Limited Brands Inc.
) is persistently striving to rebound from a lackluster economy, by
adopting optimum inventory strategy, better expense management,
merchandise initiatives and prudent capital spending with an aim of
generating healthy cash flows and augmenting its financial
Limited Brands' Bath & Body Works segment is gaining
traction, thanks to a rise in store transactions, enhancement in
the direct channel business and growth in new stores. Victoria's
Secret Stores has been performing well, and the company is also
revamping its La Senza brand both at home in Canada and
internationally by improving product assortments, store operations
Limited Brands is keen on augmenting its retail footprint across
the globe by expanding aggressively in Canada and other
international markets. Another driving factor is the travel retail
concept. These are small Victoria's Secret stores (of about 1,000
square feet), operating under a wholesale model, and primarily
located in airports and tourist destinations. These stores provide
significant growth opportunities and are an innovative way of
Limited Brands is also actively managing its cash flows and
returning much of its free cash to shareholders through share
repurchases or dividend. During the second quarter of 2012, the
company repurchased 5.1 million shares for $222.9 million, and
still has $60.5 million at its disposal under its current $500
million repurchase program. The company announced the payment of a
special dividend of $1 per share.
Riding on Positive Comps
Limited Brands has sustained its growth momentum with
encouraging monthly sales data so far in the year. The company has
been witnessing healthy comparable sales registering growth of 9%
in January, 8% in both February and March, 6% in both April and
May, 7% in June and 12% in July. For August, management now expects
comparable-store sales to rise in the low single-digit range.
Healthy Quarterly Results
Limited Brands recently posted second-quarter 2012 earnings of
50 cents a share that beat the Zacks Consensus Estimate by a couple
of cents, and rose from 48 cents earned in the prior-year quarter.
Management had earlier projected quarterly earnings between 46
cents and 48 cents a share.
Limited Brands posted net sales of $2,399.1 million, falling 2%
from $2,458.1 million reported in the prior-year quarter, but
marginally surpassing 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
The company 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. Limited Brands now expects
comparable-store sales to increase in the low-to-mid single digits
in the third quarter and between 3% and 5% in fiscal 2012.
Sales at Victoria's Secret Stores & Victoria's Secret Beauty
increased 10% to $1,170.1 million, whereas comps were up 10%.
Victoria's Secret Direct sales jumped 3% to $406.6 million. Total
Victoria Secret sales grew 8% to $1,576.7 million driven by a 10%
rise in comps. Bath & Body Works & The White Barn Candle
Co.'s total sales rose 8% to $609.1 million, with a 7% increase in
Guidance Dovetails with Expectation
Management guided earnings in the range of 15 cents to 20 cents
for the third quarter and between $2.73 and $2.88 per share for
fiscal 2012 that dovetails with the Zacks Consensus Estimates.
Earlier, Limited Brands had forecasted earnings in the range of
$2.63 to $2.83.
The Zacks Consensus Estimates for the third and fourth quarters
of 2012 are 20 cents and $1.75 per share, respectively. For fiscal
2012 and 2013, the Zacks Consensus Estimates are $2.85 and $3.22
per share, respectively.
Challenging Economy and Competition
The economy is still not out of the woods, and whether 2012 will
mark the complete resurrection tough to say, unless some concrete
steps are taken. Each and every company is vying to survive the
downturn, and trying every means to reach the helm.
Limited Brands faces stiff competition from chain specialty
stores, department stores and discount retailers on attributes such
as, marketing, design, price, service, quality, and brand image.
Competitors having a larger number of stores, greater market
presence, brand recognition, and financial resources will likely
continue to weigh on the company's results.
The La Senza brand has been facing headwinds, witnessing a
comparable-store sales fall of 3% during the second quarter of 2012
and 5% in the month of July. Sales tumbled 17% to $94.9
Moreover, the company's customers are sensitive to macroeconomic
factors including interest rate hikes, increase in fuel and energy
costs, sluggishness in the housing market, and high unemployment
and household debt levels, which may affect their spending.
Given the pros and cons, we reiterate our long-term Neutral
recommendation on the stock with a price target of $51.00.
Moreover, Limited Brands, which competes with
), holds a Zacks #2 Rank that translates into a short-term Buy
rating and well defines better-than-expected second-quarter 2012
results and an upbeat guidance.
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