Limited Brands Beats, Ups Outlook - Analyst Blog
November 17 2011 - 3:00AM
Zacks
Limited Brands,
Inc. (LTD), a specialty retailer of women’s intimate and
other apparel, beauty and personal care products, recently posted
better-than-expected third-quarter 2011 results on the heels of an
improving sales environment witnessed across its Victoria's Secret
and Bath and Body Works chains. The outperformance also prompted
management to raise its fiscal 2011 earnings outlook.
The quarterly earnings of 25 cents
a share beat the Zacks Consensus Estimate by a penny, and rose 39%
from 18 cents earned in the prior-year quarter. The earnings also
came ahead of management’s own guidance range of 22 cents to 24
cents a share.
Let’s Dig
Deep
Limited Brands, which competes with
Gap Inc. (GPS) and Hanesbrands
Inc. (HBI), posted net sales of $2,173.4 million that
climbed 10% from the prior-year quarter, and comfortably beat the
Zacks Consensus Estimate of $2,163 million.
Comparable-store sales (comps) for
the quarter jumped 9% compared with 10% registered in the
year-earlier quarter. Comps rose 11% both in August and September,
and 6% in October. The 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 12% to
$941.6 million, whereas comps were up 13%. Victoria's Secret
Direct sales jumped 8% to $276.9 million. La Senza sales for the
quarter were $92.9 million, whereas comps dropped 4%. Total
Victoria Secret sales grew 10% to $1,311.4 million driven by an 11%
rise in comps. Bath & Body Works & The White Barn Candle
Co.’s total sales were up 8% to $503.7 million with a 9%
increase in comps.
Despite a 9% increase in cost of
goods sold, buying and occupancy, gross profit for the quarter
surged 10% to $785.3 million, powered by a growth in the top line,
whereas gross margin expanded 10 basis points to 36.1%. Operating
income soared 25% to $186.1 million, whereas operating margin
expanded 100 basis points to 8.6%.
Other Financial
Details
Limited Brands, which operates
2,959 stores, ended the quarter with cash and cash equivalents of
$498.2 million, long-term debt of 3,535.7 million and shareholders’
equity of $521.4 million.
Capital expenditures for the
quarter were $173 million. Management anticipates capital
expenditures to be approximately $425 million in fiscal 2011, and
expects to generate free cash flows of about $700 million.
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 the $500 million share
repurchase authorization was exhausted.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.
Strolling Through
Guidance
Management now expects the fourth
quarter earnings in the range of $1.28 to $1.43 and fiscal 2011
earnings between $2.38 and $2.53 per share. Earlier, Limited Brands
had projected fiscal 2011 earnings between $2.35 and $2.50 per
share.
The current Zacks Consensus
Estimates are $1.41 for the fourth quarter and $2.48 for fiscal
2011, both of which lie near the high end of the guidance
range.
Limited Brands now expects
comparable-store sales to rise in the low single digits in the
month of November and in the fourth quarter, and in the mid-to-high
single-digit range for fiscal 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 internationally by expanding aggressively in
Canada and other international markets. However, stiff competition
and erratic consumer behavior still remain concerns.
Counting 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.
However, the past trends witnessed
in comparable-store sales despite lingering economic woes, and the
better-than-expected results, inspire optimism on Limited
Brands.
Currently, we have a long-term
‘Outperform’ recommendation on the stock. 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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