Limited Brands (
), a specialty apparel retailer focused on lingerie, beauty and
personal care products, competes with retailers like
Abercrombie & Fitch
), AnnTaylor (
), and J.Crew Group (JCG). Some of its popular brands include
Victoria's Secret, in the lingerie business, and Bath & Body
Works, in the personal care segment.
In its recent earnings release on February 24, Limited Brands
reported strong growth in revenues which increased to $9.6 billion
in 2010, up 11% over the same period last year. The firm also
witnessed significant improvement in operating margin, which
increased by 3.5% in 2010.
Based on the recent results, we have updated our price estimate
for Limited Brands' stock to $33.36. We estimate that the
Victoria's Secret brand is the largest value driver for Limited
Brands, contributing about 54% to company's stock value. Bath
& Body Works generates an incremental 31% to our price
See our full analysis and $33.36 price estimate for Limited
Strong Margin Improvement at Victoria's Secret Stores in
The EBITDA margin for Victoria's Secret stores in the U.S.
increased by an estimated 3.5% in 2010 over the same period last
year, as gross margin for the firm improved by 2.7% due to an
increase in the merchandise margin rate as well as buying and
occupancy expense leverage. SG&A also saw improvement, further
pushing EBITDA margins up at Victoria's Secret stores.
We currently forecast Victoria's Secret stores' EBITDA margin to
remain constant going forward as the company continues to reap
benefits from its cost cutting measures undertaken during the
recession. However, a decrease of even 1% in Victoria's Secret
stores' EBITDA margin going forward would imply a downside of 3-4%
$33.36 price estimate for Limited Brands' stock
Below are two factors we believe could hurt Victoria's Secret's
margins going forward:
1. Increasing competition in the U.S. intimate apparel
Victoria's Secret's U.S. stores could face increasing competition
as new players and established brands enter the intimate apparel
market. This can lead to an increase in marketing expense as
Victoria's Secret tries to defend its market share. Also,
heightened competition may lead to more competitive pricing
initiatives and could negatively impact Victoria's Secret U.S.
EBITDA margin in the future.
2. Expanding reach to wider range of consumers
In an attempt to reach a wider range of consumers, Victoria's
Secret has launched lower priced collections. The inclusion of
lower priced items in Victoria's Secret's product mix will likely
lead to lower overall profit margins through reduced per-item top
Drag the trend line in the modifiable chart above to see how
various EBITDA margin scenarios for Victoria's Secret's U.S.
stores could affect Limited Brands' stock value.