Saks Fifth Avenue 2011 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 has the following components:
▪Overview
▪Results of Operations
▪Liquidity and Capital Resources
▪Contractual Obligations and Off-Balance Sheet Arrangements
▪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”) stores and SFA e-commerce operations (“Saks
Direct”) as well as Saks Fifth Avenue OFF 5TH (“OFF 5TH”). 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 on the Consolidated Statements of Income and the Consolidated Statements of Cash
Flows for the prior year periods and are discussed below in “Discontinued Operations.”
The Company is an omni-channel luxury retailer offering a wide assortment of distinctive 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
online at saks.com or by catalog. 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 28, 2012, the Company
operated 46 SFA stores with a total of approximately 5.5 million square feet and 60 OFF 5TH stores with a total
of approximately 1.7 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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