Saks Incorporated Announces Results for the First Quarter Ended May 3, 2008

NEW YORK--(Business Wire)--
Retailer Saks Incorporated (NYSE: SKS) ("Saks" or the "Company")
today announced results for the first quarter ended May 3, 2008.

Overview of First Quarter Results

Saks recorded net income of $18.3 million, or $.13 per share, for
the first quarter ended May 3, 2008.

For the prior year first quarter ended May 5, 2007, the Company
recorded net income of $11.0 million, or $.07 per share. The prior
year first quarter included the following after-tax items totaling net
charges of $17.6 million, or $.12 per share:

-- expenses of approximately $13.5 million for retention,
severance, and transition costs related to the Company's
downsizing following the disposition of its Saks Department
Store Group (SDSG) businesses,

-- expenses of approximately $1.0 million associated with the
previously disclosed investigation by the Securities and
Exchange Commission (which has been concluded) and the Office
of the United States Attorney for the Southern District of New
York, and

-- a loss on extinguishment of debt totaling $3.1 million related
to the repurchase of $95.9 million of senior notes.

Comments on the First Quarter

Stephen I. Sadove, Chairman and Chief Executive Officer of the
Company, noted, "Overall, I am pleased with the Company's first
quarter performance in light of the ongoing challenging macroeconomic
and increasingly competitive retail environment. Our customers
responded to our merchandise selections and targeted increased
promotional activity, driving an 8.4% comparable store sales growth
for the quarter. We made great progress in reducing and better
positioning our inventory levels.

"Our aggregate first quarter sales performance was among the best
in the industry as many retailers posted negative comparable store
sales for the period. Customers responded to our merchandise
selections and incremental promotions which included a more extensive
Friends & Family event and the acceleration of a spring season
clearance event into the last week of April this year from the first
week of May last year." Management estimates that, excluding these
promotional changes, comparable store sales for the first quarter
would have increased by mid-single digits.

Some of the strongest merchandise categories for Saks Fifth Avenue
during the quarter included handbags; shoes; jewelry; and men's
apparel, shoes, and accessories. The New York City flagship store
continued to outperform the company average, and several of the
Company's newly-renovated stores posted outsized revenues. In the
aggregate, the number of transactions increased for the quarter while
the average dollars per transaction decreased slightly.

The increased promotional activity negatively impacted the
Company's first quarter performance as the gross margin rate decreased
by 320 basis points, with approximately 175 basis points of the
deterioration related to clearance markdowns accelerated into the
first quarter. As a percent of sales, first quarter year-over-year
SG&A expense (excluding prior year certain items) was flat. The
Company achieved 60 basis points of leverage on Other Operating
Expenses (depreciation, rents, and taxes other than income taxes) for
the period. Primarily as a result of the gross margin deterioration,
operating income (excluding prior year certain items) declined
approximately 30% to $40.1 million for the quarter.

Both Saks Direct and Off 5th posted outsized sales growth for the
quarter. Sadove noted, "The Saks Direct customer is continuing to
respond to our constantly expanding designer merchandise offerings, a
myriad of innovative and interactive features on the site, and service
enhancements." The Direct business also benefited from increased
promotional activities. Revenues grew by approximately 40% for the
first quarter on top of last year's 50% first quarter growth.

Sadove added, "Off 5th is becoming a preferred shopping channel
for value and trend conscious consumers. Our merchandise selections
continue to improve with more direct purchases from core vendors and
additional Saks Fifth Avenue label product. We opened our prototype
store in Orlando in April, which has been extremely well received by
our customers."

Balance Sheet Highlights

Consolidated inventories at May 3, 2008 totaled $841.1 million, an
approximate 3.6% increase from the prior year on both a total and
comparable stores basis. Sadove noted, "We began the fiscal year with
a 9% comparable store inventory increase. Our customers responded to
our merchandise offerings and promotional efforts during the quarter,
and consequently, inventories are more in line with our future sales
expectations."

At quarter end, the Company had approximately $124.5 million of
cash on hand and no direct outstanding borrowings on its $500 million
revolving credit facility. Funded debt (including capitalized leases)
at May 3, 2008 totaled approximately $571.1 million, and
debt-to-capitalization was 32.6% (without giving effect to cash on
hand), down from 33.9% one year ago.

In the first quarter, the Company repurchased approximately 1.2
million shares of common stock at an average price of $11.96. The
Company has remaining availability of approximately 34.4 million
shares under its existing repurchase authorization programs.

Kevin Wills, Executive Vice President and Chief Financial Officer,
commented, "We believe that our invested cash, our cash flow, and the
unfunded liquidity in our revolving credit facility will provide
flexibility for additional investments in our business and may provide
opportunities to further strengthen our balance sheet and to purchase
additional common stock." Management believes it is appropriate to
target ongoing financial leverage with a Funded Debt to EBITDA
(Earnings before Interest, Taxes, Depreciation, and Amortization)
ratio of less than 2.5x.

Net capital spending for the quarter ended May 3, 2008 totaled
approximately $25 million.

Outlook for the Balance of 2008 and Beyond

Sadove noted, "I remain optimistic about the longer-term outlook
for the luxury channel and for Saks Fifth Avenue in particular. We are
staying the course with our strategies and initiatives as we are
confident that these are right for the long term. However, we believe
the challenging macroeconomic and promotional environment will
continue for the balance of 2008 and that our 2008 operating margin
(excluding certain items) will remain relatively flat with 2007."

Certain information provided in the Company's fiscal year end
earnings release dated March 5, 2008 under the heading, "Outlook for
2008," is repeated or modified as necessary below.

The Company's financial expectations for 2008 (excluding the
impact of certain items) are built on the following assumptions:

-- Comparable store sales growth of mid-single digits for the
full year, with low-single digit comparable store sales growth
in the second quarter and mid-single digit comparable store
sales growth in the second half of the year. Comparable store
sales assumptions for much of the store base are flat in the
aggregate, with somewhat higher growth expected from the New
York City flagship store, capital-aided Saks Fifth Avenue
locations, Saks Direct, and Off 5th.

-- Inventory levels are expected to generally remain in-line with
the Company's sales growth expectations throughout the year.

-- A modest decrease in the year-over-year gross margin rate for
the full year, with modestly improved gross margin rates in
the second, third, and fourth quarters, partially offsetting
the gross margin decline realized in the first quarter.

-- Modest SG&A expense leverage as a percent of sales for the
full year, excluding the impact of certain items, with more
leverage expected in the second half of the year.

-- Relatively flat Other Operating Expenses (rentals,
depreciation, and taxes other than income taxes) for the full
year as a percent of sales.

-- Interest expense approximating $39 million.

-- Depreciation and amortization of approximately $143 million.

-- An effective tax rate of approximately 40.0%.

-- A diluted common share count of approximately 140 to 145
million, assuming the convertible debenture is not convertible
and therefore no related share equivalents are added to the
share count.

-- Annual capital expenditures of approximately $125 million,
which will include store renovations, maintenance capital, and
ongoing information technology enhancements.

Sadove concluded, "I continue to be optimistic regarding our
long-term plans and believe we can deliver operating expansion in the
years ahead as we benefit from our ongoing strategic initiatives. I
remain confident that we can grow the Company's operating margin to 8%
and beyond over time."

Sales Detail

Total sales numbers below represent owned department sales and
leased department commissions for SFA and Club Libby Lu. Total sales
(in millions) for the first quarter ended May 3, 2008 compared to last
year's first quarter ended May 5, 2007 were:

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Total Comparable
This Year Last Year Increase Increase
------------- ----------- --------- ----------
$862.4 $792.7 8.8% 8.4%

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

This Year Last Year
------------- -----------
$7.6 $7.1

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Conference Call Information

Management has scheduled a conference call at 10:00 a.m. Eastern
Time on Tuesday, May 20, 2008 to discuss first quarter 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 30476864).

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.

About the Company

The Company currently operates Saks Fifth Avenue ("SFA") which is
comprised of 54 Saks Fifth Avenue stores, 48 Saks Off 5th stores, and
saks.com. The Company also operates Club Libby Lu specialty stores.

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 or may be 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 retail sector; the effectiveness of
planned advertising, marketing, and promotional campaigns; favorable
customer response to 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 HSBC Bank Nevada,
N.A.; geo-political risks; changes in interest rates; and fluctuations
in foreign currency and exchange rates. For additional information
regarding these and other risk factors, please refer to the Company's
filings with the SEC, including its Annual Report on Form 10-K for the
fiscal year ended February 2, 2008, its Quarterly Reports on Form
10-Q, and its Current Reports on Form 8-K, 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.

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

(UNAUDITED)
Three Months Ended
---------------------------------
May 3, 2008 May 5, 2007
---------------- ----------------

Net sales $862,352 100.0% $792,747 100.0%
Cost of sales 533,064 61.8% 464,467 58.6%
--------- ---------
Gross margin 329,288 38.2% 328,280 41.4%

Selling, general and administrative
expenses 204,747 23.7% 212,845 26.8%
Other operating expenses:
Property and equipment rentals 28,298 3.3% 28,337 3.6%
Depreciation & other
amortization 32,644 3.8% 31,798 4.0%
Taxes other than income taxes 23,057 2.7% 22,220 2.8%
Store pre-opening costs 287 0.0% 136 0.0%
Impairments and dispositions 138 0.0% 384 0.0%
--------- ---------

Operating income 40,117 4.7% 32,560 4.1%

Other income (expense):
Interest expense (10,057) -1.2% (11,980) -1.5%
Loss on extinguishment of debt - 0.0% (5,222) -0.7%
Other income, net 947 0.1% 2,835 0.4%
--------- ---------

Income before provision for
income taxes 31,007 3.6% 18,193 2.3%

Provision for income taxes 12,730 1.5% 7,156 0.9%
--------- ---------

Net income $ 18,277 2.1% $ 11,037 1.4%
========= =========

Per-share amounts - Net income
Basic earnings per common share: $ 0.13 $ 0.08
Diluted earnings per common share: $ 0.13 $ 0.07

Weighted average common shares:
Basic 139,904 140,242
Diluted 140,830 156,274
*T

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SAKS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)

(UNAUDITED)
---------------------
May 3, May 5,
2008 2007
---------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 124,523 $ 158,325
Merchandise inventories 841,068 811,577
Other current assets 141,677 133,700
Deferred income taxes, net 41,428 28,359
---------- ----------
Total current assets 1,148,696 1,131,961

Property and equipment, net 1,081,785 1,095,218
Goodwill and intangibles, net 290 317
Deferred income taxes, net 96,459 142,438
Other assets 50,902 40,937
---------- ----------
TOTAL ASSETS $2,378,132 $2,410,871
---------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 204,382 $ 236,826
Accrued expenses and other current
liabilities 255,254 259,654
Dividend payable 1,475 3,813
Current portion of long-term debt 88,980 235,757
---------- ----------
Total current liabilities 550,091 736,050

Long-term debt 482,130 351,428
Other long-term liabilities 162,543 177,399
---------- ----------
Total liabilities 1,194,764 1,264,877
Commitments and Contingencies - -
Shareholders' Equity 1,183,368 1,145,994
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,378,132 $2,410,871
---------- ----------
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Saks Incorporated
Julia Bentley, 865-981-6243
www.saksincorporated.com

Copyright Business Wire 2008