Limited Brands' Decent Comps Run - Analyst Blog
July 02 2012 - 2:00PM
Zacks
Limited Brands Inc. (LTD), a specialty retailer
of women’s intimate and other apparel, beauty and personal care
products, is persistently trying every means to navigate through
this sluggish economic environment by adopting optimum inventory
strategies, better expense management, merchandise initiatives and
prudent capital spending
The U.S. economy is reeling under the ongoing financial crisis,
the rippling effects of which have gradually engulfed the global
market. Amid this environment, Limited Brands, the owner of
Victoria's Secret Direct and La Senza chains, has enjoyed a
positive sales rhythm so far in 2012, and we believe it will
sustain the same tempo for the balance of the year.
Riding on Positive Comps
During the period from January to May 2012, Limited Brands
consistently registered comparable-store sales growth. Over that
period, comps growth touched a low of 6% and hit a high of 9%,
thereby recording average growth of approximately 7.4%. In the
first five months of 2012, comps increased 9% in January, 8% in
both February and March, and 6% in both April and May.
In terms of performance, Limited Brands fared far better than
competitor Gap Inc. (GPS), which posted average
comparable-store sales growth of 2.2%. From January to May, Gap
registered comparable sales growth in each month except January and
April. The company registered comps growth of 4% in February, 8% in
March and 2% in May but comps decline of 1% in January and 2% in
April.
Closing Commentary
Limited Brands’ Bath & Body Works segment is gaining
traction, thanks to a rise in store transactions, enhancement in
the direct channel business and growth in new stores. Victoria’s
Secret Stores has been performing well, and the company is also
revamping its La Senza brand both at home in Canada and
internationally by improving product assortments, store operations
and layout.
Limited Brands wants to augment its retail footprint across the
globe by expanding aggressively in Canada and other international
markets.
Another driving factor is the travel retail concept. These are
small Victoria’s Secret stores (about 1,000 square feet) operating
under a wholesale model, and primarily located in airports and
tourist destinations. These stores provide significant growth
opportunities and are an innovative way to advertise.
The economy is still not out of the woods, and whether 2012 will
mark a complete resurrection is tough to say. Limited Brands faces
stiff competition from chain specialty stores, department stores
and discount retailers. Competitors with a larger number of stores,
greater market presence, brand recognition, and financial resources
will likely continue to weigh on the company’s results.
The La Senza brand has been facing headwinds, witnessing a
comparable-store sales fall of 1% during the first quarter of 2012
and -8% in the month of May.
Moreover, the company’s customers are sensitive to macroeconomic
factors including interest rate hikes, increase in fuel and energy
costs, sluggishness in the housing market, and high unemployment
and household debt levels, which may affect their spending.
Given the pros and cons, we reiterate our long-term Neutral
recommendation on the stock. Moreover, Limited Brands holds a Zacks
#3 Rank that translates into a short-term Hold rating.
GAP INC (GPS): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
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