Limited Brands' Continued Momentum Presents Stock Upside

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Limited Brands ( LTD ), a specialty apparel retailer focused on lingerie, beauty and personal care products, competes with retailers like Abercrombie & Fitch ( ANF ), American Eagle ( AEO ), AnnTaylor ( ANN ), Gap ( GPS ), 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.

We estimate that the Victoria's Secret brand is the largest value driver for Limited Brands, contributing about 53% to our $30.63 price estimate for the company's stock. Bath & Body Works generates an incremental 34%.

Strong Holiday Season Sales

Retailers, notably those who offer affordable luxury, performed well in November and December as pent-up consumer demand was released during the holiday season. Limited Brands in particular had an outstanding holiday season and reported a 5% increase in year-over-year (YOY) same-store sales during December (See Limited Looking Good in 2011 on Growth in Lingerie Business).

While many expected these stores to maintain some strength into January, analysts did expect a dip in spending coming off the holiday season. Also, many anticipated that record snowfall in the U.S. had kept shoppers away from stores and pressured same-store sales. Markets seemed to be expecting modest retail activity in January.

See our full analysis and $30.63 price estimate for Limited Brands

Limited Outperforms Expectations

While analysts were expecting almost 7% YOY growth in January spending at Limited Brands' stores (Victoria's Secret and Bath & Body Works), results surprised on the upside. Limited Brands' comparable store sales increased 24% in January over the same period last year.

We currently forecast a mere 3% increase in revenue per square foot for Victoria's Secret stores in the U.S. during 2011. However if the Limited Brands continues its current momentum through 2011, achieving double-digit growth in revenue per square foot for its Victoria's Secret U.S. stores (excluding Bath & Body Works), there could be an upside of 4% to our $30.63 price estimate for Limited Brands. A similar increase in revenue per square foot at Bath & Body Works stores could present further upside.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AEO , ANF , ANN , GPS , LTD

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