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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year Ended: February 1, 2003 or

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:)

750 Lakeshore Parkway, Birmingham, Alabama 35211

(Address of principal executive offices including zip code)

(205) 940-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.10 and Preferred Stock Purchase Rights

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K.    ¨

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 14, 2003 was approximately $992,133,314.

As of March 14, 2003, the number of shares of the Registrant’s Common Stock outstanding was 143,331,426.

DOCUMENTS INCORPORATED BY REFERENCE

Shareholders’ Meeting to be held on June 11, 2003 are incorporated by reference into Part III.

The Exhibit Index is on page 26 of this document.

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PART I

Item 1.    Business

General

Saks Incorporated (formerly Proffitt’s, Inc.) was founded in 1919. The Company and its subsidiaries (together the “Company”) operate two business segments, Saks Department Store Group (“SDSG”) and Saks Fifth Avenue Enterprises (“SFAE”).

SDSG currently operates 241 department stores in 24 states under the following nameplates: Parisian (42 stores), Proffitt’s (26 stores), McRae’s (28 stores), Younkers (48 stores), Herberger’s (41 stores), Carson Pirie Scott (32 stores), Bergner’s (14 stores), and Boston Store (10 stores). SDSG stores are principally anchor stores in leading regional or community malls, and the stores typically offer a broad selection of upper-moderate to better fashion apparel, shoes, accessories, jewelry, cosmetics, and decorative home furnishings, as well as furniture in selected locations. SDSG stores are promoted as “the best place to shop in your hometown.”

SFAE includes Saks Fifth Avenue (“SFA”) luxury department stores (60 stores in 24 states) and Off 5th Saks Fifth Avenue Outlet (“Off 5th”) (53 stores in 23 states). Saks Fifth Avenue stores are intended to offer customers “the most inviting luxury experience.” The locations are principally free-standing stores in exclusive shopping destinations or anchor stores in upscale regional malls, and the stores typically offer a wide assortment of distinctive luxury fashion apparel, shoes, accessories, jewelry, cosmetics, and gifts. Customers may also purchase SFA products by catalog or online at saks.com. Off 5th is intended to be the premier luxury off-price retailer in the United States, where customers can find SFA merchandise for a “gem of a deal.” Off 5th stores are primarily located in upscale mixed-use and off-price centers and offer luxury apparel, shoes, accessories, cosmetics, and decorative home furnishings, targeting the value-conscious customer.

The Company experienced significant growth between 1994 and 1998, primarily through a series of acquisitions. The Company’s major acquisitions are outlined below:

In addition to acquisitions, the Company historically has grown through opening new stores and by expanding and renovating selected stores. In 2002, the Company opened three new SDSG stores and one new Off 5th store. In addition, the Company replaced three SDSG stores and one

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SFA store with new stores. The Company has announced plans to open three SDSG stores, two SFA stores, and one Off 5th store in 2003.

The Company also may sell or close stores from time-to-time. In 2002, the Company closed two SDSG stores and two SFA stores.

Merchandising, sales promotion, and store operating support functions are conducted in multiple locations. Back office sales support functions for the Company, such as accounting, credit card administration, store planning, and information technology, are largely centralized.

Merchandising

In both the SDSG and SFA stores, the Company believes that its commitment to a branded merchandising strategy, enhanced by its merchandise presentation and high level of customer service, makes the Company’s stores a preferred distribution channel for premier brand-name merchandise.

SDSG stores attempt to consistently offer a wide selection of unique and limited distribution merchandise as well as competitively priced national brands. Key brands featured in the Company’s SDSG stores include Liz Claiborne, Susan Bristol, Sigrid Olsen, Polo/Ralph Lauren, Tommy Hilfiger, Nautica, Hart Schaffner & Marx, Estee Lauder, Clinique, Lancome, Chanel, Nine West, Enzo, Waterford, and Bali. In addition to the these brands, Parisian stores may carry brands such as Karen Kane, BCBG, Garfield & Marks, Tahari, Oakley, Robert Talbott, Tommy Bahama, Joseph Abboud, Hugo Boss, Bobbi Brown, Trish McEvoy, MAC, Donald Pliner, Stuart Weitzman, Kate Spade, Via Spiga, and Brighton, which are typically carried only at specialty stores. SDSG differentiates its offerings from its competitors through exclusive merchandise from its core vendors, assortments from unique and emerging suppliers, and proprietary brands.

Saks Fifth Avenue stores carry luxury merchandise from both core vendors and new and emerging designers. SFA has key relationships with the leading American and European fashion houses, including Giorgio Armani, Chanel, Dolce and Gabbana, Salvatore Ferragamo, Gucci, Donna Karan, Calvin Klein, Ralph Lauren, Judith Leiber, Prada, Escada, Carolina Herrera, Oscar de la Renta, St. John, Yves St. Laurent, J.P. Tod, Ermenegildo Zegna, and Max Mara.

The Company has developed a knowledge of each of its trade areas and customer bases for its SDSG, SFA, and Off 5th stores. This knowledge is gained through the Company’s regional merchandising structure in conjunction with store visits by senior management and merchandising personnel and use of on-line merchandise information. The Company strives to tailor each store’s merchandise assortment to the characteristics of its trade areas and customer bases and to the lifestyle needs of its local customers.

Certain departments in the Company’s stores are leased to independent companies in order to provide high quality service and merchandise where specialization, focus, and expertise are critical. The leased departments vary by store to complement the Company’s own merchandising departments. The principal leased department in the SDSG stores is fine jewelry, and the principal leased departments in the SFA stores are furs and certain designer handbags. The terms

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of the lease agreements typically are between one and seven years and require the lessee to pay for fixtures and provide its own employees. Management regularly evaluates the performance of the leased departments and requires compliance with established customer service guidelines.

For the year ended February 1, 2003, the Company’s percentages of owned sales (exclusive of sales generated by leased departments) by major merchandise category were as follows:

Purchasing and Distribution

The Company purchases merchandise from many vendors. Management monitors profitability and sales history with each vendor and believes it has alternative sources available for each category of merchandise it purchases. Management believes it maintains good relationships with its vendors.

The Company has six distribution facilities serving its stores. Refer to “Item 2. Properties” for a listing of these facilities.

Each of the Company’s distribution facilities is linked electronically to the Company’s merchandising staffs through a computerized purchase order management system that facilitates re-order and replenishment of merchandise. The Company utilizes electronic data interchange (“EDI”) technology with its top vendors that is designed to move merchandise onto the selling floor more quickly and cost-effectively by allowing vendors to deliver floor-ready merchandise to the distribution facilities. High speed automated conveyor systems are capable of scanning bar coded labels and diverting incoming cartons of merchandise to the proper processing areas. Many types of merchandise are processed in the receiving area and immediately “cross docked” to the shipping dock for delivery to the stores. Certain processing areas are staffed with personnel equipped with hand-held radio frequency terminals that can scan a vendor’s bar code and transmit the necessary information to a computer to record merchandise on hand.

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Information Technology

Company management believes that technological investments are necessary to support its business strategies, and, as a result, the Company is continually upgrading its information systems to improve efficiency and productivity.

The Company’s information systems provide information deemed necessary for management operating decisions, cost reduction programs, and customer service enhancements. Individual data processing systems include point-of-sale and sales reporting, purchase order management, receiving, merchandise planning and control, payroll, human resources, general ledger, credit card administration, and accounts payable systems. Bar code ticketing is used, and scanning is utilized at point-of-sale terminals. Information is made available on-line to merchandising staff and store management on a timely basis.

The use of EDI technology allows the Company to speed the flow of information and merchandise in an attempt to capitalize on emerging sales trends, maximize inventory turnover, and minimize out-of-stock conditions. EDI technology includes an advance shipping notice system (“ASN”). The ASN system identifies discrepancies between merchandise that is ready to be shipped from a supplier’s warehouse and that which was ordered from the supplier. This early identification provides the Company with a window of time to resolve any discrepancies in order to speed merchandise through the distribution facilities and into its stores.

Marketing

For the SDSG stores, advertising campaigns include fashion and image advertising, price promotions, and special events. The Company uses a multi-media marketing approach for the SDSG stores, including newspaper, television, radio, and direct mail. To promote its image as the fashion and style leader in its trade areas, the Company also sponsors fashion shows and in-store special events highlighting the Company’s key brands and offerings.

For the SFA stores, the Company’s marketing principally emphasizes the latest fashion trends in luxury merchandise and primarily utilizes direct mail advertising, supplemented with national magazine and local radio advertising. To promote its image as the primary source of luxury goods in its trade areas, SFA sponsors fashion shows and in-store special events highlighting the designers represented in the SFA stores.

In-house advertising and sales promotion staffs, in conjunction with outside advertising agencies, produce the Company’s advertising for both SDSG and SFAE.

For both SDSG and SFA, the Company utilizes data captured through the use of proprietary credit cards to develop advertising and promotional events targeted at specific customers who have purchasing patterns for certain brands, departments, and store locations.

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Proprietary Credit Cards

The Company maintains a proprietary credit card program. The Company believes that proprietary credit card holders shop more frequently with the Company and purchase more merchandise than customers who pay with cash or third-party credit cards. The Company also makes frequent use of the names and addresses of its proprietary credit card holders in its direct marketing efforts.

The Company seeks to expand the number and use of the proprietary credit cards by, among other things, providing incentives to sales associates to open new credit accounts, which generally can be opened while a customer is visiting one of the Company’s stores. Customers who open accounts are entitled to discounts on initial and, when offered, subsequent purchases. Proprietary credit card customers are offered private shopping nights, direct mail catalogs, special discounts, and advance notice of sale events. The Company has created various loyalty programs that reward customers for frequency and volume of proprietary charge card usage.

There are approximately 5.0 million credit accounts that have been active within the prior twelve months and approximately 44% of the Company’s 2002 sales were transacted on the proprietary credit cards.

The credit card programs are subject to government regulations, including consumer protection laws, that impose restrictions on the making and collection of consumer loans and on other aspects of credit card operations. There can be no assurance that the existing laws and regulations will not be amended or that new laws or regulations will not be adopted, in a manner that could adversely affect the Company’s credit card operations.

Prior to April 15, 2003, National Bank of the Great Lakes (“NBGL”), the Company’s wholly owned credit card bank subsidiary, issued all proprietary credit cards to the Company’s customers and made all credit card loans.

On April 15, 2003, Household Bank (SB), N.A. (“Household”), an affiliate of Household International, acquired the Company’s proprietary credit card business, consisting of the proprietary credit card accounts owned by NBGL and the Company’s ownership interest in the assets of the Saks Credit Card Master Trust (SCCMT), which owns and securitizes the accounts receivable generated by the proprietary credit card accounts.

Under the ten-year agreement, Household will establish and own proprietary credit card accounts for customers of the Company’s operating subsidiaries. Household will retain the benefits and risks associated with the ownership of the accounts, which includes receiving the finance charge income and incurring the bad debts associated with those accounts, and will pay a portion of the finance charge income to the Company. During the ten-year term of the agreement, the Company will continue to provide all key customer service functions, including new account opening, transaction authorization, billing adjustments, and customer inquiries, and will receive compensation from Household for these services.

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On April 15, 2003, the Company received net cash proceeds of approximately $300 million, representing (1) the sum of 100% of the outstanding accounts receivable balances, a premium, the value of investments held in securitization accounts, and the value of miscellaneous consumable inventory, minus (2) the outstanding principal balance, together with unpaid accrued interest, of specified certificates issued by SCCMT held by public investors, which certificates were assumed by Household, and minus (3) amounts repaid by the Company due under the SCCMT certificates and related obligations held by bank-sponsored commercial paper conduit investors, which certificates and obligations were not assumed by Household.

Trademarks and Service Marks

The Company owns many registered trademarks and service marks, including, but not limited to, “Saks Fifth Avenue,” “SFA,” “S5A,” “The Fifth Avenue Club,” and “Off 5th,” along with its various other store names and its private brands. Management believes its trademarks and service marks are important and that the loss of certain of its trademarks or trade names, particularly the store nameplates, could have a material adverse effect on the Company. Many of the Company’s trademarks and service marks are registered in the United States Patent and Trademark Office. The terms of these registrations are generally ten years, and they are renewable for additional ten-year periods indefinitely so long as the marks are in use at the time of renewal. Saks Incorporated is not aware of any claims of infringement or other challenges to its right to register or use its marks in the United States that would have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

From time to time, the Company also licenses the trademarks of designers and celebrities so as to be able to offer differentiated product in its stores. Examples of such licenses include those for the trademarks Jane Seymour, Laura Ashley, and Ruff Hewn, each of which the Company has the exclusive right to use in certain merchandise categories.

Reliance on Fifth Avenue Store

The Company’s Saks Fifth Avenue store located on Fifth Avenue in New York City accounted for approximately 7% of total Company owned sales and approximately 18% of SFAE’s owned sales in 2002 and plays a significant role in creating awareness for the Saks Fifth Avenue brand name.

Customer Service

The Company believes that exceptional customer service contributes to increased store visits and purchases by its customers.

SDSG stores are intended to be customer-friendly and easy to shop. SDSG stores generally offer two types of service. “One-on-one,” personalized service is typically offered in several areas of the stores including cosmetics, shoes, women’s better sportswear, women’s special size sportswear, men’s tailored clothing, men’s better sportswear, intimate apparel, china, and furniture. These departments frequently offer clienteling programs and dedicated checkout

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facilities and are staffed by associates with extensive product training. “Fast, Friendly, and Efficient” service is generally offered in the remaining areas of the stores. These areas frequently feature innovative, centralized customer service centers and are staffed with friendly, knowledgeable sales associates delivering efficient transactions.

The Company has implemented innovative service features in the SDSG stores in order to make them more convenient to shop. Some of these features include:

At Saks Fifth Avenue, the Company’s goal is to deliver an inviting, customer-focused luxury shopping experience. Compensation for sales associates is, in part, based upon customer satisfaction measures and productivity. Sales associates undergo extensive service, selling, and product knowledge training and are encouraged to maintain frequent, personal contact with their customers. Sales associates keep detailed customer records, send personalized thank-you notes, and routinely communicate with customers to advise them of new merchandise offerings and special promotions. Many Saks Fifth Avenue stores offer “Fifth Avenue Club” services, where customers can receive complimentary personal shopping and concierge assistance. Typical stores also provide comfortable seating areas and refreshments throughout the store, making the shopping experience both relaxing and inviting.

At both SDSG and SFAE, superior customer service is encouraged through the development and monitoring of sales/productivity goals and through specific award and recognition programs.

Seasonality

The Company’s business, like that of many retailers, is subject to seasonal influences, with a significant portion of its sales and net income realized during the fourth fiscal quarter of each year, which includes the holiday selling season. Generally, more than 30% of the Company’s sales and over 75% of its net income are generated during the fourth quarter.

Competition

The retail business is highly competitive. The Company’s stores compete with several national and regional department stores, specialty apparel stores, designer boutiques, outlet stores,

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discount stores, general and mass merchandisers, and mail-order and electronic commerce retailers, some of which have greater financial and other resources than those of the Company. Management believes that its knowledge of its trade areas and customer base, combined with providing a high level of customer service and a broad selection of quality fashion merchandise at appropriate prices in prime store locations, provides the opportunity for a competitive advantage.

Associates

As of March 14, 2003, the Company employed approximately 52,000 associates, of which approximately 43% were employed on a part-time basis. The Company hires additional temporary associates and increases the hours of part-time employees during seasonal peak selling periods. Less than one percent of the Company’s associates are covered by collective bargaining agreements. The Company considers its relations with its associates to be good.

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Item 2.    Properties.

The Company currently operates six principal distribution facilities as follows:

The Company’s principal administrative offices are as follows:

The following table sets forth information about the Company’s stores as of March 14, 2003. The majority of the Company’s stores are leased. Store leases generally require the Company to pay a fixed minimum rent and a variable amount based on a percentage of annual sales at that location. Generally, the Company is responsible under its store leases for a portion of mall promotion and common area maintenance expenses and for certain utility, property tax, and insurance expenses. Typically, the Company contributes to common mall maintenance and is responsible for property tax and insurance expenses at its owned locations. Generally, store leases have primary terms ranging from 20 to 30 years and include renewal options ranging from 5 to 20 years. Off 5th leases typically have shorter terms.