Limited Brands: Victoria's Secret, Bath & Body Works Remain Major Growth Drivers

| About: L Brands, (LB)

Intimate apparel retailer Limited Brands (NYSE:LTD) posted better-than-expected Q2 fiscal results, primarily due to out performance of Victoria's Secret and Bath & Body Works businesses. [1] [2] Limited's Q2 sales were $2.39 billion with an 8% increase in comparable sales. Additionally, the company's gross margin increased by 330 basis points to 40.6%, benefiting primarily from the sale of its sourcing business.

Segment Recap for Q2

Victoria's Secret was once again the biggest contributor to Limited's Q2 performance. The comparable sales for Victoria's Secret's stores channel were up 10% with total sales increasing by 10% to $1,170 million. The growth was primarily driven by strength across bras and panties, swimwear, Pink lounge and fragrance.

Bath & Body Works' comparable sales growth was 7%, with total sales increasing by 8% to $609 million. The growth in Bath & Body Works was driven by Limited's Signature Collection product line, its soap and sanitizer business and its home fragrance assortment.

In the international segment, the company looks to be on target to achieve 200 international stores by the end of 2012. The company's Canadian lingerie chain La Senza continues to comp negatively. Despite major repositioning efforts during the quarter, La Senza comparable store sales in Canada decreased by 3%.

What to Expect Going Ahead

Though Limited posted solid Q2 results, the company gave a mixed Q3 2012 outlook. Limited forecasted a disappointing low-to-mid single digit comps increase for Q3 but guided Q3 gross margins to increase significantly by nearly 400 bps primarily due to the sale of its low margin sourcing business.

The company seemed upbeat about its Victoria's Secret offerings and was focused on its core categories of bras, panties, loungewear and fragrance. Additionally, the company is also planning to open and remodel nearly 40 Victoria's Secret stores during the quarter, which should increase the Victoria's Secret revenue per square foot going forward. With regards to Bath & Body Works, the company continues to innovate in both soaps and fragrance with the launch of its Autumn in America soap collection.

We have revised our Limited Brands price estimate to $55.90, which is roughly 15% above the current market price. The change in our price estimate reflects changes to Limited's net cash/debt position, along with changes to the company's near term capital expenditures.


  1. Limited Brands release Q2 fiscal 12 earnings, Source: Limited's IR
  2. Limited Brands Q2 earnings transcript, Source: Seeking Alpha

Disclosure: None