Saks Incorporated (SKS)
Q2 2009 Earnings Call
August 18, 2009 10:00 am ET
Stephen I. Sadove – Chairman and Chief Executive Officer
Ronald Frasch – President and Chief Merchandising Officer
Kevin Wills – Chief Financial Officer
Julia A. Bentley – Senior Vice President of Investor Relations
Deborah Weinswig - Citigroup
Christine Chen - Needham & Company, LLC
Ben Rowbotham for Adrianne Shapira - Goldman Sachs
Charles Grom - J.P. Morgan
[Rob Davis] – [Unidentified Firm]
Michelle Clark – [Unidentified Firm]
Lorraine Hutchinson – [Unidentified Firm]
Robert Drbul – [Unidentified Firm]
[Karoo Martinson – Unidentified Firm]
Todd Slater – [Unidentified Firm]
[Jason Trahio] for Emily Shanks – [Unidentified Firm]
Dana Telsey – [Unidentified Firm]
Paul [Nury – Unidentified Firm]
[Jeff Kobelars – Unidentified Firm]
[Michael Shredguess – Unidentified Firm]
Previous Statements by SKS
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I would now like to turn the call over our host, Mr. Steve Sadove, Chairman and CEO of Saks. Sir you may begin.
Stephen I. Sadove
Thank you. Good morning. This is Steve Sadove, Chairman and CEO of Saks, Incorporated. I’m joined on the call by Ron Frasch, President and Chief Merchandising Officer, Kevin Wills, our CFO and Julia Bentley, our Senior VP of IR. I’d like to thank each of you for taking the time to join us.
Today we’ll discuss financial results for the second quarter and six months ended August 1, 2009, our outlook for the balance of the year and update you on several other 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 what we’ve accomplished since the economic downturn began. 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 most recent filings with the SEC, including our most recent Form 10-K.
Let me begin with my general comments. I don’t like the fact that we’re losing money, but for the second quarter I’m extremely pleased with our expense management and our gross margin performance exceeded our expectations. In spite of the difficult circumstances we’ve made a great deal of progress over the last two quarters on many fronts, and our second quarter financial results were better than we thought they might be when the fiscal year began. I’m very proud of how the Saks team has been remarkably nimble in shifting focus from a high growth business to this declining sales environment. Although our current financial results do not necessarily reflect the benefits of all of our strategies and investments, we continue to believe that these are the right ones for the future and that they will position us to win in the long run, especially when we return to a more normalized economic environment.
We’ve diligently managed inventories, expenses and capital spending throughout this challenging period and are making adjustments to our strategies. Additionally, we’ve made some adjustments to our capital structure to give us even more flexibility going forward. Ron and I have talked a lot about our four legged stool approach to the business which refers to merchandising, the customer experience, marketing and expense management. We’re certainly making a lot of headway in each category, but given the nature of luxury retailing it takes time before the benefits of certain merchandising marketing and service changes are realized. Conversely, we’re seeing immediate benefits from our expense reduction efforts and this area has clearly been one of our biggest accomplishments to date. Ron will talk more about our merchandising, service and marketing initiatives in just a moment, but first I want to make some additional comments on expenses.
The entire organization has embraced diligent expense control and is literally challenging every expenditure. I’m really pleased with how the team has approached and embraced right sizing the organization and cost structure to the smaller sales space. When business trends began to dramatically worsen last fall, we reduced SG&A by approximately $50 million in the second half of last year, and by another $77 million in the first half of this year. This $127 million of SG&A reductions substantially exceeded our expectations. The decrease not only reflects our reduction in force and lower store selling payroll which flexes with sales, but includes cuts in essentially every area of the business from travel to supplies to benefits to marketing to information technology. No expense is sacred. The cost reductions are significant.
However, we are being very protective of areas that directly impact the consumer as we continue to place the utmost importance on further enhancing our customer experience. We’re continuing to look for additional reductions, although the vast majority of the cuts have already been realized.
Now I’ll ask Kevin to comment on our operating results and the balance sheet.
Thanks Steve and good morning everyone. We recorded a net loss from continuing operations of $54.5 million or $0.39 per share in the second quarter. This compares to a loss from continuing operations and before certain items of $29.9 million or $0.22 per share in last year’s second quarter. For the six months we recorded a net loss from continuing operations of $59.4 million or $0.43 per share. For the prior year six months, Saks recorded a net loss from continuing operations and before certain items of $10.9 million or $0.08 per share. There were no call outs or certain items during the current year second quarter or six month period, but there were some in the prior year which were outlined in the release. As we discuss the numbers today in comparison to the prior year, the prior year numbers excluded these call out items.