LIMITED BRANDS INC. $9.15 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 322.1 million; Market cap: $2.9 billion; Price-to-sales ratio: 0.4; WSSF Rating: Average) operates two main retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (soaps and bath oils). It also operates the La Senza (lingerie) chain in Canada and 30 other countries.
In December 2008, Limited Brands’ overall same-store sales fell 10%. The slowing economy forced the company to lower prices to lure customers and clear out older inventory. Same-store sales fell by 9% at Victoria’s Secret, 10% at La Senza and 11% at Bath & Body Works.
Its successful restructuring over the past two years will continue to help Limited Brands cope with the slowdown. As part of this plan, it sold 75% of its Express and Limited casual clothing chains, which generate lower profits than its other operations. Workforce reductions, lower inventory levels and other measures have also saved it $150 million a year.
The company’s improving balance sheet also lends support. As of November 1, 2008, long-term debt was $2.9 billion, or about 4% more than its market cap. However, most of that comes due in 2012 and later. It also held cash of $377 million, or $1.17 a share.
The stock now trades at 8.6 times its likely fiscal 2009 earnings of $1.07 a share. That’s reasonable in light of the strong growth potential of its brands, particularly in overseas markets. The company’s steady cash flow should also let it keep paying its $0.60 dividend, which yields 6.6%.
Limited Brands is a buy.
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