Q3 2012 Earnings Call Transcript

Transcript Call Date 11/13/2012

Operator: Greetings and welcome to the Saks Incorporated Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Steve Sadove, Chairman and CEO of Saks Incorporated. Thank you, sir. You may begin.

Stephen I. Sadove - Chairman and CEO: Thanks. Good morning. This is Steve Sadove. I'm joined on the call today by Ron Frasch, President and Chief Merchandising Officer; Kevin Wills, our CFO; and Julia Bentley, our Senior VP of IR. I would like to thank each of you for taking the time to join us today.

First, let me note that some of the comments on the call as well as some of the information presented in our release related to future results or expectations are considered forward-looking information within the definition of the federal securities laws. The forward-looking information is premised on many factors, and actual consolidated results might differ materially from projected information, if there are any material changes in our assumptions, or in the various risks related to our industry and our Company. For a description of the risks and assumptions related to these projections, please refer to the release and our filings with the SEC, including our most recent Form 10-KA.

Today, we will discuss the financial results for the third quarter ending October 27, 2012, our outlook for the fourth quarter, and give you a general business update. At the end of the call, we'll be glad to respond to your questions.

Before I turn the call over to Kevin to discuss the financial results, let me just make a few comments. In spite of the continued uncertain macroeconomic environment, we were pleased to post a modest year-over-year increase in our operating income and net income for the third quarter. Our 3.3% comp store sales increase was somewhat below our initial expectation but was on top of a solid 5.8% comp store sales increase in the prior-year third quarter. Our third-quarter gross margin rate deterioration is partially offset by modest SG&A leverage, with our gross margin rate slightly below our expectations and our SG&A leverage modestly better than our expectations.

As the overall macroeconomic environment remains challenging, we continue to approach the future cautiously, but very strategically. We remain focused on executing our core merchandising, service and marketing strategies, and at the same time we're making critical systems and infrastructure investments to evolve our business to more fully embrace omni-channel retailing. We're confident that these investments will position us for the future and will generate incremental sales and operating margin improvement over time. We remain very optimistic about the long-term outlook for luxury retailing in general and specifically for Saks.

Having said that, sales trends were soft for the first two weeks of November in the aftermath of Hurricane Sandy. We ordinarily don't comment on the first weeks of a quarter, but Sandy was such an extraordinary event and has had such an impact on our business so far in the fourth quarter that we thought it was appropriate to provide more color under the circumstances. Many of our stores representing about 40% of our total company revenues were directly impacted by the storm and we've experienced the decline in sales generated from our customers in the Northeast.

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