Be Prepared to Fly High With This Company

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

All’s well that ends well. After a difficult and an unpredictable start to the year, 2012 brought a lot of mixed results to investors. In spite of various hurdles, many retail industry players managed to fight the tough environment by formulating varied strategies to keep attract as well as retain customers.

Premium retailers such as Fossil (NASDAQ: FOSL), which initially felt the pinch of restrained consumer spending, ended up posting a rocking fourth quarter and fiscal year results. Fossil’s acquisition strategy helped in registering a revenue growth of 14% over last year. Its acquisition of Skagen played a crucial role in overcoming the softness of Europe. Additionally, the company’s continuous expansion of stores led to the top line growth and efficient cost management drove the bottom line higher.

Similarly, specialty women retailer, Limited Brands (NYSE: LTD), registered a stellar fourth quarter recently which beat analysts’ expectations, enabling its stock prices to surge. Let us dig deeper.

Analyzing the details

Exclusive product portfolio and continuous product innovation led to a 9.7% surge in revenue, clocking $3.86 billion. Great marketing efforts and the strategy of using celebrities for new product advertising helped the company witness huge demand for its products. These efforts were made at the right time as the holiday season was expected to bring consumers’ interests to shop.

Even the bottom line performed well with a 17.3% growth over last year. The retailer did a commendable job in managing its costs and attaining efficiency. Moreover, efforts such as consolidation of unprofitable stores led to higher revenue per square feet as well as lower costs thereof.

Limited Brands’ were indeed not limited to consolidation and product innovation. Its restructuring efforts of La Senza brand boosted the top line. Also, the specialty retailer has been remodeling its stores in order to make it even more attractive to the customers.

The company’s strong direct-to-consumer business has been quite interesting. Also, Limited Brands has been making expansionary efforts and has been trying to enhance its footprint in Canada and other international markets as the company sees a lot of potential in these regions. All these efforts have together enabled the retailer to perform well and post rocking results.

Valuation

A quick look at the valuation of the company as compared to its industry peers will help in understanding the company better. When compared to Ann (NYSE: ANN), Limited Brands might come across as expensive since the latter has a higher trailing P/E multiple. Ann’s P/E multiple of 14.23 is lower than Limited’s P/E multiple of 17.81. However, considering forward P/E will change the notion. Forward P/E multiple for Ann is 12.66 and for Limited is 12.76. Hence, its higher price may be worth paying since analysts foresee great growth potential in the company.

The bottom line

The women's retailer has been performing remarkably well and has taken initiatives in the right direction. Its great marketing strategy and product innovation will continue to benefit the company in the long run. Additionally, its restructuring efforts and continuous strive to attract customers will bring success. Moreover, the retailer’s Forward P/E multiple highlights its earnings potential. With efficient cost saving initiatives and geographical expansion, Limited Brands looks like a worthy investment and is expected to shine brightly in future. Investors should not ignore this stock.


Himanshu Poddar has no position in any stocks mentioned. The Motley Fool recommends Fossil. The Motley Fool owns shares of Fossil. 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!

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