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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: October 30, 2004

or

For the transition period from              to             

Commission File Number: 1-13113

SAKS INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s telephone number, including area code: (205) 940-4000

Indicate by check mark whether 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 Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

As of November 27, 2004, the number of shares of the Registrant’s Common Stock outstanding was 139,730,302.

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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

(Unaudited)

See notes to condensed consolidated financial statements.

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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

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)

See notes to condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended October 30, 2004 are not necessarily indicative of the results that may be expected for the year ending January 29, 2005. The financial statements include the accounts of Saks Incorporated and its subsidiaries (collectively, the “Company”). All intercompany amounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2004.

In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from previously reported financial statements to conform to the financial statement presentation of the current period. These reclassifications have no effect on previously reported net income, shareholders’ equity or cash flows.

The accompanying balance sheet at January 31, 2004 has been derived from the audited financial statements at that date but does not include all disclosures required by generally accepted accounting principles.

The Company is a national retailer currently operating, through subsidiaries, traditional and luxury department stores. The Company operates the Saks Department Store Group (“SDSG”), which consists of stores operated under the following nameplates: Proffitt’s, McRae’s, Younkers, Parisian, Herberger’s, Carson Pirie Scott, Bergner’s, and Boston Store, as well as Club Libby Lu specialty stores. The Company also operates Saks Fifth Avenue Enterprises (“SFAE”), which consists of Saks Fifth Avenue luxury department stores and Saks Off 5^th stores.

Net sales include sales of merchandise (net of returns and exclusive of sales taxes), commissions from leased departments and shipping and handling revenues related to merchandise sold. Commissions from leased departments were $8,754 and $8,880 for the three months ended October 30, 2004 and November 1, 2003, respectively. Leased department sales were $60,137 and $60,017 for the three months ended October 30, 2004 and November 1, 2003, respectively, and were excluded from net sales. Commissions from leased departments were $29,504 and $27,807 for the nine months ended October 30, 2004 and November 1, 2003, respectively. Leased department sales were $198,440 and $186,715 for the nine months ended October 30, 2004 and November 1, 2003, respectively, and were excluded from net sales.

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Cash and cash equivalents primarily consists of cash on hand in the stores, deposits with banks and investments in money market accounts and short-duration fixed income mutual funds. Certain cash equivalents are stated at cost, which approximates fair value. Cash and cash equivalents included $249,000 at November 1, 2003, invested principally in various short-duration fixed income funds, which were marked to market. Income earned on these cash equivalents was $369 and $1,541 for the three-month periods ended October 30, 2004 and November 1, 2003, respectively. For the nine-month periods ended October 30, 2004 and November 1, 2003, income earned on these cash equivalents was $2,706 and $3,985, respectively. These amounts were reflected in Interest Expense.

NOTE 2 - EARNINGS PER COMMON SHARE

Calculations of earnings per common share (“EPS”) for the three months and nine months ended October 30, 2004 and November 1, 2003 are as follows (income (loss) and shares in thousands):

Additionally, the Company had 22,978 and 11,152 share awards of potentially dilutive common stock outstanding at October 30, 2004 and November 1, 2003, respectively, that were not included in the computation of diluted EPS because either the Company had a loss for the period,

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the exercise prices of the options were greater than the market price of the common shares for the period, or contingent conditions had not been satisfied. There are also 12,307 of potentially exercisable shares under convertible debt at October 30, 2004 that were not included in the computation of diluted EPS because the market price was less than the conversion price.

The Company’s convertible debt includes a contingent conversion price provision and the option for a settlement in either cash or shares, known as net share settlement. Under current generally accepted accounting principles, these two provisions individually influence application of the if-converted method of calculating earnings per share. The Emerging Issues Task Force (EITF) recently reached a consensus, EITF 04-08, “The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share,” whereby the contingent conversion provisions should be ignored and therefore an issuer should apply the if-converted method in calculating dilutive earnings per share effective for periods ending after December 15, 2004. This statement would be applied retroactively to all periods presented. Furthermore, the Financial Accounting Standards Board (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. The effect of these changes would require the Company to use the if-converted method in calculating dilutive earnings per share except when the effect would be anti-dilutive.

NOTE 3 - DEBT AND SHARE ACTIVITY

At October 30, 2004, the Company had interest rate swap agreements with notional amounts of $150,000 and $100,000, which swapped coupon rates of 8.25% and 7.50%, respectively, for floating rates. The fair value of these swaps at October 30, 2004 was a loss of $724.

On March 23, 2004, the Company issued $230,000 of convertible senior notes that bear interest of 2.0% and mature in 2024. The provisions of the convertible notes allow the holders to convert the notes to shares of the Company’s common stock at a conversion rate of 53.5087 shares per one thousand dollars in principal amount of notes. The most significant terms and conditions related to the convertible 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 and upon a “Fundamental Change” which includes a change in control; the holder cannot convert until the Company’s share price exceeds the conversion price by 20% for a certain trading period; the Company can call the debt on or after March 11, 2011; the conversion rate is subject to dilution adjustments; and the holder can convert upon a significant credit rating decline and upon a call. The Company used approximately $25,000 of the proceeds from the issuance 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 repurchased 5,459 of the Company’s common shares at a cost of $66,735 and 6,203 of the Company’s common shares at a cost of $78,817, during the three and nine-month periods ended October 30, 2004, respectively. At October 30, 2004, there were 15,664 shares remaining available for repurchase under the Company’s existing share repurchase program.

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The Company entered into an accelerated stock buyback program during 2003, whereby it purchased 4,570 shares subject to a price settlement agreement containing a cap and a floor. The Company settled the maturity of this agreement in June 2004 for $6,579, which served to reduce shareholders’ equity.

NOTE 4 – EMPLOYEE BENEFIT PLANS

The Company sponsors defined benefit pension plans for a significant portion of its employees. The Company generally funds pension costs currently, subject to regulatory funding requirements. The components of net periodic pension expense for the three and nine months ended October 30, 2004 and November 1, 2003 were as follows:

The Company expects no additional funding requirements in the current year.

NOTE 5 – SHAREHOLDERS’ EQUITY

On March 15, 2004, the Company’s Board of Directors declared a special one-time cash dividend of $2.00 per common share to shareholders of record as of April 30, 2004. The Company reduced retained earnings for the $285,551 dividend, and $282,719 was paid out on or after May 17, 2004. The remaining portion of the dividend will be paid prospectively as restricted shares vest.

As a result of the special one-time dividend, the Human Resources Committee of the Company’s Board of Directors exercised its discretion under anti-dilution provisions of the employee stock plans to adjust the exercise price of stock options and number of shares subject to oustanding stock options to reflect the change in the share price on the ex-dividend date (April 28, 2004). The effect of this anti-dilution adjustment is presented below:

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The following table summarizes the changes in shareholders’ equity for the nine months ended October 30, 2004:

NOTE 6 – STOCK-BASED COMPENSATION

The Company recorded compensation expense for all stock-based compensation plan issuances prior to 2003 using the intrinsic value method. Compensation expense, if any, was measured as the excess of the market price of the stock over the exercise price of the award on the measurement date. In 2003, the Company began expensing the fair value of all stock-based grants over the vesting period on a prospective basis.

If compensation cost for the Company’s stock-based compensation plan issuances prior to 2003 had been determined under the fair value method, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below.

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NOTE 7 - CONTINGENCIES

The Company is involved in several legal proceedings arising from its normal business activities, and reserves for such claims have been established 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.

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. The Company believes it has appropriately accrued for probable exposures. During the nine-month periods ended October 30, 2004 and November 1, 2003, the Company favorably concluded exams and reassessed contingencies associated with previous tax filings and accordingly recognized a net income tax benefit of $1,200 and $11,110, respectively.

Under the terms of a customer proprietary credit card program with Household Bank (SB), N.A. (“Household”), there are certain provisions that would allow each party to terminate the Program

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Agreement that governs the relationship. If Household were to terminate the Program Agreement, the Company might be required to return to Household a declining portion of the premium it received when the credit card portfolio was sold to Household in 2003. The maximum contingent payment had the program been terminated early at October 30, 2004 would have been approximately $124,000. If the Company were to terminate the program, the Company would have the right to purchase the credit card accounts and associated accounts receivable from Household at their fair value.

NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS

In March 2004, the FASB issued accounting and disclosure requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). Any measures of the accumulated projected benefit obligation or net periodic postretirement benefit cost in the financial statements or accompanying notes do not reflect any amounts associated with the Act since the effects of the Act on the Company’s plan remain unknown until regulations are developed. The adoption of future guidance is not expected to have a material effect on the Company’s financial position or its results of operations.

As further discussed in Note 2, The Emerging Issues Task Force (EITF) recently reached a consensus, EITF 04-08, “The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share,” whereby the contingent conversion provisions should be ignored and therefore an issuer should apply the if-converted method in calculating dilutive earnings per share effective for periods ending after December 15, 2004. This statement would be applied retroactively to all periods presented. Furthermore, the Financial Accounting Standards Board (FASB) is contemplating an amendement 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. The effect of these changes would require the Company to use the if-converted method in calculating dilutive earnings per share except when the effect would be anti-dilutive. The FASB is also contemplating a change in the accounting for equity compensation. The Company will implement new accounting pronouncements if and when they become effective.

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NOTE 9 - SEGMENT INFORMATION

The following tables represent summary segment financial information and are consistent with management’s view of the business operating structure.

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“Operating Income” for the segments includes sales; cost of sales; direct selling, general, and administrative expenses; other direct operating expenses for the respective segment; and an allocation of certain operating expenses, including depreciation, shared by the two segments. Items not allocated are those items not considered by the chief operating decision maker in measuring the assets and profitability of the segments. These amounts are generally represented by two categories: (1) general corporate assets and expenses and other amounts including, but not limited to, treasury, investor relations, legal and finance support services, and general corporate management; and (2) certain items, while often times related to the operations of a segment, are not considered by segment operating management, corporate operating management and the chief operating decision maker in assessing segment operating performance. During the three and nine-month periods ended October 30, 2004 and November 1, 2003, items not allocated were comprised of the following:

During the three and nine-month periods ending October 30, 2004, impairments and dispositions primarily consisted of lease termination costs and asset impairments associated with the announced SFAE store closings and other store closings in the normal course of business. Other items during the three and nine-month periods ending October 30, 2004 principally related to severance and other costs associated with the SFAE store closures.

Impairments and dispositions during the three-month period ending November 1, 2003 largely related to lease termination costs associated with store closings and the write-off of abandoned software. During the nine-month period ending November 1, 2003, net charges from impairments and dispositions related to lease termination costs and asset impairments resulting from store closings, offset by gains from the disposal of store assets. Other items during the three and nine-month periods ending November 1, 2003 principally related to severance costs associated with SFAE management reorganization.

NOTE 10 – STORE CLOSINGS AND OTHER ACTIVITIES

In October 2004, the Company announced its intention to close 12 SFAE stores. The net pre-tax charge from closing these stores is principally related to asset impairments, lease terminations, inventory write downs and severance costs, which will be partially offset by gains on the disposition of one or more stores. The total charge is expected to be comprised of $35,000 of non-cash charges and $5,000 in cash charges offset by $5,000 in cash gains during fiscal 2004 and approximately $25,000 to $35,000 of charges (primarily cash) in future periods, principally 2005.

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During the three and nine months ended October 30, 2004, the Company incurred charges of $27,511, primarily related to asset impairments, lease termination costs and severance costs. Severance costs represent the portion of accrued benefits for employees that will exit when the stores are closed. Asset impairments and lease termination costs are included in “Impairments and Dispositions” and severance costs are included in “Selling, General & Administrative Expenses” in the accompanying Consolidated Statements of Income. The components of these charges and the status of the related liability is as follows:

The Company continuously evaluates its real estate portfolio and closes individual underproductive stores in the normal course of business as leases expire or as other circumstances indicate. During the nine months ended October 30, 2004, the Company incurred $9,294 of such charges. The components of these charges and the status of the related liability is as follows:

NOTE 11 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The following tables present condensed consolidating financial information for: (1) Saks Incorporated; (2) on a combined basis, the guarantors of Saks Incorporated’s Senior Notes (which are all of the subsidiaries of Saks Incorporated except for National Bank of The Great Lakes (“NBGL”), the subsidiaries associated with the Company’s former proprietary credit card securitization program, and other immaterial subsidiaries); and (3) on a combined basis, NBGL, the subsidiaries associated with the Company’s former proprietary credit card securitization program, and other immaterial subsidiaries, which collectively represent the only subsidiaries of the Company that are not guarantors of the Senior Notes.

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The condensed consolidating financial statements presented as of and for the three and nine-month periods ended October 30, 2004 and November 1, 2003 and as of January 31, 2004 reflect the legal entity compositions at the respective dates. In December 2003, NBGL and the subsidiaries associated with the Company’s former proprietary credit card securitization program were dissolved. Thus, there were no assets or liabilities associated with non-guarantor subsidiaries at January 31, 2004 or October 30, 2004.

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 October 30, 2004, Saks Incorporated was the sole obligor for a majority of the Company’s long-term debt, owned one store location and maintained a small group of corporate employees.

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SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT OCTOBER 30, 2004

(Dollar Amounts In Thousands)