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Saks Incorporated Announces Results For The Second Quarter And Six Months Ended July 28, 2012

For the second quarter, the Company’s gross margin rate was 37.2% compared to last year’s second quarter rate of 38.0%. For the six months, the gross margin rate was 40.9% compared to 41.1% in the first six months of last year. As expected, the gross margin rate decline was primarily attributable to incremental second quarter markdowns in certain merchandise categories needed to move through the Company’s normal clearance cycle.

As a percent of sales, SG&A expenses (excluding the certain items) were 27.1% in the second quarter this year compared to 26.9% in the prior year second quarter and 26.1% for the current year six months compared to 25.7% for the same period last year. As expected, the Company incurred incremental SG&A expenses to support its omni-channel and Project Evolution (information technology systems and enhancements) initiatives.

Excluding the aforementioned certain items, the Company’s operating loss was 1.0% of sales in the current year second quarter compared to an operating loss of 0.1% of sales in the prior year second quarter. Excluding the aforementioned certain items, the Company’s operating income was 4.0% of sales for the current year six months compared to operating income of 4.5% of sales in the prior year six month period.

Balance Sheet Highlights

Consolidated inventories at July 28, 2012 totaled $749.1 million, an 8.7% increase over the prior year. Inventories increased 5.3% on a comparable stores basis.

At quarter end, the Company had approximately $139.0 million of cash on hand and no direct outstanding borrowings on its revolving credit facility. During the quarter, the Company repurchased $79.0 million of common stock (approximately 8.0 million shares at an average price per share of $9.90) with cash on hand.

In accordance with FASB Accounting Standard Codification 470 related to accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) (“ASC 470”), issuers of convertible debt instruments must separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The discounts (the difference between the convertible rate and a nonconvertible borrowing rate on each issuance) on the Company’s two series of convertible notes are being accreted to interest expense through the note maturity dates. Accordingly, at July 28, 2012, $14.9 million of the $230 million 2.0% convertible notes balance and $7.8 million of the $120 million 7.5% convertible notes balance were classified in equity.

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