Saks Fifth Avenue 2008 Annual Report Download - page 20

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis (“MD&A”) is intended to provide an analytical view of the
business from management’s perspective of operating the business and is considered to have these major
components:
• Overview
• Results of Operations
• Liquidity and Capital Resources
• Critical Accounting Policies
MD&A should be read in conjunction with the consolidated financial statements and related notes thereto
contained elsewhere in this Form 10-K.
OVERVIEW
GENERAL
The operations of Saks Incorporated, a Tennessee corporation first incorporated in 1919, and its subsidiaries
(together the “Company”) consist of Saks Fifth Avenue (“SFA”), Saks Fifth Avenue OFF 5th (“OFF 5th”), and
SFA’s e-commerce operations. Previously, the Company also operated Saks Department Store Group (“SDSG”),
which consisted of Proffitt’s and McRae’s (“Proffitt’s”) (sold to Belk, Inc. (“Belk”) in July 2005), the Northern
Department Store Group (“NDSG”) (operated under the nameplates of Bergner’s, Boston Store, Carson Pirie
Scott, Herberger’s and Younkers and sold to The Bon-Ton Stores, Inc. (“Bon-Ton”) in March 2006), Parisian
(sold to Belk in October 2006), and Club Libby Lu (“CLL”) (the operations of which were discontinued in
January 2009). The sold businesses and discontinued operations are presented as discontinued operations in the
consolidated statements of income and the consolidated statements of cash flows for the current and prior year
periods and are discussed below in “Discontinued Operations.”
The Company is primarily a fashion retail organization offering a wide assortment of distinctive luxury
fashion apparel, shoes, accessories, jewelry, cosmetics and gifts. SFA stores are principally free-standing stores
in exclusive shopping destinations or anchor stores in upscale regional malls. Customers may also purchase SFA
products by catalog or online at www.saks.com. OFF 5th is intended to be the premier luxury off-price retailer in
the United States. OFF 5th stores are primarily located in upscale mixed-use and off-price centers and offer
luxury apparel, shoes, and accessories, targeting the value-conscious customer. As of January 31, 2009, the
Company operated 53 SFA stores with a total of approximately 5.9 million square feet and 51 OFF 5th stores with
a total of approximately 1.4 million square feet.
As a result of the sale of the SDSG and NDSG businesses, the Company is primarily focused on the luxury
retail sector. All of the goods that the Company sells are discretionary items. Consequently, a downturn in the
economy or difficult economic conditions may result in fewer customers shopping in the Company’s stores or
online. In response, the Company may have to increase the duration and/or frequency of promotional events and
offer larger discounts in order to attract customers, which would reduce gross margin and adversely affect results
of operations.
The Company continues to make targeted investments in key areas to improve customer service and
enhance merchandise assortment and allocation effectiveness. In addition, strategic investments are being made
to remodel and expand existing selling space with a heightened focus on return on investment. The Company
believes that its long-term strategic plans can deliver additional operating margin expansion in future years.
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