Goldman, Morgan Stanley Buy as Saks Woos Rich Ladies (Update3) By Cotten Timberlake March 6 (Bloomberg) -- Saks Fifth Avenue chased 25-to-34- year-old women in the last few years, offering expensive sportswear like premium denim under the brand ``7 for all mankind.'' A ``Wild About Cashmere'' promotion filled the Manhattan flagship department store with goat mannequins. The strategy flopped. Under Stephen Sadove, named chief executive officer 14 months ago, Saks is now trying to lure back its onetime core customers: well-to-do women 35 to 55. Wall Street is buying in. Morgan Stanley, Goldman Sachs Group Inc. and Fidelity Investments are some of Saks's biggest investors, with 21 million shares purchased among them in the fourth quarter. Morgan Stanley quadrupled its Saks Inc. holdings to 8.8 percent. As Saks prepares to report a fourth-quarter profit tomorrow after a year-ago loss, according to analysts, Wall Street firms are wagering that Sadove's strategy will succeed and perhaps attract a buyer. Rusty Robinson, president of Robinson Investment Group in Brentwood, Tennessee, says this ``smart money'' reflects a sense that an acquisition may be imminent. With a market value of $2.6 billion, Birmingham, Alabama- based Saks might fetch $3 billion to $3.5 billion, said Robinson, whose firm manages $135 million including 7,250 Saks shares. Spokesmen for Morgan Stanley and Goldman in New York, and Fidelity in Boston, declined to comment. Flush With Cash Investors and private-equity groups, flush with billions of dollars in cash, have stepped up their pace of acquisitions. Retailers are targets because of their real estate as well as the cash stores generate. Last year, 353 retail and restaurant companies agreed to be bought, the most in at least 10 years, according to Bloomberg data. In 2005, Warburg Pincus LLC and Texas Pacific Group paid $5.1 billion for luxury retailer Neiman Marcus Group Inc. Saks Fifth Avenue's roots date to 1924, when Horace Saks and Bernard Gimbel opened their Fifth Avenue store in New York. Its real estate is worth $1 billion, UBS Securities LLC estimates. Under Sadove's predecessors, Saks became more popular with younger shoppers. Yet they spend less, and Saks's performance suffered, said Fred Crawford, managing partner of turnaround adviser AlixPartners LLC in New York. While sales slumped, competitors such as Dallas-based Neiman Marcus and Seattle-based Nordstrom Inc. benefited more from a four-year boom in U.S. luxury-goods sales. Chanel, St. John Now, the 54 U.S. Saks stores feature more Chanel and St. John suits, and clothes with enduring styles under Saks brands, including ``Classic.'' ``Saks was a little bit too trendy,'' said Leslie Billera, 38, a marketing copy writer who divides her time between Los Angeles and New York. ``Going after around-40-year-olds is spot on. It feels really good to be in a grown-up store.'' Sadove, who runs Saks out of New York, beefed up popular brands such as Elie Tahari and re-launched petite styles and Saks labels that were axed under his predecessor, Fred Wilson. The ``Want It!'' advertising campaign identifies must-haves, like crisp white shirts for spring. ``The return to their older shopper base, households with higher income, makes good sense,'' Crawford said. ``That is a solid strategy.'' Saks stock rose 58 cents, or 3.2 percent, to $18.74 at 4:01 p.m. in New York Stock Exchange composite trading. It has climbed 24 percent in the past two years. Excluding some items, 10 analysts in a Bloomberg survey estimate a fourth-quarter profit of 23 cents a share. `Has-Been Retailer' ``It was a beaten-up, almost has-been retailer,'' said David Abella, a New York-based Rochdale Investment Management analyst. ``With their renewed focus on the Saks Fifth Avenue brand, and with their attention on getting the merchandise right, there was a real chance for a turnaround story. They are being successful.'' Abella's firm, which manages $2.2 billion, began acquiring Saks shares a year ago and had 37,200 as of December. Saks said Feb. 8 that sales growth at stores open at least a year soared sevenfold, to 9.9 percent, in the fourth quarter. ``We've made an enormous amount of progress in the last 12 months,'' Sadove said in a Jan. 23 interview. ``We are focusing on our core customer. We did a good job of meeting their needs.'' Sadove, 55, joined Saks in 2002 from New York-based drugmaker Bristol-Myers Squibb Co., where he was president of worldwide beauty care. Doubters Saks still has doubters, among them New York-based analyst Michelle Tan of UBS, who recommends selling the stock. ``They have a challenge trying to catch up with the profitability of their peers,'' she said. Sadove wants to increase Saks's operating margin to 8 percent by 2010, from less than 1 percent in January 2006. That compares with 11 percent at Neiman Marcus. It's been a slog for long-term investors. Shares have slumped 57 percent from a peak of $43.88 in 1998, while the Standard & Poor's 500 Index gained 23 percent. Chairman Brad Martin acquired Saks Fifth Avenue from Bahrain-based Investcorp SA for $2.99 billon in 1998 and combined it with Proffitt's Inc. stores. He changed the parent company's name to Saks Inc. After sluggish sales, Martin, 55, concentrated on luxury. Sadove, then-chief operating officer, assumed the CEO role from Martin. Wilson, who had been chairman of the Saks Fifth Avenue division, was ousted. Sadove deflects questions about whether Saks is for sale. ``I can't comment,'' he said. ``I can just tell you we are focused on improving the business.''