After management meetings, Deutsche Bank says Saks's (NYSE: SKS) core customer is back, spending w/ strength, and not shying away from even the highest price pt products. Saks is the emerging leader within the luxury dept store sector, poised to surpass their 8% EBIT margin goal and on a trajectory to match historic industry highs. Given the substantial margin upside, the shares look attractive.

Not only does Deutsche Bank have more conviction than ever, Saks will achieve 8% operating by 2013 but now believe there is no structural reason keeping Saks from achieving the EBIT margin peak of 11% achieved by Neiman Marcus in 2005. Saks has demonstrated over the recession they can keep costs in-line, and private label and Hold & Flow represent quite a bit of GM opportunity. In addition, not only will Saks gain some margin benefit in closing cash-flow negative stores, but internet sales have an operating margin that is appreciably different than the full-line stores and Internet has the opportunity to get quite a bit bigger.

Improving sales per square foot and GM are key to SKS returning to its 8% historical peak operating margins, and eventually beyond. SKS is editing merchandise assortments (eliminating less profitable merchandise) and is driving penetration of higher-margin Private & Exclusive brands.

Deutsche Bank has a $15 PT and Buy rating on SKS

SKS closed Friday at $11.90