Saks to Restate Back to '99

The Securities and Exchange Commission opened an informal inquiry after the company voluntarily told federal officials that it suspected that vendor markdown allowances were improperly collected in one of the firm's six merchandising divisions. The company's Audit Committee of the Board of Directors is conducting its own internal investigation. That investigation is expected to be completed by March.

News of the federal probe came as Saks announced that fourth-quarter profits were up 18% due to a sharp increase in sales at the firm's Fifth Avenue stores. During the last quarter, store earnings rose to $94.8 million, or 67 cents per share, from $80.6 million, or 56 cents, during the same period last year, while overall sales totaled $2.07 billion for the period, a gain of 5% from $1.97 billion the year before.

The increase in sales and profits were overshadowed by the retailer's announcement of the internal probe and its decision to restate financial results dating back to fiscal 1999. The firm said it does not believe there were any improper collections during fiscal 2004.

Saks officials also said the company is addressing errors in its previously recorded operating leases and estimated that the corrections would reduce reported pre-tax income by approximately $31.6 million, including a $10 million increase in previous impairment charges. As a result of both the vending allowance and operating lease issues, the firm said it expects to restate its financial statements for fiscal 1999 through the third quarter of fiscal 2004.

Gross profit margins fell to 36.8% of sales from 38% a year ago at the company's flagship Saks Fifth Avenue chain, due largely to holiday markdowns and inventory management issues. The company owns and operates Saks Fifth Avenue, Proffitt's, McRae's and other retail chains.