Saks Fifth Avenue 2010 Annual Report Download - page 21

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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 and Estimates
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 (“Saks Direct”). Previously, the Company also operated Club Libby Lu
(“CLL”), the operations of which were discontinued in January 2009. The operations of CLL 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 Saks Direct. 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 29, 2011, the
Company operated 47 SFA stores with a total of approximately 5.5 million square feet and 57 OFF 5TH stores
with a total of approximately 1.6 million square feet.
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 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.
The Company seeks to create value for its shareholders by improving returns on its invested capital. The
Company attempts to generate improved operating margins by generating sales increases while improving
merchandising margins and controlling expenses. The Company uses operating cash flows to reinvest in the
business and to repurchase debt or equity. The Company actively manages its real estate portfolio by routinely
evaluating opportunities to improve or close underproductive stores and open new stores.
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