follows: $45.9 million in December 2010, $141.6 million in October
2011, $2.9 million in December 2013, and $1.9 million in February 2019.
The company also has a 2% $230 million convertible debenture which
matures in 2024.

Net capital spending for the first quarter ended May 2, 2009 totaled
approximately $28 million. Management anticipates capital spending will
total approximately $55 million for the full fiscal year. A
disproportionate amount of the annual spending occurred in the first
quarter primarily due to the timing of the New York City flagship and
Miami Dadeland store renovations that are nearing completion.

Update on Expense Reductions

Earlier this year, the company announced that it expected a
year-over-year decline in SG&A expenses in 2009 of approximately
$20 million to $30 million. The company subsequently has identified
additional expense reductions and now expects to realize a total of
approximately $60 million of net SG&A reductions for the full year
of 2009. Approximately $44 million of year-over-year net SG&A
reductions were realized in the first quarter, which was greater than
expected.

The company expects to realize net SG&A reductions of
approximately $15 million in the second quarter of 2009 and that
SG&A expenses will be approximately flat in the second half of
2009. These estimated reductions in SG&A expenses are net of
several expense increases including an approximate $8 million increase
in 2009 pension expense (lower than the $15 million estimate previously
announced), incremental expenses related to new OFF 5TH stores, more
normalized incentive compensation, and certain inflation-driven
expenses during the year.
In addition, approximately $12 million of cost reductions will be
reflected in cost of sales (where merchandising and distribution
expenses are classified) for the full year (spread approximately
pro-rata among the four quarters).

A disproportionate amount of the SG&A expense reductions are
being realized in the first half of 2009 as the Company is able to
reduce variable expenses commensurate with the expected higher sales
declines in the first half and as the Company laps certain expense
reductions in fall 2009 that were made in the second half of 2008.

Outlook for the Balance of 2009

Sadove noted, “We are reaffirming our prior expectations related to
sales, gross margin rate, and inventories for the balance of the year,
and we are pleased that we have been able to further reduce expected
SG&A and capital spending from our earlier outlook.”

The current macroeconomic and retail landscape makes predicting
future sales and gross margin performance with any degree of certainty
extremely difficult. The Company’s assumptions for the balance of
fiscal 2009 (excluding the impact of certain items) are outlined below.
Variation from the sales trends, up or down, could materially impact
the other assumptions listed.

Comparable store sales decline for the full fiscal year of low
double digits, comprised of a decline in the mid-teen percentage range
for the second fiscal quarter and a decline of mid-to-high single
digits in the second half of the fiscal year (achieved from a lower
2008 sales base).
Comparable store inventory levels are expected
to decrease in the low- to mid-teen percentage range at the end of the
second quarter of 2009 and through the second half of 2009.

Based upon current inventory levels, planned merchandise receipt
flow approximately 20% lower than the prior year, the company’s
promotional calendar and permanent markdown cadence, and deleverage on
the buying and distribution components of the cost of sales, the
company expects gross margin to decrease to the 27% to 29% range in the
second quarter of 2009 (which reflects the negative impact of the
aforementioned clearance event shift) and a substantial year-over-year
gross margin recovery in the second half of 2009, with gross margins in
the 35% to 37% range.
Based on the company’s identified net SG&A reductions
(described above under “Update on Expense Reductions”), absolute
SG&A dollars (excluding certain items) are expected to decline by
approximately $15 million for the second quarter and be approximately
flat in the second half of 2009. Annual net SG&A reductions are
expected to approximate $60 million.
Other operating expenses (rentals, depreciation, and taxes
other than income taxes) totaling approximately $80 million to $82
million for the second quarter and approximately $163 million to $165
million for the second half of 2009. Depreciation and amortization,
which is included in the above amounts, should total approximately $140
million for the full year.
Interest expense approximating $10 million for the second
quarter of 2009 and approximately $20 million for the second half of
2009, based on current debt arrangements and interest rates. Effective
the first fiscal quarter of 2009, the company adopted a new accounting
pronouncement requiring the interest expense on its $230 million
convertible subordinated debenture to be based on the prevailing
interest rates at the time the convertible debenture was issued as
opposed to the stated 2.0% rate. This accounting change will result in
an annual non-cash increase in interest expense of approximately $7
million, which is included in the estimates above. The new accounting
pronouncement requires retroactive application; consequently, interest
expense for prior years has been restated.
An effective tax rate of approximately 33.0% for the balance of the year.
A basic common share count and a diluted common share count of
approximately 138 to 139 million each for the balance of the year.
Capital
expenditures for the full year of 2009 of approximately $55 million, a
reduction of approximately $75 million from 2008 levels.

The company discontinued the operations of its Club Libby Lu
specialty store business in January 2009, and the operating performance
of CLL and expenses related to discontinuing the operations (primarily
severance, inventory liquidation, store closure, and lease termination
expenses) are presented as “discontinued operations” in the current and
prior year periods.

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 first
quarter ended May 2, 2009 compared to last year’s first quarter ended
May 3, 2008 were:

This Year 

Last Year

Total
(Decrease)

Comparable
(Decrease)

First Quarter

$621.3

$850.0

(26.9%)

(27.6%)

Leased department commissions included in the total sales numbers above were as follows (sales in millions):

This Year

Last Year

First Quarter

$6.2

$7.6

SAKS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands, Except for Per Share Data)
 
  
 
  
 
  
 
  
 
 
 
(UNAUDITED) 
 
 
Three Months Ended 
 
 
May 2, 2009 
 
May 3, 2008
Revised
 
 
 
 
 
 
  
 
 
Net sales 
 
$ 
621,266 
 
 
100.0 
% 
 
$ 
850,041 
 
 
100.0 
% 
Cost of sales 
 
  
382,858 
  
 
61.6 
% 
 
  
527,198 
  
 
62.0 
% 
Gross margin 
 
 
238,408 
 
 
38.4 
% 
 
 
322,843 
 
 
38.0 
% 
 
 
 
 
 
 
 
 
  
Selling, general and administrative expenses 
 
 
155,434 
 
 
25.0 
% 
 
 
199,387 
 
 
23.5 
% 
Other operating expenses: 
 
 
 
 
 
 
 
 
Property and equipment rentals 
 
 
26,471 
 
 
4.3 
% 
 
 
26,272 
 
 
3.1 
% 
Depreciation & other amortization 
 
 
33,340 
 
 
5.4 
% 
 
 
31,865 
 
 
3.7 
% 
Taxes other than income taxes 
 
 
20,159 
 

																	
														
														

																				

						
												

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