Limited Brands Profit Soars, Victoria's Secret Travels to Airports

After struggling to right itself during the recession, retailer Limited Brands (LTD) posted encouraging year-end results for 2009 after the bell on Wednesday. The company plans to close a few stores, but expand abroad by opening more Victoria's Secret locations in airports.

The parent of Victoria's Secret and Bath & Body Works said its stores are selling more items at full price, which made up for flat traffic in 2009. Executives said they expect prices will stay put in 2010, and the company will continue to focus on cutting costs so it can post a modest profit growth.

"We feel good about how the business is positioned, compared to how we started 2009," said Sharen Turney, CEO of the Victoria's Secret unit.

Limited Brands posted net income of $356.1 million, or $1.08 per share for the fourth quarter, but after factoring out several credits and charges to deal with tax and restructuring issues, adjusted earnings were $332.8 million, or $1.01 per share. That beat analysts' estimates of 98 cents per share, according to the Thomson Reuters consensus estimate, and was 49% above the 68 cents per share in adjusted income for the same period in 2008. Net income for the year was $447.9 million, or $1.37 per share, and $401.8 million or $1.23 per share, up from $1.05 per share in 2008.

The company's total comparable sales were down 4% for the year, but turned positive in the last quarter, up 1%. Victoria's Secret comparable sales were down 6% for the year, while Bath & Body Works was down 1%.

But 2010 appears to be starting better than expected. Limited Brands now estimates February sales will rise in low- to mid-single digit percentages, better than the flat sales forecast it expected shortly before Valentine's Day. The company expects comparable sales to rise 2% to 4% for the full quarter.

"We are pleased with our progress, but far from satisfied," said Turney.

Limited Brands issued modest guidance for investors, calling for earnings per share between $1.40 and $1.60 in 2010 and five to ten cents per share in the first quarter. Comparable sales for the year are expected to be flat to up in low single-digit percentages.

"As we enter 2010, we recognize the environment remains uncertain and challenging," said Chief Administrative Officer Martyn Redgrave. "While we've made considerable progress, we see many opportunities to improve in different areas."

A few pilot projects begun before the recession are in a holding pattern for now, including the expansions of the Pink offshoot of Victoria's Secret, C.O. Bigelow toiletries chain and Henri Bendel department stores. Limited Brands has no plans to open more Bendels in 2010, but the company is very encouraged by the results shown in the 10 existing stores.

"They had a fabulous holiday," said Redgrave.

Meanwhile, the company is still refining the positioning of the three Bigelow pilots before making any moves, he said.

The 10 Pink stores -- which sell a more youthful, lower-priced range of lingerie -- are doing well, said Turney. She noted a new store is opening in New York's Soho in March.

One pilot project that management is very optimistic about is the lineup of international stores located in airports, Redgrave said. The seven existing stores are exceeding expectations, and Limited Brands is targeting opening another 10 to 15 locations in 2010 while refining the product selections and the store concept, he added.

But Limited is planning to close a number of under-performing stores during 2010. CFO Stuart Burgdoerfer said analysts' estimates that nearly 75 locations will be axed could wind up being too high. He noted that 99% of the company's stores had positive after-tax cash flow at year end, so the number of closings could be "materially less," as few as 40 to 50 stores out of its nearly 3,000 locations.
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