Zacks_Analysts' Blog : Limited Brands Sales Rise - Analyst Blog

Limited Brands Inc. (LTD), a specialty retailer of women’s intimate and other apparel, beauty and personal care products, recently posted healthy sales results for the five-week period ended October 1, 2011 on the heels of healthy sales at its Victoria's Secret Stores and Bath & Body Works.

The owner of Victoria's Secret Direct and La Senza chains has sustained its growth momentum. Limited Brands’ comparable-store sales for September 2011 rose 11% following a similar increase in August 2011 and compared with a 12% jump in September 2010.

Comparable-store sales for September increased 13% at Victoria’s Secret Stores & Victoria’s Secret Beauty, 12% at Bath & Body Works & The White Barn Candle Co., 7% at Victoria’s Secret Direct and 2% at La Senza.

Limited Brands, which competes with Gap Inc. (GPS) and Hanesbrands Inc. (HBI), said that net sales for September climbed 11.3% to $818.6 million from $735.8 million posted in the same month last year.      

For the thirty-five week period ended October 1, 2011, comparable-store sales surged 11%, whereas net sales jumped 11.8% to $6,196 million from $5,540 million reported in the prior-year period.

Limited Brands’ sustained focus on cost containment, inventory management, and merchandise initiatives has helped it post healthy results. This was quite evident from its second-quarter 2011 results, when the quarterly earnings of 48 cents a share beat the Zacks Consensus Estimate of 46 cents, and rose 33% from the prior-year quarter. The better-than-expected results, prompted management to raise its fiscal 2011 earnings outlook to a range of $2.35 to $2.50 per share. Earlier, Limited Brands projected fiscal 2011 earnings between $2.25 and $2.45.

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 across the globe by expanding aggressively in Canada and other international markets. Moreover, the company’s strong liquidity positions it to drive growth and enhance return. However, stiff competition and erratic consumer behavior still remain concerns.

Going by the pulse of the economy, we believe that consumers will remain cautious on their spending this holiday season, and thereby we could see more competitive pricing and new products to attract shoppers. We believe that retailing companies will leave no stone unturned to win the hearts of bargain hunters and it definitely remains a wait-and-watch story as to who emerges successful in wooing consumers in this distressed economy.

Currently, we have a long-term ‘Neutral’ recommendation on the stock. However, the past trends witnessed in comparable-store sales inspire optimism about Limited Brands, and thereby the stock holds a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating.