We are maintaining our long-term 'Neutral' recommendation on
Columbus, Ohio based
Limited Brands Inc.
) - a specialty retailer of women's intimate and other apparel,
beauty and personal care products, home fragrance products and
Limited Brands 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 position. This is evident by a solid 24.4%
year-to-date return on the stock.
Recently, Limited Brands posted better-than-expected
second-quarter 2012 results as earnings of 50 cents per share came
in ahead of the Zacks Consensus Estimate by a couple of cents and
improved from 48 cents earned in the prior-year quarter. Net sales
for the quarter came in at $2,399.1 million, marginally surpassing
the Zacks Consensus Estimate of $2,398 million.
Moreover, Limited Brands, which is having a market cap of about
$13.9 billion, has been witnessing a significant rise in its
comparable store sales since the beginning of fiscal 2012. The
company's comps have been increasing at an average rate of 7.5%
since the same period. Limited Brands' comparable-store sales for
September 2012 grew 5% following an elevation of 8% in August
Further, Limited Brands' continuous focus on cost containment,
inventory management, and merchandise initiatives has helped it to
mitigate the sluggish consumer environment. Management also expects
gross margin to improve, primarily driven by leverage in buying and
occupancy expense, and the sale of the third-party apparel sourcing
business in November 2011.
On the reverse side of the story, La Senza - one of the major
brands of the company - has been witnessing a continuous decline in
comps year-to-date, with a fall of 3% during the second quarter of
2012 and 1% in the first quarter. Although, the company is in a
constant process to revamp its La Senza brand both at home in
Canada and internationally by improving product assortments, store
operations and layout, we seek more visibility for such
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.
The competitors having larger number of stores, greater market
presence, brand recognition, and financial resources will likely
continue to weigh on the company's results. The major competitors
of the company are
Further, Limited Brand's customers remain sensitive to
macroeconomic factors including interest rate hikes, increase in
fuel and energy costs, credit availability, unemployment levels,
and high household debt levels, which may negatively impact their
discretionary spending, and in turn the company's growth and
Based on the above discussion, we remain skeptical on Limited
Brands' stock and suggest that the investors should seek better
visibility for its prospective in the long term.
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