Limited Brands Reports Solid Results Despite Weak Holidays

| About: L Brands, (LB)

Limited Brands (LTD) reported steady Q4 fiscal 2012 results driven by good brand performance, partially offset by a weak holiday season. The retailer performed well during November and January, but fiscal cliff concerns and Hurricane Sandy weighed on its December results. Nevertheless, the company's long-term growth fundamentals remain strong and are likely to outweigh this temporary weakness. Limited dominates the personal care and intimate-apparel market with its Bath & Body Works and Victoria's Secret brands. Both of these brands have performed well in their respective segments driven by strong brand recognition and new product launches.

Victoria's Secret Performance and the Outlook for the Next Quarter

For the holiday season, Victoria's Secret launched new products such as Angel Fantasies bras, Angel Gold fragrance, the Flirt Bra, and Vintage Fleece. These products received good customer response, resulting in 4% comparable-store sales growth in November. However, comparable store sales growth was flat in December due to the weak holiday season. Nevertheless, Victoria's Secret saw a turnaround in January with its clearance and full priced product sales during the semi-annual sale period. The brand's comparable-store sales improved by 8% during the month. This success was further complemented by the strength in Body By Victoria collection, PINK bralettes, and Heartbreaker fragrance.

Although Victoria's Secret same-store sales growth stood just at 3% in Q4, the figure was higher at 7% for fiscal 2012. The temporary weakness could not offset an otherwise good year for Victoria's Secret. We expect its good performance to continue in the current quarter, with increased focus on seasonal products such as the Dream Angels collection and spring break essentials in PINK. Victoria's Secret U.S. stores constitute about 50% of Limited Brands' value, according to our estimates.

Bath & Body Works Performance and the Outlook for the Next Quarter

Bath & Body Works' signature collection, soap and sanitizer, and home product assortments helped the brand in posting strong comparable sales growth of 7% in Q4 fiscal 2012. Additionally, its launch of new fragrance and an exclusive range of holiday collection and gifts also helped it perform well during December despite the holiday season's weakness. The brand reported 7% comparable- store sales growth in December.

Going Forward, Bath & Body Works will relaunch its luxurious signature collection fragrance, Forever Red. It will also add a new fragrance to its collection, America's Sweetheart. We believe that as the impact of the weak holiday season wears off, the brand's growth would accelerate. Bath & Body Works U.S. stores constitute about 30% of Limited Brands' value according to our estimates.

Our price estimate for Limited Brands Stands at $50, implying a premium of about 15% to the current market price.

Disclosure: No positions.