Saks Incorporated (SKS)
Q3 2010 Earnings Call Transcript
November 16, 2010 9:30 a.m. ET

Executives

Stephen I. Sadove – Chairman and Chief Executive Officer
Kevin Wills – Executive Vice President and Chief Financial Officer
Ronald L. Frasch – President and Chief Merchandising Officer

Analysts

Deborah Weinswig – Citigroup
Lorraine Hutchinson – Bank of America/Merrill Lynch
Paul Swinand – Morningstar
Dana Telsey – Telsey Advisory Group
Carla Casella – J.P. Morgan
Jennifer Davis – Lazard Capital Markets
Adrianne Shapira – Goldman Sachs
Christopher Cuomo – Morgan Stanley
Emily Shanks – Barclays Capital
Robert Drbul – Barclays Capital
Charles Grom – J.P. Morgan

Presentation

Operator

Greetings and welcome to the Saks Incorporated Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If any should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Sadove, Chairman and CEO of Saks Incorporated. Thank you. You may begin.

Stephen I. Sadove

Thanks. Good morning. This is Steve Sadove. I''m joined on the call today by Ron Frasch, our President; Kevin Wills, our CFO and Julia Bentley, our Senior VP of IR. I would like to thank each of you for taking the time to join us.

Today, we will discuss financial results for the third quarter and nine months ended October 30, 2010, our outlook for the fourth quarter and update you on several other business matters. At the end of the call, we will be glad to respond to your questions.

Before I turn it over to Kevin to discuss the financial results in more detail, let me note that I am pleased with our third quarter and year-to-date performance. The year-over-year improvement was primarily driven by our continued comp store sales growth and meaningful gross margin expansion.

With improvement in the financial markets, we have experienced a more stable and predictable operating environment this year. And we feel much better about the overall tone of business and the way our customers are responding to our initiatives.

Having said that, we realize a number of challenges remain in the macroeconomic environment and a complete recovery will take more time. As we approach the fourth quarter and beyond, we will continue our conservative bias but we will also work to balance that with making certain strategic, targeted investments in inventory and infrastructure where we believe the biggest opportunities lie to drive sales and profit growth.

Now, let me turn the call over to Kevin to provide more color on our operating results and our balance sheet.

Kevin Wills

Thanks, Steve and good morning, everyone. First, let me note that some of the comments on the call today as well as some of the information presented in our release related to future results or expectations, are considered forward-looking information within the definition of the federal securities laws. The forward-looking information is premised on many factors and actual consolidated results might differ materially from projected information if there are any material changes in our assumptions or in the various risks related to our industry or our company. For a description of the risks and assumptions related to these projections, please refer to the release and our filings with the SEC, including our most recent Form 10-K.

For the third quarter, we reported net income of $36.3 million or $0.20 per diluted share. Those results included a $26.7 million or $0.14 per share gain related to the reversal of certain estimated income tax reserves deemed no longer necessary. Excluding this gain, the company would have recorded net income of $9.7 million or $0.06 per share for the third quarter.

This $0.06 per share number is based on outstanding shares of approximately 158 million, which excludes the impact of the convertible notes as they are not diluted at the $9.7 million net income level. This compares to a net income of $1.9 million or $0.01 per share in last year''s third quarter also excluding a tax reserve reversal in that period.

For the nine months, we recorded net income of $22.9 million or $0.14 per diluted share. Those results included a net after-tax gain, totaling $13.9 million or $0.08 per share related to the aforementioned $26.7 million gain related to the tax reserve reversal netted against $12.8 million of net lease termination, severance and other store closing costs primarily related to the closing of six Saks Fifth Avenue stores.