Limited Brands Inc.
), a specialty retailer of women's intimate and other apparel,
beauty and personal care products, posted its second-quarter 2012
results on August 15. Here, we will discuss the company's
scorecard, based on its recent earnings announcement, subsequent
estimate revisions by analysts as well as the Zacks Rank and
long-term recommendation for the stock.
Review of the Last Quarter
Limited Brands posted second-quarter 2012 earnings of 50 cents a
share, beating the Zacks Consensus Estimate as well as the
prior-year quarter profit by a couple of cents. Management had
earlier projected quarterly earnings between 46 cents and 48 cents
Limited Brands reported net sales of $2,399.1 million, falling
2% from $2,458.1 million reported in the prior-year quarter,
marginally surpassed the Zacks Consensus Estimate of $2,398
million. The prior-year period sales included $216.6 million from a
third-party apparel sourcing business that was sold in November
Limited Brands posted comparable-store sales growth of 8% during
the second quarter of 2012 compared with 7% in the previous quarter
and 9% in the prior-year quarter. Comps grew 6% in May, 7% in June,
and 12% in July.
(Read full report on earnings:
Limited Brands Beats, Ups Outlook
Management now expects earnings in the range of 15 - 20 cents
for the third quarter and between $2.73 and $2.88 per share for
fiscal 2012, up from its previous guidance range of $2.63 - $2.83.
The current Zacks Consensus Estimates for the third quarter and
fiscal 2012 are 21 cents and $2.85, respectively. For the month of
August, management expects comparable-store sales to rise in the
low single-digit range.
Agreement of Estimate Revision
In the last 30 days, 13 out of 16 analysts covering the stock
lowered their estimates, whereas one of the estimates was revised
upwards for the third quarter of 2012. On the other hand, for the
fourth quarter, 13 analysts (out of 17) made upward revisions,
whereas one estimate was
For fiscal 2012, 12 analysts (out of 18) revised their estimates
upward, and two lowered the same in the last 30 days. For fiscal
2013, 12 analysts (out of a total of 18) increased their estimates
and only 1 analyst made downward revisions.
What Drives Estimate Revision
For the upcoming quarter, majority of the analysts trimmed their
estimates mainly due to management's expectation of huge rise in
selling, general and administrative (SG&A) expenses in third
Management's projects third-quarter SG&A rate to jump
considerably 370 basis points approximately due to adverse impact
from the sale of the third-party apparel sourcing business. Absent
of this, the SG&A rate is expected to rise in the third quarter
due to investments in store selling, store openings and remodels
expenses, and marketing costs. As a result, the analysts remain
skeptical on such rise in expenses, and therefore lowered their
estimates for the third-quarter 2012.
However, the analysts remain positive for the fourth-quarter and
fiscal 2012, on the back of company's focus on cost containment,
inventory management, and merchandise initiatives, which will
assist the company to survive in the weak consumer environment.
Moreover, Limited Brands was encouraged by the first-quarter
2012 sales results and seeks to expand aggressively in Canada and
internationally. The stores are generating sales volumes, nearly
two and a half times more than the U.S. average.
Magnitude of Estimate Revision
The magnitude of estimate revisions by the analysts is clearly
reflected through changes in the Zacks Consensus
The Zacks Consensus Estimate for the third quarter of 2012 has
moved down by 3 cents to 21 cents a share in the last 7 days. The
Zacks Consensus Estimate for the fourth quarter has increased by 3
For fiscal 2012, the Zacks Consensus Estimate inched up by a
penny to $2.85 in the last 7 days. For fiscal 2013, the Zacks
Consensus Estimate increased by couple of cents to $3.22.
Limited Brands is strategizing to revamp its La Senza brand both
at home in Canada and internationally by improving product
assortments, store operations and layout. The company had also
completed the closure of the La Senza Girl freestanding stores,
which had been adversely affecting the company's overall
Bath & Body Works segment is also gaining strength
steadily, primarily driven by a rise in store transactions,
enhancement in the direct channel business and growth from new and
expanded stores. During the second quarter of 2012, Bath & Body
Works' total sales hiked 8% to $609.1 million, with a 7% increase
However, most of the company's stores are located in retail
shopping areas, such as malls and other types of retail centers,
which have been adversely impacted by the recent economic turmoil.
These malls have been registering lower sales volume and declining
traffic, as consumers grappling with the recent economic downturn
have been trading down to cheaper brands.
Limited Brands, which faces stiff competition from Gap Inc. (
and Hanesbrands Inc. (
), carries a Zacks #2 Rank, implying short-term Buy rating for the
next 1-3 months, whereas we maintain our long-term 'Neutral'
recommendation on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
GAP INC (GPS): Free Stock Analysis Report
HANESBRANDS INC (HBI): Free Stock Analysis
LIMITED BRANDS (LTD): Free Stock Analysis
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