Limited Brands Inc.
) is persistently trying every means to navigate through this
sluggish economic environment by adopting optimum inventory
strategies, better expense management, merchandise initiatives and
prudent capital spending with an aim to generate healthy cash flows
and augment its financial position.
The Company Counts Upon
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 to augment 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 (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 to
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 first quarter of 2012, the
company repurchased 8.3 million shares for $380.9 million. The
company still has $283.4 million at its disposal under its current
$500 million repurchase program.
Riding on Positive Comps
Limited Brands has sustained its growth momentum with monthly
sales data being encouraging 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, and 6% in both April and
May. For June, management now expects comparable-store sales to be
in the flat to low single-digit range.
Healthy Quarterly Results
Limited Brands recently posted first-quarter 2012 earnings of 41
cents a share that beat the Zacks Consensus Estimate and the
prior-year quarter earnings by a penny. Management had earlier
projected quarterly earnings between 38 cents and 40 cents a share.
The company's share repurchase activity provided cushion to the
Limited Brands posted comparable-store sales growth of 7% during
the first quarter of 2012 compared with 7% in the previous quarter
and 15% in the prior-year quarter. Limited Brands now expects
comparable-store sales to increase in the low-to-mid single digits
in the second quarter and between 3% and 5% in fiscal 2012.
Sales at Victoria's Secret Stores & Victoria's Secret Beauty
increased 10% to $1,088 million, whereas comps were up 9%.
Victoria's Secret Direct sales jumped 4% to $382 million. However,
comps at La Senza edged down 1%. Total Victoria Secret sales grew
8% to $1,470 million driven by a 9% rise in comps. Bath & Body
Works & The White Barn Candle Co's total sales were up 5% at
$505 million, with a 6% increase in comps.
Guidance Dovetails with Expectations
Management guided earnings in the range of 40 cents to 45 cents
for the second quarter and between $2.63 and $2.83 per share for
fiscal 2012 that dovetails with the Zacks Consensus Estimates.
The Zacks Consensus Estimates for the second and third quarters
of 2012 are 46 cents and 24 cents, respectively. For fiscal 2012
and 2013, the Zacks Consensus Estimates are $2.82 and $3.19,
Challenging Economy and Competition
The economy is still not out of the woods, and whether 2012 will
mark the complete resurrection is tough to say. Limited Brands
faces stiff competition from chain specialty stores, department
stores and discount retailers. Competitors having a larger number
of stores, greater market presence, brand recognition, and
financial resources will likely continue to weigh on the company's
The La Senza brand has been facing headwinds, witnessing a
comparable-store sales fall of 1% during the first quarter of 2012
and 8% in the month of May.
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. Moreover, Limited Brands, which
), holds a Zacks #3 Rank that translates into a short-term Hold
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