Limited Surpasses Expectations

Feb.25.10 | About: L Brands, (LB)

Limited Brands Inc. (LTD), a specialty retailer of women’s intimate and other apparel, beauty and personal care products, recently posted stronger-than-expected fourth-quarter 2009 results sending shares up 4% or 85 cents to $22.39 in after-market trading on Wednesday.

The company’s sustained focus on cost containment, inventory management, and merchandise initiatives has kept it afloat in a difficult consumer environment.

Earnings versus Zacks Consensus

The quarterly earnings of $1.01 per share have outdone the Zacks Consensus Estimate of 98 cents, and rose 49% from 68 cents delivered in the prior-year quarter. The quarterly earnings topped the Zacks Consensus Estimate by 3%. Limited Brands’ earnings surprise, when compared to the Zacks Consensus Estimates in the preceding four quarters, varies between 6% and 300%, with the average being 113%.

Management now expects first-quarter 2010 earnings in the range of 5 cents to 10 cents a share. The current Zacks Consensus Estimate is 7 cents, which has remained stagnant in the last 30 days with only two out of 19 analysts covering the stock raising their estimates, and one analyst lowering estimate, ultimately having no impact on the consensus.

Limited Brands also forecasted fiscal year 2010 earnings between $1.40 and $1.60 per share. The current Zacks Consensus Estimate is $1.42, which has increased 4% in the last 30 days with 12 analysts raising their estimates.

Quarterly Performance

Limited Brands, the owner of the Victoria’s Secret and Bath & BodyWorks chains said that net sales for the quarter rose 2% to $3,063.4 million, reflecting an increase of 1% in comparable-store sales.

Based in Columbus, Ohio, Limited Brands now expects February 2010 comparable-store sales to increase in the high-single to low-double digit range, following a 6% jump in January 2010 and a decline of 2% in December 2009, reflecting signs of improvement, as consumers, who cut back their discretionary spending during the recession are now starting to loosen their purse strings. Earlier, the company had expected comparable-store sales to remain flat in February 2010.

Gross profit for the quarter soared 22% to $1,249 million, helped by a 2% increase in the top-line and an 8% decline in cost of goods sold, buying and occupancy. Gross margin expanded 700 basis points to 41%. Adjusted operating income rose 50% to $585.5 million, whereas operating margin expanded 600 basis points to 19%.

Limited Brands sells its merchandise through specialty retail stores in the United States and Canada, which are primarily mall-based, and through its websites, catalog and other channels. The company currently operates 2,971 specialty stores.