Why the Profit Outlook is Much More Fashionable for This Retailer
Reporting disappointing earnings for the third quarter of 2012, fashion retailer Limited Brands
Lower revenues and profits for the third quarter
The third quarter is traditionally weak for Limited Brands, which operates Victoria's Secret and Bath & Body Works stores from its Columbus, Ohio headquarters. New store openings, promotional offers, and remodeling expenses reduced earnings for the third quarter. The Limited Brands invested in 40 new store openings for the 2012 fall season to strengthen its international presence in Canada, the United Kingdom, and the Middle East.
Overall, net income fell year over year for the third quarter, to $73.4 million, or $0.25 per share, from $94.3 million, or $0.31 a share. Adjusted earnings were $75.6 million, or $0.26 a share, down from $77.6 million.
Because Limited piled discounts into its third quarter -- most likely to clear out merchandise before the holidays -- revenues were down to $2.05 billion, equaling Wall Street estimates. For the third quarter of 2011, $2.17 billion was booked as revenue. Comparable store sales still rose by 5%, year over year, despite the decline in revenues.
Better days ahead
Management of the Limited Brands projects fourth quarter earnings to be in the range of $1.62 to $1.77 per share, compared to $1.17 reported for Q4 2011. The analyst consensus is now $1.77 per share, but that could change after the third-quarter earnings report. For fiscal 2012, the company lifted its earnings guidance from a range of $2.73 to $2.88 a share, to $2.78 to $2.93. That topped the Wall Street consensus of $2.90 a share.
Even before its more optimistic outlook, Limited Brand had a much better price-to-earnings ratio and five-year earnings-per-share growth rate than the industry average and competitors such as American Eagle
American Eagle (AEO)
Urban Outfitters (URBN)
The Gap (GPS)
Abercrombie & Fitch (ANF)
5-Year Net Profit Margin Average
5-Year Earnings Per Share Growth Rate
With 40 new stores in business, promotions winding down, and the traditionally strong holiday shopping season approaching, shareholders of the Limited Brand should soon be opening a higher stock price with a 2.17% dividend wrapped around it!
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The article Why the Profit Outlook is Much More Fashionable for This Retailer originally appeared on Fool.com.Jonathan Yates has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend American Eagle Outfitters and Gap. 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.