Limited Surges as Big Retailer Finds Consistency

Limited (LTD) is home to half a dozen retail concepts; its newest one yet may be consistency.

Rising Limited shares surging

The Columbus, Ohio-based company is one of the few retailers to actually see its shares rise this year. Why? Good same-store sales (or sales at stores open at least one year) is the barometer of a retailer's success. Same-store sales at the Limited were surprisingly strong in August, with good results expected for September, too; analysts say the company's efforts over the past few years are finally translating to a more stable performance across its brands.

It's easy to find at least a few of the Limited's brands -- including Limited, Express, Lane Bryant, Structure and Lerner, plus Victoria's Secret, Bath & Body Works and White Barn Candle Co., through Limited's majority stake in Intimate Brands (IBI) -- in any mall in America. More difficult for the company has been getting all of those brands to perform well at the same time without cannibalizing one another. When Express is riding high, the Limited falters. And when IBI is hot, Structure, aimed at men, is not.

Spinning Class

Limited has been working to address its inconsistency. It focused its attention by spinning off brands including a minority stake in IBI and all of Abercrombie & Fitch (ANF). It centralized management and merchandising for the entire company. And it has focused capital and inventory on its best-performing, so-called must-win stores, and on certain product categories within each brand.

For example, stretch pants are the centerpiece of Limited's offerings, while denim and knit tops are the focus at Express. "They have better, more attractive fashions, better quality, and better presentation," says Kurt Barnard, with Barnard's Retail Trend Report.

More Stable Limited shares over three years

Source: BigCharts

Last month, those efforts produced a 6% increase in same-store sales (on top of a 12% gain the previous year) and an increase in margins. More notably, with the exception of the Limited, all of the units posted same-store sales growth.

"This month, my guess is that all the comps will be positive," says Stacy Pak, an analyst with Prudential Securities. (Most retailers will report September sales on Thursday, Oct. 5.) "It feels like they're turning." She rates Limited shares a strong buy, and her firm hasn't done recent underwriting for the company.

Looking closer at the divisions during August, Express saw same-store sales rise 15% on top of a 10% gain last year, thanks to sales of denim and leather. Those results were significantly above the company's expectations, Limited said.

Lerner, which is in the process of being rebranded under the hipper Lerner NY name, rose 13% compared to a 9% gain last year (also above expectations). Lane Bryant saw sales rise 7%, compared to an 8% year-ago increase (above expectations). Structure sales rose 1%, compared to an 8% gain last year (above expectations). And the Limited's 6% decline, though below expectations, was still better than last year's 11% decline.

At IBI, same-store sales edged up 3%, though comps are expected to be better in September, reflecting Bath & Body Works' launch of the Bio hair- and skin-care line.

Timing

Part of the increase is admittedly good timing. We're in the middle of what industry types call a fashion cycle, which means a switch toward more gender-differentiated clothing and away from androgynous sportswear. That helps Express, with its inexpensive takes on the latest trends, and the Limited, whose fall offerings analysts say are the division's best in years.

Pak also likes Limited for a less obvious reason: Unlike its competition, which is still expanding, Limited has closed unproductive stores. (TSC previously wrote about the threat of overexpansion by specialty retailers.) That helps margins.

Pak isn't the only one predicting good times ahead for Limited. Morgan Stanley Dean Witter analyst Robert Ohmes upgraded the company's shares to outperform from neutral earlier this month, citing increased confidence in the near-term sales outlook and improved profits in apparel. His firm hasn't done recent underwriting for Limited.

All of this good news has already lifted Limited's shares to about $24, just shy of their 52-week high of $25.88. That has them trading at about 22 times trailing earnings, compared with 19 times earnings for the ailing Gap (GPS). But same-store sales gains have a funny way of boosting share prices, particularly when the competition -- Gap, again -- is sickly.

"The key issue is whether sales beyond Express begin to kick in," so that margins improve further, says Pak. "We saw it a little bit last month, and my sense is that you'll see it even more this month."

Consistency. What a concept!

>To order reprints of this article, click here: Reprints