Despite October’s strong sales, Saks (SKS) is still a strong candidate as an acquisition target.

Implications: Given the brand equity and name prestige of the Saks Fifth Avenue label the company looks to be an attractive target for acquisition given the strength of Neimam Marcus, Nordstrom and Bloomindales.

Analysis:  

With the fore mentioned luxury department stores out pacing Saks with their top line sales and operating margins it is intuitive that a merger or takeover is a real possibility. A strong operator could maximize the nameplate and increase Saks diminishing market share of the luxury goods business. If left to the current management team, led by Steve Sandove, Saks is very unlikely to maximize their potential.

The assortment is stronger than the previous 3 year period but the private label potential has not been maximized and the margin dollars from this segment have been left on the table. The Saks label is as strong as the majority of brands that are in the current assortment and carry a cachet that needs to be expedited.

The operating margins have been the lowest in the sector and this is a direct correlation to the penetration of private label in the assortment when compared to Neiman’s, Nordstrom’s and the other players in this sector. The current merchants do not seem to have the core competencies required to develop and execute this strategy.

With the strong merchants working the assortments at the competition it would seem that either these players or an outside investor would be an ideal fit to manage the merchandising of the stores to maximize operating margins.

The current corporate governance seem to be financially and operationally sound given their improvements in these areas but in the end Saks is a luxury retailer and requires a strong merchant led management team.