Limited Brands Beats, Ups Outlook - Analyst Blog
18 August 2011 - 11:08PM
Zacks
Limited Brands, Inc. (LTD), a specialty
retailer of women’s intimate and other apparel, beauty and personal
care products, recently posted second-quarter 2011 results. The
quarterly earnings of 48 cents a share beat the Zacks Consensus
Estimate of 46 cents, and rose 33% from 36 cents earned in the
prior-year quarter riding on an improving sales environment.
The quarterly earnings also came ahead of the company’s guidance
range of 38 cents to 43 cents a share provided earlier. The
better-than-expected results, prompted management to raise its
August comparable-store sales and fiscal 2011 earnings outlook.
Let’s Dig Deep
Limited Brands, which competes with Gap Inc.
(GPS) and Hanesbrands Inc. (HBI), posted net sales
of $2,458.1 million that climbed 10% from the prior-year quarter,
and also came ahead of the Zacks Consensus Estimate of $2,437
million.
Comparable-store sales for the quarter jumped 9% compared with
7% registered in the year-earlier quarter. Comps rose 6% in May,
12% in June and 6% in July. The consumers, who cut back their
discretionary spending during the recession, are now gradually
loosening their wallets.
Sales at Victoria’s Secret Stores & Victoria’s Secret Beauty
increased 11% to $1,064 million, whereas comps were also up by
12%. Victoria's Secret Direct sales inched up 1% to $393 million.
La Senza comps rose marginally by 1% during the quarter.
Total Victoria Secret sales grew 8% to $1,570.7 million, driven
by an 11% rise in comps. Bath & Body Works & The White Barn
Candle Co.’s total sales were up 5% to $563 million with a 4%
increase in comps.
Despite a 6% increase in cost of goods sold, buying and
occupancy, gross profit for the quarter surged 16% to $902.1
million, powered by an increase in the top-line, whereas gross
margin expanded 200 basis points to 36.7%. Operating income soared
30% to $307 million, whereas operating margin expanded 190 basis
points to 12.5%.
Let’s Walk Through Guidance
Management now expects the third quarter earnings in the range
of 17 cents to 22 cents and fiscal 2011 earnings between $2.35 and
$2.50 per share. Earlier, Limited Brands projected fiscal 2011
earnings between $2.25 and $2.45 per share.
Limited Brands now expects comparable-store sales for the third
quarter to be up in the low to mid-single digit range and for
fiscal 2011 to rise in the mid-single digit range. The company now
forecasts August comparable-store sales to jump in the
high-single-digit range compared with a low-single-digit range
projected earlier.
Other Financial Details
Limited Brands ended the quarter with cash and cash equivalents
of $1,034.9 million, long-term debt of 3,524.5 million and
shareholders’ equity of $625.3 million.
Capital expenditures for the quarter were $85.2 million.
Management anticipates capital expenditures to be approximately
$425 million in fiscal 2011, and expects to generate free cash
flows of about $700 million.
Our View
Limited Brands’ sustained focus on cost containment, inventory
management, and merchandise initiatives has kept it afloat in a
sluggish retail environment, as evident from its second-quarter
2011 results. The company’s Bath & Body Works segment is
gaining traction, driven by a rise in store transactions,
enhancement in the direct channel business and growth from new
stores.
Victoria’s Secret Stores has been performing well, and the
company is also in a constant process of revamping its La Senza
brand. Limited Brands is keen to enhance its retail footprint
across the globe by expanding aggressively in Canada, and other
international markets. However, stiff competition and erratic
consumer behavior remain stumbling blocks.
Currently, we have a long-term Neutral rating on Limited Brands,
which operates 2,951 stores. The stock holds a Zacks #2 Rank, which
translates into a short-term Buy recommendation.
GAP INC (GPS): Free Stock Analysis Report
HANESBRANDS INC (HBI): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
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