Limited Brands Inc. (LTD) reported results for the third quarter of fiscal 2009 with earnings of 2 cents per share. Earnings were below the Zacks Consensus Estimate of 6 cents but were up 50% compared to the prior-year quarter.
Net sales for the quarter declined 3.5% year-over-year to $1.7 billion due to a 2% decline in comparable same store sales (comps).
According to channels, comparable same store sales of Victoria’s Secret channel contracted 4% as bra sales rose only modestly by low single-digits, while panties sales were down low single-digits. However, beauty sales were flat year-over-year as declines were fully offset by new launches and the strong performance of core products.
Bath & Body Works channel’s comparable store sales increased 2% during the quarter. The channel benefited from the improvement in the merchandise margin rate.
Gross margin for the quarter expanded 16 basis points (bps) to 31.7% versus 31.5% in the comparable prior-year quarter. The increase was primarily driven by the overall cost reduction efforts taken by the company as well as effective inventory management. Retail inventories per foot during the quarter were down 10% compared to the prior-year. The operating margin for the quarter grew 107 bps to 3.3% from 2.2% in the prior-year quarter.
Based on the performance of the third quarter, management raised its guidance for the full year and fourth quarter 2009. For the full year, the company expects the comps to decline in the mid single-digit range. Further, management expects a sales decline of approximately 10% at Victoria’s Secret direct and a sales decline of about 20% at Mast. Gross margins for the quarter are expected to be up modestly compared to the prior-year driven by an improvement in the merchandise margin rate partially offset by buying and occupancy de-leverage.
Furthermore, the company remains on track to generate $175 million in cost savings this fiscal. Annual earnings are now expected to be in the range of 93 cents to $1.08 per share. Previous guidance was 75 cents to 90 cents. Capital expenditures for fiscal 2009 are expected to be at $225 million. The company expects free cash flow in the range of $500 million to $600 million.
For the fourth quarter, the company expects earnings to be in the range of 71 cents to 86 cents per share. The guidance reflects a comp decline in the low to mid single-digit range. Net sales for the fourth quarter are expected to be roughly flat to down low single-digits. Management expects inventory per square foot to be down in the mid single-digit range.
Furthermore, the company has lined up holiday themes focused on offering core products and attractive seasonal gifts. The holiday themes also include Twilight Woods, the newest Signature Collection fragrance that will be featured throughout the shop, along with new fragrances in the Holiday Traditions Collection, including Vanilla Fig and Pear Vanilla.
In home fragrance, the company has new holiday figural candles and the new scent, Fireside. Additionally, in mid Jan, the company expects to restage its anti bac product line. The restage will include all new soap formulas and the gel, foaming and moisturizing forms as well as new formulas in hand sanitizers.
Limited brands is also updating its iconic diamond bottle shape by adding new graphics that are consistent with the restaged Signature Collection product line. In addition to the company’s focus on holiday and the anti bac restage, the other priorities remain,
The company is therefore, optimistic about its holiday assortment and the visual appeal of its stores. However, as the traffic is expected to be down compared to last year, management maintains a cautious outlook on the fourth quarter.
Read the full analyst report on “LTD”
Zacks Investment Research
