Limited Brands Beats by a Penny - Analyst Blog
17 May 2012 - 7:00PM
Zacks
Limited Brands,
Inc. (LTD), a specialty retailer of women’s intimate and
other apparel, beauty and personal care products, recently posted
first-quarter 2012 earnings of 41 cents a share that whiskered past
the Zacks Consensus Estimate by a penny, and rose 5% from 40 cents
earned in the prior-year quarter. Management had earlier projected
quarterly earnings between 38 cents and 40 cents a share.
Let’s Dig
Deep
Limited Brands, which competes with
Gap Inc. (GPS) and Hanesbrands
Inc. (HBI), posted net sales of $2,153.8 million that fell
3% from the prior-year quarter, and also fell short of the Zacks
Consensus Estimate of $2,155 million.
Limited Brands posted
comparable-store sales growth of 7% during the first quarter of
2012 compared with 7% in the previous quarter and 15% in the
prior-year quarter.Comps rose 8% both in February and March, and 6%
in April. This indicates that consumers, who cut back their
discretionary spending during the recession, are now gradually
opening their wallets.
Sales at Victoria’s Secret Stores
& Victoria’s Secret Beauty increased 10% to
$1,088 million, whereas comps were up 9%. Victoria's Secret
Direct sales jumped 4% to $382 million. However, comps at La Senza
edged down 1%. Total Victoria Secret sales grew 8% to $1,470
million driven by a 9% rise in comps. Bath & Body Works &
The White Barn Candle Co.’s total sales were up 5% to
$505 million, with a 6% increase in comps.
Gross profit for the quarter rose
7% to $902 million, aided by a 9% decline in cost of goods sold,
buying and occupancy, whereas gross margin expanded 390 basis
points to 41.9%. Operating income jumped 10% to $293.2 million,
whereas operating margin increased 160 basis points to 13.6%.
Other Financial
Details
Limited Brands, which operates
2,899 stores, ended the quarter with cash and cash equivalents of
$1,285.6 million and total long-term debt of 4,537.5 million
Capital expenditures for the
quarter were $136.3 million. Management now anticipates capital
expenditures between $575 million and $625 million for fiscal 2012,
and expects to generate free cash flow in the range of $600 million
to $700 million.
Strolling Through
Guidance
Management now expects earnings in
the range of 40 cents to 45 cents for the second quarter and
between $2.63 and $2.83 per share for fiscal 2012. The current
Zacks Consensus Estimates for the second and fiscal 2012 are 43
cents and $2.79, respectively.
Limited Brands now expects
comparable-store sales to increase in the low-to-mid single digits
in the second quarter and between 3% and 5% in fiscal 2012. For the
month of May, management now expects comparable-store sales to rise
in the low single-digit range.
Let’s
Conclude
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
in new stores. Victoria’s Secret Stores have been performing well,
and the company is also revamping its La Senza brand.
Limited Brands is keen to augment
its retail footprint internationally by expanding aggressively in
Canada and other international markets. However, stiff competition
and erratic consumer behavior still remain concerns.
Currently, we have a long-term
‘Neutral’ recommendation on the stock. However, Limited Brands
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
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