LIMITED BRANDS INC. $18 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 353.1 million; Market cap: $6.4 billion; WSSF Rating: Average) operates two retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (personal care products).
In the past few months, the company has sold 75% of the Limited and Express casual clothing chains as part of its strategy to focus on its more profitable operations. The two sales gave Limited Brands a net pre-tax gain of $230 million.
In its third fiscal quarter ended November 3, 2007, Limited Brands earned $0.03 a share (total $12 million). Due to the timing of the Limited and Express sales, the latest quarterly earnings included a pre-tax gain of just $0.04 a share ($24.5 million). The company earned $0.06 a share ($24 million) in the year-earlier quarter. Sales fell 9.5%, to $1.9 billion from $2.1 billion.
Limited Brands is using the proceeds from the sale to buy back stock. It spent $154 million on repurchases in the most recent quarter. It’s still authorized to buy back a further $346 million worth of stock.
Like Jones Apparel and Liz Claiborne, Limited Brands is also aggressively cutting its costs. It aims to cut expenses by $100 million a year. That should let the company keep paying its $0.60 dividend, which yields 3.3%.
Weak sales and earnings have hurt Limited Brands’ stock price in the past six months. But the restructuring plan should expand projected earnings, from $1.30 a share in fiscal 2008 (p/e of 12.3) to $1.59 a share in 2009 (p/e of 11.3).
Limited Brands is a buy.
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