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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended: May 3, 2008 or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission
File Number: 1-13113

SAKS INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)



|                                               |  |                                  
|---------------------------------------------- |  | ---------------------------------
|TENNESSEE                                      |  | 62-0331040                       
|(State or other jurisdiction of incorporation) |  | (IRS Employer Identification No.)



|                                        |  |           
|--------------------------------------- |  | ----------
|12 East 49thStreet New York, New York   |  | 10017     
|(Address of principalexecutive offices) |  | (Zip Code)

212-940-5305

(Registrants telephone number, including area code)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



|                           |  |                             
|-------------------------- |  | ----------------------------
|Large accelerated filer  x |  | Accelerated filer   ̈        
|Non-accelerated filer   ̈   |  | Smaller Reporting Company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈    No  x

As of May 31, 2008, the number of shares of the Registrants Common Stock outstanding was 143,593,723.









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TABLE OF CONTENTS



|                                                                                                 |  |         
|------------------------------------------------------------------------------------------------ |  | --------
|                                                                                                 |  | Page No.
|PART I. FINANCIAL INFORMATION                                                                    |  |         
|                                                                                                 | 
|Item 1. Financial Statements (Unaudited)                                                         |  |         
|Condensed Consolidated Balance Sheets  May 3, 2008, February 2, 2008 and May 5, 2007            |  | 3       
|Condensed Consolidated Statements of Income  Three Months Ended May 3, 2008 and May 5, 2007     |  | 4       
|Condensed Consolidated Statements of Cash Flows  Three Months Ended May 3, 2008 and May 5, 2007 |  | 5       
|Notes to Condensed Consolidated Financial Statements                                             |  | 6       
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations    |  | 20      
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                               |  | 29      
|Item 4.
Controls and Procedures                                                                  |  | 30      
|PART II. OTHER INFORMATION                                                                       |  |         
|                                                                                                 | 
|Item 1.
Legal Proceedings                                                                        |  | 30      
|Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                              |  | 31      
|Item 5.
Other Information                                                                        |  | 31      
|Item 6.
Exhibits                                                                                 |  | 32      
|SIGNATURES                                                                                       |  | 33      



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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

(Unaudited)



|                                               |  |            |           |                 |   |            |  |   |          
|---------------------------------------------- |  | ---------- | --------- | --------------- | - | ---------- |  | - | ---------
|                                               |  | May 3,2008 |           | February 2,2008 |   | May 5,2007
|ASSETS                                         |  |            |           |                 |   |            |  |   |          
|Current Assets                                 |  |            |           |                 |   |            |  |   |          
|Cash and cash equivalents                      |  | $          | 124,523   |                 | $ | 101,162    |  | $ | 158,325  
|Merchandise inventories                        |  |            | 841,068   |                 |   | 857,173    |  |   | 811,577  
|Other current assets                           |  |            | 141,677   |                 |   | 124,973    |  |   | 133,700  
|Deferred income taxes, net                     |  |            | 41,428    |                 |   | 42,827     |  |   | 28,359   
|                                               |  |            |           |                 |   |            |  |   |          
|Total current assets                           |  |            | 1,148,696 |                 |   | 1,126,135  |  |   | 1,131,961
|Property and Equipment, net                    |  |            | 1,081,785 |                 |   | 1,092,004  |  |   | 1,095,218
|Intangibles, net                               |  |            | 290       |                 |   | 297        |  |   | 317      
|Deferred Income Taxes, net                     |  |            | 96,459    |                 |   | 97,108     |  |   | 142,438  
|Other Assets                                   |  |            | 50,902    |                 |   | 55,480     |  |   | 40,937   
|                                               |  |            |           |                 |   |            |  |   |          
|TOTAL ASSETS                                   |  | $          | 2,378,132 |                 | $ | 2,371,024  |  | $ | 2,410,871
|                                               |  |            |           |                 |   |            |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |            |           |                 |   |            |  |   |          
|Current Liabilities                            |  |            |           |                 |   |            |  |   |          
|Trade accounts payable                         |  | $          | 204,382   |                 | $ | 176,844    |  | $ | 236,826  
|Accrued expenses and other current liabilities |  |            | 255,254   |                 |   | 282,311    |  |   | 259,654  
|Dividend payable                               |  |            | 1,475     |                 |   | 2,641      |  |   | 3,813    
|Current portion of long-term debt              |  |            | 88,980    |                 |   | 319,242    |  |   | 235,757  
|                                               |  |            |           |                 |   |            |  |   |          
|Total current liabilities                      |  |            | 550,091   |                 |   | 781,038    |  |   | 736,050  
|Long-Term Debt                                 |  |            | 482,130   |                 |   | 253,346    |  |   | 351,428  
|Other Long-Term Liabilities                    |  |            | 162,543   |                 |   | 161,034    |  |   | 177,399  
|                                               |  |            |           |                 |   |            |  |   |          
|Total liabilities                              |  |            | 1,194,764 |                 |   | 1,195,418  |  |   | 1,264,877
|Commitments and Contingencies                  |  |            |          |                 |   |           |  |   |         
|Shareholders Equity                           |  |            | 1,183,368 |                 |   | 1,175,606  |  |   | 1,145,994
|                                               |  |            |           |                 |   |            |  |   |          
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY     |  | $          | 2,378,132 |                 | $ | 2,371,024  |  | $ | 2,410,871
|                                               |  |            |           |                 |   |            |  |   |          

See notes to condensed consolidated financial statements.



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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)



|                                                        |  |                    |         |   |            |   |         |  
|------------------------------------------------------- |  | ------------------ | ------- | - | ---------- | - | ------- | -
|                                                        |  | Three Months Ended |        
|                                                        |  | May 3,2008         |         |   | May 5,2007 |  
|NET SALES                                               |  | $                  | 862,352 |   |            | $ | 792,747 |  
|Cost of sales (excluding depreciation and amortization) |  |                    | 533,064 |   |            |   | 464,467 |  
|                                                        |  |                    |         |   |            |   |         |  
|Gross margin                                            |  |                    | 329,288 |   |            |   | 328,280 |  
|Selling, general and administrative expenses            |  |                    | 204,747 |   |            |   | 212,845 |  
|Other operating expenses:                               |  |                    |         |   |            |   |         |  
|Property and equipment rentals                          |  |                    | 28,298  |   |            |   | 28,337  |  
|Depreciation and amortization                           |  |                    | 32,644  |   |            |   | 31,798  |  
|Taxes other than income taxes                           |  |                    | 23,057  |   |            |   | 22,220  |  
|Store pre-opening costs                                 |  |                    | 287     |   |            |   | 136     |  
|Impairments and dispositions                            |  |                    | 138     |   |            |   | 384     |  
|                                                        |  |                    |         |   |            |   |         |  
|OPERATING INCOME                                        |  |                    | 40,117  |   |            |   | 32,560  |  
|Interest expense                                        |  |                    | (10,057 | ) |            |   | (11,980 | )
|Loss on extinguishment of debt                          |  |                    |        |   |            |   | (5,222  | )
|Other income, net                                       |  |                    | 947     |   |            |   | 2,835   |  
|                                                        |  |                    |         |   |            |   |         |  
|INCOME BEFORE INCOME TAXES                              |  |                    | 31,007  |   |            |   | 18,193  |  
|Provision for income taxes                              |  |                    | 12,730  |   |            |   | 7,156   |  
|                                                        |  |                    |         |   |            |   |         |  
|NET INCOME                                              |  | $                  | 18,277  |   |            | $ | 11,037  |  
|                                                        |  |                    |         |   |            |   |         |  
|Net Income per share - Basic                            |  | $                  | 0.13    |   |            | $ | 0.08    |  
|Net Income per share - Diluted                          |  | $                  | 0.13    |   |            | $ | 0.07    |  
|Weighted average common shares:                         |  |                    |         |   |            |   |         |  
|Basic                                                   |  |                    | 139,904 |   |            |   | 140,242 |  
|Diluted                                                 |  |                    | 140,830 |   |            |   | 156,274 |  

See notes to condensed consolidated financial statements.



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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)



|                                                                                            |  |                    |         |   |            |   |          |  
|------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------- | - | -------- | -
|                                                                                            |  | Three Months Ended |        
|                                                                                            |  | May 3,2008         |         |   | May 5,2007 |  
|Operating Activities:                                                                       |  |                    |         |   |            |   |          |  
|Net Income                                                                                  |  | $                  | 18,277  |   |            | $ | 11,037   |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                    |         |   |            |   |          |  
|Depreciation and amortization                                                               |  |                    | 32,644  |   |            |   | 31,798   |  
|Impairments and dispositions                                                                |  |                    | 138     |   |            |   | 384      |  
|Equity compensation                                                                         |  |                    | 3,489   |   |            |   | 1,194    |  
|Deferred income taxes                                                                       |  |                    | 10,472  |   |            |   | 3,514    |  
|Excess tax benefit from stock-based compensation                                            |  |                    |        |   |            |   | (5,186   | )
|Loss on extinguishment of debt                                                              |  |                    |        |   |            |   | 5,222    |  
|Change in operating assets and liabilities, net                                             |  |                    | (1,013  | ) |            |   | (53,777  | )
|                                                                                            |  |                    |         |   |            |   |          |  
|Net Cash Provided by (Used In) Operating Activities                                         |  |                    | 64,007  |   |            |   | (5,814   | )
|Investing Activities:                                                                       |  |                    |         |   |            |   |          |  
|Purchases of property and equipment                                                         |  |                    | (24,968 | ) |            |   | (32,019  | )
|Proceeds from the sale of property and equipment                                            |  |                    | 14      |   |            |   | 266      |  
|                                                                                            |  |                    |         |   |            |   |          |  
|Net Cash Used In Investing Activities                                                       |  |                    | (24,954 | ) |            |   | (31,753  | )
|Financing Activities:                                                                       |  |                    |         |   |            |   |          |  
|Payments on long-term debt and capital lease obligations                                    |  |                    | (1,498  | ) |            |   | (103,889 | )
|Cash dividends paid                                                                         |  |                    | (1,139  | ) |            |   | (6,340   | )
|Excess tax benefit from stock-based compensation                                            |  |                    |        |   |            |   | 5,186    |  
|Purchases and retirements of common stock                                                   |  |                    | (14,765 | ) |            |   |         |  
|Proceeds from issuance of common stock                                                      |  |                    | 1,710   |   |            |   | 23,052   |  
|                                                                                            |  |                    |         |   |            |   |          |  
|Net Cash Used In Financing Activities                                                       |  |                    | (15,692 | ) |            |   | (81,991  | )
|Increase (Decrease) in Cash and Cash Equivalents                                            |  |                    | 23,361  |   |            |   | (119,558 | )
|Cash and cash equivalents at beginning of period                                            |  |                    | 101,162 |   |            |   | 277,883  |  
|Cash and cash equivalents at end of period                                                  |  | $                  | 124,523 |   |            | $ | 158,325  |  
|                                                                                            |  |                    |         |   |            |   |          |  

See notes to condensed consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

NOTE 1  GENERAL

BASIS OF PRESENTATION

The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information and in compliance with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair statement have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Operating results for the three months ended May 3, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2009 (fiscal year 2008). The financial
statements include the accounts of Saks Incorporated and its subsidiaries (collectively, the Company). All intercompany amounts and transactions have been eliminated.

The accompanying condensed consolidated balance sheet at February 2, 2008 has been derived from the audited financial statements at that date but does not include all disclosures required by GAAP. These interim
condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Companys 2007 Annual Report on Form 10-K for the fiscal year ended February 2,
2008.

The Companys operations consist of Saks Fifth Avenue (SFA), Off Fifth, and Club Libby Lu.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net Sales
 Net sales include sales of merchandise (net of returns and exclusive of sales taxes), commissions from leased departments, shipping and handling revenues related to merchandise sold and breakage income from unredeemed gift cards. Commissions
from leased departments were $7,603 and $7,123 for the three months ended May 3, 2008 and May 5, 2007, respectively. Leased department sales were $55,563 and $50,267 for the three months ended May 3, 2008 and May 5, 2007,
respectively, and were excluded from net sales.

Cash and Cash Equivalents  Cash and cash equivalents primarily consist of cash on hand
in the stores, deposits with banks, and investments with banks and financial institutions that have original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash equivalents totaled $107,014
and $142,293 at May 3, 2008 and May 5, 2007, respectively, primarily consisting of money market funds, demand and time deposits. Income earned on cash equivalents was $883 and $2,711 for the three-month period ended May 3, 2008 and
May 5, 2007, respectively, and is reflected in Other Income.



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Impairments and Dispositions -The Company continuously evaluates its real estate portfolio and closes
underproductive stores in the normal course of business as leases expire or as other circumstances indicate. The Company also performs an asset impairment analysis at each fiscal year end. The Company incurred net charges primarily related to asset
impairments in the normal course of business of $138 and $384 for the three months ended May 3, 2008 and May 5, 2007, respectively. Asset impairments are included in Impairments and Dispositions in the accompanying Condensed Consolidated
Statements of Income.

Inventory -On February 3, 2008, the Company elected to change its method of costing its inventories to the
retail first-in, first-out (FIFO) method, whereas in all prior periods inventory was costed using the retail last-in, first-out (LIFO) method. The new method of accounting had no impact on the three months ended May 3,
2008 and May 5, 2007, respectively, as the LIFO value exceeded the FIFO market value and was written down to reflect FIFO market value in all periods.

Income Taxes - The effective income tax rate for the three-month period ended May 3, 2008 was 41.1%, as compared to 39.4%, for the three-month period ended May 5, 2007. The increase in the effective rate for the
three-month period ended May 3, 2008 was primarily due to accrual of interest related to uncertain tax positions.

Components of the Companys
income tax expense for the three-month period ended May 3, 2008 and May 5, 2007 were as follows:



|                                                               |  |                    |        |            |   |       |  
|-------------------------------------------------------------- |  | ------------------ | ------ | ---------- | - | ----- | -
|                                                               |  | Three Months Ended |       
|                                                               |  | May 3,2008         |        | May 5,2007 |  
|Expected federal income taxes at 35%                           |  |                    | 10,852 |            |   | 6,368 |  
|State income taxes, net of federal benefit                     |  |                    | 1,110  |            |   | 818   |  
|Effect of settling tax exams and other tax reserve adjustments |  |                    | 495    |            |   | (121  | )
|Other items, net                                               |  |                    | 273    |            |   | 91    |  
|                                                               |  |                    |        |            |   |       |  
|Provision for income taxes                                     |  | $                  | 12,730 |            | $ | 7,156 |  
|                                                               |  |                    |        |            |   |       |  

It is reasonably possible that the amount of unrecognized tax benefits will increase or decrease in the next
twelve months as a result of settling uncertain tax positions. However, the Company does not anticipate this to result in any material change to the amount of unrecognized tax benefits.

The Company files a consolidated U.S. Federal income tax return as well as state tax returns in multiple state jurisdictions. The Company has completed examinations by the Internal Revenue Service for taxable years
through January 29, 2005 with no significant adjustments. With respect to the state and local jurisdictions, the Company has completed examinations in many jurisdictions through the same period and currently has examinations in progress for
several jurisdictions.



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NOTE 2 - EARNINGS PER COMMON SHARE

Calculations of earnings per common share (EPS) for the three months ended May 3, 2008 and May 5, 2007, respectively, are as follows (income and shares in thousands):



|                                                            |  |                                       |        |                                       |         |                |   |           |  |                       |        |                |         |  |   |       |  
|----------------------------------------------------------- |  | ------------------------------------- | ------ | ------------------------------------- | ------- | -------------- | - | --------- |  | --------------------- | ------ | -------------- | ------- |  | - | ----- | -
|                                                            |  | For the Three Months EndedMay 3, 2008 |        | For the Three Months EndedMay 5, 2007 |        
|                                                            |  | NetIncome                             |        | WeightedAverageShares                 |         | PerShareAmount |   | NetIncome |  | WeightedAverageShares |        | PerShareAmount |        
|Basic EPS                                                   |  | $                                     | 18,277 |                                       | 139,904 |                | $ | 0.13      |  | $                     | 11,037 |                | 140,242 |  | $ | 0.08  |  
|Effect of dilutive stock options and convertible debentures |  |                                       |       |                                       | 926     |                |   |          |  |                       |       |                | 16,032  |  |   | (0.01 | )
|                                                            |  |                                       |        |                                       |         |                |   |           |  |                       |        |                |         |  |   |       |  
|Diluted EPS                                                 |  | $                                     | 18,277 |                                       | 140,830 |                | $ | 0.13      |  | $                     | 11,037 |                | 156,274 |  | $ | 0.07  |  
|                                                            |  |                                       |        |                                       |         |                |   |           |  |                       |        |                |         |  |   |       |  

The Company had 2,017 and 271 option and performance share awards of potentially dilutive common stock outstanding
as of May 3, 2008 and May 5, 2007, respectively, that were not included in the computation of diluted EPS because the exercise prices of the options were greater than the average market price of the common shares for the period or the
performance condition was not met. There were also 19,219 of potentially exercisable shares under the convertible notes at May 3, 2008 and May 5, 2007, respectively, that were not included in the computation of diluted EPS due to the
assumption of net share settlement as discussed below.

The Financial Accounting Standards Board (FASB) is contemplating an amendment to
Statement of Financial Accounting Standard (SFAS) No. 128, Earnings Per Share, that would require the Company to ignore the cash presumption of net share settlement and to assume share settlement for purposes of
calculating diluted earnings per share. Although the Company is now required to ignore the contingent conversion provision on its convertible notes under EITF 04-08, it can still presume that it will satisfy the net share settlement of the par value
upon conversion of the notes in cash, and thus exclude the effect of the conversion of the notes in its calculation of diluted earnings per share. If and when the FASB amends SFAS No. 128, the effect of the changes would require the Company to
use the if-converted method in calculating diluted earnings per share except when the effect would be anti-dilutive. The effect of adopting the amendment to SFAS No. 128 would increase the number of shares in the Companys diluted
calculation by 19,219 shares.

NOTE 3 - DEBT AND SHARE ACTIVITY

On April 12, 2007, the Company announced final results of its modified Dutch Auction tender offer to purchase a portion of its 8.25% senior notes due November 15, 2008 for an aggregate purchase price not to exceed
$100,000 (the offer cap). The offer expired on April 11, 2007. The aggregate principal amount of notes validly tendered at or above the clearing spread exceeded the offer cap, and the Company accepted $95,872 aggregate principal
amount of the



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notes, resulting in an aggregate purchase price of $100,000 (plus an additional $3,230 in aggregate accrued interest on such notes). The Company accepted for
purchase first, all notes tendered at spreads above the clearing spread, and thereafter, the notes validly tendered at the clearing spread on a prorated basis according to the principal amount of such notes. During the three months ended May 5,
2007, the Company recorded a loss on extinguishment of debt of approximately $5,222 related to the repurchase of the notes.

During the three months ended
May 3, 2008, the Company repurchased 1,234 shares of its common stock at a cost of approximately $14,765. At May 3, 2008, there were 34,424 shares remaining available for repurchase under the Companys existing share repurchase
program.

NOTE 4  EMPLOYEE BENEFIT PLANS

The
Company sponsors a defined benefit cash balance pension plan for many employees of the Company. The Company generally funds pension costs currently, subject to regulatory funding requirements. The components of net periodic pension (benefit) expense
related to the Companys pension plan for the three months ended May 3, 2008 and May 5, 2007 were as follows:



|                                                   |  |                    |        |   |            |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ---------- | - | ------ | -
|                                                   |  | Three Months Ended |       
|                                                   |  | May 3,2008         |        |   | May 5,2007 |  
|Service cost                                       |  | $                  | 169    |   |            | $ | 331    |  
|Interest cost                                      |  |                    | 2,123  |   |            |   | 1,838  |  
|Expected return on plan assets                     |  |                    | (3,037 | ) |            |   | (2,782 | )
|Net amortization of losses and prior service costs |  |                    | 184    |   |            |   | 813    |  
|                                                   |  |                    |        |   |            |   |        |  
|Net periodic pension (benefit) expense             |  | $                  | (561   | ) |            | $ | 200    |  
|                                                   |  |                    |        |   |            |   |        |  

The Company expects minimal or no funding requirements in 2008 and 2009.



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NOTE 5  SHAREHOLDERS EQUITY

The following table summarizes the changes in shareholders equity for the three months ended May 3, 2008:



|                                                   |  |                   |   |  |                   |        |   |                          |   |           |                  |  |                                   |        |  |                          |         |   |  |   |           |  
|-------------------------------------------------- |  | ----------------- | - |  | ----------------- | ------ | - | ------------------------ | - | --------- | ---------------- |  | --------------------------------- | ------ |  | ------------------------ | ------- | - |  | - | --------- | -
|                                                   |  | CommonStockShares |   |  | CommonStockAmount |        |   | AdditionalPaid-InCapital |   |           | RetainedEarnings |  | AccumulatedOtherComprehensiveLoss |        |  | TotalShareholdersEquity |        
|Balance at February 2, 2008                        |  | 141,784           |   |  | $                 | 14,180 |   |                          | $ | 1,119,192 |                  |  | $                                 | 57,236 |  | $                        | (15,002 | ) |  | $ | 1,175,606 |  
|Net income                                         |  |                   |   |  |                   |        |   |                          |   |           |                  |  |                                   | 18,277 |  |                          |         |   |  |   | 18,277    |  
|Dividend adjustment - cancelled restricted shares  |  |                   |   |  |                   |        |   |                          |   | 27        |                  |  |                                   |        |  |                          |         |   |  |   | 27        |  
|Issuance of common stock                           |  | 226               |   |  |                   | 23     |   |                          |   | 1,687     |                  |  |                                   |        |  |                          |         |   |  |   | 1,710     |  
|Income tax benefit related to employee stock plans |  |                   |   |  |                   |        |   |                          |   | (97       | )                |  |                                   |        |  |                          |         |   |  |   | (97       | )
|Net activity under stock compensation plans        |  | 2,785             |   |  |                   | 279    |   |                          |   | (279      | )                |  |                                   |        |  |                          |         |   |  |   |          |  
|Restricted shares withheld for taxes               |  | (59               | ) |  |                   | (6     | ) |                          |   | (873      | )                |  |                                   |        |  |                          |         |   |  |   | (879      | )
|Stock-based compensation                           |  |                   |   |  |                   |        |   |                          |   | 3,489     |                  |  |                                   |        |  |                          |         |   |  |   | 3,489     |  
|Repurchase of common stock                         |  | (1,234            | ) |  |                   | (123   | ) |                          |   | (14,642   | )                |  |                                   |        |  |                          |         |   |  |   | (14,765   | )
|                                                   |  |                   |   |  |                   |        |   |                          |   |           |                  |  |                                   |        |  |                          |         |   |  |   |           |  
|Balance at May 3, 2008                             |  | 143,502           |   |  | $                 | 14,353 |   |                          | $ | 1,108,504 |                  |  | $                                 | 75,513 |  | $                        | (15,002 | ) |  | $ | 1,183,368 |  
|                                                   |  |                   |   |  |                   |        |   |                          |   |           |                  |  |                                   |        |  |                          |         |   |  |   |           |  

NOTE 6  STOCK-BASED COMPENSATION

The Company maintains an equity incentive plan for the granting of options, stock appreciation rights, performance shares, restricted stock, and other forms of equity awards to employees and directors. Options granted
generally vest over a four-year period after grant and have an exercise life of seven to ten years from the grant date. Restricted stock and performance shares generally vest one to three years after the grant date, although applicable plans permit
accelerated vesting in certain circumstances at the discretion of the Human Resources and Compensation Committee of the Board of Directors.

Compensation
cost for restricted stock and performance shares that cliff vest are expensed straight line over the requisite service period. Restricted stock and performance shares with graded vesting features are treated as multiple awards based upon the vesting
date. The Company records compensation costs for these awards straight line over the requisite service period for each separately vesting portion of the award. Compensation cost for stock option awards with graded vesting are expensed straight
line over the requisite service period.

Total stock-based compensation expense, net of related tax effects, for the three months ended May 3, 2008
and May 5, 2007 was $2,093 and $716, respectively. As of May 3, 2008, the Company had unearned compensation amounts related to restricted stock of $48,732 included in Additional Paid-In Capital, which will be recognized over a weighted
average period of less than three years.



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NOTE 7 - CONTINGENCIES

LEGAL CONTINGENCIES

Vendor Litigation

On December 8, 2005 Adamson Apparel, Inc. filed a purported class action lawsuit against the Company in the United States District Court for the Northern District of Alabama. In its complaint the plaintiff asserts breach of contract
claims and alleges that the Company improperly assessed chargebacks, timely payment discounts, and deductions for merchandise returns against members of the plaintiff class. The lawsuit seeks compensatory and incidental damages and restitution.

Other

The Company is involved in legal
proceedings arising from its normal business activities and has accruals for losses where appropriate. Management believes that none of these legal proceedings will have a material adverse effect on the Companys consolidated financial
position, results of operations, or liquidity.

TAX MATTERS

The Company is routinely under audit by federal, state or local authorities in the areas of income taxes and the remittance of sales and use taxes. These audits include questioning the timing and amount of deductions and the allocation of
income among various tax jurisdictions. Based on the current evaluations of tax filing positions, the Company believes it has adequately accrued for exposures. At May 3, 2008, certain state examinations are ongoing and if the Company were not
to prevail, the outcome could have a material impact on operating results.

NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS

On February 3, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements (SFAS 157), which clarifies the
principle that fair value should be based on the assumptions market participants would use when pricing an asset or a liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. In February
2008, the FASB amended SFAS 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address leasing transactions. The FASB also issued a final Staff Position to allow a one-year deferral of adoption of
SFAS 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company is in the process of evaluating the impact of applying SFAS 157 to
nonfinancial assets and liabilities measured on a nonrecurring basis. The impact of applying SFAS 157 to financial assets and liabilities had an immaterial impact on the consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value that currently are not required to be measured at fair value. This Statement is effective no later than fiscal years beginning on or after
November 15, 2007. This standard had an immaterial impact on the consolidated financial statements.



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In December 2007, the FASB issued SFAS No. 141(R), Business Combinations
(SFAS 141(R)), which addresses the recognition and accounting for identifiable assets acquired, liabilities assumed, and non-controlling interests in business combinations. SFAS 141(R) also establishes expanded disclosure
requirements for business combinations. SFAS 141(R) will become effective as of the beginning of the 2009 fiscal year. The adoption of this standard will not have a material impact on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. This standard outlines the accounting and
reporting for ownership interest in a subsidiary held by parties other than the parent. SFAS No. 160 is effective as of the beginning of the 2009 fiscal year. The adoption of this standard will not have a material impact on the consolidated
financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities
(SFAS 161). This Statement amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), to provide an enhanced understanding of an
entitys use of derivative instruments, how they are accounted for under SFAS 133 and their effect on the entitys financial position, financial performance, and cash flows. The provisions of SFAS 161 are effective as of the beginning of
the 2009 fiscal year. The adoption of this standard will not have a material impact on the consolidated financial statements.

The FASB is contemplating an
amendment to SFAS No. 128, Earnings Per Share, that would require the Company to ignore the cash presumption of net share settlement and to assume share settlement for purposes of calculating diluted earnings per share. Although the
Company is now required to ignore the contingent conversion provision on its convertible notes under EITF 04-08, it can still presume that it will satisfy the net share settlement of the par value upon conversion of the notes in cash, and thus
exclude the effect of the conversion of the notes in its calculation of diluted earnings per share. If and when the FASB amends SFAS No. 128, the effect of the changes would require the Company to use the if-converted method in calculating
diluted earnings per share except when the effect would be anti-dilutive. The effect of adopting the amendment to SFAS No. 128 would increase the number of shares in the Companys diluted calculation by 19,219 shares.

NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The
following tables present condensed consolidating financial information for: (1) Saks Incorporated and (2) on a combined basis, the guarantors of Saks Incorporateds senior notes (which are all of the wholly owned subsidiaries of Saks
Incorporated).

The condensed consolidating financial statements presented as of and for the three-month periods ended May 3, 2008 and May 5,
2007 and as of February 2, 2008 reflect the legal entity compositions at the respective dates. Certain 2007 amounts in the following tables have been revised to reflect the allocation of deferred income taxes between Saks Incorporated and the
guarantors of Saks Incorporateds senior notes.



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Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly,
severally, fully and unconditionally liable under the guarantees. Borrowings and the related interest expense under the Companys revolving credit agreement are allocated to Saks Incorporated and the guarantor subsidiaries under an intercompany
revolving credit arrangement. There are also management and royalty fee arrangements among Saks Incorporated and the subsidiaries. At May 3, 2008, Saks Incorporated was the sole obligor for a majority of the Companys long-term debt.

SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT MAY 3, 2008

(Dollar Amounts In Thousands)



|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | ---------------- | --------- | --------------------- | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | SaksIncorporated |           | GuarantorSubsidiaries |   | Eliminations |  |   | Consolidated
|ASSETS                                         |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Assets                                 |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                | 107,014   |                       | $ | 17,509       |  |   |              |   |  | $ | 124,523  
|Merchandise inventories                        |  |                  |           |                       |   | 841,068      |  |   |              |   |  |   | 841,068  
|Other current assets                           |  |                  |           |                       |   | 141,677      |  |   |              |   |  |   | 141,677  
|Deferred income taxes, net                     |  |                  |           |                       |   | 41,428       |  |   |              |   |  |   | 41,428   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Assets                           |  |                  | 107,014   |                       |   | 1,041,682    |  |   |             |   |  |   | 1,148,696
|Property and Equipment, net                    |  |                  |           |                       |   | 1,081,785    |  |   |              |   |  |   | 1,081,785
|Intangibles, net                               |  |                  |           |                       |   | 290          |  |   |              |   |  |   | 290      
|Deferred Income Taxes, net                     |  |                  | 70,808    |                       |   | 25,651       |  |   |              |   |  |   | 96,459   
|Other Assets                                   |  |                  | 7,222     |                       |   | 43,680       |  |   |              |   |  |   | 50,902   
|Investment in and Advances to Subsidiaries     |  |                  | 1,512,409 |                       |   |             |  | $ | (1,512,409   | ) |  |   |          
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Assets                                   |  | $                | 1,697,453 |                       | $ | 2,193,088    |  | $ | (1,512,409   | ) |  | $ | 2,378,132
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Liabilities                            |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Trade accounts payable                         |  |                  |           |                       | $ | 204,382      |  |   |              |   |  | $ | 204,382  
|Accrued expenses and other current liabilities |  | $                | 6,195     |                       |   | 249,059      |  |   |              |   |  |   | 255,254  
|Dividend payable                               |  |                  | 1,475     |                       |   |              |  |   |              |   |  |   | 1,475    
|Current portion of long-term debt              |  |                  | 84,132    |                       |   | 4,848        |  |   |              |   |  |   | 88,980   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Liabilities                      |  |                  | 91,802    |                       |   | 458,289      |  |   |             |   |  |   | 550,091  
|Long-Term Debt                                 |  |                  | 422,283   |                       |   | 59,847       |  |   |              |   |  |   | 482,130  
|Other Long-Term Liabilities                    |  |                  |           |                       |   | 162,543      |  |   |              |   |  |   | 162,543  
|Investment by and Advances from Parent         |  |                  |           |                       |   | 1,512,409    |  | $ | (1,512,409   | ) |  |   |          
|Shareholders Equity                           |  |                  | 1,183,368 |                       |   |              |  |   |              |   |  |   | 1,183,368
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Liabilities and Shareholders Equity     |  | $                | 1,697,453 |                       | $ | 2,193,088    |  | $ | (1,512,409   | ) |  | $ | 2,378,132
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MAY 3, 2008

(Dollar Amounts In Thousands)



|                                                   |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|-------------------------------------------------- |  | ---------------- | ------ | - | --------------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                   |  | SaksIncorporated |        |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | Consolidated |  
|Net sales                                          |  |                  |        |   |                       | $ | 862,352 |              |  |   |              |   |  | $ | 862,352 |  
|Cost of sales                                      |  |                  |        |   |                       |   | 533,064 |              |  |   |              |   |  |   | 533,064 |  
|                                                   |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Gross Margin                                       |  |                  |       |   |                       |   | 329,288 |              |  |   |             |   |  |   | 329,288 |  
|Selling, general and administrative expenses       |  | $                | 248    |   |                       |   | 204,499 |              |  |   |              |   |  |   | 204,747 |  
|Other operating expenses                           |  |                  | 10     |   |                       |   | 83,989  |              |  |   |              |   |  |   | 83,999  |  
|Store pre-opening costs                            |  |                  |        |   |                       |   | 287     |              |  |   |              |   |  |   | 287     |  
|Impairments and dispositions                       |  |                  |        |   |                       |   | 138     |              |  |   |              |   |  |   | 138     |  
|                                                   |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Operating Income (loss)                            |  |                  | (258   | ) |                       |   | 40,375  |              |  |   |             |   |  |   | 40,117  |  
|Other income (expense)                             |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries                 |  |                  | 22,560 |   |                       |   |         |              |  | $ | (22,560      | ) |  |   |         |  
|Interest expense                                   |  |                  | (7,711 | ) |                       |   | (2,346  | )            |  |   |              |   |  |   | (10,057 | )
|Other income, net                                  |  |                  | 947    |   |                       |   |         |              |  |   |              |   |  |   | 947     |  
|                                                   |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Income before provision (benefit) for income taxes |  |                  | 15,538 |   |                       |   | 38,029  |              |  |   | (22,560      | ) |  |   | 31,007  |  
|Provision (benefit) for income taxes               |  |                  | (2,739 | ) |                       |   | 15,469  |              |  |   |              |   |  |   | 12,730  |  
|                                                   |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Income                                         |  | $                | 18,277 |   |                       | $ | 22,560  |              |  | $ | (22,560      | ) |  | $ | 18,277  |  
|                                                   |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MAY 3, 2008

(Dollar Amounts In Thousands)



|                                                                              |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ---------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                                              |  | SaksIncorporated |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | Consolidated |  
|OPERATING ACTIVITIES                                                          |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Income                                                                    |  | $                | 18,277  |   |                       | $ | 22,560  |              |  | $ | (22,560      | ) |  | $ | 18,277  |  
|Adjustments to reconcile net income to net cash used in operating activities: |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries                                            |  |                  | (22,560 | ) |                       |   |         |              |  |   | 22,560       |   |  |   |        |  
|Excess tax benefit from exercise of stock options                             |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Depreciation and amortization                                                 |  |                  |         |   |                       |   | 32,644  |              |  |   |              |   |  |   | 32,644  |  
|Provision for employee stock compensation                                     |  |                  | 3,489   |   |                       |   |         |              |  |   |              |   |  |   | 3,489   |  
|Deferred income taxes                                                         |  |                  | 1,100   |   |                       |   | 9,372   |              |  |   |              |   |  |   | 10,472  |  
|Impairments and dispositions                                                  |  |                  |         |   |                       |   | 138     |              |  |   |              |   |  |   | 138     |  
|Changes in operating assets and liabilities, net                              |  |                  | 15,943  |   |                       |   | (16,956 | )            |  |   |              |   |  |   | (1,013  | )
|                                                                              |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Provided Operating Activities                                        |  |                  | 16,249  |   |                       |   | 47,758  |              |  |   |             |   |  |   | 64,007  |  
|INVESTING ACTIVITIES                                                          |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Purchases of property and equipment                                           |  |                  |         |   |                       |   | (24,968 | )            |  |   |              |   |  |   | (24,968 | )
|Proceeds from the sale of assets                                              |  |                  |         |   |                       |   | 14      |              |  |   |              |   |  |   | 14      |  
|                                                                              |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Used In Investing Activities                                         |  |                  |        |   |                       |   | (24,954 | )            |  |   |             |   |  |   | (24,954 | )
|FINANCING ACTIVITIES                                                          |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Intercompany borrowings, contributions and distributions                      |  |                  | 19,467  |   |                       |   | (19,467 | )            |  |   |              |   |  |   |        |  
|Payments on long-term debt                                                    |  |                  |         |   |                       |   | (1,498  | )            |  |   |              |   |  |   | (1,498  | )
|Payment of dividend                                                           |  |                  | (1,139  | ) |                       |   |         |              |  |   |              |   |  |   | (1,139  | )
|Repurchase and retirement of common stock                                     |  |                  | (14,765 | ) |                       |   |         |              |  |   |              |   |  |   | (14,765 | )
|Proceeds from issuance of common stock                                        |  |                  | 1,710   |   |                       |   |         |              |  |   |              |   |  |   | 1,710   |  
|                                                                              |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Provided By (Used In) Financing Activities                           |  |                  | 5,273   |   |                       |   | (20,965 | )            |  |   |             |   |  |   | (15,692 | )
|Increase In Cash and Cash Equivalents                                         |  |                  | 21,522  |   |                       |   | 1,839   |              |  |   |             |   |  |   | 23,361  |  
|Cash and Cash Equivalents at beginning of period                              |  |                  | 85,492  |   |                       |   | 15,670  |              |  |   |              |   |  |   | 101,162 |  
|                                                                              |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Cash and Cash Equivalents at end of period                                    |  | $                | 107,014 |   |                       | $ | 17,509  |              |  | $ |             |   |  | $ | 124,523 |  
|                                                                              |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  



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SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT MAY 5, 2007

(Dollar Amounts In Thousands)



|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | ------------------------- | --------- | ------------------------------ | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | SaksIncorporated(Revised) |           | GuarantorSubsidiaries(Revised) |   | Eliminations |  |   | Consolidated
|                                               |  |                           |          
|ASSETS                                         |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Current Assets                                 |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                         | 142,293   |                                | $ | 16,032       |  |   |              |   |  | $ | 158,325  
|Merchandise inventories                        |  |                           |           |                                |   | 811,577      |  |   |              |   |  |   | 811,577  
|Other current assets                           |  |                           |           |                                |   | 133,700      |  |   |              |   |  |   | 133,700  
|Deferred income taxes, net                     |  |                           |           |                                |   | 28,359       |  |   |              |   |  |   | 28,359   
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Current Assets                           |  |                           | 142,293   |                                |   | 989,668      |  |   |             |   |  |   | 1,131,961
|Property and Equipment, net                    |  |                           |           |                                |   | 1,095,218    |  |   |              |   |  |   | 1,095,218
|Intangibles, net                               |  |                           |           |                                |   | 317          |  |   |              |   |  |   | 317      
|Deferred Income Taxes, net                     |  |                           | 66,028    |                                |   | 76,410       |  |   |              |   |  |   | 142,438  
|Other Assets                                   |  |                           | 10,185    |                                |   | 30,752       |  |   |              |   |  |   | 40,937   
|Investment in and Advances to Subsidiaries     |  |                           | 1,457,033 |                                |   |              |  | $ | (1,457,033   | ) |  |   |          
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Assets                                   |  | $                         | 1,675,539 |                                | $ | 2,192,365    |  | $ | (1,457,033   | ) |  | $ | 2,410,871
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Current Liabilities                            |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Trade accounts payable                         |  |                           |           |                                | $ | 236,826      |  |   |              |   |  | $ | 236,826  
|Accrued expenses and other current liabilities |  | $                         | 8,999     |                                |   | 250,655      |  |   |              |   |  |   | 259,654  
|Dividend payable                               |  |                           | 3,813     |                                |   |              |  |   |              |   |  |   | 3,813    
|Current portion of long-term debt              |  |                           | 230,000   |                                |   | 5,757        |  |   |              |   |  |   | 235,757  
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Current Liabilities                      |  |                           | 242,812   |                                |   | 493,238      |  |   |             |   |  |   | 736,050  
|Long-Term Debt                                 |  |                           | 286,733   |                                |   | 64,695       |  |   |              |   |  |   | 351,428  
|Other Long-Term Liabilities                    |  |                           |           |                                |   | 177,399      |  |   |              |   |  |   | 177,399  
|Investment by and Advances from Parent         |  |                           |           |                                |   | 1,457,033    |  | $ | (1,457,033   | ) |  |   |          
|Shareholders Equity                           |  |                           | 1,145,994 |                                |   |              |  |   |              |   |  |   | 1,145,994
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Liabilities and Shareholders Equity     |  | $                         | 1,675,539 |                                | $ | 2,192,365    |  | $ | (1,457,033   | ) |  | $ | 2,410,871
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MAY 5, 2007

(Dollar Amounts In Thousands)



|                                                   |  |                           |        |   |                                |   |         |              |  |   |              |   |  |   |         |  
|-------------------------------------------------- |  | ------------------------- | ------ | - | ------------------------------ | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                   |  | SaksIncorporated(Revised) |        |   | GuarantorSubsidiaries(Revised) |   |         | Eliminations |  |   | Consolidated |  
|Net sales                                          |  |                           |        |   |                                | $ | 792,747 |              |  |   |              |   |  | $ | 792,747 |  
|Costs and expenses                                 |  |                           |        |   |                                |   |         |              |  |   |              |   |  |   |         |  
|                                                   |  |                           |        |   |                                |   |         |              |  |   |              |   |  |   |         |  
|Gross Margin                                       |  |                           |       |   |                                |   | 792,747 |              |  |   |             |   |  |   | 792,747 |  
|Cost of sales                                      |  |                           |        |   |                                |   | 464,467 |              |  |   |              |   |  |   | 464,467 |  
|Selling, general and administrative expenses       |  | $                         | 1,631  |   |                                |   | 211,214 |              |  |   |              |   |  |   | 212,845 |  
|Other operating expenses                           |  |                           | 33     |   |                                |   | 82,322  |              |  |   |              |   |  |   | 82,355  |  
|Store pre-opening costs                            |  |                           |        |   |                                |   | 136     |              |  |   |              |   |  |   | 136     |  
|Impairments and dispositions                       |  |                           |        |   |                                |   | 384     |              |  |   |              |   |  |   | 384     |  
|                                                   |  |                           |        |   |                                |   |         |              |  |   |              |   |  |   |         |  
|Operating income (loss)                            |  |                           | (1,664 | ) |                                |   | 34,224  |              |  |   |             |   |  |   | 32,560  |  
|Other income (expense)                             |  |                           |        |   |                                |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries                 |  |                           | 19,468 |   |                                |   |         |              |  | $ | (19,468      | ) |  |   |         |  
|Interest expense                                   |  |                           | (9,771 | ) |                                |   | (2,209  | )            |  |   |              |   |  |   | (11,980 | )
|Loss on extinguishment of debt                     |  |                           | (5,222 | ) |                                |   |         |              |  |   |              |   |  |   | (5,222  | )
|Other income, net                                  |  |                           | 2,835  |   |                                |   |         |              |  |   |              |   |  |   | 2,835   |  
|                                                   |  |                           |        |   |                                |   |         |              |  |   |              |   |  |   |         |  
|Income before provision (benefit) for income taxes |  |                           | 5,646  |   |                                |   | 32,015  |              |  |   | (19,468      | ) |  |   | 18,193  |  
|Provision (benefit) for income taxes               |  |                           | (5,391 | ) |                                |   | 12,547  |              |  |   |              |   |  |   | 7,156   |  
|                                                   |  |                           |        |   |                                |   |         |              |  |   |              |   |  |   |         |  
|Net Income                                         |  | $                         | 11,037 |   |                                | $ | 19,468  |              |  | $ | (19,468      | ) |  | $ | 11,037  |  
|                                                   |  |                           |        |   |                                |   |         |              |  |   |              |   |  |   |         |  



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MAY 5, 2007

(Dollar Amounts In Thousands)



|                                                                                            |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ------------------------------ | - | ------- | ------------ |  | - | ------------ | - |  | - | -------- | -
|                                                                                            |  | SaksIncorporated(Revised) |          |   | GuarantorSubsidiaries(Revised) |   |         | Eliminations |  |   | Consolidated |  
|OPERATING ACTIVITIES                                                                        |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Net income                                                                                  |  | $                         | 11,037   |   |                                | $ | 19,468  |              |  | $ | (19,468      | ) |  | $ | 11,037   |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Equity in earnings of subsidiaries - continuing operations                                  |  |                           | (19,468  | ) |                                |   |         |              |  |   | 19,468       |   |  |   |         |  
|Excess tax benefit from exercise of stock options                                           |  |                           | (5,186   | ) |                                |   |         |              |  |   |              |   |  |   | (5,186   | )
|Depreciation and amortization                                                               |  |                           |          |   |                                |   | 31,798  |              |  |   |              |   |  |   | 31,798   |  
|Equity compensation                                                                         |  |                           | 1,194    |   |                                |   |         |              |  |   |              |   |  |   | 1,194    |  
|Deferred income taxes                                                                       |  |                           | (108     | ) |                                |   | 3,622   |              |  |   |              |   |  |   | 3,514    |  
|Impairments and dispositions                                                                |  |                           |          |   |                                |   | 384     |              |  |   |              |   |  |   | 384      |  
|Loss on extinguishment of debt                                                              |  |                           | 5,222    |   |                                |   |         |              |  |   |              |   |  |   | 5,222    |  
|Changes in operating assets and liabilities, net                                            |  |                           | (2,839   | ) |                                |   | (50,938 | )            |  |   |              |   |  |   | (53,777  | )
|                                                                                            |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Net Cash Provided by Operating Activities                                                   |  |                           | (10,148  | ) |                                |   | 4,334   |              |  |   |             |   |  |   | (5,814   | )
|INVESTING ACTIVITIES                                                                        |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Purchases of property and equipment                                                         |  |                           |          |   |                                |   | (32,019 | )            |  |   |              |   |  |   | (32,019  | )
|Proceeds from the sale of assets                                                            |  |                           |          |   |                                |   | 266     |              |  |   |              |   |  |   | 266      |  
|                                                                                            |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Net Cash Used In Investing Activities                                                       |  |                           |         |   |                                |   | (31,753 | )            |  |   |             |   |  |   | (31,753  | )
|FINANCING ACTIVITIES                                                                        |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Intercompany borrowings, contributions and distributions                                    |  |                           | (34,965  | ) |                                |   | 34,965  |              |  |   |              |   |  |   |          |  
|Payments on long-term debt and capital lease obligations                                    |  |                           | (100,000 | ) |                                |   | (3,889  | )            |  |   |              |   |  |   | (103,889 | )
|Payment of Dividend                                                                         |  |                           | (6,340   | ) |                                |   |         |              |  |   |              |   |  |   | (6,340   | )
|Proceeds from issuance of common stock                                                      |  |                           | 23,052   |   |                                |   |         |              |  |   |              |   |  |   | 23,052   |  
|Excess tax benefit from exercise of stock options                                           |  |                           | 5,186    |   |                                |   |         |              |  |   |              |   |  |   | 5,186    |  
|                                                                                            |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Net Cash Provided by (Used) In Financing Activities                                         |  |                           | (113,067 | ) |                                |   | 31,076  |              |  |   |             |   |  |   | (81,991  | )
|Increase (Decrease) In Cash and Cash Equivalents                                            |  |                           | (123,215 | ) |                                |   | 3,657   |              |  |   |              |   |  |   | (119,558 | )
|Cash and Cash Equivalents at beginning of period                                            |  |                           | 265,508  |   |                                |   | 12,375  |              |  |   |              |   |  |   | 277,883  |  
|                                                                                            |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Cash and Cash Equivalents at end of period                                                  |  | $                         | 142,293  |   |                                | $ | 16,032  |              |  |   |             |   |  | $ | 158,325  |  
|                                                                                            |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  



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SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT FEBRUARY 2, 2008

(Dollar Amounts In Thousands)



|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | ------------------------- | --------- | ------------------------------ | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | SaksIncorporated(Revised) |           | GuarantorSubsidiaries(Revised) |   | Eliminations |  |   | Consolidated
|                                               |  |                           |          
|ASSETS                                         |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Current Assets                                 |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                         | 85,492    |                                | $ | 15,670       |  |   |              |   |  | $ | 101,162  
|Merchandise inventories                        |  |                           |           |                                |   | 857,173      |  |   |              |   |  |   | 857,173  
|Other current assets                           |  |                           |           |                                |   | 124,973      |  |   |              |   |  |   | 124,973  
|Deferred income taxes, net                     |  |                           |           |                                |   | 42,827       |  |   |              |   |  |   | 42,827   
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Current Assets                           |  |                           | 85,492    |                                |   | 1,040,643    |  |   |             |   |  |   | 1,126,135
|Property and Equipment, net                    |  |                           |           |                                |   | 1,092,004    |  |   |              |   |  |   | 1,092,004
|Intangibles, net                               |  |                           |           |                                |   | 297          |  |   |              |   |  |   | 297      
|Deferred Income Taxes, net                     |  |                           | 68,069    |                                |   | 29,039       |  |   |              |   |  |   | 97,108   
|Other Assets                                   |  |                           | 7,962     |                                |   | 47,518       |  |   |              |   |  |   | 55,480   
|Investment in and Advances to Subsidiaries     |  |                           | 1,531,222 |                                |   |              |  | $ | (1,531,222   | ) |  |   |          
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Assets                                   |  | $                         | 1,692,745 |                                | $ | 2,209,501    |  | $ | (1,531,222   | ) |  | $ | 2,371,024
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Current Liabilities                            |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Trade accounts payable                         |  |                           |           |                                | $ | 176,844      |  |   |              |   |  | $ | 176,844  
|Accrued expenses and other current liabilities |  | $                         | 10,744    |                                |   | 274,208      |  |   |              |   |  |   | 284,952  
|Current portion of long-term debt              |  |                           | 314,132   |                                |   | 5,110        |  |   |              |   |  |   | 319,242  
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Current Liabilities                      |  |                           | 324,876   |                                |   | 456,162      |  |   |             |   |  |   | 781,038  
|Long-Term Debt                                 |  |                           | 192,263   |                                |   | 61,083       |  |   |              |   |  |   | 253,346  
|Other Long-Term Liabilities                    |  |                           |           |                                |   | 161,034      |  |   |              |   |  |   | 161,034  
|Investment by and Advances from Parent         |  |                           |           |                                |   | 1,531,222    |  | $ | (1,531,222   | ) |  |   |          
|Shareholders Equity                           |  |                           | 1,175,606 |                                |   |              |  |   |              |   |  |   | 1,175,606
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Liabilities and Shareholders Equity     |  | $                         | 1,692,745 |                                | $ | 2,209,501    |  | $ | (1,531,222   | ) |  | $ | 2,371,024
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          



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|Item 2. | 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 and has four major components:



| |  |  | Managements Overview
| | - |  | ---------------------



| |  |  | Results of Operations
| | - |  | ---------------------



| |  |  | Liquidity and Capital Resources
| | - |  | -------------------------------



| |  |  | Critical Accounting Policies
| | - |  | ----------------------------

MD&A should be
read in conjunction with the condensed consolidated financial statements and related notes thereto contained elsewhere in this report.

MANAGEMENTS OVERVIEW

GENERAL

The operations of Saks Incorporated and its subsidiaries (together the Company) operations consist of Saks Fifth Avenue (SFA), Off Fifth, and Club Libby Lu (CLL). The Company is 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 www.saks.com. Off Fifth is intended to be the premier luxury off-price retailer in the United States. Off Fifth stores are primarily located in upscale
mixed-use and off-price centers and offer luxury apparel, shoes, and accessories, targeting the value-conscious customer. CLL consists of mall-based specialty stores, targeting girls aged 4-12 years old. As of May 3, 2008, Saks
operated 54 SFA stores with 6.0 million square feet, 48 Off 5th units with 1.4 million square feet, and 96 CLL specialty stores, which includes 76 standalone stores and 20 store-in-stores in the former Saks Department Store
Group (SDSG) businesses, with 140 thousand square feet.

FINANCIAL PERFORMANCE SUMMARY

The Company recorded net income of $18.3 million, or $0.13 per share, for the three months ended May 3, 2008. For the three months ended May 5, 2007, the
Company recorded net income of $11.0 million or $0.07 per share.

The three-month period ended May 5, 2007 included charges totaling $13.5 million
(net of taxes), or $.09 per share, primarily related to retention, severance and transition costs related to the Companys downsizing following the disposition of its SDSG businesses. The prior year first quarter also included expenses
associated with the previously disclosed investigation by the Securities and Exchange Commission (which has been concluded) and the Office of the United States Attorney for the Southern District of New



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York totaling approximately $1.0 million (net of taxes), or $0.01 per share, and a loss on extinguishment of debt totaling $3.1 million (net of taxes), or
$0.02 per share, related to the repurchase of $95.9 million of senior notes.

The Company believes that an understanding of its reported financial
condition and results of operations is not complete without considering the effect of all other components of MD&A included herein.

RESULTS OF
OPERATIONS

The following table shows, for the periods indicated, items from the Companys Condensed Consolidated Statements of Income
expressed as percentages of net sales.

(numbers may not total due to rounding)

|                                                        |  |                    |   |  |            |  
|------------------------------------------------------- |  | ------------------ | - |  | ---------- | -
|                                                        |  | Three Months Ended |  
|                                                        |  | May 3,2008         |   |  | May 5,2007 |  
|Net sales                                               |  | 100.0              | % |  | 100.0      | %
|Costs and expenses:                                     |  |                    |   |  |            |  
|Cost of sales (excluding depreciation and amortization) |  | 61.8               | % |  | 58.6       | %
|Selling, general & administrative expenses              |  | 23.7               | % |  | 26.8       | %
|Other operating expenses                                |  | 9.7                | % |  | 10.4       | %
|Store pre-opening costs                                 |  | 0.0                | % |  | 0.0        | %
|Impairments and dispositions                            |  | 0.0                | % |  | 0.0        | %
|                                                        |  |                    |   |  |            |  
|Operating Income                                        |  | 4.7                | % |  | 4.1        | %
|Other income (expense):                                 |  |                    |   |  |            |  
|Interest expense                                        |  | -1.2               | % |  | -1.5       | %
|Loss on extinguishment of debt                          |  | 0.0                | % |  | -0.7       | %
|Other income, net                                       |  | 0.1                | % |  | 0.4        | %
|                                                        |  |                    |   |  |            |  
|Income before income taxes                              |  | 3.6                | % |  | 2.3        | %
|Provision for income taxes                              |  | 1.5                | % |  | 0.9        | %
|                                                        |  |                    |   |  |            |  
|Net income                                              |  | 2.1                | % |  | 1.4        | %
|                                                        |  |                    |   |  |            |  



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THREE MONTHS ENDED MAY 3, 2008 COMPARED TO THREE MONTHS ENDED MAY 5, 2007

DISCUSSION OF OPERATING INCOME

The following table shows the
changes in operating income from the three-month period ended May 5, 2007 to the three-month period ended May 3, 2008:



|                                       |  |              |     
|-------------------------------------- |  | ------------ | ----
|(In Millions)                          |  | TotalCompany
|For the three months ended May 5, 2007 |  | $            | 32.6
|Store sales and margin                 |  |              | 1.0 
|Operating expenses                     |  |              | 6.3 
|Impairments and dispositions           |  |              | 0.2 
|                                       |  |              |     
|Increase                               |  |              | 7.5 
|                                       |  |              |     
|For the three months ended May 3, 2008 |  | $            | 40.1
|                                       |  |              |     

For the three-month period ended March 3, 2008, operating income improved to $40.1 million, a 23.0%
improvement from operating income of $32.6 million for the same period last year. The improvement in operating income for the quarter was driven by an 8.4% increase in comparable store sales and expense management which resulted in a 370 basis point
improvement in the expense rate as a percent of sales. The Company achieved approximately 310 basis points of improvement in the first quarter SG&A expense rate as a percentage of sales and also reduced Other Operating Expenses (rents,
depreciation, taxes other than income taxes and store pre-opening costs) by 60 basis points in the quarter. The gross margin rate decreased 320 basis points year-over-year as a result of increased promotional activity in the first quarter of 2008
and clearance markdowns accelerated into the first quarter this year from the second quarter last year.

NET SALES

For the three months ended May 3, 2008, total sales increased 8.8% to $862.4 million from $792.7 million for the three months ended May 5, 2007. Similarly,
consolidated comparable store sales increased $66.2 million, or 8.4%, from $784.3 million for the three months ended May 5, 2007 to $850.5 million for the three months ended May 3, 2008.

Comparable store sales are calculated on a rolling 13-month basis. Thus, to be included in the comparison, a store must be open for 13 months. The additional month is
used to transition the first month impact of a new store opening. Correspondingly, closed stores are removed from the comparable store sales comparison when they begin liquidating merchandise. Expanded, remodeled and converted stores are included in
the comparable store sales comparison, except for the periods in which they are closed for remodeling and renovation.



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GROSS MARGIN

For the three months ended May 3, 2008, gross margin was $329.3 million, or 38.2% of net sales, compared to $328.3 million, or 41.4% of net sales, for the three months ended May 5, 2007. The decrease in year-over-year gross margin
rate was a result of increased promotional activity in the first quarter of 2008, with approximately 175 basis points of the deterioration related to clearance markdowns accelerated into the first quarter this year from the second quarter last year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)

For the three months ended May 3, 2008, SG&A was $204.7 million, or 23.7% of net sales, compared to $212.8 million, or 26.8% of net sales, for the three months ended May 5, 2007. The $8.1 million
decrease was principally related to a decrease in severance, retention, and transition costs of approximately $22.4 million from the same period last year. This was partially offset by higher variable expenses associated with the $69.6 million sales
increase. Additionally, prior year SG&A included Transition Services Agreement (TSA) revenues related to the divestiture of SDSG of approximately $4.5 million. As a percentage of sales, SG&A decreased by 310 basis points over the prior year.

OTHER OPERATING EXPENSES

For the three months
ended May 3, 2008, other operating expenses, including store pre-opening costs, were $84.3 million, or 9.8% of net sales, compared to $82.5 million, or 10.4% of net sales, for the three months ended May 5, 2007. This increase of $1.8
million was driven primarily by higher depreciation and taxes other than income taxes. As a percent of sales, other operating expenses decreased 60 basis points in 2008, reflecting the ability to leverage expenses as store sales increased.

IMPAIRMENTS AND DISPOSITIONS

For the three
months ended May 3, 2008, the Company realized losses from impairments and dispositions of $0.1 million, compared to a loss of $0.4 million, for the three months ended May 5, 2007. The current and prior quarter net charges were primarily
due to asset impairments in the normal course of business.

INTEREST EXPENSE

For the three months ended May 3, 2008, interest expense was $10.1 million, or 1.2% of net sales, compared to $12.0 million, or 1.5% of net sales, for the three months ended May 5, 2007. The improvement of
$1.9 million was primarily due to the reduction in debt resulting from the repurchase of $106.3 million of senior notes during the year ended February 2, 2008.



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INCOME TAXES

The effective income tax rates for the three-month periods ended May 3, 2008 and May 5, 2007 was 41.1% and 39.4%, respectively. The increase in the effective rate for the three-month period ended May 3, 2008 was
primarily due to the accrual of interest related to uncertain tax positions.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW

The primary needs for cash are to acquire or
construct new stores, renovate and expand existing stores, provide working capital for new and existing stores and service debt. The Company anticipates that cash on hand, cash generated from operating activities and borrowings under its revolving
credit agreement will be sufficient to meet its financial commitments and provide opportunities for future growth.

Cash provided by (used in) operating
activities was $64.0 million for the three months ended May 3, 2008 and ($5.8) million for the three months ended May 5, 2007. Cash provided by (used in) operating activities principally represents income before depreciation and non-cash
charges and after changes in working capital. Working capital is significantly impacted by changes in inventory and accounts payable. Inventory levels typically increase to support higher expected sales levels and accounts payable fluctuations are
generally determined by the timing of merchandise purchases and payments. The $69.8 million increase in cash provided by (used in) operating activities for the three months ended May 3, 2008 from the three months ended May 5, 2007 was
largely due to an increase in deferred income tax expense and a decrease in working capital needs.

Cash used in investing activities was $25.0 million for
the three months ended May 3, 2008 and $31.8 million for the three months ended May 5, 2007. Cash used in investing activities principally consists of construction of new stores and renovation and expansion of existing stores and
investments in support areas (e.g., technology and distribution centers). The $6.8 million decrease in cash used in investing activities is primarily due to a decrease in capital expenditures of approximately $7.1 million.

Cash used in financing activities was $15.7 million for the three months ended May 3, 2008 and $82.0 million for the three months ended May 5, 2007. The
current period use primarily relates to the repurchase of approximately 1.2 million shares of common stock at a cost of approximately $14.8 million. The prior year use primarily relates to the repurchase of approximately $95.9 million aggregate
principal amount of senior notes.



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##### Table of Contents

CASH BALANCES AND LIQUIDITY

The Companys primary sources of short-term liquidity are cash on hand and availability under its $500 million revolving credit facility. At May 3, 2008 and May 5, 2007, the Company maintained cash and
cash equivalent balances of $124.5 million and $158.3 million, respectively. Exclusive of approximately $17.5 million and $16 million of store operating cash at May 3, 2008 and May 5, 2007, respectively, cash was invested principally in
various money market funds. There was no restricted cash as of May 3, 2008 and May 5, 2007.

During the three months ended May 3, 2008, the
Company repurchased 1,234 shares of its common stock at a cost of approximately $14.8 million. At May 3, 2008, there were 34.4 million shares remaining available for repurchase under the Companys existing share repurchase program.

At May 3, 2008, the Company had no direct borrowings under its $500 million revolving credit facility, and had $33.3 million in unfunded letters of
credit, leaving unutilized availability under that facility of $466.7 million. The amount of cash on hand and borrowings under the facility are influenced by a number of factors, including sales, inventory levels, vendor terms, the level of capital
expenditures, cash requirements related to financing instruments, and the Companys tax payment obligations, among others.

The Company believes it
has sufficient cash on hand, availability under its revolving credit facility, and access to various capital markets to repay all of the Companys senior notes at maturity.

CAPITAL STRUCTURE

The Company continuously evaluates its debt-to-capitalization ratio in light of the
economic trends, business trends, levels of interest rates, and terms, conditions and availability of capital in the capital markets. At May 3, 2008, the Companys capital and financing structure was comprised of a revolving credit
agreement, senior unsecured notes, convertible senior unsecured notes, and capital and operating leases. On May 3, 2008, total debt was $571.1 million, representing a decrease of $16.1 million from the balance of $587.2 million at May 5,
2007. This decrease in debt was primarily the result of the $10.4 million repurchase of senior notes during June and July 2007 and a decrease of $5.7 million relating to capital lease obligations. Additionally, the debt-to-capitalization ratio
decreased to 32.6% from 33.9% in the prior year, as a result of the decrease in debt in the current year.

At May 3, 2008, the Company maintained a
$500 million senior revolving credit facility maturing in 2011, which is secured by inventory and certain third party credit card accounts receivable. Borrowings are limited to a prescribed percentage of eligible inventories and receivables. There
are no debt ratings-based provisions in the facility. The facility includes a fixed-charge coverage ratio requirement of 1 to 1 that the Company is subject to only if availability under the facility becomes less than $60 million. The facility



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contains default provisions that are typical for this type of financing, including a provision that would trigger a default of the facility if a default were
to occur in another debt instrument resulting in the acceleration of principal of more than $20 million in that other instrument. At May 3, 2008, the Company had no direct borrowings under the revolving credit facility.

At May 3, 2008, the Company had $276.4 million of senior notes outstanding, excluding the convertible notes, comprised of five separate series having maturities
ranging from 2008 to 2019 and interest rates ranging from 7.00% to 9.88%. The terms of each senior note call for all principal to be repaid at maturity. The senior notes have substantially identical terms except for the maturity dates and interest
rates payable to investors. Each senior note contains limitations on the amount of secured indebtedness the Company may incur. The Company believes it has sufficient cash on hand, availability under its revolving credit facility and access to
various capital markets to repay these notes at maturity.

The Company had $230 million of convertible senior notes, at May 3, 2008, that bear
interest of 2.0% and mature in 2024. The provisions of the convertible notes allow the holder to convert the notes to shares of the Companys common stock at a conversion rate of 83.5609 shares per one thousand dollars in principal amount of
notes. The most significant terms and conditions of the senior notes include: the Company can settle a conversion with shares and/or cash; the holder may put the debt back to the Company in 2014 or 2019; the holder cannot convert until the
Companys share price is greater than 120% of the applicable conversion price for a certain trading period; the Company can call the debt on or after March 11, 2011; the conversion rate is subject to a dilution adjustment; and the holder
can convert upon a significant credit rating decline and upon a call. The Company used approximately $25 million of the proceeds from the issuances to enter into a convertible note hedge and written call options on its common stock to reduce the
exposure to dilution from the conversion of the notes. The Company believes it has sufficient cash on hand, availability under its revolving credit facility and access to various capital markets to repay both the senior notes and convertible notes
at maturity.

At May 3, 2008, the Company had $64.7 million in capital leases covering various properties and pieces of equipment. The terms of the
capital leases provide the lessor with a security interest in the asset being leased and require the Company to make periodic lease payments, aggregating between $5 million and $7 million per year.

On April 12, 2007, the Company announced the results of its modified Dutch Auction tender offer to purchase a portion of its 8.25% senior notes due
November 15, 2008 for an aggregate purchase price not to exceed $100 million (the offer cap). The offer expired on April 11, 2007. The aggregate principal amount of notes validly tendered at or above the clearing spread
exceeded the offer cap and the Company accepted $95.9 million aggregate principal amount of the notes, resulting in an aggregate purchase price of $100 million (plus an additional $3.2 million in aggregate accrued interest on such notes). The
Company accepted for purchase first, all notes tendered at spreads above the clearing



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spread, and thereafter, the notes validly tendered at the clearing spread on a prorated basis according to the principal amount of such notes. During the
three months ended May 5, 2007, the Company recorded a loss on extinguishment of debt of approximately $5.2 million related to the repurchase of the notes.

The Company is obligated to fund a cash balance pension plan. The Companys current policy is to maintain at least the minimum funding requirements specified by the Employee Retirement Income Security Act of 1974. The Company expects
minimal or no funding requirements in 2008 and 2009. The Company curtailed its SFA pension plan during 2006 which froze benefit accruals for all participants except those who have attained age 55 and completed 10 years of service as of
January 1, 2007 and who continue to be highly compensated employees.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

The Company has not entered into any off-balance sheet arrangements which would be reasonably likely to have a current or future material effect,
such as obligations under certain guarantees or contracts, retained or contingent interests in assets transferred to an unconsolidated entity or similar arrangements, obligations under certain derivative arrangements, or obligations under material
variable interests.

There were no material changes in the Companys contractual obligations specified in Item 303(a)(5) of Regulation S-K during
the three months ended May 3, 2008. For additional information regarding the Companys contractual obligations as of February 2, 2008, see the Managements Discussion and Analysis section of the 2007 Form 10-K.

CRITICAL ACCOUNTING POLICIES

A summary of the Companys
critical accounting policies is included in the Management Discussion and Analysis section of the Companys Form 10-K for the year ended February 2, 2008 filed with the Securities and Exchange Commission.

NEW ACCOUNTING PRONOUNCEMENTS

On February 3, 2008, the
Company adopted the provisions of SFAS No. 157, Fair Value Measurements, which clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or a liability and
establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. In February 2008, FASB amended SFAS 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address
leasing transactions. The FASB also issued a final Staff Position to allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on
a nonrecurring basis.



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The Company is in the process of evaluating the impact of applying SFAS 157 to nonfinancial assets and liabilities measured on a nonrecurring basis. The
impact of applying SFAS 157 to financial assets and liabilities had an immaterial impact on the consolidated financial statements.

In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that currently
are not required to be measured at fair value. This Statement is effective no later than fiscal years beginning on or after November 15, 2007. This standard had an immaterial impact on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which addresses the recognition and
accounting for identifiable assets acquired, liabilities assumed, and non-controlling interests in business combinations. SFAS 141(R) also establishes expanded disclosure requirements for business combinations. SFAS 141(R) will become
effective as of the beginning of the 2009 fiscal year. The adoption of this standard will not have a material impact on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. This standard outlines the accounting and reporting for ownership interest in a subsidiary held by parties other
than the parent. SFAS No. 160 is effective as of the beginning of the 2009 fiscal year. The adoption of this standard will not have a material impact on the consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). This Statement
amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), to provide an enhanced understanding of an entitys use of derivative
instruments, how they are accounted for under SFAS 133 and their effect on the entitys financial position, financial performance, and cash flows. The provisions of SFAS 161 are effective as of the beginning of the 2009 fiscal year. The
adoption of this standard will not have a material impact on the consolidated financial statements.

The FASB is contemplating an amendment to SFAS
No. 128, Earnings Per Share, that would require the Company to ignore the cash presumption of net share settlement and to assume share settlement for purposes of calculating diluted earnings per share. Although the Company is now
required to ignore the contingent conversion provision on its convertible notes under EITF 04-08, it can still presume that it will satisfy the net share settlement of the par value upon conversion of the notes in cash, and thus exclude the effect
of the conversion of the notes in its calculation of diluted earnings per share. If and when the FASB amends SFAS No. 128, the effect of the changes would require the Company to use the if-converted method in calculating diluted earnings per
share except when the effect would be anti-dilutive. The effect of adopting the amendment to SFAS No. 128 would increase the number of shares in the Companys diluted calculation by 19,219 shares.



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FORWARD-LOOKING INFORMATION

The information contained in this Form 10-Q that addresses future results or expectations is considered forward-looking information within the definition of the Federal securities laws. Forward-looking
information in this document can be identified through the use of words such as may, will, intend, plan, project, expect, anticipate, should,
would, believe, estimate, contemplate, possible, and point. The forward-looking information is premised on many factors, some of which are outlined below. Actual consolidated
results might differ materially from projected forward-looking information if there are any material changes in managements assumptions.

The
forward-looking information and statements are or may be based on a series of projections and estimates and involve risks and uncertainties. These risks and uncertainties include such factors as: the level of consumer spending for apparel and other
merchandise carried by the Company and its ability to respond quickly to consumer trends; adequate and stable sources of merchandise; the competitive pricing environment within the retail sector; the effectiveness of planned advertising, marketing,
and promotional campaigns; favorable customer response to relationship marketing efforts of proprietary credit card loyalty programs; appropriate inventory management; effective expense control; successful operation of the Companys proprietary
credit card strategic alliance with HSBC Bank Nevada, N.A.; geo-political risks; fluctuations in foreign currency; and changes in interest rates.For additional information regarding these and other risk factors, please refer to the
Companys Form 10-K for the fiscal year ended February 2, 2008 filed with the SEC, which may be accessed via EDGAR through the Internet at www.sec.gov.

Management undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events, or otherwise. Persons are advised, however, to consult any further
disclosures management makes on related subjects in its reports filed with the SEC and in its press releases.



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

The Companys exposure to market risk primarily arises from changes in interest rates and the U.S. equity and bond markets. The effects of changes in interest rates on earnings generally have been small relative to other factors that
also affect earnings, such as sales and operating margins. The Company seeks to manage exposure to adverse interest rate changes through its normal operating and financing activities, and if appropriate, through the use of derivative financial
instruments. Such derivative instruments can be used as



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part of an overall risk management program in order to manage the costs and risks associated with various financial exposures. The Company does not enter
into derivative instruments for trading purposes, as clearly defined in its risk management policies. The Company is exposed to interest rate risk primarily through its borrowings, and derivative financial instrument activities.

Based on the Companys market risk sensitive instruments (including variable rate debt) outstanding at May 3, 2008, the Company has determined that there was
no material market risk exposure to the Companys consolidated financial position, results of operations, or cash flows as of such date.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

DISCLOSURE CONTROLS AND
PROCEDURES

Under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief
Financial Officer, the Company conducted an evaluation of the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)), as of the end of the period covered by this report. Based upon this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective
as of such date. The Companys disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms and that such information is accumulated and communicated to the Companys management, including the Chief Executive Officer and Chief Financial Officer, to allow timely
discussions regarding required disclosures.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in the Companys internal controls over financial reporting that occurred during the quarter ended May 3, 2008 that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

PART II. OTHER INFORMATION



|Item 1. | LEGAL PROCEEDINGS.
|------- | ------------------

The information in Part I 
Financial Information, Note 7  Contingencies- Legal Contingencies, is incorporated into this Item by reference.



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|Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

During the quarter ended May 3, 2008, the Company did not sell any equity securities which were not registered under the Securities Act.

The
Company has a share repurchase program that authorizes it to purchase shares of the Companys common stock in order to both distribute cash to stockholders and manage dilution resulting from shares issued under the Companys equity
compensation plans. At May 3, 2008, 34.4 million shares remained available for repurchase under the Companys 70.0 million share repurchase authorization. The following are details of repurchases under this program for the first
quarter of fiscal 2008:

(in thousands except average price paid per share)



|                                                        |  |                                  |  |                            |       |                                                                  |       |                                                                     |       
|------------------------------------------------------- |  | -------------------------------- |  | -------------------------- | ----- | ---------------------------------------------------------------- | ----- | ------------------------------------------------------------------- | ------
|Period                                                  |  | Total Numberof SharesRepurchased |  | AveragePrice Paidper Share |       | Total Number ofSharesPurchased asPart of PubliclyAnnounced Plans |       | Maximum Number ofShares that May YetBe Purchased Underthe Plans (a)
|Repurchases from February 3, 2008 through March 1, 2008 |  |                                 |  | $                          |      |                                                                  |      |                                                                     | 35,658
|Repurchases from March 2, 2008 through April 5, 2008    |  | 597                              |  | $                          | 11.95 |                                                                  | 597   |                                                                     | 35,061
|Repurchases from April 6, 2008 through May 3, 2008      |  | 637                              |  | $                          | 11.97 |                                                                  | 637   |                                                                     | 34,424
|                                                        |  |                                  |  |                            |       |                                                                  |       |                                                                     |       
|Total                                                   |  | 1,234                            |  | $                          | 11.96 |                                                                  | 1,234 |                                                                     |       
|                                                        |  |                                  |  |                            |       |                                                                  |       |                                                                     |       



|(a) | As of May 3, 2008, the Companys Board of Directors had previously authorized 70,025 total shares, of which 35,000 were authorized on December 8, 2005. The Company
has repurchased 35,601 of these shares to date. There is no expiration date for the repurchase plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 5. | OTHER INFORMATION
|------- | -----------------

On June 4, 2008, the Board of
Directors of the Company approved the following amendments to the Companys Amended and Restated By-laws (the By-laws):



| |  |  | Section 3 of Article II was amended to provide that the Company will make its list of shareholders available at its principal office or at a place within the
city where the meeting is to be held for the period beginning two (2) business days after notice of a meeting of shareholders is given through the meeting; previously, the By-laws had provided that the shareholder list would be available at
least ten (10) days prior to a meeting of shareholders either at a place within the city where the meeting was to be held, or, if not specified in the notice of meeting, at the meeting place.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Section 1 of Article V was amended to have the election of corporate officers of the Company occur at the annual meeting of the Board of Directors instead of
the first meeting following the annual meeting of shareholders, and to remove the requirement that Board of Directors annually elect a Chief Operating Officer; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Section 5 of Article IV was amended to provide that the annual meeting of the Board of Directors will occur immediately before or after the annual meeting of
shareholders instead of immediately after the annual meeting of shareholders.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The By-laws, as amended, are effective as of June 4, 2008
and are included as Exhibit 3.1 to this Report.



|Item 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                     
|---- |  | --------------------------------------------------------------------------------------------------------------------
|     | 
|3.1  |  | Amended and Restated Bylaws of Saks Incorporated                                                                    
|     | 
|31.1 |  | Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                 
|     | 
|31.2 |  | Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                 
|     | 
|32.1 |  | Certification of Chief Executive Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
|     | 
|32.2 |  | Certification of Chief Financial Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.



|                  |  |  |  |                                                                                                                  
|----------------- |  |  |  | -----------------------------------------------------------------------------------------------------------------
|                  |  |  |  | SAKS INCORPORATED Registrant                                                                                     
|                  |  | 
|Date June 5, 2008 |  |  |  | /s/ Kevin G. Wills                                                                                               
|                  |  |  |  | Kevin G. Wills                                                                                                   
|                  |  |  |  | On behalf of registrant and as Executive Vice President and Chief Financial Officer (Principal Financial Officer)



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