Saks Incorporated Announces Fourth Quarter and Year-End Results; Compa

    Business Editors

    BIRMINGHAM, Ala.--(BUSINESS WIRE)--March 4, 2005--Retailer Saks Incorporated (NYSE: SKS) ("Saks" or the "Company") today announced results for the fourth quarter and fiscal year ended January 29, 2005.
    The Company 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 Saks Fifth Avenue luxury department stores, Saks Off 5th outlet stores, and saks.com.
    Current and prior period amounts cited in this press release have been adjusted for the estimated impact of the expected restatement of the Company's financial statements attributable to improper collections of vendor markdown allowances and operating lease accounting errors. Please refer to the Company's press release dated March 3, 2005 for further details.

    Overview of Results

    Saks Incorporated recorded net income of $94.8 million, or $ .67 per share, for the fourth quarter ended January 29, 2005, compared to net income of $80.6 million, or $.56 per share, last year. The current year fourth quarter included a net gain of $0.3 million (net of taxes), or $.00 per share, related to a $5.5 million tax credit, offset by net charges of $5.2 million primarily related to previously announced store closings. Prior year charges totaled $18.3 million (net of taxes), or ($.13) per share.
    For the year ended January 29, 2005, the Company recorded net income of $60.9 million, or $.42 per share, compared to net income of $80.0 million, or $.56 per share, last year. The current year included net charges of $22.8 million (net of taxes), or ($.16) per share, primarily related to store closings (principally at SFAE), partially offset by a tax credit. The prior year included net charges of $6.7 million, or ($.05) per share.

    Operating income (loss) by segment (in millions) was as follows:

Quarter Ended Year Ended ------------- ---------- Jan. 29, 2005 Jan. 31, 2004 Jan. 29, 2005 Jan. 31, 2004 ------------- ------------- ------------- ------------- SDSG $124.6 $ 124.4 $157.8 $180.0 SFAE 63.4 69.1 125.0 104.7 Items not allocated (19.6) (27.2) (87.8) (61.7) ------- ------- ------ ------ Total $168.4 $ 166.3 $195.0 $223.0

    Items not allocated to the business segments are comprised of the cost of 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, store closing charges, and certain severance costs.

    Fourth Quarter Performance

    On a consolidated basis, fourth quarter revenues increased 4.9%. Comparable store sales grew 4.0%. Selling, general, and administrative expense leverage improved by 30 basis points, while the gross margin rate declined by 120 basis points.
    SDSG's fourth quarter operating income was flat with last year's performance. Comparable store sales growth of 1.1% and SG&A expense leverage was offset by below-plan gross margin performance.
    SFAE's fourth quarter operating income declined approximately $6 million, or 8%, over the prior year. While comparable store sales increased 8.4% for the period, excess clearance-related markdowns led to a decline in gross margin rate, which, coupled with continued investments in key strategic store and marketing initiatives, led to below-plan financial results.

    Full Year Performance

    On a consolidated basis, total sales grew 6.3% in 2004. Comparable store sales increased 5.3%. The consolidated gross margin rate was essentially flat with the prior year. The year-over-year decline in net income primarily related to charges associated with store closings and the investment in certain strategic initiatives.
    SDSG's operating income for 2004 declined by 12% to $157.8 million from $180.0 million in the prior year. Comparable store sales grew 1.6%, and the gross margin rate was relatively flat year-over-year. This performance was more than offset by a modest deterioration in SG&A expense leverage, partially related to investments in supply chain management initiatives.
    SFAE's operating income for 2004 increased 19% to $125.0 million from $104.7 million last year. Comparable store sales increased 10.8%, and gross margins improved slightly. SG&A expenses climbed principally as a result of the investments in key strategic initiatives and certain costs related to organizational changes.
    R. Brad Martin, Chairman and Chief Executive Officer of Saks Incorporated, summarized, "SDSG achieved a 1.6% comparable store sales increase in a very competitive retail sector in 2004. SDSG generated increased store traffic and continued to deliver quality customer shopping experiences throughout its operations. The profitability of the SDSG business was negatively affected by execution issues in merchandise management and private brand operations during the first part of the year. As we ended 2004, the management focus in this business and the quality of execution were much improved.
    "The comparable store sales increase and the effective real estate rationalization strategies that have been executed at SDSG over the past several years have created an increasingly productive store base."
    Martin continued, "SFAE grew operating income for the year in spite of absorbing incremental expenses associated with strategic investments in the business and certain organizational changes. Inventory management during the year was a disappointment as we expected a more meaningful gross margin improvement in this business. However, we believe that 2004 was a year of great progress at Saks Fifth Avenue and that we have established a solid foundation for future growth in this business.
    "Saks Fifth Avenue's comparable store growth and aggressive real estate rationalization, which began in prior years and intensified in 2004, should continue to increase SFA's sales productivity."

    Other Comments

    Inventories at January 29, 2005 totaled $1.53 billion, a 5.6% increase over the prior year end. Comparable store inventories increased approximately 2% over last year.
    During the quarter, the Company had no common stock repurchases. For the year, the Company purchased 6.2 million shares for a total cash outlay of approximately $79 million. There are approximately 15.7 million shares of remaining availability under the Company's repurchase authorization.
    The Company ended the fiscal year with approximately $257 million of cash on hand and no principal borrowings on its $800 million revolving credit facility. For the year, the Company retired $143 million of senior notes at maturity and issued $230 million of convertible debt in March 2004.

    Outlook for 2005

    Management believes that the following assumptions are reasonable for 2005:

Total Comparable This Year Last Year Increase Increase --------- ----------- -------- ---------- SDSG $ 1,225 $1,204 1.7% 1.1% SFAE 840 765 9.8% 8.4% --------- ------ -------- ---------- Total $ 2,065 $1,969 4.9% 4.0%

Total sales (in millions) for the fiscal year ended January 29, 2005 compared to the fiscal year ended January 31, 2004 were:

Total Comparable This Year Last Year Increase Increase --------- --------- -------- ---------- SDSG $3,700 $3,620 2.2% 1.6% SFAE 2,737 2,435 12.4% 10.8% ------ ------ -------- ---------- Total $6,437 $6,055 6.3% 5.3%

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

Quarter Ended Fiscal Year Ended Jan. 29, 2005 Jan. 31, 2004 Jan. 29, 2005 Jan. 31, 2004 ------------- ------------- ------------- -------------- SDSG leased commissions $ 7.6 $ 8.0 $19.1 $19.9 SFAE leased commissions 9.9 10.1 27.9 26.0 ----- ----- ----- ----- Total leased commissions $17.5 $18.1 $47.0 $45.9

    Store News

    During 2004, the Company opened five new stores, strengthening its position in certain core markets and entering into key new markets. In addition, the Company closed 14 underperforming stores in order to better allocate resources to its most productive units. A recap of store activity for the year ended January 29, 2005 follows:

Approx. Nameplate Location Sq. Footage Date --------- -------- ----------- ---- Opened: ------- SDSG: ----- Younkers Des Moines, IA 160,000 SF August 2004 Proffitt's Birmingham, AL 263,000 SF October 2004 ---------- Subtotal 423,000 SF

SFAE: ----- Saks Fifth Avenue Raleigh, NC 83,000 SF September 2004 Saks Fifth Avenue Plano, TX 120,000 SF September 2004 Off 5th Destin, FL 30,000 SF May 2004 --------- Subtotal 233,000 SF

Total opened 656,000 SF

Closed: ------- SDSG: ----- Herberger's Minneapolis, MN 43,000 SF March 2004 Proffitt's Greenville, SC 120,000 SF June 2004 Younkers Green Bay, WI 225,000 SF July 2004 McRae's Jackson, MS 64,000 SF January 2005 Younkers Omaha, NE 190,000 SF January 2005 Parisian Birmingham, AL 130,000 SF January 2005 ---------- Subtotal 772,000 SF

SFAE: ----- Saks Fifth Avenue Minneapolis, MN 84,000 SF January 2005 Saks Fifth Avenue Carmel, CA 48,000 SF January 2005 Saks Fifth Avenue Garden City, NY 106,000 SF January 2005 Saks Fifth Avenue Pasadena, CA 39,000 SF January 2005 Saks Fifth Avenue La Jolla, CA 47,000 SF January 2005 Off 5th Worcester, MA 29,000 SF October 2005 Off 5th Nashville, TN 25,000 SF January 2005 Off 5th Grove City, PA 20,000 SF January 2005 --------- Subtotal 398,000 SF

Total closed 1,170,000 SF ------------ Net reduction in SF in 2004 514,000 SF

The Company has announced plans to open one new 124,000 square foot Parisian store in 2005, located in Collierville, Tennessee (metropolitan Memphis). The Company has preliminary plans to renovate several Saks Fifth Avenue stores in 2005 which may include Atlanta, Phoenix, Bala Cynwyd, Greenwich, and Boca Raton. The Company has announced its intentions to close the following stores in 2005 and beyond:

Approx. Nameplate Location Sq. Footage Date --------- -------- ----------- ---- SDSG: ----- Proffitt's Greenville, NC 90,000 SF Closed February 2005 Proffitt's Rocky Mount, NC 80,000 SF Closed February 2005 Proffitt's Kinston, NC 50,000 SF Closed February 2005 Proffitt's Goldsboro, NC 55,000 SF Closed February 2005 Younkers Iowa City, IA 60,000 SF Closed February 2005 Parisian Birmingham, AL 130,000 SF To close March ---------- 2005 Subtotal 465,000 SF

SFAE: ----- Saks Fifth Avenue Kansas City, KS 75,000 SF Closed February 2005 Saks Fifth Avenue Forth Worth, TX 100,000 SF TBA Saks Fifth Avenue Mission Viejo, 100,000 SF TBA CA Saks Fifth Avenue Palos Verdes, CA 47,000 SF TBA --------- Subtotal 322,000 SF

Total to be closed in 2005 and beyond 787,000 SF

    Company Information

    At year end, Saks operated 238 SDSG stores with 26.0 million square feet, 58 Saks Fifth Avenue stores with 6.3 million square feet, and 52 Off 5th units with 1.5 million square feet. The Company also operated 38 mall-based Club Libby Lu stores.

    Conference Call Information

    Management has scheduled a conference call at 10:00 a.m. Eastern Time on Friday, March 4, 2005 to discuss fourth quarter and year-end results. To participate, please call (706) 643-1966 (10 minutes prior to the call). A replay of the call will be available for 48 hours following the live call. The dial-in number for the replay is (706) 645-9291 (conference ID number 3308863).
    Interested parties also have the opportunity to listen to the conference call over the Internet by visiting the Investor Relations section of Saks Incorporated's corporate website at http://www.saksincorporated.com/investor_relations.html. To listen to the live call, please go to the address listed at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call, and a transcript will be posted on the Company's web site within 24 to 48 hours.
    To be placed on the Company's e-mail notification list for press releases, SEC filings, certain analytical information, and/or upcoming events, please go to www.saksincorporated.com, click on "Investor Relations," click on "e-mail Alerts," and fill out the requested information.

    Forward-looking Information

    The information contained in this press release that addresses future results or expectations is considered "forward-looking" information within the definition of the Federal securities laws. Forward-looking information in this document can be identified through the use of words such as "may," "will," "intend," "plan," "project," "expect," "anticipate," "should," "would," "believe," "estimate," "contemplate," "possible," and "point." The forward-looking information is premised on many factors, some of which are outlined below. Actual consolidated results might differ materially from projected forward-looking information if there are any material changes in management's assumptions.
    The forward-looking information and statements are based on a series of projections and estimates and involve risks and uncertainties. These risks and uncertainties include such factors as: the level of consumer spending for apparel and other merchandise carried by the Company and its ability to respond quickly to consumer trends; adequate and stable sources of merchandise; the competitive pricing environment within the department and specialty store industries as well as other retail channels; the effectiveness of planned advertising, marketing, and promotional campaigns; favorable customer response to increased relationship marketing efforts of proprietary credit card loyalty programs; appropriate inventory management; effective expense control; successful operation of the Company's proprietary credit card strategic alliance with Household Bank (SB), N.A.; geo-political risks; and changes in interest rates. For additional information regarding these and other risk factors, please refer to Exhibit 99.1 to the Company's Form 10-K for the fiscal year ended January 31, 2004 filed with the Securities and Exchange Commission ("SEC"), which may be accessed via EDGAR through the Internet at www.sec.gov.
    Management undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events, or otherwise. Persons are advised, however, to consult any further disclosures management makes on related subjects in its reports filed with the SEC and in its press releases.

SAKS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Dollars In Thousands, Except for Per Share Data)

(UNAUDITED) Three Months Ended ------------------------------------- January 29, 2005 January 31, 2004 ------------------ ------------------

Net sales $2,065,082 100.0% $1,968,944 100.0% Cost of sales 1,305,733 63.2% 1,221,544 62.0% ----------- ----------- Gross margin 759,349 36.8% 747,400 38.0%

Selling, general and administrative expenses 441,692 21.4% 426,680 21.7% Other operating expenses 151,257 7.3% 146,659 7.4% Impairments and dispositions (2,035) -0.1% 7,776 0.4% ----------- -----------

Operating income 168,435 8.2% 166,285 8.4% Other income (expense): Interest expense (27,953) -1.4% (26,787) -1.4% Loss on extinguishment of debt - 0.0% (10,506) -0.5% Other income (expense), net 128 0.0% (5,204) -0.3% ----------- -----------

Income before provision for income taxes 140,610 6.8% 123,788 6.3%

Provision for income taxes 45,856 2.2% 43,237 2.2% ----------- -----------

Net income $94,754 4.6% $80,551 4.1% =========== ===========

Basic earnings per common share: $0.69 $0.58 Diluted earnings per common share: $0.67 $0.56

Weighted average common shares: Basic 137,011 138,669 Diluted 141,516 143,734

SAKS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Dollars In Thousands, Except for Per Share Data)

(UNAUDITED) Year Ended ------------------------------------- January 29, 2005 January 31, 2004 ------------------ ------------------

Net sales $6,437,277 100.0% $6,055,055 100.0% Cost of sales 3,999,051 62.1% 3,763,831 62.2% ----------- ----------- Gross margin 2,438,226 37.9% 2,291,224 37.8%

Selling, general and administrative expenses 1,606,945 25.0% 1,476,490 24.4% Other operating expenses 603,929 9.4% 583,657 9.6% Impairments and dispositions 32,341 0.5% 8,093 0.1% ----------- -----------

Operating income 195,011 3.0% 222,984 3.7% Other income (expense): Interest expense (107,364) -1.7% (109,713) -1.8% Loss on extinguishment of debt - 0.0% (10,506) -0.2% Other income (expense), net 369 0.0% 109 0.0% ----------- -----------

Income before provision for income taxes 88,016 1.4% 102,874 1.7%

Provision for income taxes 27,158 0.4% 22,894 0.4% ----------- -----------

Net income $60,858 0.9% $79,980 1.3% =========== ===========

Basic earnings per common share: $0.44 $0.57 Diluted earnings per common share: $0.42 $0.56

Weighted average common shares: Basic 139,470 139,824 Diluted 144,009 142,921

SAKS INCORPORATED SEGMENT INFORMATION (Dollars In Thousands)

(UNAUDITED) Three Months Ended -----------------------

January 29, January 31, 2005 2004 ----------- -----------

Net Sales: Saks Department Stores Group $1,225,192 $1,203,737 Saks Fifth Avenue Enterprises 839,890 765,207 ----------- ----------- $2,065,082 $1,968,944

Operating Income: Saks Department Stores Group $124,608 $124,447 Saks Fifth Avenue Enterprises 63,436 69,105 Items not allocated (19,609) (27,267) ----------- ----------- $168,435 $166,285

SAKS INCORPORATED SEGMENT INFORMATION (Dollars In Thousands)

(UNAUDITED) Year Ended ----------------------------------

January 29, 2005 January 31, 2004 ---------------- -----------------

Net Sales: Saks Department Stores Group $3,699,954 $3,619,738 Saks Fifth Avenue Enterprises 2,737,323 2,435,317 ---------------- ----------------- $6,437,277 $6,055,055

Operating Income: Saks Department Stores Group $157,805 $179,962 Saks Fifth Avenue Enterprises 124,953 104,719 Items not allocated (87,747) (61,697) ---------------- ----------------- $195,011 $222,984

SAKS INCORPORATED SUMMARY OF CHARGES AND GAINS (Dollars In Thousands)

(UNAUDITED) (UNAUDITED) Three Months Ended Fiscal Year Ended ------------------------ -----------------------

January 29, January 31, January 29, January 31, 2005 2004 2005 2004 ------------ ----------- ----------- -----------

Summary of (Charges) and Gains: -------------------------------

SFAE Store Closings: Impairments and Dispositions $7,196 $- $(17,885) $- Gross Margin (markdowns) (7,136) - (7,136) SG&A (principally severance) (2,558) - (3,711) -

East NC Store Closings: Impairments and Dispositions (2,400) - (2,400) - Gross Margin (markdowns) (505) - (505) -

Other Closings and Dispositions and Long-Lived Asset Impairments: Impairments and Dispositions (2,760) (7,774) (12,053) (8,091)

Severance and Other Items: SG&A - (4,759) - (11,220)

Sale of Credit Card Portfolio: Other Income (Expense) - - - 4,968

Loss on FAO Investment: Other Income (Expense) - (5,000) - (5,000)

Loss on Debt Extinguishment - (10,506) - (10,506)

Income Taxes: Income Tax Effect of Above Items 2,979 9,736 15,947 10,397 Tax Reserves 5,467 - 4,967 12,710 ------------ ----------- ----------- -----------

Net, After-Tax Certain Gains and Charges $283 $(18,303) $(22,776) $(6,742) ============ =========== =========== ===========

Cash/Non-Cash Summary of (Charges) and Gains: ---------------------------------------------

Cash Gains and Charges $8,153 $(4,789) $5,000 $(10,582) Non-Cash Gains and Charges (16,316) (23,250) (48,690) (19,267) Income Tax Effect 8,446 9,736 20,914 23,107 ------------ ----------- ----------- ----------- Net, After-Tax Certain Gains and Charges $283 $(18,303) $(22,776) $(6,742) ============ =========== =========== ===========

--30--TLM/na*

CONTACT: Saks Incorporated Julia Bentley, 865-981-6243 www.saksincorporated.com

KEYWORD: ALABAMA MINNESOTA INDUSTRY KEYWORD: CONSUMER/HOUSEHOLD APPAREL/TEXTILES RETAIL EARNINGS CONFERENCE CALLS SOURCE: Saks Incorporated

Copyright Business Wire 2005