Limited Brands - Growth & Income
January 04 2013 - 12:30AM
Zacks
A healthy dividend yield of 2.1% and a long-term earnings growth
projection of 12% make
Limited Brands Inc. (LTD) a viable
option for investors seeking growth and income.
Earnings estimates for this Zacks #2 Rank (Buy) specialty
retailer of women’s intimate and other apparels have advanced since
its fiscal third-quarter report in November, which marked the ninth
straight quarter with a positive surprise. The company also raised
its outlook for the full year. LTD has been focused on cost
containment, inventory management, merchandise initiatives and its
rational store expansion strategy.
Limited Brands Beats, Ups Outlook
On November 14, Limited Brands posted fiscal third-quarter
earnings of 26 cents per share, which surpassed the Zacks Consensus
Estimate by 4%. Net sales of $2,050.2 million dropped 6% year over
year but topped the Zacks Consensus Estimate of $2,045 million.
Limited Brands delivered comparable-store sales growth of 5% during
the quarter, compared with 9% in the prior year.
Sales grew 7% at Victoria’s Secret Stores & Victoria’s
Secret Beauty, but fell 2% at Victoria's Secret Direct. Total sales
at Victoria Secret and Bath & Body Works & The White Barn
Candle Co. both jumped 5% and 7%, respectively. However, sales at
La Senza tumbled 11%.
Gross profit climbed 6% to $835.6 million, whereas gross margin
expanded 470 basis points to 40.8%. Operating income advanced 6% to
$197.4 million, whereas operating margin rose 100 basis points to
9.6%.
Management projects earnings of $1.62 to $1.77 for the fourth
quarter and between $2.78 and $2.93 per share for the fiscal year.
Previously, the company had forecasted earnings of $2.73 to $2.88
per share for the year. Limited Brands expects comparable-store
sales to increase between 2% and 4% during the fourth quarter and
5% in the fiscal year ending this month.
Earnings Estimates Climbing
The Zacks Consensus Estimate for the current fiscal year edged
up 1% to $2.92 per share in the past 60 days on the back of upward
revisions from 19 of 20 estimates. This implies a year-over-year
increase of 12.2%. For next fiscal year, the Zacks Consensus
Estimate is up 0.6% to $3.27 in the same time, as 15 of 20
estimates were revised higher. The current estimate implies
year-over-year growth of 12.3%.
Dividend Strength
Limited Brands has been actively managing its cash flows and
returning much of its free cash to shareholders via dividends,
while maintaining a healthy balance sheet and credit ratios that
are necessary for an investment-grade rating. The quarterly
dividend was increased 25% to 25 cents per share in January 2012,
and currently yields 2.1%.
The company also paid a special dividend of $3 per share on
December 26. Over the years, the company has steadily increased its
dividend payout. Limited Brands’ commitment toward enhancing
shareholder returns reflects its sound liquidity position and well
defined future prospects.
Valuation Stretched, Yet Lucrative
Limited Brands currently trades at a forward P/E of 16.19x,
reflecting a 13.5% premium to the peer group average of 14.27x.
Again, its price-to-sales ratio of 1.34 is at a substantial premium
to the peer group average of 0.91. Given the long-term earnings
growth projection of 12%, the PEG ratio stands at 1.35, above the
benchmark of 1 for a fairly priced stock. The return on assets
(ROA) for the stock looks impressive. It has a trailing 12-month
ROA of 12.5% compared with 10.5% for its peer group.
The stock price has now started to correlate with the increasing
trend in estimates. Currently, the stock price is in the range of
$45.00–$50.00, and the consensus estimates for fiscal 2012 and 2013
are steadily moving upward.
![](http://www.zacks.com/images/upload_dir/1357236151.jpg)
Limited Brands is a specialty retailer of women’s intimate and
other apparels, beauty and personal care products, home fragrance
products and accessories. The company conducts its business
primarily through two reportable segments - Victoria’s Secret and
Bath & Body Works. The Victoria’s Secret segment sells
merchandise under the brand names such as Victoria’s Secret, Pink
and La Senza. Limited Brands, which competes with Gap Inc. (GPS),
has a market cap of $13.67 billion.
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