Limited Brands Inc.’s (LTD) sustained focus on cost containment, inventory management and merchandise initiatives has kept it afloat in a sluggish consumer environment. Management now forecasts first-quarter earnings in the range of 26 cents to 31 cents and fiscal 2011 earnings between $2.15 and $2.35 per share.
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 both at home in Canada and internationally by improving product assortments, store operations and layout.
Limited Brands is also keen to enhance its retail footprint across the globe by ex0panding aggressively in Canada and other international markets.
Limited Brands recently posted fourth-quarter 2010 results. The quarterly earnings of $1.26 per share came a penny ahead of the Zacks Consensus Estimate, but rose 24.8% from $1.01 earned in the prior-year quarter. Net sales of $3,455.9 million climbed 12.8% from the prior-year quarter, and outdid the Zacks Consensus Estimate of $3,397 million. The consumers, who cut back their discretionary spending during the recession, are now gradually loosening their wallets.
Limited Brands is actively managing its cash flows, and returning much of its free cash via dividends and share repurchases. During fiscal 2011, the company expects to generate free cash flow of $600 million.
A specialty retailer of women’s intimate and other apparel, beauty and personal care products, 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. Competitors have larger numbers of stores, greater market presence, brand recognition and financial resources will likely continue to weigh on the company’s results.
Moreover, 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 impact their discretionary spending, and in turn the company’s growth and profitability.
Given the pros and cons we prefer to maintain a long-term Neutral recommendation on the stock. However, Limited Brands, which competes with Gap Inc. (GPS) and Hanesbrands Inc. (HBI), holds a Zacks #2 Rank, which translates into a short-term Buy rating.
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LIMITED INC (LTD): Free Stock Analysis Report
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