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Saks Incorporated (SKS)
Q3 2008 Earnings Call
November 18, 2008 10:00 am ET
Stephen Sadove – CEO
Ronald Frasch – President & CMO
Kevin Wills – EVP & CFO
Julie Bentley – Sr. VP, IR
Debra Weinswig - Citigroup
Michelle Clark - Morgan Stanley
Lorraine Maikis - Merrill Lynch
Dana Cohen - Banc of America Securities
Adrianne Shapira - Goldman Sachs
Michael Exstein - Credit Suisse
Charles Grom – JPMorgan
[Emily Shank] – Barclays Capital
Carla Casella - JPMorgan
Robert Drbul – Barclays Capital
Todd Slater - Lazard Capital Markets
Dana Telsey – Telsey Advisory Group
[Caru Martinson] – Deutsche Bank
Christine Chen – Needham & Company
Welcome everyone to the Saks Incorporated third quarter earnings call. (Operator Instructions)
I would now like to turn the call over to the Chairman and CEO of Saks Incorporated, Stephen Sadove.
Previous Statements by SKS
» Saks Incorporated Q3 2009 (Qtr End 10/31/09) Earnings Call Transcript
» Saks Incorporated Q2 2009 Earnings Call Transcript
» Saks Q4 2008 Earnings Call Transcript
I'd like to thank each of you for taking the time to join us. Today we'll discuss financial results for the third quarter ended November 1, 2008, our outlook for fourth quarter and next year and update you on several other matters. At the end of the call we'll be glad to respond to your questions.
Let me start by asking Kevin to briefly comment on the third quarter results and the balance sheet.
Thanks Stephen 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 earnings 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. For a description of the meaningful risks and assumptions related to these projections, please refer to the release and our most recent filings with the SEC, including our most recent Form 10-K.
Saks recorded a net loss of $42.8 million or $0.31 per share for the current year third quarter. The quarter included after-tax items totaling $24.5 million or $0.18 per share primarily related to asset impairment associated with the planned discontinuation of the Club Libby Lu operations and the write-off and adjustment of certain deferred tax assets primarily associated with the federal and net operating loss tax credits that are subject to expiration at the end of fiscal 2008.
For the prior year third quarter we recorded net income of $21.6 million or $0.14 per share which included $4.3 million or $0.03 per share of certain after-tax items. For the quarter the company’s operating loss excluding certain items totaled $18 million this year compared to operating income of $51.3 million last year.
Our consolidated inventories at quarter-end totaled $1.02 billion up approximately 4% on the total basis and approximately 4.4% on a comparable stores basis. In the luxury business inventory purchase lead times typically are six to nine months. When we originally planned fall 2008 we expected low single-digit comparable store sales growth and obviously actual results are far below our initial expectations.
The rapid deterioration in the retail environment has caused a gap between sales trends and inventory levels to widen. We are diligently working to align our inventory levels but we are obviously not there yet as evidenced by the gap at quarter-end between the comparable store sales decrease of 11.5% and the comparable store inventory increase of 4.4%.
As Stephen and Ronald will discuss shortly we are working with our vendor partners to better align inventories but this is not a quick fix. We currently anticipate that it could take several more quarters to properly align inventories based on the current level of consumer demand.
At quarter-end we had approximately $20 million of cash on hand and approximately $81 million of direct outstanding borrowings on our $500 million revolving credit facility. Funded debt including capitalized leases and borrowings on the revolving credit facility totaled $649 million and debt to capitalization was 37.2% without giving effect to cash on hand.
Let me take just a few moments to provide everyone with some additional information about our capital position. Our $500 million revolving credit facility will terminate in September, 2011. As previously noted we had $81 million outstanding on the facility at the end of third quarter. Subsequent to quarter-end on November 15, $84.1 million of senior notes matured and as anticipated we retired the notes by drawing down on the revolving credit facility.
We have traditionally utilized the revolved credit facility only to fund seasonal working capital needs but given the current status of credit markets we elected to utilize the facility to retire the maturing senior note as opposed to refinancing.
We may look perspectively to refinance the $84.1 million portion which is now in a revolving credit facility but any such financing would be dependent in part on credit market conditions. The revolving credit facility has no covenants unless the availability falls below $60 million.
At that time the company will be subject to a fixed charge coverage ratio of at least one to one. As of today the company has $192.3 million of senior unsecured notes and a 2% $230 million convertible debenture.
The next debt maturity is $45.9 million of senior notes in December, 2010 followed by $141.6 million of senior notes maturing the following year in October of 2011.
The $230 million convertible debenture matures in 2024. I would also like to comment briefly on the company’s pension plan as I know there have been a number of questions recently regarding the status of company’s plans and the impact of the current financial markets may have on future expense and funding requirements.
The company maintains the defined benefit pension plan. However this plan was curtailed in 2006 which froze the benefit accrual for all participants except those who had attained age 55 and completed 10 years of service.