Limited Brands’ Benefits Are No More Limited

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With the presidential election coming to an end, clouds of uncertainty have cleared. Investors have become more confident about how things will start taking shape. Also, people have started loosening up their wallets trying to come out of their shell of restricted spending. This is benefiting the retail industry, and specialty retail in particular. The results are evident by a stellar quarter posted by some of the industry's biggest players.

Limited Brands (NYSE: LTD) is one of those women specialty retailers that is witnessing good times as shoppers start becoming spendthrift. It posted great third quarter results, which made investors happy and Wall Street hopeful about the coming months.

A Look into the Quarter…

Due to the sell-off of one of its apparel business, revenue at Limited dropped 6% over last year, clocking $2,050.2 million. However, this was expected as the company is restructuring its business by closing down some of its La Senza stores and a third party apparel business. In fact, same store sales, which is an important metric in the retail space because it ignores the effect of new stores and closed stores in the last year, rose 5%, highlighting the growing demand for Limited’s products.

Moving on to the bottom line, adjusted earnings per share jumped slightly to $0.26 per share. The company’s cost cutting measures and higher merchandise prices helped in the earnings growth, which showed up on the margins as well. In fact, the gross margin has expanded to 40.2%.

Opportunities Lined Up…

Limited Brands has been experiencing huge demand for its personal care products, such as its Bath & Body Works line. Increase in store transactions is an indication of rising customer interests, which is enabling the Ohio-based retailer to add more stores.

Moreover, Limited Brands is trying to restructure and improve its La Senza brand, and the efforts have started bearing fruits with the gross margins increasing for this segment.

Along with strengthening of its direct channel business in the U.S. the company is also expanding its international footprint. It plans to add more stores in the emerging markets where it sees great potential. A key focus area has been Canada, where it intends to grow very soon.

The specialty retailer has also opened its first new store in Kuwait City and plans to grow fast in the region, along with its growing network of Bath & Body Works line in the international markets.

Other Industry Players…

Industry peers such as Ann (NYSE: ANN) and Coldwater Creek (NASDAQ: CWTR) are also experiencing better times, but their performance has not been as good as Limited Brands' mainly due to the efforts made by Limited. The 5 year performance, in terms of return to investors, can be shown in the chart below:

<img src="http://media.ycharts.com/charts/f2a83eed2abaea3dd51e5f4dcbbb4d65.png" />

LTD data by YCharts

Through the launch of new and attractive products and growing business of fragrance and other beauty products, Limited Brands won customers’ hearts, resulting in a stock price increase of 150%. This stock price appreciation is higher than both of its peers, who are struggling to provide positive returns to investors.

Ann is eying to capture the Canadian market where Limited Brands already has a presence and has plans to enhance it. However, the former lacks on the promotional activity front, which might be deterrent to its success. Moreover, Limited Brands has some great marketing strategies, such as a Fashion Show that will take place early December with popular celebrities such as Bruno Mars and Rihanna performing. This will be a great promotional event for the retailer.

On the other hand, Coldwater Creek is in a deadlock situation where it is facing difficulties understanding customer expectations. Hence, its second quarter results posted a 10% decline in revenue and its bottom line is bleeding. It is unable to offer innovative designs and new product offerings to stir demand.

The Takeaway

Apart from the benefits of being stronger than its competitors and having a number of opportunities for potential growth, Limited Brands has more to it. It has revised its guidance upward and announced for a quarterly dividend, making it more attractive for investors. The specialty retailer is planning to grow in size, backed by new products and increased marketing in the coming months. This will especially prove to be beneficial because of the peak holiday season ahead. All these factors taken together make Limited Brands an interesting company to own.


justhimanshu has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus