Limited Brands Inc. (LTD), a specialty retailer of women’s intimate and other apparel, beauty and personal care products, posted better-than-expected sales results for the four-week period ended February 25, 2012. The increase was boosted by healthy sales at its Victoria’s Secret Stores and Bath & Body Works.
February Sales
The owner of Victoria’s Secret Direct and La Senza chains has sustained its growth momentum. Limited Brands’ comparable-store sales for February 2012 rose 8% following an increase of 9% in January 2012 and 12% jump in February 2011.
Management had earlier predicted comparable-store sales to rise in the mid to high single-digit range for the month under review.
Comparable-store sales for February increased 10% at Victoria’s Secret Stores & Victoria’s Secret Beauty, 7% at Bath & Body Works & The White Barn Candle Co. and 1% at La Senza. Sales at Victoria’s Secret Direct climbed 5%.
Limited Brands, which competes with Hanesbrands Inc. (HBI), said that net sales for February dropped 2.5% to $653.9 million from $670.9 million posted in the same month prior year. The prior-year period sales included $70.5 million from a third-party apparel sourcing business that was sold in November 2011.
Limited Brands fared far better than its peer Gap Inc. (GPS), which postedcomparable-store sales growth of 4% compared with a decline of 3% in the prior-year period.
Consumer Confidence on High
Consumers seem to have gained confidence this year, and are opening their wallets, leading to a surge in sales at stores in February.Conference Board data suggests that Consumer Confidence Index rose to 70.8 in February 2012 from 61.5 in January, the highest level attained since February 2011, when the index touched 70.4.
The U.S. economy is showing some signs of resurrection, as evident from an improving job market, fall in the count of Americans claiming unemployment benefits and boost in consumer spending, which represents over 70% of the economy.
The unemployment rate dropped to 8.3% in January 2012, the lowest figure attained since February 2009. Moreover, according to Labor Department, the number of people seeking unemployment benefit fell by 2,000 to 351,000.
Strolling Through Guidance
For the month of March, management now expects comparable-store sales to rise in the low single digits. At its last earnings call, Limited Brands forecasted a comparable-store sales rise in the low to mid single digits in the first quarter and between 2% and 4% in fiscal 2012. The company also projected earnings in the range of 35 cents to 40 cents for the first quarter and between $2.60 and $2.80 per share for fiscal 2012.
Let’s Conclude
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.
Limited Brands is keen to augment its retail footprint across the globe by expanding aggressively in Canada and other international markets. Moreover, the company’s strong liquidity positions it for growth and higher returns. However, stiff competition and erratic consumer behavior still remain matters of concern.
Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Limited Brands holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating, and correlates with our long-term view.
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