Limited Brands Enhances Returns - Analyst Blog

After Family Dollar Stores Inc. (FDO) recently raised its quarterly dividend by 16.1% to 18 cents from 15.5 cents, and Tiffany & Company (TIF) announced a new share repurchase program of $400 million, it is now Limited Brands Inc.'s (LTD) turn to employ its free cash to enhance shareholders' returns, thus boosting investor confidence on the stock.

Limited Brands, a specialty retailer of women's intimate and other apparel, raised its quarterly dividend by approximately 33.0% to 20 cents from 15 cents. The increased dividend will be paid on March 11, 2011 to stockholders of record as on February 25, 2011, reflecting the company's 145^th successive quarterly payout.

Increase in dividend reflects the company's sound financial position and well-defined future prospects. The signs of recovery in the economy have made share buybacks and dividend increases a common factor among companies sitting on extra cash. These strategies enhance shareholders' return and lift the market value of the stock.

The company's continuous focus on inventory management, cost control and merchandise inventiveness kept it hovering in an apathetic retail environment. Further, it has been actively managing its cash flows, returning much of its free cash to shareholders through share repurchases and dividends.

The company has also been making far-sighted investments related to store openings and expansions along with the improvement of distribution centers to drive revenue growth.

Limited Brands' 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 both in Canadaand internationally by improving product assortments, store operations and layout.

However, the company'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 affect their discretionary spending, and in turn, the company's growth and profitability.

Followed by a broad evaluation, we prefer to maintain a long-term Neutral recommendation on the stock. Limited Brands also holds a Zacks #3 Rank, which translates into a short-term Hold rating, and correlates with our long-term recommendation.

 
FAMILY DOLLAR (FDO): Free Stock Analysis Report
 
LIMITED INC (LTD): Free Stock Analysis Report
 
TIFFANY & CO (TIF): Free Stock Analysis Report
 
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