We expect Limited Brands, Inc. , a specialty retailer of women’s intimate and other apparel, beauty and personal care products, to beat expectations when it reports fourth-quarter fiscal 2012 results on Feb 27, 2013.
Why a Likely Positive Surprise?
Our proven model shows that Limited Brands is likely to beat earnings because it has the right combination of two key components.
Positive Zacks ESP: Limited Brands currently has an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +0.58%. This is because the Most Accurate Estimate stands at $1.74, while the Zacks Consensus Estimate is pegged at $1.73.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings estimates. The sell-rated stocks (Zacks Rank #4 and #5) should never be considered going into an earnings announcement.
The combination of Limited Brands’ Zacks Rank #3 (Hold) and +0.58% ESP make us very confident regarding a positive earnings beat on Feb 27.
What is Driving the Better Than Expected Earnings?
Limited Brands’ sustained focus on cost containment, inventory management, and merchandise initiatives has kept it afloat in a sluggish consumer environment. Management also expects gross margin to improve, primarily driven by leverage in buying and occupancy expense, and the sale of third-party apparel sourcing business in Nov 2011.
Limited Brands seeks to expand aggressively in Canada and internationally. The stores are generating sales volumes, nearly two and a half times more than the U.S. average.
The positive trend is seen in the trailing four-quarter average surprise of 3.4%.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat:
ConAgra Foods, Inc. (CAG - Analyst Report) , Earnings ESP of +1.79% and Zacks Rank #1 (Strong Buy)
New York & Company Inc. (NWY - Snapshot Report) , Earnings ESP of +12.50% and Zacks Rank #2 (Buy)
Macy’s Inc. (M - Analyst Report) , Earnings ESP of +0.51% and Zacks Rank #3 (Hold)