Limited Brands, Inc. (LTD) recently hit a new multi-year high after reporting better than expected Q1 results in mid May that included a 32% earnings surprise. Although shares are up big over the last year, the valuation picture is still in check at 14X forward earnings.
Company Description
Limited Brands, Inc. opertaes as a retailer womans beauty, apparel and personal care products in the United States and Canada under names like Victoria’s Secret and Bath and Body Works. The company operates close to 3,000 stores, was founded in 1963 and has a market cap of $8 billion.
Retailers have been the surprise performers of the last year, posting big gains on the heels of strategiuc adjustments and some pent-up consumer demand. This dynamic recently oushed shares of LTD to a new multi-year high with better than expected Q1 results from May that included a 32% earnings surprise.
First-Quarter Results
Sales for the period were up 12% from last year to $1.932 billion while same-store sales were up a very solid 10%. Earnings also came in strong at 25 cents, 32% ahead of the Zacks Consensus Estimate. The company now has an average earnings surprise of 88% over the last four quarters.
The nice sales growth was accompanied by solid margin expansion, with gross margin up 420 basis points to 35.9%. Operating income was up 580 basis points to $119.8 million.
Healthy Balance Sheet
During the quarter The Limited was able to pay down some of its long-term debt, dropping more than $200 million to $2.53 billion. It’s cash position currently stands at $1.19 billion.
Estimates
Estimates have been trending higher for most of the last few months, with the current year adding 35 cents to $1.78. The next-year estimate is up 29 cents in the same time to $2.03, a solid 14% growth projection.
Valuation
In spite of the recent gains, shares of LTD still look reasonable valued, trading with a forward P/E multiple of 14X, a slight premium to its peers’ average of 13X.
2-Year Chart
LTD has been trending higher for most of the last 14 months, hitting a multi-year high in late April before pulling back a bit on market voltility. Look for support from the trend line on any more weakness, take a look below.
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.
