This is a summary of the second quarter fiscal 2008 earnings call conducted by Saks, Inc. (SKS: chart) on August 19, 2008.

Management:
– Chairman and CEO: Stephen I. Sadove
– President and Chief Merchandising Officer: Ronald L. Frasch
– Executive VP and CFO: Kevin Wills
– Senior VP, Investor Relations: Julie Bentley

Key Investor Issues:

- The retailer lost $31.7 million, or 23 cents per share, compared with a net loss of $24.6 million, or 17 cents per share, in the year-ago period.
- Revenue fell 3.5% to $669.2 million from $694.1 million a year ago.
- Saks expects 2008 operating margins, excluding certain items, to decline from 2007 levels. It also expects same-store sales to be anywhere from unchanged to down by low-single digit percentages for the second half of the year.

Second Quarter Highlights:

- Saks recorded a net loss of $31.7 million or $0.23 per share for the second quarter.
- The quarter included charges related to the closing of Saks Fifth Avenue Fort Lauderdale store of $1 million after taxes or $0.01 per share.
- For the prior year''s second quarter, the company recorded a net loss of $24.6 million or $0.17 per share, which included after-tax charges totaling $4.3 million or $0.03 per share.
- The year-to-date second quarter operating loss, excluding certain items, grew 65% to $42.7 million.

Inventories at quarter end totaled $813.1 million, up 1.4% on a total basis and up approximately 1.9% on a comparable basis.

- Saks ended the quarter with approximately $60 million of cash on hand and no direct outstanding borrowings on the $500 million revolving credit facility.
- The funded debt, which includes capitalized leases, totaled approximately $569.8 million and debt-to-capitalization was 33.4%, which was calculated without giving effect to the cash on hand.

During the quarter Saks repurchased approximately 1.7 million shares of common stock at an average price of $11.74, bringing the year-to-date total to 2.9 million shares at an average price of $11.83.

The company has approximately 32.7 million shares of remaining availability under existing repurchase authorization programs.

Comp store sales for the quarter would have been slightly positive excluding the shift of a spring season clearance event into the first quarter this year from the second quarter last year.

Comp store sales for the six months of this year increased 2.7%. While substantially slower than the robust growth Saks had experienced over the last two years, this performance was still among the best in the industry. In addition, Saks made progress in reducing comp store inventory levels from the 9% increase at the beginning of the fiscal year.

During the quarter Saks experienced a softening across nearly all geographies and merchandise categories, although generally the better performing geographies and categories in prior quarters were still the better performing areas in the second quarter. Some of the strongest merchandise categories for Saks Fifth Avenue during the quarter included women''s shoes, jewelry, accessories, and men''s contemporary apparel, shoes and accessories. Saks experienced widespread weakness in women''s apparel.

The New York City flagship store continued to outperform the company average, and the newly renovated stores continue to post better-than-average results.

For the quarter, the number of transactions decreased modestly, and the average dollars per transaction increased slightly over last year''s second quarter.

Both Off 5th and Saks Direct posted outsized sales growth for the quarter. Direct revenues grew over 30% for the second quarter on top of last year''s 40% second quarter growth as customers continued to respond to the constantly expanding array of designers and merchandise offerings and site enhancements. The video elements on the site, including interviews with designers, coverage of the fashion shows and video catalogs, have all been well received by the customers.

As the quarter began Saks expected that it could achieve modest gross margin rate expansion, particularly since, with the previously mentioned clearance event shift, the company accelerated certain markdowns in the first quarter. However, as business trends weakened during the quarter, the gross margin rate was eroded by 60 basis points. The gross margin rate was negatively impacted as sales fell below expectations and Saks did not achieve the expected leverage against its permanent markdowns.

Second quarter year-over-year SG&A expenses, excluding certain items, increased 140 basis points as a percent of sales.

Absent the previously mentioned event shift, the second quarter SG&A deleverage have been about 50 basis points. The comp store sales decline was the principal driver of the expense deleverage during the quarter.

On a year-to-date basis, excluding certain items, SG&A increased 50 basis points as a percent of sales, with approximately 25 basis points of the increase resulting from nonrecurring transition service agreement revenue from the first quarter of 2007. The balance of the SG&A increase was principally due to strategic long-term investments in Saks Direct and other selling initiatives.

The company’s 2008 strategic capital improvements are under way and several projects are nearing completion.

The estimated capital spending plan is approximately $125 million this year, with about 70% allocated to stores and a significant portion of the balance allocated to continued technology investments associated with the company’s merchandising and clienteling initiatives.

By year end Saks will have opened or remodeled over 100 vendor shops and completed several other store projects.