Limited Brands October Sales Up

Limited Brands Inc. (LTD - Analyst Report), a specialty retailer of women’s intimate and other apparel, beauty and personal care products, recently posted healthy sales results for the four-week period ended October 29, 2011 on the heels of healthy sales at its Victoria's Secret Stores and Bath & Body Works, and lifted its third-quarter 2011 earnings outlook.

The owner of Victoria's Secret Direct and La Senza chains has sustained its growth momentum. Limited Brands’ comparable-store sales for October 2011 rose 6% compared with increases of 11% in September 2011 and 9% in October 2010.

Comparable-store sales for October increased 9% at Victoria’s Secret Stores & Victoria’s Secret Beauty, 12% at Victoria’s Secret Direct, 6% at Bath & Body Works & The White Barn Candle Co. but declined 5% at La Senza.

Limited Brands, which competes with Gap Inc. (GPS - Analyst Report) and Hanesbrands Inc. (HBI - Analyst Report), said that net sales for October climbed 5.7% to $652.4 million from $617.3 million posted in the same month last year.

For the thirty-nine week period ended October 29, 2011, comparable-store sales surged 11%, whereas net sales jumped 11.2% to $6,849 million from $6,157 million reported in the prior-year period.

Let’s Look at the Third Quarter

Limited Brands’ sustained focus on cost containment, inventory management, and merchandise initiatives has helped it post healthy results. Comparable-store sales for the third quarter of 2011 climbed 9% compared with an increase of 10% attained in the prior-year quarter.

Comparable-store sales for the quarter increased 13% at Victoria’s Secret Stores & Victoria’s Secret Beauty, 9% at Bath & Body Works & The White Barn Candle Co., 8% at Victoria’s Secret Direct but declined 4% at La Senza.

Net sales for the quarter grew 9.6% to $2,173 million from $1,983 million reported in the year-ago period.

Following the sales results, management lifted its earnings outlook for the third quarter to a range of 22 cents to 24 cents a share. Earlier, Limited Brands had projected earnings between 17 cents and 22 cents. The analysts polled by Zacks estimates third quarter earnings at 24 cents a share.

Limited Brands is also actively managing its cash flows, and returning much of its free cash via dividends and share repurchases. The company recently announced a $250 million share buyback program, after it exhausted the $500 million share repurchase authorization. Year-to-date, the company has bought back shares worth of $1.1 billion. The company also declared a quarterly dividend of 20 cents a share to be paid on December 9, 2011, to shareholders of record as on November 25, 2011.

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 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 seekers 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 ‘Outperform’ recommendation on the stock. Moreover, the past trends witnessed in comparable-store sales inspire optimism about Limited Brands, and thereby the stock holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

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