What's The Big Secret?

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

OMG! Only 4 weeks to go until Black Friday. The deal sites are really ramping up the hyperbole. Macy's ad was leaked and then pulled from one site. The Victoria's Secret Black Friday ad was also leaked so Limited Brands (NYSE: LTD) had to release the ad for their Bath & Body Works stores, too. Neither Black Friday deal is particularly compelling this year, at least not enough to brave a crowd at the mall. But if Black Friday isn't going to move the needle for Limited Brands, what will?

The Secret Is Pink!

Victoria's Secret is very popular with my daughter's friends at college, one of their signature hot pink bags is enough to get a "Ooh, what did you get? Did they have more?" from the other co-eds. (Is that even a viable term anymore?) They especially love the Pink line. If there was a Black Friday deal on Pink they'd be there at 7 a.m., likely in their pajamas with bedhead, but they'd be there nonetheless.

The Pink line is why I'm finally getting bullish on Limited Brands. Their collegiate collection features 55 college and university branded clothing items. There are also Pink Major League Baseball and NFL branded collections for the sporty girls. It's not just underwear in the Pink line or Victoria's Secret. There are backpacks, shoes, purses, sleepwear, hoodies, cashmere sweaters, graphic Tees, dresses, denim, clothing from top to toe, and the beauty products, too.

And look out, Under Armour (NYSE: UA) and Lululemon Athletica (NASDAQ: LULU), Victoria's Secret also just debuted a new sports collection of sports bras, yoga pants, shorts, and tops. These will likely be very popular with athletic ladies or those who want to look athletic. The prices are very competitive to Nike, Under Armour, and Lululemon and much sexier, too. My very fashion-forward daughter said I had to mention the sports line, her friends are loving it.

Another reason for a retail play in Limited Brands is that they also own Henri Bendel stores, a high end chain much like Saks, very pricey, very tony, for gifts and accessories. It's definitely a one-percenter destination. The NYC flagship store at its original 1895 location features Lalique art glass in the window facing the street, a not to be missed retail experience, very riche and what fine department stores used to be like.

The Limited also owns Bath and Body Works, White Barn Candle Company, and La Senza, a chain of intimates stores in Canada.  But the big secret at Victoria's Secret is Pink. That is why I would consider Limited Brands along with their fairly frequent special dividends, another $500 million share repurchase authorization, and for the expertise of founder and CEO Leslie H. Wexner. I love seasoned Founder/CEO's that know the biz, love the biz, and own the biz, some 19,722,037 shares to be exact. Janus Capital Management LLC owns 29,917,763 shares.

There are some buts: the quarterly earnings growth is -38.10%, the quarterly revenue growth is -2.40% and they hold a lot of debt, $4.59 billion to total cash of $1.19 billion.

Limited Brands is reporting on November 14 and with a 20.26 P/E and a 2.10% yield compared to Under Armour at a P/E of 56.25 which just reported on October 25 and sold off over 6%.  Under Armour missed on revenues although Q3 EPS was up 23% for a two cent beat. CEO Kevin Plank said that the women’s line was a major opportunity ahead and raised guidance overall. Under Armour already had competition from Gap (Athleta, women's sportswear), Nike and Lululemon on that front and now, The Limited. Under Armour is a great brand but doesn't have the yield.

Lululemon has been a go-go yoga clothing stock and its P/E at 45.43 with a forward P/E of 30.22 is more interesting than Under Armour but it, too has no yield. As an aspirational and health trend stock I still like it but The Limited has me tickled Pink about its holiday prospects and don't forget Valentine's Day is just around the corner from Christmas. With Victoria's Secret and Pink covering women's clothing, the new athletic line, Henri Bendel, and throwing in Bath & Body Works and Senza as a lagniappe (New Orleans lingo for an unexpected something extra), your holiday shopping for a great retail stock is done.



leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Under Armour. Motley Fool newsletter services recommend Lululemon Athletica and Under Armour. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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