Limited Brands Sustains Momentum - Analyst Blog

Limited Brands, Inc. (LTD), a specialty retailer of women’s intimate and other apparel, beauty and personal care products, recently posted better-than-expected sales results for the four-week period ended August 28, 2010.

The owner of the Victoria's Secret and Bath & Body Works chains sustained its growth momentum. Limited Brands’ comparable-store sales for August 2010 rose 10%, following an increase of 12% registered in July 2010, reflecting a sharp improvement from a decline of 4% witnessed in August 2009.

Comparable-store sales for August jumped 15% at Victoria’s Secret Stores, rose 9% at Victoria’s Secret Direct, and grew 2% at both La Senza and Bath & Body Works.

Columbus, Ohio-based Limited Brands pointed that year-to-date comparable-store sales grew by 9%. Limited Brands now expects September comparable-store sales to rise in the low-to-mid single-digit range. Management expects comps to increase between 3% and 5% in the third quarter, and at a mid-single digit for fiscal 2010.

Limited Brands indicated that net sales for August rose 12.3% year-on-year to $630.3 million from $561.4 million posted in the same month last year. Year to date, sales climbed 10.4% to $4,804 million from $4,353 million delivered in the prior-year period.

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 in the year, driven by an improvement in the merchandise margin rate.

The company’s Bath & Body Works segment is gaining traction, driven by rise in store transactions, enhancement in the direct channel business and growth from new stores. Victoria’s Secret Stores has been performing well. The company is constantly revamping its La Senza brand. Limited Brands is keen to enhance its retail footprint across the globe by expanding aggressively in Canada, and other international markets.

However, stiff competition, and unfavorable macro-economic factors influencing consumer spending pattern remain concerns.

We have a Neutral rating on Limited Brands. Moreover, the Zacks #3 Rank, which translates into a short-term Hold rating, correlates with our long-term recommendation.