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Saks 1Q Profits Down 20%

Saks Inc. filed delayed first-quarter results that showed profits declining 20 percent to $16.2 million, on sales that rose 0.6 percent to $1.55 billion.

NEW YORK — Saks Inc. filed its long awaited first-quarter results Monday that showed profits declining 20 percent on a small sales gain

The retailer also said it would post second-quarter earnings by mid-month.

For the three months ended April 30, 2005, net income fell to $16.2 million, or 11 cents a diluted share, from $20.2 million, or 14 cents in the same year-ago quarter. The quarter’s results were lower than the company’s estimated income of $17.1 million, or 12 cents, in May due to a legal reserve established for a Sept. 23, 2005 court ruling on a severance-related lawsuit. Sales rose 0.6 percent to $1.55 billion from $1.54 billion, while same-store sales gained 1.9 percent.

The firm was late in filing its quarterly results because of the delayed posting of its 2004 annual report, which was filed on Sept. 1.

During the quarter, the retailer operated two divisions, its department store group and Saks Fifth Avenue Enterprises.

The company said in the regulatory filing with the Securities and Exchange Commission that vendor allowances of approximately $34.1 million had been improperly collected from suppliers between fiscal 1996 through 2003, and reiterated that “no improper collection was identified in fiscal 2004.” The company will repay vendors $48.1 million including interest. The improper collections gave rise to probes by the SEC and the U.S. Attorney’s office in Manhattan. Saks reiterated that the company is “fully cooperating with the SEC and the Office of the United States Attorney.”

In the filing, the retailer said it will be implementing controls over how it records transactions, and has enhanced its monitoring and review controls in regard to accounting for vendor-provided markdown support. In addition, Saks said it is training associates on the proper accounting and documentation policies related to vendor-provided markdown support. It is also implementing new internal audit programs to test and monitor accounting policy compliance throughout the year.

In addition to the markdown improprieties, the company also adjusted for how it accounted for purchase discounts.

In its regulatory filing, Saks said it receives discounts from vendors on merchandise purchases when it meets certain payment specifications. The company said that historically it treated a portion of these purchase discounts as prompt payment discounts, and recognized that portion immediately into earnings through a reduction of cost of sales. “This portion of the discount, however, should have been considered a cost purchase adjustment along with the remaining discount and included as a reduction in the cost of the inventory,” the filing said.

Like other retailers, Saks also made adjustments for how it accounted for certain lease issues.