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Limited Plan Fails to Impress

Rob Lenihan

Limited Brands(LTD Quote - Cramer on LTD - Stock Picks) is removing its clothes, and Wall Street doesn't like what it sees.

At least three analysts cut their ratings on the Columbus, Ohio-based retailer Wednesday, a day after the company slashed first-quarter earnings estimates and disclosed steps to unload a large portion of its struggling clothing brands.

Shares were slipping 56 cents, or 2.1%, to $25.62 recently. That comes on top of a 4.5% decline Tuesday.

Limited plans to sell 67% of its Express chain and also explore options for its namesake women's clothing store. With the move to sell Express and potentially Limited, the company's main focus would be on its Victoria's Secret lingerie brand and its Bath and Body Works beauty-products stores.

Citigroup analyst Kimberly Greenberger questioned Limited's plan to concentrate on Victoria's Secret, since sales at the division have been slumping. She lowered her rating on Limited's stock to hold from buy, citing deteriorating fundamentals at the intimate-apparel chain.

Greenberger said Victoria's Secret -- Limited's largest division -- suffered from a lack of newness in its bra launches. The weak sales lead to increased markdowns on bra launches and sleepwear, she said.

In a prerecorded call Tuesday, Martyn Redgrave, Limited's executive vice president and chief administrative officer, said the company was disappointed by Victoria's Secret's results.

"In hindsight, our bra launches lacked enough energy and newness to drive the planned sales," he said.

Greenberger also expressed concern about Victoria's Secret's ability to increase same-store sales in light of "the increasing threat of new entrants in the intimate apparel arena." Among the new competitors, Greenberger said, are American Eagle Outfitters(AEO Quote - Cramer on AEO - Stock Picks), Chico's FAS(CHS Quote - Cramer on CHS - Stock Picks), J.C. Penney(JCP Quote - Cramer on JCP - Stock Picks) and Abercrombie & Fitch(ANF Quote - Cramer on ANF - Stock Picks).

Greenberger also had doubts about the company's plan to explore strategic options for Limited stores.

"Unfortunately, Limited stores' performance trailed that of Express' for the past decade, making the sale of this division more difficult," she said. "We also make room for the possibility [that adviser] Bank of America will not be able to find a buyer for this business. In that event, we believe management may consider closing the division altogether."

Craig Johnson, president of consulting firm Customer Growth Partners, says the plan to shed most of Express and Limited is a good one.

"They've tried several different formulas to fix Express and the Limited," he says. "Nothing seemed to really work. They thought, 'We tried it, it's not happening. If we can unload them, even at a distressed price, let's do it.'"

Describing the sales decline at Victoria's Secret as a "speed bump," Johnson says losing the apparel division will enable Limited to focus "on the two crown jewels" and remove distractions from the other nameplates.

"They can focus on what they do best and where they have a unique place in the market," he says.