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Merger Could Aid Saks

Birmingham, Ala. — The merger of rivals Federated and May could help nameplates in the Saks Department Store Group, especially in May markets, Saks Inc.’s chief told analysts late last week.

“It’s attractive from a market share standpoint,” said Brad Martin, Saks Incorporated chairman and CEO. “From a vendor perspective, who knows?”

Speaking to analysts during the company’s fourth quarter conference call, Martin predicted that merger machinations will divert Federated’s energy and attention away from day-to-day operations. Having gone through its own merger of Saks Fifth Avenue and the former Proffitt’s Inc. (now the Saks Department Store Group division), Martin said, “We understand how hard it is to maintain the revenue line” during the process.

Saks’ traditional, mostly moderate department stores overlap more May markets than Federated. Martin contended that in 90 percent of the Department Store Group (DSG) markets, Saks runs the No. 1 or No. 2 department store.

“Particularly in May markets, we have a substantive opportunity for market share gains,” he added. “Our stores look as good as, or better than, theirs. Our customer service is better than theirs. And we can assort locally better than them.”

Martin said he was not so convinced that the Federated/May combination would significantly increase the merged company’s leverage with vendors.

“I don’t know how much more clout they could need with vendors,” he said.

Asked by an analyst whether the merger would prompt Saks to either put itself on the market or seek acquisitions, Martin declined to comment.

The DSG includes 233 department stores operating under the names of Proffitt’s, Younkers, McRae’s Herberger’s, Carson Pirie Scott, Parisian, Scott and Bergner’s.

With DSG comps for the fourth quarter of 1.1 percent and a below-plan gross margin performance, the division will focus on improving profitability and turn this year, executives said.

The company will hold its level of private label penetration at approximately 17 percent this year, and work on improving the profitability of those programs, said Steven Sadove, vice chairman and chief operating officer.

“We got ahead of ourselves. We launched too many brands too quickly,” he added.

Although private label performance was “tough” in the first half of the year, by the fourth quarter margins had improved by more than 100 basis points, Sadove said. The flow of goods in the beginning of the new fiscal year is doing “quite well.”

Across the store, Saks Department Store Group this year will continue to trade up, but carefully, said Martin.

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