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swung to a surprise profit in its third-quarter, as it drastically reduced its deep promotions.

The news sent shares jumping more than 5.5% in pre-market trading.

During the quarter, the high-end department store earned $1.93 million, or 1 cent a share, compared with a loss of $43.7 million, or 32 cents, in the year-ago period. Analysts expected a loss of 11 cents a share.

Sales fell 8.5% to $631.4 million from $690.3 million, while same-store sales tumbled 10%.

While sales remain depressed, the company is seeing improving gross margins as it slashes its promotional activity. Gross margin rose to 40.3% from 35.7% during the quarter.

Saks saw strength in its women's designer sportswear category, jewelry and improvement in its New York flagship store.

Still, management expects same-store sales to decline in the high-single digits in the fourth quarter.

"We believe there is more stability and predictability in our business compared to 12 or even six months ago," Chief Executive Steve Sadove said in a statement. "However, the overall environment remains challenging. As we look to next year, we remain cautious about the environment and are planning accordingly."

Saks says 2010 capital spending will be just $40 million to $45 million, which compares with $65 million this year. There are no plans to open new Saks Fifth Avenue stores or conduct major renovations.

-- Reported by Jeanine Poggi in New York

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