Limited Brands
Inc. (LTD) is persistently trying every means to make its
way in this sluggish economic environment by adopting optimum
inventory strategy, better expense management, merchandise
initiatives and prudent capital spending with an aim to generate
healthy cash flows and augment its financial position. The
endeavors undertaken helped the stock to gain a firm foothold in
the market, well reflected by a 22% rise in the share price, so far
in the year.
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 brandboth at home in
Canada and internationally by improving product assortments, store
operations and layout.
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
(of about 1,000 square foot) 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 advertise.
Limited Brands is also actively
managing its cash flows and returning much of its free cash to
shareholders’ through share repurchases or dividend. In fiscal
2011, the company returned more than $2.3 billion to stockholders
via share buyback and dividend.
Riding on Positive
Comps
Limited Brands has sustained its
growth momentum. The company’s comparable-store sales for February
2012 rose 8% following an increase of 9% in January 2012 and a 12%
jump in February 2011. For March, management now expects
comparable-store sales to rise in the low single digits.
Comparable-store sales for February
increased 10% at Victoria’s Secret Stores & Victoria’s Secret
Beauty, 7% at Bath & Body Works & The White Barn Candle Co.
and 1% at La Senza. Sales at Victoria’s Secret Direct climbed
5%.
Healthy Quarterly
Results
Limited Brands posted
better-than-expected fourth-quarter 2011 results on the back of an
improving sales environment witnessed across its Victoria's Secret
and Bathand Body Works chains.
The quarterly earnings of $1.50 per
share beat the Zacks Consensus Estimate of $1.46, and rose 19% from
$1.26 earned in the prior-year quarter. The company posted net
sales of $3,515.4 million that rose 2% from the prior-year quarter,
and comfortably beat the Zacks Consensus Estimate of $3,492
million.
Limited Brands posted a
comparable-store sales growth of 7% during the fourth quarter of
2011 compared with 9% in the previous quarter and 10% in the
prior-year quarter.The company now expects comparable-store sales
to increase in the low-to-mid single digits in the first quarter
and between 2% and 4% in fiscal 2012.
But Guidance below
Expectation
Management guided earnings for the
first quarter in the range of 35 cents to 40 cents and for fiscal
2012 between $2.60 and $2.80 per share.
However, the guidance failed to
impress the analysts covering the stock, who were expecting much
more from the specialty retailer of women’s intimate and other
apparel, beauty and personal care products. Consequently, the Zacks
Consensus Estimate witnessed a fall, since the company’s earnings
release.
The Zacks Consensus Estimates for
both the first and second quarters of 2012 fell 5 cents to 40 cents
and 49 cents, respectively, in the last 30 days. For fiscal 2012
and 2013, the Zacks Consensus Estimates dropped 9 cents and 14
cents to $2.83 and $3.21, respectively, in the last 30 days.
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, unless some concrete steps are taken. Cuts are deep
and wounds not completely healed. Each and every company is vying
to survive the downturn, and trying every means to reach the
helm.
Limited Brandsfaces stiff
competition from chain specialty stores, department stores and
discount retailers on attributes such as, marketing, design, price,
service, quality, and brand image. Competitors having a larger
number of stores, greater market presence, brand recognition, and
financial resources will likely continue to weigh on the company’s
results. The La Senza brand has been facing the headwinds,
witnessing a fall of 3% in comparable-store sales during the fourth
quarter of 2011.
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.
Closing
Commentary
Given the pros and cons, we
reiterate our long-term “Neutral” recommendation on the stock with
a price target of $50.00. Moreover, Limited Brands, which competes
with Gap Inc. (GPS) and Hanesbrands
Inc. (HBI), holds a Zacks #3 Rank that translates into a
short-term “Hold” rating.
GAP INC (GPS): Free Stock Analysis Report
HANESBRANDS INC (HBI): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Hanesbrands (NYSE:HBI)
Historical Stock Chart
From Jun 2024 to Jul 2024
Hanesbrands (NYSE:HBI)
Historical Stock Chart
From Jul 2023 to Jul 2024