By  on March 23, 2005

NEW YORK — Wall Street analysts are generally impressed by strategic initiatives put in place by the new Saks Fifth Avenue team, but not quite enough to upgrade their ratings of the stock.

Several pegged their unchanged rating to the drag on Saks Inc.’s overall performance from the still-beleaguered Saks Department Store Group as well as possible short-term bumps arising from the SFA initiatives.

SFA executives revealed the plans in a conference call on Monday and pointed out that the new focus zeroes in on upgrading customer service, a move that also changed 16 general manager positions, eliminated 35 management posts and added 430 new selling positions to the chain.

“We believe management has a solid plan in place, with a focus on personalized service, new and unique brands and merchandise and younger, more energized marketing,” wrote Robert Drbul, analyst at Lehman Brothers, in a research note on Tuesday. “As the luxury retail market continues its strong growth, we believe [SFA] should be pointed to deliver improved results in 2005 and beyond.”

Among the highlights he pointed to from the presentation and store tour of the Fifth Avenue flagship were management’s evaluation of capital projects for the flagship — including the possibility of opening up the interior of the store, utilizing the basement levels and procuring the air rights above the building in order to add new levels — and the restructuring of management teams. He also noted SFA’s shift in focus from “safe” to modern, with product that is unique and consistent across price points.

Drbul maintained the firm’s “equal weight” rating on the stock as well as its “neutral” rating on the sector. Lehman has three ratings: overweight, equal weight and underweight.

According to Drbul, there are possibilities to create “shareholder value” that would serve as downside protection to Saks’ stock at current levels. Those options include spinning off one segment to create two distinct entities or selling one or both to a strategic or financial buyer. The analyst also concluded, “We do not believe SDSG would be as attractive to a strategic buyer, mainly because many of SDSG’s markets are small and would have difficulty meeting a larger department store’s return requirements.”

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