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.
Despite fewer promotional discounts than offered in 2009,
Limited reported a 10% year-over-year increase in comparable store
sales during Q3 2010, a trend that continued into November.
Part of the surge stems from the company's Victoria's Secret
brand, which is reportedly generating strong bra sales during early
holiday shopping. The success is driven in part by high demand for
Miraculous bras, a product reintroduced in November after strong
sales towards the end of 2009. The company also reported a high
conversion rate of store visitation to purchases.
Victoria's Secret US stores constitute roughly 32% of our
estimated $30.63 value for Limited Brands stock.
Should these trends continue, a jump in store revenue per square
foot could provide upside to our price estimate, which stands close
to 12% below the current market price.
Victoria's Secret a Large Driver
On the heels of a steady decline in Victoria's Secret US store
revenue per square foot (RPSF) between 2006 and 2009, we project a
7% increase in 2010 and a nearly 3% annual growth rate between 2010
and 2013. Should increased consumer spending spur a 5% RPSF growth
rate, there could be 2.5% upside to our $30.63 price estimate,
still leaving the stock below market price. The chart above
examines the impact of changes to Victoria's Secret RPSF on LTD
We recently analyzed the impact of increased consumer spending
on American Eagle Outfitters' stock value and believe that
specialty retailers like Limited Brands and American Eagle would be
key beneficiaries from an uptick in retails spending . (See
Strong Q4 Retail Trends Could Lift AEO
Strong bra sales at Victoria's Secret stores could point towards
a recovery in high-end retail spending, as the brand caters towards
luxury consumption. Still, some experts suggest the industry's
retail spending improvement is rather a release of pent-up demand,
referred to as "frugality fatigue". With an estimated 67% of
holiday shopping still unfinished, the answer to this riddle will
have a large impact on Limited's outlook.