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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: August 2, 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 principal executive 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 August 15, 2008, the number of shares of the Registrants Common Stock outstanding was 141,901,579.









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TABLE OF CONTENTS



|                                                                                                           |  |         
|---------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                           |  | Page No.
|                                                                                                           | 
|PART I. FINANCIAL INFORMATION                                                                              |  |         
|                                                                                                           | 
|Item 1. Financial Statements (Unaudited)                                                                   |  |         
|                                                                                                           | 
|Condensed Consolidated Balance Sheets  August 2, 2008, February 2, 2008 and August 4, 2007                |  | 3       
|                                                                                                           | 
|Condensed Consolidated Statements of Income  Three and Six Months Ended August 2, 2008 and August 4,
2007 |  | 4       
|                                                                                                           | 
|Condensed Consolidated Statements of Cash Flows  Six Months Ended August 2, 2008 and August 4, 2007       |  | 5       
|                                                                                                           | 
|Notes to Condensed Consolidated Financial Statements                                                       |  | 6       
|                                                                                                           | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 23      
|                                                                                                           | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                         |  | 35      
|                                                                                                           | 
|Item 4. Controls and Procedures                                                                            |  | 35      
|                                                                                                           | 
|PART II. OTHER INFORMATION                                                                                 |  |         
|                                                                                                           | 
|Item 1. Legal Proceedings                                                                                  |  | 36      
|                                                                                                           | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 36      
|                                                                                                           | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                |  | 37      
|                                                                                                           | 
|Item 6. Exhibits                                                                                           |  | 38      
|                                                                                                           | 
|SIGNATURES                                                                                                 |  | 39      



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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

(Unaudited)



|                                               |  |               |           |                 |   |               |  |   |          
|---------------------------------------------- |  | ------------- | --------- | --------------- | - | ------------- |  | - | ---------
|                                               |  | August 2,2008 |           | February 2,2008 |   | August 4,2007
|ASSETS                                         |  |               |           |                 |   |               |  |   |          
|Current Assets                                 |  |               |           |                 |   |               |  |   |          
|Cash and cash equivalents                      |  | $             | 60,023    |                 | $ | 101,162       |  | $ | 128,374  
|Merchandise inventories                        |  |               | 813,066   |                 |   | 857,173       |  |   | 801,693  
|Other current assets                           |  |               | 114,432   |                 |   | 124,973       |  |   | 112,131  
|Deferred income taxes, net                     |  |               | 30,737    |                 |   | 42,827        |  |   | 24,607   
|                                               |  |               |           |                 |   |               |  |   |          
|Total current assets                           |  |               | 1,018,258 |                 |   | 1,126,135     |  |   | 1,066,805
|Property and Equipment, net                    |  |               | 1,076,764 |                 |   | 1,092,004     |  |   | 1,082,893
|Intangibles, net                               |  |               | 283       |                 |   | 297           |  |   | 310      
|Deferred Income Taxes, net                     |  |               | 113,526   |                 |   | 97,108        |  |   | 151,090  
|Other Assets                                   |  |               | 51,473    |                 |   | 55,480        |  |   | 35,967   
|                                               |  |               |           |                 |   |               |  |   |          
|TOTAL ASSETS                                   |  | $             | 2,260,304 |                 | $ | 2,371,024     |  | $ | 2,337,065
|                                               |  |               |           |                 |   |               |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |               |           |                 |   |               |  |   |          
|Current Liabilities                            |  |               |           |                 |   |               |  |   |          
|Trade accounts payable                         |  | $             | 155,132   |                 | $ | 176,844       |  | $ | 211,968  
|Accrued expenses and other current liabilities |  |               | 236,841   |                 |   | 282,311       |  |   | 246,272  
|Dividend payable                               |  |               | 1,426     |                 |   | 2,641         |  |   | 2,659    
|Current portion of long-term debt              |  |               | 88,882    |                 |   | 319,242       |  |   | 235,643  
|                                               |  |               |           |                 |   |               |  |   |          
|Total current liabilities                      |  |               | 482,281   |                 |   | 781,038       |  |   | 696,542  
|Long-Term Debt                                 |  |               | 480,943   |                 |   | 253,346       |  |   | 339,744  
|Other Long-Term Liabilities                    |  |               | 160,166   |                 |   | 161,034       |  |   | 169,857  
|                                               |  |               |           |                 |   |               |  |   |          
|Total liabilities                              |  |               | 1,123,390 |                 |   | 1,195,418     |  |   | 1,206,143
|Commitments and Contingencies                  |  |               |          |                 |   |              |  |   |         
|Shareholders Equity                           |  |               | 1,136,914 |                 |   | 1,175,606     |  |   | 1,130,922
|                                               |  |               |           |                 |   |               |  |   |          
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     |  | $             | 2,260,304 |                 | $ | 2,371,024     |  | $ | 2,337,065
|                                               |  |               |           |                 |   |               |  |   |          

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 |         |   | Six Months Ended |  
|                                                        |  | August 2,2008      |         |   | August 4,2007    |   |         | August 2,2008 |  |   | August 4,2007 |  
|NET SALES                                               |  | $                  | 669,233 |   |                  | $ | 694,106 |               |  | $ | 1,531,585     |   |  | $ | 1,486,853 |  
|Cost of sales (excluding depreciation and amortization) |  |                    | 435,425 |   |                  |   | 447,340 |               |  |   | 968,489       |   |  |   | 911,807   |  
|                                                        |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |           |  
|Gross margin                                            |  |                    | 233,808 |   |                  |   | 246,766 |               |  |   | 563,096       |   |  |   | 575,046   |  
|Selling, general and administrative expenses            |  |                    | 194,104 |   |                  |   | 194,258 |               |  |   | 398,851       |   |  |   | 407,103   |  
|Other operating expenses:                               |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |           |  
|Property and equipment rentals                          |  |                    | 28,930  |   |                  |   | 27,212  |               |  |   | 57,228        |   |  |   | 55,549    |  
|Depreciation and amortization                           |  |                    | 32,898  |   |                  |   | 34,728  |               |  |   | 65,542        |   |  |   | 66,526    |  
|Taxes other than income taxes                           |  |                    | 20,634  |   |                  |   | 19,749  |               |  |   | 43,691        |   |  |   | 41,969    |  
|Store pre-opening costs                                 |  |                    | 301     |   |                  |   | 125     |               |  |   | 588           |   |  |   | 261       |  
|Impairments and dispositions                            |  |                    | 1,221   |   |                  |   | 3,314   |               |  |   | 1,359         |   |  |   | 3,698     |  
|                                                        |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |           |  
|OPERATING LOSS                                          |  |                    | (44,280 | ) |                  |   | (32,620 | )             |  |   | (4,163        | ) |  |   | (60       | )
|Interest expense                                        |  |                    | (9,952  | ) |                  |   | (9,921  | )             |  |   | (20,009       | ) |  |   | (21,901   | )
|Loss on extinguishment of debt                          |  |                    |        |   |                  |   | (412    | )             |  |   |              |   |  |   | (5,634    | )
|Other income, net                                       |  |                    | 740     |   |                  |   | 1,735   |               |  |   | 1,687         |   |  |   | 4,570     |  
|                                                        |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |           |  
|LOSS BEFORE BENEFIT FOR INCOME TAXES                    |  |                    | (53,492 | ) |                  |   | (41,218 | )             |  |   | (22,485       | ) |  |   | (23,025   | )
|Benefit for income taxes                                |  |                    | (21,783 | ) |                  |   | (16,592 | )             |  |   | (9,053        | ) |  |   | (9,436    | )
|                                                        |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |           |  
|NET LOSS                                                |  | $                  | (31,709 | ) |                  | $ | (24,626 | )             |  | $ | (13,432       | ) |  | $ | (13,589   | )
|                                                        |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |           |  
|Net Loss per share - Basic                              |  | $                  | (0.23   | ) |                  | $ | (0.17   | )             |  | $ | (0.10         | ) |  | $ | (0.10     | )
|Net Loss per share - Diluted                            |  | $                  | (0.23   | ) |                  | $ | (0.17   | )             |  | $ | (0.10         | ) |  | $ | (0.10     | )
|Weighted average common shares:                         |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |           |  
|Basic                                                   |  |                    | 138,519 |   |                  |   | 141,882 |               |  |   | 139,212       |   |  |   | 141,065   |  
|Diluted                                                 |  |                    | 138,519 |   |                  |   | 141,882 |               |  |   | 139,212       |   |  |   | 141,065   |  

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)



|                                                                                          |  |                  |         |   |               |   |          |  
|----------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | -------- | -
|                                                                                          |  | Six Months Ended |        
|                                                                                          |  | August 2,2008    |         |   | August 4,2007 |  
|Operating Activities:                                                                     |  |                  |         |   |               |   |          |  
|Net Loss                                                                                  |  | $                | (13,432 | ) |               | $ | (13,589  | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                  |         |   |               |   |          |  
|Depreciation and amortization                                                             |  |                  | 65,542  |   |               |   | 66,526   |  
|Impairments and dispositions                                                              |  |                  | 1,359   |   |               |   | 3,698    |  
|Equity compensation                                                                       |  |                  | 8,274   |   |               |   | 3,001    |  
|Deferred income taxes                                                                     |  |                  | 2,695   |   |               |   | (1,438   | )
|Excess tax benefit from stock-based compensation                                          |  |                  | (513    | ) |               |   | (8,575   | )
|Loss on extinguishment of debt                                                            |  |                  |        |   |               |   | 5,634    |  
|Change in operating assets and liabilities, net                                           |  |                  | (12,640 | ) |               |   | (70,879  | )
|                                                                                          |  |                  |         |   |               |   |          |  
|Net Cash Provided by (Used In) Operating Activities                                       |  |                  | 51,285  |   |               |   | (15,622  | )
|Investing Activities:                                                                     |  |                  |         |   |               |   |          |  
|Purchases of property and equipment                                                       |  |                  | (56,164 | ) |               |   | (60,380  | )
|Proceeds from the sale of property and equipment                                          |  |                  | 122     |   |               |   | 7,806    |  
|                                                                                          |  |                  |         |   |               |   |          |  
|Net Cash Used In Investing Activities                                                     |  |                  | (56,042 | ) |               |   | (52,574  | )
|Financing Activities:                                                                     |  |                  |         |   |               |   |          |  
|Payments on long-term debt and capital lease obligations                                  |  |                  | (2,803  | ) |               |   | (116,140 | )
|Cash dividends paid                                                                       |  |                  | (1,180  | ) |               |   | (7,427   | )
|Excess tax benefit from stock-based compensation                                          |  |                  | 513     |   |               |   | 8,575    |  
|Purchases and retirements of common stock                                                 |  |                  | (34,889 | ) |               |   |         |  
|Proceeds from issuance of common stock                                                    |  |                  | 1,977   |   |               |   | 33,679   |  
|                                                                                          |  |                  |         |   |               |   |          |  
|Net Cash Used In Financing Activities                                                     |  |                  | (36,382 | ) |               |   | (81,313  | )
|Decrease in Cash and Cash Equivalents                                                     |  |                  | (41,139 | ) |               |   | (149,509 | )
|Cash and cash equivalents at beginning of period                                          |  |                  | 101,162 |   |               |   | 277,883  |  
|Cash and cash equivalents at end of period                                                |  | $                | 60,023  |   |               | $ | 128,374  |  
|                                                                                          |  |                  |         |   |               |   |          |  

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 and six months
ended August 2, 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), Saks Fifth Avenue OFF 5TH , 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 $6,213 and $6,184 for the three
months ended August 2, 2008 and August 4, 2007, respectively. Leased department sales were $45,634 and $42,831 for the three months ended August 2, 2008 and August 4, 2007, respectively, and were excluded from net sales.
Commissions from leased departments were $13,815 and $13,307 for the six months ended August 2, 2008 and August 4, 2007, respectively. Leased department sales were $101,197 and $93,098 for the six months ended August 2, 2008 and
August 4, 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 $48,111 and $116,629 at August 2, 2008 and August 4, 2007,



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respectively, primarily consisting of money market funds, demand and time deposits. Income earned on cash equivalents was $748 and $1,735 for the three-month
period ended August 2, 2008 and August 4, 2007, respectively, and is reflected in Other Income. For the six-month periods ended August 2, 2008 and August 4, 2007 income earned on these cash equivalents was $1,631 and $4,446,
respectively, and is reflected in Other Income.

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 dispositions in the normal course of business of $1,221 and $3,314 for the three months ended August 2, 2008 and August 4, 2007, respectively, and charges of $1,359 and $3,698 for the six months ended
August 2, 2008 and August 4, 2007, respectively. Asset dispositions 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 and six months ended August 2, 2008 and
August 4, 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 and six-month periods ended August 2, 2008 was 40.7% and 40.3%, respectively, as compared to 40.3% and 41.0%, for the three and six-month period ended
August 4, 2007. The increase in the effective rate for the three-month period ended August 2, 2008 was primarily due to the impact of a change in state tax law. The decrease in the effective rate for the six-month period ended
August 2, 2008 was primarily due to adjustments related to uncertain tax positions.

Components of the Companys income tax benefit for the three
and six-month periods ended August 2, 2008 and August 4, 2007 were as follows:



|                                                               |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |        |  
|-------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                                               |  | Three Months Ended |         |   | Six Months Ended |  
|                                                               |  | August 2,2008      |         |   | August 4,2007    |   |         | August 2,2008 |  |   | August 4,2007 |  
|Expected federal income taxes at 35%                           |  | $                  | (18,722 | ) |                  | $ | (14,426 | )             |  | $ | (7,869        | ) |  | $ | (8,058 | )
|State income taxes, net of federal benefit                     |  |                    | (2,711  | ) |                  |   | (1,649  | )             |  |   | (1,601        | ) |  |   | (831   | )
|Effect of settling tax exams and other tax reserve adjustments |  |                    | (38     | ) |                  |   | (186    | )             |  |   | 456           |   |  |   | (307   | )
|Change in state tax law                                        |  |                    | (414    | ) |                  |   |        |               |  |   | (414          | ) |  |   |       |  
|Other items, net                                               |  |                    | 102     |   |                  |   | (331    | )             |  |   | 375           |   |  |   | (240   | )
|                                                               |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |        |  
|Benefit for income taxes                                       |  | $                  | (21,783 | ) |                  | $ | (16,592 | )             |  | $ | (9,053        | ) |  | $ | (9,436 | )
|                                                               |  |                    |         |   |                  |   |         |               |  |   |               |   |  |   |        |  

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 will result in any material change to the amount of unrecognized tax benefits.



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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 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 other jurisdictions.

NOTE 2  EARNINGS PER COMMON SHARE

Calculations of earnings per common share (EPS) for the three and six months ended August 2, 2008 and August 4, 2007, respectively,
are as follows:



|                                                            |  |                                          |         |   |                                          |         |                |   |       |         |  |   |                       |   |                |         |  |   |       |  
|----------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---------------------------------------- | ------- | -------------- | - | ----- | ------- |  | - | --------------------- | - | -------------- | ------- |  | - | ----- | -
|                                                            |  | For the Three Months EndedAugust 2, 2008 |         |   | For the Three Months EndedAugust 4, 2007 |        
|                                                            |  | NetLoss                                  |         |   | WeightedAverageShares                    |         | PerShareAmount |   |       | NetLoss |  |   | WeightedAverageShares |   | PerShareAmount |        
|Basic EPS                                                   |  | $                                        | (31,709 | ) |                                          | 138,519 |                | $ | (0.23 | )       |  | $ | (24,626               | ) |                | 141,882 |  | $ | (0.17 | )
|Effect of dilutive stock options and convertible debentures |  |                                          |        |   |                                          |        |                |   |      |         |  |   |                      |   |                |        |  |   |      |  
|                                                            |  |                                          |         |   |                                          |         |                |   |       |         |  |   |                       |   |                |         |  |   |       |  
|Diluted EPS                                                 |  | $                                        | (31,709 | ) |                                          | 138,519 |                | $ | (0.23 | )       |  | $ | (24,626               | ) |                | 141,882 |  | $ | (0.17 | )
|                                                            |  |                                          |         |   |                                          |         |                |   |       |         |  |   |                       |   |                |         |  |   |       |  
|                                                            |  |                                         
|                                                            |  | For the Six Months EndedAugust 2, 2008   |         |   | For the Six Months EndedAugust 4, 2007   |        
|                                                            |  | NetLoss                                  |         |   | WeightedAverageShares                    |         | PerShareAmount |   |       | NetLoss |  |   | WeightedAverageShares |   | PerShareAmount |        
|Basic EPS                                                   |  | $                                        | (13,432 | ) |                                          | 139,212 |                | $ | (0.10 | )       |  | $ | (13,589               | ) |                | 141,065 |  | $ | (0.10 | )
|Effect of dilutive stock options and convertible debentures |  |                                          |        |   |                                          |        |                |   |      |         |  |   |                      |   |                |        |  |   |      |  
|                                                            |  |                                          |         |   |                                          |         |                |   |       |         |  |   |                       |   |                |         |  |   |       |  
|Diluted EPS                                                 |  | $                                        | (13,432 | ) |                                          | 139,212 |                | $ | (0.10 | )       |  | $ | (13,589               | ) |                | 141,065 |  | $ | (0.10 | )
|                                                            |  |                                          |         |   |                                          |         |                |   |       |         |  |   |                       |   |                |         |  |   |       |  

All potentially dilutive shares of common stock have been excluded from the computation of diluted EPS because the
Company reported losses for all periods presented. The Company had 258 and 752 option awards of potentially dilutive common stock outstanding as of August 2, 2008 and August 4, 2007. The Company had 2,748 and 651 option and performance
share awards of potentially dilutive common stock outstanding as of August 2, 2008 and August 4, 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 August 2, 2008 and August 4, 2007, respectively,
that were not included in the computation of diluted EPS due to the assumption of net share settlement.



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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
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

The Company had
$230 million of convertible senior notes, at August 2, 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 holder cannot convert until the Companys share price is greater than 120% of the applicable conversion price for a certain trading period. The
conversion criteria were not met for the calendar quarter ended June 30, 2008. Since the holders of the convertible notes do not have the ability to exercise their conversion rights, the convertible notes were classified within long-term
debt on the condensed consolidated balance sheet as of August 2, 2008.

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 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 June and July 2007, the Company repurchased $10,420 in principal amount relating to its 8.25% senior notes. The repurchase of these notes resulted in a loss on
extinguishment of debt of approximately $412 for the quarter ended August 4, 2007.

During the six months ended August 2, 2008, the Company
repurchased and retired 2,949 shares of its common stock at an average price of $11.83 per share and total cost of approximately $34,889. At August 2, 2008, there were 32,710 shares remaining available for repurchase under the Companys
existing share repurchase program.



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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 and six months ended August 2, 2008 and August 4, 2007 were as follows:



|                                                   |  |                    |        |   |                  |   |        |               |  |   |               |   |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                                   |  | Three Months Ended |        |   | Six Months Ended |  
|                                                   |  | August 2,2008      |        |   | August 4,2007    |   |        | August 2,2008 |  |   | August 4,2007 |  
|Service cost                                       |  | $                  | 169    |   |                  | $ | 331    |               |  | $ | 338           |   |  | $ | 662    |  
|Interest cost                                      |  |                    | 2,123  |   |                  |   | 1,838  |               |  | $ | 4,246         |   |  |   | 3,676  |  
|Expected return on plan assets                     |  |                    | (3,037 | ) |                  |   | (2,782 | )             |  | $ | (6,074        | ) |  |   | (5,564 | )
|Net amortization of losses and prior service costs |  |                    | 184    |   |                  |   | 813    |               |  | $ | 368           |   |  |   | 1,626  |  
|                                                   |  |                    |        |   |                  |   |        |               |  |   |               |   |  |   |        |  
|Net periodic pension (benefit) expense             |  | $                  | (561   | ) |                  | $ | 200    |               |  | $ | (1,122        | ) |  | $ | 400    |  
|                                                   |  |                    |        |   |                  |   |        |               |  |   |               |   |  |   |        |  

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

NOTE 5  FAIR VALUE MEASUREMENTS

Effective February 3,
2008, the Company partially adopted Statement of Financial Accounting Standards No. 157,Fair Value Measurements (SFAS 157). The partial adoption is in accordance with FASB Staff Position No. FAS 157-2, which allows for
the delay of the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are not measured at fair value on a regular basis.

SFAS 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset
or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs reflecting the
reporting entitys own assumptions

We may also be required, from time to time, to measure certain other financial assets and liabilities at fair
value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. As of August 2, 2008, we had no material
financial assets or liabilities measured on a non-recurring basis that required adjustments or write-downs.



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NOTE 6  SHAREHOLDERS EQUITY

The following table summarizes the changes in shareholders equity for the six months ended August 2, 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 loss                                           |  |                   |   |  |                   |        |   |                          |   |           |                  |  |   | (13,432                           | ) |  |                          |         |   |  |   | (13,432   | )
|Dividend adjustment - cancelled restricted shares  |  |                   |   |  |                   |        |   |                          |   | 35        |                  |  |   |                                   |   |  |                          |         |   |  |   | 35        |  
|Issuance of common stock                           |  | 265               |   |  |                   | 27     |   |                          |   | 1,950     |                  |  |   |                                   |   |  |                          |         |   |  |   | 1,977     |  
|Income tax benefit related to employee stock plans |  |                   |   |  |                   |        |   |                          |   | 237       |                  |  |   |                                   |   |  |                          |         |   |  |   | 237       |  
|Net activity under stock compensation plans        |  | 2,845             |   |  |                   | 284    |   |                          |   | (284      | )                |  |   |                                   |   |  |                          |         |   |  |   |          |  
|Restricted shares withheld for taxes               |  | (60               | ) |  |                   | (6     | ) |                          |   | (888      | )                |  |   |                                   |   |  |                          |         |   |  |   | (894      | )
|Stock-based compensation                           |  |                   |   |  |                   |        |   |                          |   | 8,274     |                  |  |   |                                   |   |  |                          |         |   |  |   | 8,274     |  
|Repurchase of common stock                         |  | (2,949            | ) |  |                   | (295   | ) |                          |   | (34,594   | )                |  |   |                                   |   |  |                          |         |   |  |   | (34,889   | )
|                                                   |  |                   |   |  |                   |        |   |                          |   |           |                  |  |   |                                   |   |  |                          |         |   |  |   |           |  
|Balance at August 2, 2008                          |  | 141,885           |   |  | $                 | 14,190 |   |                          | $ | 1,093,922 |                  |  | $ | 43,804                            |   |  | $                        | (15,002 | ) |  | $ | 1,136,914 |  
|                                                   |  |                   |   |  |                   |        |   |                          |   |           |                  |  |   |                                   |   |  |                          |         |   |  |   |           |  

NOTE 7  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 five 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 and six months ended
August 2, 2008 was approximately $2,871 and $4,964, respectively, and total stock-based compensation expense for the three and six months ended August 4, 2007 was approximately $1,084 and $1,801, respectively.



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NOTE 8  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
asserted breach of contract claims and alleged that the Company improperly assessed chargebacks, timely payment discounts, and deductions for merchandise returns against members of the plaintiff class. The lawsuit sought compensatory and incidental
damages and restitution. On June 8, 2008, the parties entered into a settlement agreement which was approved by the United States Bankruptcy Court for the Central District of California on July 30, 2008. Pursuant to the settlement, on
August 18, 2008 the Company paid the plaintiff $370 in settlement of the claims (of which the Company was reimbursed approximately $118 from an unrelated third party), at which time the lawsuit was formally dismissed.

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 its tax exposures. At August 2, 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 9  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 non-recurring basis. The Company is in the process of evaluating the impact of applying SFAS 157 to
nonfinancial assets and liabilities measured on a non-recurring basis. The impact of applying SFAS 157 to financial assets and liabilities did not have a material impact on the consolidated financial statements for the period ending August 2,
2008.

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. The Company elected to report long-term debt at its amortized cost. Accordingly, this standard has no impact on the 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.

In May 2008, the FASB issued
Accounting Principles Board (APB) No.14-1 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This FASB Staff Position (FSP) clarifies that
convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost
is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact of this
standard on the financial statements.

NOTE 10  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 and six-month periods ended August 2, 2008 and August 4, 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 August 2, 2008, Saks Incorporated was the sole obligor for a majority of the Companys long-term debt.

SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT AUGUST 2, 2008

(Dollar Amounts In Thousands)



|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | ---------------- | --------- | --------------------- | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | SaksIncorporated |           | GuarantorSubsidiaries |   | Eliminations |  |   | Consolidated
|ASSETS                                         |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Assets                                 |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                | 48,111    |                       | $ | 11,912       |  |   |              |   |  | $ | 60,023   
|Merchandise inventories                        |  |                  |           |                       |   | 813,066      |  |   |              |   |  |   | 813,066  
|Other current assets                           |  |                  |           |                       |   | 114,432      |  |   |              |   |  |   | 114,432  
|Deferred income taxes, net                     |  |                  |           |                       |   | 30,737       |  |   |              |   |  |   | 30,737   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Assets                           |  |                  | 48,111    |                       |   | 970,147      |  |   |             |   |  |   | 1,018,258
|Property and Equipment, net                    |  |                  |           |                       |   | 1,076,764    |  |   |              |   |  |   | 1,076,764
|Intangibles, net                               |  |                  |           |                       |   | 283          |  |   |              |   |  |   | 283      
|Deferred Income Taxes, net                     |  |                  | 73,671    |                       |   | 39,855       |  |   |              |   |  |   | 113,526  
|Other Assets                                   |  |                  | 6,487     |                       |   | 44,986       |  |   |              |   |  |   | 51,473   
|Investment in and Advances to Subsidiaries     |  |                  | 1,440,441 |                       |   |             |  | $ | (1,440,441   | ) |  |   |          
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Assets                                   |  | $                | 1,568,710 |                       | $ | 2,132,035    |  | $ | (1,440,441   | ) |  | $ | 2,260,304
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Liabilities                            |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Trade accounts payable                         |  |                  |           |                       | $ | 155,132      |  |   |              |   |  | $ | 155,132  
|Accrued expenses and other current liabilities |  | $                | 8,067     |                       |   | 228,774      |  |   |              |   |  |   | 236,841  
|Dividend payable                               |  |                  | 1,426     |                       |   |              |  |   |              |   |  |   | 1,426    
|Current portion of long-term debt              |  |                  |           |                       |   | 88,882       |  |   |              |   |  |   | 88,882   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Liabilities                      |  |                  | 9,493     |                       |   | 472,788      |  |   |             |   |  |   | 482,281  
|Long-Term Debt                                 |  |                  | 422,303   |                       |   | 58,640       |  |   |              |   |  |   | 480,943  
|Other Long-Term Liabilities                    |  |                  |           |                       |   | 160,166      |  |   |              |   |  |   | 160,166  
|Investment by and Advances from Parent         |  |                  |           |                       |   | 1,440,441    |  | $ | (1,440,441   | ) |  |   |          
|Shareholders Equity                           |  |                  | 1,136,914 |                       |   |              |  |   |              |   |  |   | 1,136,914
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Liabilities and Shareholders Equity     |  | $                | 1,568,710 |                       | $ | 2,132,035    |  | $ | (1,440,441   | ) |  | $ | 2,260,304
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED AUGUST 2, 2008

(Dollar Amounts In Thousands)



|                                             |  |                  |         |   |                       |   |         |              |  |              |        |  |   |         |  
|-------------------------------------------- |  | ---------------- | ------- | - | --------------------- | - | ------- | ------------ |  | ------------ | ------ |  | - | ------- | -
|                                             |  | SaksIncorporated |         |   | GuarantorSubsidiaries |   |         | Eliminations |  | Consolidated |       
|Net sales                                    |  |                  |         |   |                       | $ | 669,233 |              |  |              |        |  | $ | 669,233 |  
|Cost of sales                                |  |                  |         |   |                       |   | 435,425 |              |  |              |        |  |   | 435,425 |  
|                                             |  |                  |         |   |                       |   |         |              |  |              |        |  |   |         |  
|Gross Margin                                 |  |                  |        |   |                       |   | 233,808 |              |  |              |       |  |   | 233,808 |  
|Selling, general and administrative expenses |  | $                | 359     |   |                       |   | 193,745 |              |  |              |        |  |   | 194,104 |  
|Other operating expenses                     |  |                  | 2       |   |                       |   | 82,460  |              |  |              |        |  |   | 82,462  |  
|Store pre-opening costs                      |  |                  |         |   |                       |   | 301     |              |  |              |        |  |   | 301     |  
|Impairments and dispositions                 |  |                  |         |   |                       |   | 1,221   |              |  |              |        |  |   | 1,221   |  
|                                             |  |                  |         |   |                       |   |         |              |  |              |        |  |   |         |  
|Operating loss                               |  |                  | (361    | ) |                       |   | (43,919 | )            |  |              |       |  |   | (44,280 | )
|Other income (expense)                       |  |                  |         |   |                       |   |         |              |  |              |        |  |   |         |  
|Equity in earnings of subsidiaries           |  |                  | (27,231 | ) |                       |   |         |              |  |              | 27,231 |  |   |         |  
|Interest expense                             |  |                  | (7,720  | ) |                       |   | (2,232  | )            |  |              |        |  |   | (9,952  | )
|Other income, net                            |  |                  | 740     |   |                       |   |         |              |  |              |        |  |   | 740     |  
|                                             |  |                  |         |   |                       |   |         |              |  |              |        |  |   |         |  
|Loss before benefit for income taxes         |  |                  | (34,572 | ) |                       |   | (46,151 | )            |  |              | 27,231 |  |   | (53,492 | )
|Benefit for income taxes                     |  |                  | (2,863  | ) |                       |   | (18,920 | )            |  |              |        |  |   | (21,783 | )
|                                             |  |                  |         |   |                       |   |         |              |  |              |        |  |   |         |  
|Net Loss                                     |  | $                | (31,709 | ) |                       | $ | (27,231 | )            |  | $            | 27,231 |  | $ | (31,709 | )
|                                             |  |                  |         |   |                       |   |         |              |  |              |        |  |   |         |  



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED AUGUST 2, 2008

(Dollar Amounts In Thousands)



|                                             |  |                  |         |   |                       |   |           |              |  |              |       |  |   |           |  
|-------------------------------------------- |  | ---------------- | ------- | - | --------------------- | - | --------- | ------------ |  | ------------ | ----- |  | - | --------- | -
|                                             |  | SaksIncorporated |         |   | GuarantorSubsidiaries |   |           | Eliminations |  | Consolidated |      
|Net sales                                    |  |                  |         |   |                       | $ | 1,531,585 |              |  |              |       |  | $ | 1,531,585 |  
|Cost of sales                                |  |                  |         |   |                       |   | 968,489   |              |  |              |       |  |   | 968,489   |  
|                                             |  |                  |         |   |                       |   |           |              |  |              |       |  |   |           |  
|Gross Margin                                 |  |                  |        |   |                       |   | 563,096   |              |  |              |      |  |   | 563,096   |  
|Selling, general and administrative expenses |  | $                | 607     |   |                       |   | 398,244   |              |  |              |       |  |   | 398,851   |  
|Other operating expenses                     |  |                  | 12      |   |                       |   | 166,449   |              |  |              |       |  |   | 166,461   |  
|Store pre-opening costs                      |  |                  |         |   |                       |   | 588       |              |  |              |       |  |   | 588       |  
|Impairments and dispositions                 |  |                  |         |   |                       |   | 1,359     |              |  |              |       |  |   | 1,359     |  
|                                             |  |                  |         |   |                       |   |           |              |  |              |       |  |   |           |  
|Operating loss                               |  |                  | (619    | ) |                       |   | (3,544    | )            |  |              |      |  |   | (4,163    | )
|Other income (expense)                       |  |                  |         |   |                       |   |           |              |  |              |       |  |   |           |  
|Equity in earnings of subsidiaries           |  |                  | (4,671  | ) |                       |   |           |              |  | $            | 4,671 |  |   |           |  
|Interest expense                             |  |                  | (15,431 | ) |                       |   | (4,578    | )            |  |              |       |  |   | (20,009   | )
|Other income, net                            |  |                  | 1,687   |   |                       |   |           |              |  |              |       |  |   | 1,687     |  
|                                             |  |                  |         |   |                       |   |           |              |  |              |       |  |   |           |  
|Loss before benefit for income taxes         |  |                  | (19,034 | ) |                       |   | (8,122    | )            |  |              | 4,671 |  |   | (22,485   | )
|Benefit for income taxes                     |  |                  | (5,602  | ) |                       |   | (3,451    | )            |  |              |       |  |   | (9,053    | )
|                                             |  |                  |         |   |                       |   |           |              |  |              |       |  |   |           |  
|Net Loss                                     |  | $                | (13,432 | ) |                       | $ | (4,671    | )            |  | $            | 4,671 |  | $ | (13,432   | )
|                                             |  |                  |         |   |                       |   |           |              |  |              |       |  |   |           |  



16



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED AUGUST 2, 2008

(Dollar Amounts In Thousands)



|                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ---------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                                            |  | SaksIncorporated |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | Consolidated |  
|OPERATING ACTIVITIES                                                        |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Loss                                                                    |  | $                | (13,432 | ) |                       | $ | (4,671  | )            |  | $ | 4,671        |   |  | $ | (13,432 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries                                          |  |                  | 4,671   |   |                       |   |         |              |  |   | (4,671       | ) |  |   |        |  
|Excess tax benefit from stock-based compensation                            |  |                  | (513    | ) |                       |   |         |              |  |   |              |   |  |   | (513    | )
|Depreciation and amortization                                               |  |                  |         |   |                       |   | 65,542  |              |  |   |              |   |  |   | 65,542  |  
|Equity Compensation                                                         |  |                  | 8,274   |   |                       |   |         |              |  |   |              |   |  |   | 8,274   |  
|Deferred income taxes                                                       |  |                  | 2,200   |   |                       |   | 495     |              |  |   |              |   |  |   | 2,695   |  
|Impairments and dispositions                                                |  |                  |         |   |                       |   | 1,359   |              |  |   |              |   |  |   | 1,359   |  
|Changes in operating assets and liabilities, net                            |  |                  | (13,208 | ) |                       |   | 568     |              |  |   |              |   |  |   | (12,640 | )
|                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Provided By (Used In) Operating Activities                         |  |                  | (12,008 | ) |                       |   | 63,293  |              |  |   |             |   |  |   | 51,285  |  
|INVESTING ACTIVITIES                                                        |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Purchases of property and equipment                                         |  |                  |         |   |                       |   | (56,164 | )            |  |   |              |   |  |   | (56,164 | )
|Proceeds from the sale of assets                                            |  |                  |         |   |                       |   | 122     |              |  |   |              |   |  |   | 122     |  
|                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Used In Investing Activities                                       |  |                  |        |   |                       |   | (56,042 | )            |  |   |             |   |  |   | (56,042 | )
|FINANCING ACTIVITIES                                                        |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Intercompany borrowings, contributions and distributions                    |  |                  | 8,206   |   |                       |   | (8,206  | )            |  |   |              |   |  |   |        |  
|Payments on long-term debt                                                  |  |                  |         |   |                       |   | (2,803  | )            |  |   |              |   |  |   | (2,803  | )
|Payment of dividend                                                         |  |                  | (1,180  | ) |                       |   |         |              |  |   |              |   |  |   | (1,180  | )
|Repurchase and retirement of common stock                                   |  |                  | (34,889 | ) |                       |   |         |              |  |   |              |   |  |   | (34,889 | )
|Excess tax benefit from stock-based compensation                            |  |                  | 513     |   |                       |   |         |              |  |   |              |   |  |   | 513     |  
|Proceeds from issuance of common stock                                      |  |                  | 1,977   |   |                       |   |         |              |  |   |              |   |  |   | 1,977   |  
|                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Used In Financing Activities                                       |  |                  | (25,373 | ) |                       |   | (11,009 | )            |  |   |             |   |  |   | (36,382 | )
|Decrease In Cash and Cash Equivalents                                       |  |                  | (37,381 | ) |                       |   | (3,758  | )            |  |   |             |   |  |   | (41,139 | )
|Cash and Cash Equivalents at beginning of period                            |  |                  | 85,492  |   |                       |   | 15,670  |              |  |   |              |   |  |   | 101,162 |  
|                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Cash and Cash Equivalents at end of period                                  |  | $                | 48,111  |   |                       | $ | 11,912  |              |  | $ |             |   |  | $ | 60,023  |  
|                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  



17



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SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT AUGUST 4, 2007

(Dollar Amounts In Thousands)



|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | ------------------------- | --------- | ------------------------------ | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | SaksIncorporated(Revised) |           | GuarantorSubsidiaries(Revised) |   | Eliminations |  |   | Consolidated
|ASSETS                                         |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Current Assets                                 |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                         | 116,629   |                                | $ | 11,745       |  |   |              |   |  | $ | 128,374  
|Merchandise inventories                        |  |                           |           |                                |   | 801,693      |  |   |              |   |  |   | 801,693  
|Other current assets                           |  |                           |           |                                |   | 112,131      |  |   |              |   |  |   | 112,131  
|Deferred income taxes, net                     |  |                           |           |                                |   | 24,607       |  |   |              |   |  |   | 24,607   
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Current Assets                           |  |                           | 116,629   |                                |   | 950,176      |  |   |             |   |  |   | 1,066,805
|Property and Equipment, net                    |  |                           |           |                                |   | 1,082,893    |  |   |              |   |  |   | 1,082,893
|Intangibles, net                               |  |                           |           |                                |   | 310          |  |   |              |   |  |   | 310      
|Deferred Income Taxes, net                     |  |                           | 68,863    |                                |   | 82,227       |  |   |              |   |  |   | 151,090  
|Other Assets                                   |  |                           | 9,405     |                                |   | 26,562       |  |   |              |   |  |   | 35,967   
|Investment in and Advances to Subsidiaries     |  |                           | 1,450,494 |                                |   |              |  | $ | (1,450,494   | ) |  |   |          
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Assets                                   |  | $                         | 1,645,391 |                                | $ | 2,142,168    |  | $ | (1,450,494   | ) |  | $ | 2,337,065
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Current Liabilities                            |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Trade accounts payable                         |  |                           |           |                                | $ | 211,968      |  |   |              |   |  | $ | 211,968  
|Accrued expenses and other current liabilities |  | $                         | 5,456     |                                |   | 240,816      |  |   |              |   |  |   | 246,272  
|Dividend payable                               |  |                           | 2,659     |                                |   |              |  |   |              |   |  |   | 2,659    
|Current portion of long-term debt              |  |                           | 230,000   |                                |   | 5,643        |  |   |              |   |  |   | 235,643  
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Current Liabilities                      |  |                           | 238,115   |                                |   | 458,427      |  |   |             |   |  |   | 696,542  
|Long-Term Debt                                 |  |                           | 276,354   |                                |   | 63,390       |  |   |              |   |  |   | 339,744  
|Other Long-Term Liabilities                    |  |                           |           |                                |   | 169,857      |  |   |              |   |  |   | 169,857  
|Investment by and Advances from Parent         |  |                           |           |                                |   | 1,450,494    |  | $ | (1,450,494   | ) |  |   |          
|Shareholders Equity                           |  |                           | 1,130,922 |                                |   |              |  |   |              |   |  |   | 1,130,922
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          
|Total Liabilities and Shareholders Equity     |  | $                         | 1,645,391 |                                | $ | 2,142,168    |  | $ | (1,450,494   | ) |  | $ | 2,337,065
|                                               |  |                           |           |                                |   |              |  |   |              |   |  |   |          



18



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED AUGUST 4, 2007

(Dollar Amounts In Thousands)



|                                             |  |                           |         |   |                                |   |         |              |  |              |        |  |   |         |  
|-------------------------------------------- |  | ------------------------- | ------- | - | ------------------------------ | - | ------- | ------------ |  | ------------ | ------ |  | - | ------- | -
|                                             |  | SaksIncorporated(Revised) |         |   | GuarantorSubsidiaries(Revised) |   |         | Eliminations |  | Consolidated |       
|Net sales                                    |  |                           |         |   |                                | $ | 694,106 |              |  |              |        |  | $ | 694,106 |  
|Costs and expenses                           |  |                           |         |   |                                |   |         |              |  |              |        |  |   |         |  
|                                             |  |                           |         |   |                                |   |         |              |  |              |        |  |   |         |  
|Gross Margin                                 |  |                           |        |   |                                |   | 694,106 |              |  |              |       |  |   | 694,106 |  
|Cost of sales                                |  |                           |         |   |                                |   | 447,340 |              |  |              |        |  |   | 447,340 |  
|Selling, general and administrative expenses |  | $                         | 967     |   |                                |   | 193,291 |              |  |              |        |  |   | 194,258 |  
|Other operating expenses                     |  |                           | 18      |   |                                |   | 81,671  |              |  |              |        |  |   | 81,689  |  
|Store pre-opening costs                      |  |                           |         |   |                                |   | 125     |              |  |              |        |  |   | 125     |  
|Impairments and dispositions                 |  |                           |         |   |                                |   | 3,314   |              |  |              |        |  |   | 3,314   |  
|                                             |  |                           |         |   |                                |   |         |              |  |              |        |  |   |         |  
|Operating Loss                               |  |                           | (985    | ) |                                |   | (31,635 | )            |  |              |       |  |   | (32,620 | )
|Other income (expense)                       |  |                           |         |   |                                |   |         |              |  |              |        |  |   |         |  
|Equity in earnings of subsidiaries           |  |                           | (20,193 | ) |                                |   |         |              |  | $            | 20,193 |  |   |         |  
|Interest expense                             |  |                           | (7,606  | ) |                                |   | (2,315  | )            |  |              |        |  |   | (9,921  | )
|Loss on extinguishment of debt               |  |                           | (412    | ) |                                |   |         |              |  |              |        |  |   | (412    | )
|Other income, net                            |  |                           | 1,735   |   |                                |   |         |              |  |              |        |  |   | 1,735   |  
|                                             |  |                           |         |   |                                |   |         |              |  |              |        |  |   |         |  
|Loss before benefit for income taxes         |  |                           | (27,461 | ) |                                |   | (33,950 | )            |  |              | 20,193 |  |   | (41,218 | )
|Benefit for income taxes                     |  |                           | (2,835  | ) |                                |   | (13,757 | )            |  |              |        |  |   | (16,592 | )
|                                             |  |                           |         |   |                                |   |         |              |  |              |        |  |   |         |  
|Net Loss                                     |  | $                         | (24,626 | ) |                                | $ | (20,193 | )            |  | $            | 20,193 |  | $ | (24,626 | )
|                                             |  |                           |         |   |                                |   |         |              |  |              |        |  |   |         |  



19



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##### Table of Contents

SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED AUGUST 4, 2007

(Dollar Amounts In Thousands)



|                                             |  |                           |         |   |                                |   |           |              |  |              |     |  |   |           |  
|-------------------------------------------- |  | ------------------------- | ------- | - | ------------------------------ | - | --------- | ------------ |  | ------------ | --- |  | - | --------- | -
|                                             |  | SaksIncorporated(Revised) |         |   | GuarantorSubsidiaries(Revised) |   |           | Eliminations |  | Consolidated |    
|Net sales                                    |  |                           |         |   |                                | $ | 1,486,853 |              |  |              |     |  | $ | 1,486,853 |  
|Costs and expenses                           |  |                           |         |   |                                |   |           |              |  |              |     |  |   |           |  
|                                             |  |                           |         |   |                                |   |           |              |  |              |     |  |   |           |  
|Gross Margin                                 |  |                           |        |   |                                |   | 1,486,853 |              |  |              |    |  |   | 1,486,853 |  
|Cost of sales                                |  |                           |         |   |                                |   | 911,807   |              |  |              |     |  |   | 911,807   |  
|Selling, general and administrative expenses |  | $                         | 2,598   |   |                                |   | 404,505   |              |  |              |     |  |   | 407,103   |  
|Other operating expenses                     |  |                           | 51      |   |                                |   | 163,993   |              |  |              |     |  |   | 164,044   |  
|Store pre-opening costs                      |  |                           |         |   |                                |   | 261       |              |  |              |     |  |   | 261       |  
|Impairments and dispositions                 |  |                           |         |   |                                |   | 3,698     |              |  |              |     |  |   | 3,698     |  
|                                             |  |                           |         |   |                                |   |           |              |  |              |     |  |   |           |  
|Operating Income (Loss)                      |  |                           | (2,649  | ) |                                |   | 2,589     |              |  |              |    |  |   | (60       | )
|Other income (expense)                       |  |                           |         |   |                                |   |           |              |  |              |     |  |   |           |  
|Equity in earnings of subsidiaries           |  |                           | (725    | ) |                                |   |           |              |  | $            | 725 |  |   |           |  
|Interest expense                             |  |                           | (17,377 | ) |                                |   | (4,524    | )            |  |              |     |  |   | (21,901   | )
|Loss on extinguishment of debt               |  |                           | (5,634  | ) |                                |   |           |              |  |              |     |  |   | (5,634    | )
|Other income, net                            |  |                           | 4,570   |   |                                |   |           |              |  |              |     |  |   | 4,570     |  
|                                             |  |                           |         |   |                                |   |           |              |  |              |     |  |   |           |  
|Loss before benefit for income taxes         |  |                           | (21,815 | ) |                                |   | (1,935    | )            |  |              | 725 |  |   | (23,025   | )
|Benefit for income taxes                     |  |                           | (8,226  | ) |                                |   | (1,210    | )            |  |              |     |  |   | (9,436    | )
|                                             |  |                           |         |   |                                |   |           |              |  |              |     |  |   |           |  
|Net Loss                                     |  | $                         | (13,589 | ) |                                | $ | (725      | )            |  | $            | 725 |  | $ | (13,589   | )
|                                             |  |                           |         |   |                                |   |           |              |  |              |     |  |   |           |  



20



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##### Table of Contents

SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED AUGUST 4, 2007

(Dollar Amounts In Thousands)



|                                                                                          |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|----------------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ------------------------------ | - | ------- | ------------ |  | - | ------------ | - |  | - | -------- | -
|                                                                                          |  | SaksIncorporated(Revised) |          |   | GuarantorSubsidiaries(Revised) |   |         | Eliminations |  |   | Consolidated |  
|OPERATING ACTIVITIES                                                                      |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Net Loss                                                                                  |  | $                         | (13,589  | ) |                                | $ | (725    | )            |  | $ | 725          |   |  | $ | (13,589  | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Equity in earnings of subsidiaries                                                        |  |                           | 725      |   |                                |   |         |              |  |   | (725         | ) |  |   |         |  
|Excess tax benefit from stock-based compensation                                          |  |                           | (8,575   | ) |                                |   |         |              |  |   |              |   |  |   | (8,575   | )
|Depreciation and amortization                                                             |  |                           |          |   |                                |   | 66,526  |              |  |   |              |   |  |   | 66,526   |  
|Equity compensation                                                                       |  |                           | 3,001    |   |                                |   |         |              |  |   |              |   |  |   | 3,001    |  
|Deferred income taxes                                                                     |  |                           | (128     | ) |                                |   | (1,310  | )            |  |   |              |   |  |   | (1,438   | )
|Impairments and dispositions                                                              |  |                           |          |   |                                |   | 3,698   |              |  |   |              |   |  |   | 3,698    |  
|Loss on extinguishment of debt                                                            |  |                           | 5,634    |   |                                |   |         |              |  |   |              |   |  |   | 5,634    |  
|Changes in operating assets and liabilities, net                                          |  |                           | (5,118   | ) |                                |   | (65,761 | )            |  |   |              |   |  |   | (70,879  | )
|                                                                                          |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Net Cash Provided by (Used In) Operating Activities                                       |  |                           | (18,050  | ) |                                |   | 2,428   |              |  |   |             |   |  |   | (15,622  | )
|INVESTING ACTIVITIES                                                                      |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Purchases of property and equipment                                                       |  |                           |          |   |                                |   | (60,380 | )            |  |   |              |   |  |   | (60,380  | )
|Proceeds from the sale of assets                                                          |  |                           |          |   |                                |   | 7,806   |              |  |   |              |   |  |   | 7,806    |  
|                                                                                          |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Net Cash Used In Investing Activities                                                     |  |                           |         |   |                                |   | (52,574 | )            |  |   |             |   |  |   | (52,574  | )
|FINANCING ACTIVITIES                                                                      |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Intercompany borrowings, contributions and distributions                                  |  |                           | (55,256  | ) |                                |   | 55,256  |              |  |   |              |   |  |   |          |  
|Payments on long-term debt and capital lease obligations                                  |  |                           | (110,400 | ) |                                |   | (5,740  | )            |  |   |              |   |  |   | (116,140 | )
|Payment of Dividend                                                                       |  |                           | (7,427   | ) |                                |   |         |              |  |   |              |   |  |   | (7,427   | )
|Proceeds from issuance of common stock                                                    |  |                           | 8,575    |   |                                |   |         |              |  |   |              |   |  |   | 8,575    |  
|Excess tax benefit from stock-based compensation                                          |  |                           | 33,679   |   |                                |   |         |              |  |   |              |   |  |   | 33,679   |  
|                                                                                          |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Net Cash Provided by (Used) In Financing Activities                                       |  |                           | (130,829 | ) |                                |   | 49,516  |              |  |   |             |   |  |   | (81,313  | )
|Decrease In Cash and Cash Equivalents                                                     |  |                           | (148,879 | ) |                                |   | (630    | )            |  |   |              |   |  |   | (149,509 | )
|Cash and Cash Equivalents at beginning of period                                          |  |                           | 265,508  |   |                                |   | 12,375  |              |  |   |              |   |  |   | 277,883  |  
|                                                                                          |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  
|Cash and Cash Equivalents at end of period                                                |  | $                         | 116,629  |   |                                | $ | 11,745  |              |  |   |             |   |  | $ | 128,374  |  
|                                                                                          |  |                           |          |   |                                |   |         |              |  |   |              |   |  |   |          |  



21



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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), Saks Fifth Avenue OFF 5TH (OFF 5TH), 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 5TH is intended to be the premier luxury off-price retailer in the United States. OFF 5TH stores are
primarily located in upscale mixed-use and off-price centers and offer luxury apparel, shoes, and accessories, targeting the value-conscious customer. CLL consists of mall-based specialty stores, targeting girls aged 4-12 years old. As of
August 2, 2008, Saks operated 53 SFA stores with 5.9 million square feet, 48 OFF 5TH stores with 1.4 million square feet, and 97 CLL specialty stores, which includes 77 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 a net loss of $31.7 million, or $.23 per share, for the three months ended August 2, 2008. For the three months ended August 4, 2007, the
Company recorded a net loss of $24.6 million or $.17 per share.

The three-month period ended August 2, 2008 included charges of $0.8 million (net of
taxes), or $.01 per share, primarily related to asset disposition costs related to the closing of one SFA store location. The current year second quarter also included $0.2 million (net of taxes) of severance costs (included in SG&A) related to
this SFA store closing.



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##### Table of Contents

The three-month period ended August 4, 2007 included charges totaling $2.0 million (net of taxes), or $.01 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 second quarter also included $2.0 million or $.01 per share (net of
taxes), related to asset impairments and dispositions and a loss on extinguishment of debt totaling $0.2 million (net of taxes), related to the repurchase of $10.4 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 |   |  | Six Months Ended |  
|                                                        |  | August 2,2008      |   |  | August 4,2007    |   |  | August 2,2008 |   |  | August 4,2007 |  
|Net sales                                               |  | 100.0              | % |  | 100.0            | % |  | 100.0         | % |  | 100.0         | %
|Costs and expenses:                                     |  |                    |   |  |                  |   |  |               |   |  |               |  
|Cost of sales (excluding depreciation and amortization) |  | 65.1               | % |  | 64.4             | % |  | 63.2          | % |  | 61.3          | %
|Selling, general & administrative expenses              |  | 29.0               | % |  | 28.0             | % |  | 26.0          | % |  | 27.4          | %
|Other operating expenses                                |  | 12.3               | % |  | 11.8             | % |  | 10.9          | % |  | 11.0          | %
|Store pre-opening costs                                 |  | 0.0                | % |  | 0.0              | % |  | 0.0           | % |  | 0.0           | %
|Impairments and dispositions                            |  | 0.2                | % |  | 0.5              | % |  | 0.1           | % |  | 0.2           | %
|                                                        |  |                    |   |  |                  |   |  |               |   |  |               |  
|Operating Loss                                          |  | -6.6               | % |  | -4.7             | % |  | -0.3          | % |  | 0.0           | %
|Other income (expense):                                 |  |                    |   |  |                  |   |  |               |   |  |               |  
|Interest expense                                        |  | -1.5               | % |  | -1.4             | % |  | -1.3          | % |  | -1.5          | %
|Loss on extinguishment of debt                          |  | 0.0                | % |  | -0.1             | % |  | 0.0           | % |  | -0.4          | %
|Other income, net                                       |  | 0.1                | % |  | 0.2              | % |  | 0.1           | % |  | 0.3           | %
|                                                        |  |                    |   |  |                  |   |  |               |   |  |               |  
|Loss before benefit for income taxes                    |  | -8.0               | % |  | -5.9             | % |  | -1.5          | % |  | -1.5          | %
|Benefit for income taxes                                |  | -3.3               | % |  | -2.4             | % |  | -0.6          | % |  | -0.6          | %
|                                                        |  |                    |   |  |                  |   |  |               |   |  |               |  
|Net loss                                                |  | -4.7               | % |  | -3.5             | % |  | -0.9          | % |  | -0.9          | %
|                                                        |  |                    |   |  |                  |   |  |               |   |  |               |  



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THREE MONTHS ENDED AUGUST 2, 2008 COMPARED TO THREE MONTHS ENDED AUGUST 4, 2007

DISCUSSION OF OPERATING LOSS

The following table shows the
changes in operating loss from the three-month period ended August 4, 2007 to the three-month period ended August 2, 2008:



|                                          |  |              |       |  
|----------------------------------------- |  | ------------ | ----- | -
|(In Millions)                             |  | TotalCompany |      
|For the three months ended August 4, 2007 |  | $            | (32.6 | )
|Store sales and margin                    |  |              | (13.0 | )
|Operating expenses                        |  |              | (0.8  | )
|Impairments and dispositions              |  |              | 2.1   |  
|                                          |  |              |       |  
|Increase                                  |  |              | (11.7 | )
|                                          |  |              |       |  
|For the three months ended August 2, 2008 |  | $            | (44.3 | )
|                                          |  |              |       |  

For the three-month period ended August 2, 2008 the operating loss of $44.3 million increased 35.9% from the
$32.6 million loss in the same period last year. The higher operating loss for the quarter was driven by a 4.0% decrease in comparable store sales and a 60 basis point decrease in the gross margin rate. In addition, SG&A expenses as a percentage
of sales increased 100 basis points and Other Operating Expenses (rents, depreciation, taxes other than income taxes and store pre-opening costs) increased by 60 basis points.

NET SALES

For the three months ended August 2, 2008, total sales decreased 3.6% to $669.2 million from
$694.1 million for the three months ended August 4, 2007. Similarly, consolidated comparable store sales decreased $27.6 million, or 4.0%, from $684.8 million for the three months ended August 4, 2007 to $657.2 million for the three months
ended August 2, 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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##### Table of Contents

GROSS MARGIN

For the three months ended August 2, 2008, gross margin was $233.8 million, or 34.9% of net sales, compared to $246.8 million, or 35.6% of net sales, for the three months ended August 4, 2007. The decrease in year-over-year gross
margin rate was primarily a result of weak business trends in the current year. The gross margin rate was negatively impacted as sales decreased and the Company was not able to leverage the permanent markdowns that were taken during the quarter.

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

For the three months ended August 2, 2008, SG&A was $194.1 million, or 29.0% of net sales, compared to $194.3 million, or 28.0% of net sales, for the three months ended August 4, 2007. The $0.2 million
decrease was principally related to a decrease in severance, retention, and transition costs of approximately $3.0 million from the same period last year. This was partially offset by an increase in other corporate expenses of $2.8 million in the
current year. As a percentage of sales, SG&A increased by 100 basis points over the prior year primarily due to the deleverage caused by comparable store sales decline during the quarter.

OTHER OPERATING EXPENSES

For the three months ended
August 2, 2008, other operating expenses, including store pre-opening costs, were $82.8 million, or 12.4% of net sales, compared to $81.8 million, or 11.8% of net sales, for the three months ended August 4, 2007. As a percent of sales,
other operating expenses increased 60 basis points in 2008, reflecting the rate deleverage caused by the 4.0% comparable store sales decline in the current year quarter.

IMPAIRMENTS AND DISPOSITIONS

For the three months ended August 2, 2008, the Company realized losses from
impairments and dispositions of $1.2 million, or 0.2% of net sales, compared to a loss of $3.3 million, or 0.5% of net sales, for the three months ended August 4, 2007. The current and prior quarter net charges were primarily due to asset
dispositions in the normal course of business.

INTEREST EXPENSE

For the three months ended August 2, 2008, interest expense was $10.0 million, or 1.5% of net sales, compared to $9.9 million, or 1.4% of net sales, for the three months ended August 4, 2007. Interest
expense remained relatively flat year-over-year for the three month period.

INCOME TAXES

The effective income tax rate for the three-month periods ended August 2, 2008 and August 4, 2007 was 40.7% and 40.3%, respectively. The increase in the
effective rate for the three-month period ended August 2, 2008 was primarily due to the impact of a change in state tax law.



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##### Table of Contents

SIX MONTHS ENDED AUGUST 2, 2008 COMPARED TO SIX MONTHS ENDED AUGUST 4, 2007

DISCUSSION OF OPERATING LOSS

The following table shows the
changes in operating loss from the six-month period ended August 4, 2007 to the six-month period ended August 2, 2008:



|                                        |  |              |       |  
|--------------------------------------- |  | ------------ | ----- | -
|(In Millions)                           |  | TotalCompany |      
|For the six months ended August 4, 2007 |  | $            | (0.1  | )
|Store sales and margin                  |  |              | (11.9 | )
|Operating expenses                      |  |              | 5.5   |  
|Impairments and dispositions            |  |              | 2.3   |  
|                                        |  |              |       |  
|Increase                                |  |              | (4.1  | )
|                                        |  |              |       |  
|For the six months ended August 2, 2008 |  | $            | (4.2  | )
|                                        |  |              |       |  

For the six-month period ended August 2, 2008, the operating loss was $4.2 million, as compared to an
operating loss of $0.1 million for the same period last year. The increase in operating loss for the six months was driven by a decrease in the gross margin rate of 190 basis points year-over-year primarily as a result of weak business trends and a
change in the sales mix between full price and promotional merchandise. The gross margin decline was partially offset by a 140 basis point improvement in the operations expense rate as a percent of sales. The Company achieved approximately 130 basis
points of improvement in the SG&A expense rate as a percentage of sales primarily relating to prior year severance, retention, and transition costs due to the Company downsizing and consolidation following the disposition of its SDSG businesses.
Other Operating Expenses (rents, depreciation, taxes other than income taxes and store pre-opening costs) improved by 10 basis points in the current year.

NET SALES

For the six months ended August 2, 2008, total sales increased 3.0% to $1,531.6 million from $1,486.9 million for the
six months ended August 4, 2007. Similarly, consolidated comparable store sales increased $39.8 million, or 2.7%, from $1,469.1 million for the six months ended August 4, 2007 to $1,508.9 million for the six months ended August 2,
2008.



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GROSS MARGIN

For the six months ended August 2, 2008, gross margin was $563.1 million, or 36.8% of net sales, compared to $575.0 million, or 38.7% of net sales, for the six months ended August 4, 2007. The decrease in year-over-year gross
margin rate was a result of weak business trends in the current year. As sales fell below expectations the Company incurred incremental markdowns and the Company did not generate the expected leverage against its permanent markdowns. Additionally,
the gross margin rate was negatively impacted as the sales mix of full price and promotional merchandise shifted.

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES

For the six months ended August 2, 2008, SG&A was $398.9 million, or 26.0% of net sales, compared to $407.1
million, or 27.4% of net sales, for the six months ended August 4, 2007. The $8.2 million decrease was principally related to a decrease in severance, retention, and transition costs of approximately $25.4 million from the same period last
year. This was partially offset by higher variable expenses associated with the $44.7 million sales increase. Additionally, prior year SG&A included non-recurring Transition Services Agreement (TSA) revenues related to the divestiture of SDSG of
approximately $4.5 million. As a percentage of sales, SG&A increased by 140 basis points over the prior year.

OTHER OPERATING EXPENSES

For the six months ended August 2, 2008, other operating expenses, including store pre-opening costs, were $167.0 million, or 10.9% of net sales,
compared to $164.3 million, or 11.1% of net sales, for the six months ended August 4, 2007. This increase of $2.7 million primarily related to property tax, which is included in taxes other than income taxes in the condensed consolidated
statements of income. As a percent of sales, other operating expenses were essentially flat year-over-year for the six-month period.

IMPAIRMENTS AND
DISPOSITIONS

For the six months ended August 2, 2008, the Company realized losses from impairments and dispositions of $1.4 million, compared
to a loss of $3.7 million, for the six months ended August 4, 2007. The current and prior quarter net charges were primarily due to asset dispositions in the normal course of business.

INTEREST EXPENSE

For the six months ended August 2,
2008, interest expense was $20.0 million, or 1.3% of net sales, compared to $21.9 million, or 1.5% of net sales, for the six months ended August 4, 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 rate for the six-month periods ended August 2, 2008 and August 4, 2007 was 40.3% and 41.0%, respectively. The decrease in the effective rate for the six-month period ended August 2, 2008 was
primarily due to adjustments 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 $51.3 million for the six months ended August 2, 2008 and ($15.6) million for the six months ended August 4, 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 $66.9 million increase in cash provided by (used in) operating activities for the six months ended August 2, 2008 from the six months ended
August 4, 2007 was largely due to a decrease in working capital needs primarily driven by decreased inventory purchase levels.

Cash used in investing
activities was $56.0 million for the six months ended August 2, 2008 and $52.6 million for the six months ended August 4, 2007. Cash used in investing activities principally consists of construction of new stores, renovation and expansion
of existing stores and investments in support areas (e.g., technology and distribution centers). The $3.5 million increase in cash used in investing activities is principally due to a non-recurring receipt of proceeds of $7.7 million primarily
relating to the sale of SFA property in the prior year, offset by a decrease in capital expenditures of approximately $4.2 million in the current period.

Cash used in financing activities was $36.4 million for the six months ended August 2, 2008 and $81.3 million for the six months ended August 4, 2007. The current period use primarily relates to the repurchase of
approximately 2.9 million shares of common stock at a cost of approximately $34.9 million. The prior year use primarily relates to the repurchase of approximately $106.3 million in principal amount of senior notes, partially offset by the
proceeds from the issuance of common stock relating to the exercise of stock options.



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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 August 2, 2008 and August 4, 2007, the Company maintained
cash and cash equivalent balances of $60.0 million and $128.4 million, respectively. Exclusive of approximately $11.9 million and $11.7 million of store operating cash at August 2, 2008 and August 4, 2007, respectively, cash was invested
principally in various money market funds. There was no restricted cash as of August 2, 2008 and August 4, 2007.

At August 2, 2008, the
Company had no direct borrowings under its $500 million revolving credit facility, and had $33.8 million in unfunded letters of credit, leaving unutilized availability under that facility of $466.2 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.

During the six months ended August 2, 2008, the Company repurchased and retired 2.9 million shares of its common stock at an average
price of $11.83 per share and total cost of approximately $34.9 million. At August 2, 2008, there were 32.7 million shares remaining available for repurchase under the Companys existing share repurchase program.

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 August 2, 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 August 2, 2008, total
debt was $569.8 million, representing a decrease of $5.6 million from a balance of $575.4 million at August 4, 2007. This decrease was related to a decrease in capital lease obligations. Additionally, the debt-to-capitalization ratio decreased
to 33.4% from 33.7% in the prior year, as a result of the decrease in debt in the current year.

At August 2, 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 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 August 2, 2008, the Company had no direct borrowings under the revolving credit facility.



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At August 2, 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 August 2, 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 conversion criteria were not met for the calendar quarter ended June 30, 2008. Since the holders of the convertible
notes do not have the ability to exercise their conversion rights, the convertible notes were classified within long-term debt on the condensed consolidated balance sheet as of August 2, 2008.

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 August 2, 2008, the Company had $63.4 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



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##### Table of Contents

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 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.

During June and July 2007, the Company repurchased $10.4 million in principal amount primarily relating to its 8.25% senior notes. The repurchase of these notes resulted in a loss on extinguishment of debt of
approximately $412 thousand for the quarter ended August 4, 2007.

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 and six months ended August 2, 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 Form 10-K for the year ended February 2, 2008.

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.



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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 non-recurring basis. The Company is in the process of evaluating the impact of applying SFAS 157 to nonfinancial assets and liabilities measured on a non-recurring basis. The
impact of applying SFAS 157 to financial assets and liabilities did not have a material impact on the consolidated financial statements for the period ending August 2, 2008.

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. The Company elected to report
long-term debt at its amortized cost. Accordingly, this standard has no impact on the 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.



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In May 2008, the FASB issued Accounting Principles Board (APB) No.14-1 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This FASB Staff Position (FSP) clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial
cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies that issuers of such instruments should
separately account for the liability and equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact of this standard on the 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 19.2 million shares.

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.



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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 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 August 2, 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.



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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 August 2, 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 8  Contingencies- Legal Contingencies, is incorporated into this Item by reference.



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

During the quarter ended August 2, 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 August 2, 2008, 32.7 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 second quarter of fiscal 2008:



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Period

(in
thousands except average price paid per share)



|                                                     |  |                                  |  |                            |       |                                                                    |       |                                                                       |       
|---------------------------------------------------- |  | -------------------------------- |  | -------------------------- | ----- | ------------------------------------------------------------------ | ----- | --------------------------------------------------------------------- | ------
|Period                                               |  | Total Numberof SharesRepurchased |  | AveragePrice Paidper Share |       | Total Numberof SharesRepurchased asPart of
PubliclyAnnounced Plans |       | Maximum Number ofShares that May Yet BeRepurchased Under thePlans (a)
|Repurchases from May 4, 2008 through May 31, 2008    |  |                                 |  | $                          |      |                                                                    |      |                                                                       | 34,424
|Repurchases from June 1, 2008 through July 5, 2008   |  | 1,714                            |  | $                          | 11.74 |                                                                    | 1,714 |                                                                       | 32,710
|Repurchases from July 6, 2008 through August 2, 2008 |  |                                 |  | $                          |      |                                                                    |      |                                                                       | 32,710
|                                                     |  |                                  |  |                            |       |                                                                    |       |                                                                       |       
|Total                                                |  | 1,714                            |  | $                          | 11.74 |                                                                    | 1,714 |                                                                       |       
|                                                     |  |                                  |  |                            |       |                                                                    |       |                                                                       |       



|(a) | As of August 2, 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 37,315 of these shares to date. There is no expiration date for the repurchase plan.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

The Company held an annual meeting of shareholders on June 4, 2008 for the following purposes:

Item 1: To elect
one Class I and three Class II Directors to hold office for the terms specified in the Companys proxy statement, dated April 22, 2008 (the Proxy Statement) or until their respective successors have been elected and qualified;

Item 2: To ratify the appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for the current
fiscal year ending January 31, 2009; and

Item 3: To vote on a shareholder proposal concerning cumulative voting for the election of Directors.

Each of these items is described in the Proxy Statement which was filed with the SEC.

The number of votes cast for and withheld for each nominee for the Companys Board of Directors under Item 1 were as follows:



|                  |  |             |  |          
|----------------- |  | ----------- |  | ---------
|                  |  | FOR         |  | WITHHELD 
|Jerry W. Levin    |  | 124,059,742 |  | 2,314,679
|Michael S. Gross  |  | 123,482,498 |  | 2,891,922
|Nora P. McAniff   |  | 119,977,256 |  | 6,397,165
|Stephen I. Sadove |  | 124,398,402 |  | 1,976,019



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There were no abstentions and broker non-votes with respect to this proposal. Each of the nominees for election was
approved.

The number of votes cast for, against and abstain for Items 2 and 3 were as follows:



|       |  |             |  |            |  |         |  |                
|------ |  | ----------- |  | ---------- |  | ------- |  | ---------------
|       |  | FOR         |  | AGAINST    |  | ABSTAIN |  | BROKERNON-VOTES
|Item 2 |  | 125,913,970 |  | 455,166    |  | 5,285   |  |               
|Item 3 |  | 39,610,939  |  | 64,871,656 |  | 48,019  |  | 21,843,807     

Accordingly, only Item 2 was approved by the Companys shareholders.



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



|     |  |                                                                                                                     
|---- |  | --------------------------------------------------------------------------------------------------------------------
|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: September 2, 2008



/s/ Kevin G. WillsKevin G. WillsOn behalf of registrant and as Executive Vice
President and Chief Financial Officer(Principal Financial Officer)




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