LB LandBridge Company LLC

We are maintaining our long-term ‘Neutral’ recommendation on Columbus, Ohio based Limited Brands Inc. (LTD) – a specialty retailer of women’s intimate and other apparel, beauty and personal care products, home fragrance products and accessories.

Limited Brands is persistently striving to rebound from a lackluster economy, by adopting optimum inventory strategy, better expense management, merchandise initiatives and prudent capital spending with an aim of generating healthy cash flows and augmenting its financial position. This is evident by a solid 24.4% year-to-date return on the stock.

Recently, Limited Brands posted better-than-expected second-quarter 2012 results as earnings of 50 cents per share came in ahead of the Zacks Consensus Estimate by a couple of cents and improved from 48 cents earned in the prior-year quarter. Net sales for the quarter came in at $2,399.1 million, marginally surpassing the Zacks Consensus Estimate of $2,398 million.

Moreover, Limited Brands, which is having a market cap of about $13.9 billion, has been witnessing a significant rise in its comparable store sales since the beginning of fiscal 2012. The company’s comps have been increasing at an average rate of 7.5% since the same period. Limited Brands’ comparable-store sales for September 2012 grew 5% following an elevation of 8% in August 2012.

Further, Limited Brands’ continuous focus on cost containment, inventory management, and merchandise initiatives has helped it to mitigate the sluggish consumer environment. Management also expects gross margin to improve, primarily driven by leverage in buying and occupancy expense, and the sale of the third-party apparel sourcing business in November 2011.

On the reverse side of the story, La Senza – one of the major brands of the company – has been witnessing a continuous decline in comps year-to-date, with a fall of 3% during the second quarter of 2012 and 1% in the first quarter. Although, the company is in a constant process to revamp its La Senza brand both at home in Canada and internationally by improving product assortments, store operations and layout, we seek more visibility for such initiatives.

Limited Brands faces stiff competition from chain specialty stores, department stores and discount retailers on attributes such as, marketing, design, price, service, quality, and brand image. The competitors having larger number of stores, greater market presence, brand recognition, and financial resources will likely continue to weigh on the company’s results. The major competitors of the company are Gap Inc. (GPS) and Hanesbrands Inc. (HBI).

Further, Limited Brand’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.

Based on the above discussion, we remain skeptical on Limited Brands’ stock and suggest that the investors should seek better visibility for its prospective in the long term.

 
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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