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.
We estimate Victoria's Secret brands is the largest value driver
for Limited Brands, contributing more than 52% while Bath &
Body Works contributes nearly 34% to our $30.63 Trefis price
estimate for Limited Brands' stock.
Encouraging trend, given weakness reported by some
Limited Brands continued its year on year comparable store sales
gains through December with a 5% gain beating analyst expectation.
For full year 2010, Limited Brands' comparable store sales
increased by 8% over 2009. While Victoria's Secret 's comparables
increased by 12% in 2010, Bath & Body Works showed a 4%
increase in comparables during the same period.
What makes the December growth special for Limited Brands is the
fact that it has come at a time when many other major retailers in
the U.S. have suffered. Out of the dozen retailers that reported
December sales, about half have missed analysts' expectations for
the holiday month's same-store sales.
Discount and teen clothing stores in particular reported weak
numbers for the month with retailers like Wet Seal, Inc (WTSLA) and
American Eagle Outfitters, Inc. (
) lowering their earnings forecast as high discounting during
holidays is likely to drain profits. Wet Seal's and Hot Topic's
same-store sales dropped 2.1% and 1.7% in December over the same
period last year, contrary to expectations.Even the department
stores like Macy's and Kohl's reported sales below
Not all competitors have struggled
Despite many retailers falling short on sales expectations,
December sales results were rather mixed with a number of retailers
topping analysts' expectations.
The Buckle Inc., which makes apparel and accessories for men and
women, reported strength in December, with same-store sales up 6.1%
over the last year, beating expectations for a 4.5% increase. Saks
also managed to exceed analysts' expectations which sent the stock
higher. ((Retailers Are Showing Softness In December
Same-Store Sales, Nasdaq))
Still, the relative strength versus competitors signals a strong
competitive position for Limited Brands, since the company
generated strong December results while avoiding the trap of heavy
discounts and promotions. The recent sales strength for Limited
Brands supports our revenue per square foot (RPSF) growth estimates
for the company's Victoria's Secret U.S. stores.
Victoria's Secret U.S. stores' RPSF decreased from $731 in
2006 to $581 in 2009 driven by declines in store traffic and
transactions as well as decreased units per sales transaction due
to reduced consumer spending during the global economic downturn.
For full year 2010, we forecast RPSF to increase back sharply as
consumer spending has picked up significantly since the
Beyond 2010, we forecast Victoria's Secret U.S. RPSF will
increase at a slowing rate for a few years and then level off based
on the following factors:
1. Increasing market share in intimate apparel sales
Over the past few years, the share of branded products in the
intimate apparel market has increased primarily due to forward
integration by brands into retail. As more consumers become brand
conscious regarding their under garments, Victoria's Secret U.S.
RPSF is likely to increase.
Victoria's Secret is the largest player in the U.S. intimate
market, controlling nearly 38% of the market, will be most
benefited by this trend. Other major players, like Hanesbrands,
Maidenform, Warnaco and Fruit of the Loom will also witness a surge
2. Expansion into new product categories
Victoria's Secret in 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 realizes full potential of
its strong brand image. Increased product offering at Victoria's
Secret stores will likely result in an increase in Victoria's
Secret U.S. RPSF.
3. Increasing competition in the high margin intimate
The highly lucrative lingerie business is attracting lots of new
entrants. Many merchants at major department stores and a slew of
catalogs, including Newport News and Spiegel, and e-commerce
businesses, including Figleaves.com and Barenecessities.com, are
now cashing in on the lingerie bonanza.
Even specialty retailers like American Eagle Outfitters,
Abercrombie & Fitch etc. that have never done lingerie in the
past are developing their lingerie lines. As a result,
Victoria's Secret U.S. stores have started losing its market share.
Going forward, defending its turf will become an increasing concern
for Victoria's Secret.
4. Low growth in developed markets
Intimate apparel market in the U.S. has grown at slower rate as
compared to the global average. The reasons for this low growth
include aging populations in the developed world, fierce retail
competition driving prices down, and the continued movement of
production to lower cost countries. This trend will adversely
affect Victoria's Secret U.S. RPSF of Victoria's Secret U.S. stores
in the future.
Drag the trend line in the chart above to see the impact of
change in Victoria's Secret U.S. RPSF on Limited Brands' stock
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complete analysis for Limited Brands' stock is