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Improvement in operating performance, Saks

18 Aug '10
5 min read

Sadove concluded, "As we look to the fall season and beyond, we remain cautious but are keenly focused on driving additional revenue growth, further gross margin expansion, and a return to profitability. I believe we have the right team and strategies in place to enhance shareholder value and achieve our long-term financial and operating potential."

In the Saks Fifth Avenue stores, several merchandise categories showed strength during the quarter, including shoes, handbags, women's designer and WEAR apparel, men's tailored clothing and accessories, and fashion jewelry. The New York City flagship store sales performance continued to exceed the Company's aggregate comparable store sales performance during the quarter.

Saks Direct posted approximate 21% and 27% comparable store sales increases for the second quarter and six months, respectively. OFF 5TH's comparable store sales performance was below the Company's aggregate comparable store sales performance for both the quarter and six months.

The Company generated substantial year-over-year gross margin rate improvement in the second quarter, up 700 basis points to 37.3% this year from 30.3% in last year's second quarter. The improvement resulted from carefully managed inventory levels, increased full-price selling, and a reduced level of promotional activity. For the six month period, the gross margin rate was 40.4% in the current year versus 34.7% in the prior year, a 570 basis point improvement.

Managing Selling, General, and Administrative expenses ("SG&A") continues to be a key focus for the Company, although, as expected, the Company experienced deleverage for the quarter. As previously disclosed, the Company realized a reduction in proprietary credit card income primarily related to previously announced term changes with HSBC (equating to approximately $1.3 million and $3.2 million in the second quarter and six months, respectively), and the Company is making targeted investment spending to support Saks Direct growth and incurring a modest increase in expenses related to its selling and local marketing/business plan initiatives.

For the second quarter, as a percent of sales, SG&A expenses were 28.8% this year compared to 27.9% in the prior year, equating to 90 basis points of deleverage. The Company achieved modest year-over-year leverage for the six months. As a percent of sales, SG&A expenses were 26.5% for the current year six months compared to 26.6% in the prior year first half, equating to 10 basis points of leverage.

Excluding the aforementioned lease termination and store closing costs, the Company's operating loss improved to 3.8% of sales in the second quarter from 12.0% in the prior year second quarter. Excluding the aforementioned lease termination and store closing costs, the Company's operating margin was 1.9% for the current year six months, an improvement over an operating loss of 5.5% of sales in the prior year sixmonth period.

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Saks Incorporated

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