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Saks Incorporated (SKS)

Q4 2012 Earnings Call

February 26, 2013 9:30 am ET

Executives

Stephen I. Sadove - Executive Chairman and Chief Executive Officer

Kevin G. Wills - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Ronald L. Frasch - President and Chief Merchandising Officer

Analysts

Deborah L. Weinswig - Citigroup Inc, Research Division

Matthew R. Boss - JP Morgan Chase & Co, Research Division

Barbara Wyckoff - CLSA Asia-Pacific Markets, Research Division

Kimberly C. Greenberger - Morgan Stanley, Research Division

Paul Swinand - Morningstar Inc., Research Division

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Jennifer M. Davis - Lazard Capital Markets LLC, Research Division

Robert S. Drbul - Barclays Capital, Research Division

Paul Trussell - Deutsche Bank AG, Research Division

Dana Lauren Telsey - Telsey Advisory Group LLC

Michael B. Exstein - Crédit Suisse AG, Research Division

Presentation

Operator

Greetings, and welcome to the Saks Incorporated Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] 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, sir. You may begin.

Stephen I. Sadove

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 Vice President of Investor Relations. I'd like to thank each of you for taking the time to join us.

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 and our company. For a description of the risks and assumptions related to these projections, please refer to the release in our filings with the SEC, including our most recent Form 10-K/A.

Today, we're going to discuss the financial results for the fourth quarter and fiscal year ended February 2, 2013, our outlook for 2013 and update you on certain other business matters. At the end of the call, we'll be glad to respond to your questions.

Before I turn the call over to Kevin to discuss the financial results, let me take a couple of minutes to give you my overall assessment of the quarter and the year. We posted a modest comp store sales gain of 0.7% for the 13 weeks ended January 26, 2013. The performance was essentially in line with our expectation of relatively flat comp store sales for the quarter and was on top of a solid 7.7% comp store sales increase in the fourth quarter of 2011. Our comp increase for the 52 weeks totaled 3.2%, which was on top of a very strong 9.5% comp store sales increase in 2011.

As we discussed on last quarter's call, our fourth quarter sales were negatively impacted by Hurricane Sandy, which caused significant disruptions to our very important northeastern markets and to saks.com. For the year, sales and earnings were somewhat below our initial expectations. In addition to Hurricane Sandy, continued macroeconomic concerns and election and fiscal cliff distractions weighed on our results, particularly in the second half of the year. Even though 2012 was a challenging year due to the external factors I just mentioned, it was also a year of meaningful progress and transformation for Saks. We continue to execute our core merchandising service and marketing strategies while building critically important omni-channel capabilities to position us for the future. We made headway on several important initiatives.

We began work on Project Evolution, our multiyear transformation of an investment in our information technology systems to facilitate an omni-channel shopping environment for our customers.

We began expanding the omni-channel experience for our customers by adding iPads to our stores; testing buy online, ship from store; and adding select store-only inventory items to our saks.com offerings.

On the marketing front, we began using our enhanced consumer analytics and insights to drive marketing effectiveness through targeted and personalized initiatives. In January, we relaunched our SaksFirst loyalty program, expanding the benefits and eliminating the spending threshold to participate in the program. We made meaningful year-over-year improvements in our in-store customer service scores and continued to receive high marks for our online service.

We identified several key Saks Fifth Avenue stores with high growth potential and supported their growth initiatives with strategic capital investments, including the expansion of 10022-SHOE in the New York flagship; renovations in Chevy Chase, Troy, Bal Harbour, St. Louis and Beverly Hills; and the addition of over 100 vendor shops throughout the country. We continued the rationalization of our Saks Fifth Avenue real estate, closing 3 additional stores in 2012, bringing the total close since 2010 to 10. We have since announced 2 additional planned closings. At OFF 5TH, we accelerated our growth strategy by opening 5 new stores and 1 replacement store and renovating 2 locations. And we meaningfully grew saks.com by adding to the breadth and depth of our product offerings, further improving our website shopping experience, enhancing our digital marketing initiatives and enriching our mobile experience. We improved the efficiency of our saks.com operations with a midyear opening of our state-of-the-art robotic fulfillment center in Tennessee.

We have a lot to be proud of, and the progress we've made on these initiatives in 2012 has laid a strong foundation for the future. Let me ask Kevin to provide more color on our 2012 operating results and our balance sheet.

Kevin G. Wills

Thanks, Steve, and good morning, everyone. For the fourth quarter, we recorded net income of $20.4 million or $0.13 per diluted share. Those results included net after-tax charges totaling $8 million or $0.04 per share related to asset impairment charges, store closing expenses, a noncash pension settlement charge and debt extinguishment. Excluding these items, we recorded net income of $28.4 million or $0.17 per share for the fourth quarter. This compares to net income of $29 million or $0.17 per diluted share for certain items in last year's fourth quarter.

For the full year, we recorded net income of $62.9 million or $0.41 per share. Those results included net after-tax charges of $9.5 million or $0.05 per share related to asset impairment charges, preopening costs associated with the company's new fulfillment center, store closing expenses, the aforementioned noncash pension settlement charge, the aforementioned loss on debt extinguishment and the reversal of state estimated income tax reserves deemed no longer necessary. Excluding these items, we recorded net income of $72.4 million or $0.46 per share for the fiscal year. This compares to net income of $72.8 million or $0.44 per share before certain items for the prior fiscal year.

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