Limited Investors Loving Victoria's Secret

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Limited Brands ( LTD ) reported a 20% increase in comparable store sales of $683 million in the month of April over the same period last year. For the quarter ending in April, the increase in comparable sales was a healthy 15% as Limited Brands' sales crossed $2.2 billion in sales. Victoria's Secret led the charge with a jump of 25% in sales for April year-over-year, and the power of this recognized lingerie, beauty and personal care lines help separate it from those like Abercrombie & Fitch ( ANF ), American Eagle ( AEO ), AnnTaylor ( ANN ) and Gap ( GPS ).

Victoria's Secret Leads the Way

Victoria's Secret, the firm's most popular brand, is best known for its ample selection of lingerie and sleepwear. This unit witnessed an eye catching 25% increase in comparable store sales for April and registered 19% growth for the quarter with $987 million in sales.

While we currently forecast the revenue per square foot of Victoria's Secret stores in the U.S. to increase at a low single digit rate, there could be significant upside to the firm if it maintains the high comparable store sales growth going forward. We estimate a 15% increase in revenue per square foot of Victoria's Secret stores in U.S. in 2011 instead of our current forecast of 3% rise would result in just about 5% to our price estimate for Limited Brands' stock.

As our estimates are around 18% below the current market price, this suggests what we could be conservative on our growth forecasts for Limited looking ahead.

Below are some supporting factors to this bullish thesis:

1. Increasing market share in intimate apparel sales

Over the past few years, the market share of branded products in the intimate apparel market has increased primarily due to retail channels carrying more branded intimate apparel.

This is great news for Victoria's Secret, the largest in the intimate apparel market with nearly 38% market share by our estimates. As more consumers turn to the retail channel and become increasingly brand conscious, the revenue per square foot at Victoria's Secret stores in U.S. is likely to increase.

2.  Expansion into new product categories

Victoria's Secret over the past has expanded its product offering outside the core lingerie products. Victoria's Secret now also offers shoes, evening wear, accessories, handbags, luggage as well as fragrances.

We expect this expansion trend to continue in the future as Victoria's Secret tries to realize the full potential of its strong brand image by broadening its product line. Increased product offerings will likely result in higher revenue per square foot of Victoria's Secret stores in the US.

See our complete analysis of Limited Brands .



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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