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Limited Brands Management Discusses Q2 2010 Results - Earnings Call Transcript

Limited Brands Management Discusses Q2 2010 Results - Earnings Call Transcript

Limited Brands, Inc. (LTD)

Q2 2010 Earnings Call Transcript

August 19, 2010 9:00 am ET


Amie Preston – IR

Martyn Redgrave – EVP and Chief Administrative Officer

Stuart Burgdoerfer – EVP and CFO

Sharen Jester Turney – CEO and President, Victoria’s Secret Megabrand and Intimate Apparel

Diane Neal – CEO, Bath and Body Works


Roxanne Meyer – UBS

Brian Tunick – JPMorgan

Lorraine Hutchinson – Bank of America/Merrill Lynch

Jennifer [ph] – Lazard Capital Markets

Marni Shapiro – The Retail Tracker

Stacy Pak – SP Research

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John Morris – Bank of Montreal

Jeff Stein – Soleil Securities

Dana Telsey – Telsey Advisory Group

Laura Champine – Cowen and Company

Erika Maschmeyer – Robert W. Baird

Randy Konik – Jefferies

Michelle Tan – Goldman Sachs

Jennifer Black – Black & Associates

Janet Kloppenburg – JJK Research



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Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Limited Brands second quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Amie Preston, Vice President of Investor Relations. You may begin your conference.

Amie Preston

Good morning, everyone, and welcome to the Limited Brands’ second quarter earnings conference call for the period ending Saturday, July 31, 2010.

As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our Safe Harbor statement found in our SEC filings. Our second quarter earnings release and related financial information, including any non-GAAP or adjusted financial reconciliation tables, are available on our Web site, This call is being taped and can be replayed by dialing 1-866-NEWS-LTD. You can also listen to an audio replay from our Web site.

Martyn Redgrave, EVP and Chief Administrative Officer; Stuart Burgdoerfer, EVP and CFO; Sharen Turney, CEO of Victoria’s Secrets; and Diane Neil, CEO of Bath & Body Works are all joining us today. After our prepared comments, we will be available to take your questions for as long as time permits. So that we can speak with as many callers as possible, it’s important that you limit yourself to one question.

Thanks. Now I’ll turn the call over to Martyn.

Martyn Redgrave

Thanks, Amie, and good morning, everyone. I’d like to start by saying that we continue to be very pleased with our performance and the progress that we’ve made so far this year.

In the second quarter, our comps increased 7% and our operating income increased by nearly 60%. Our adjusted earnings per share of $0.36 exceeded our initial expectations of $0.27 to $0.32 and nearly doubled last year’s $0.19 result. By the way, this is a record result for the company.

This very strong performance was the result of our intense focus on execution, staying close to our customers, and increasing speed and agility. We continue to believe that the environment remains uncertain and challenging.

Accordingly, as Stuart will explain in more detail, we have and will continue to manage inventory expenses and capital very conservatively. We also continue to drive the business with an overriding focus on our disciplined execution of retail fundamentals.

Improving our ability to react with speed and agility to maximize our sales and profit opportunities yielded results throughout the first half of this year and continues to be a critical priority.

Our entire organization is aligned and focused on these key priorities. While we’ve made considerable progress, we see more opportunities to improve in many areas. Our number one priority continues to be improving the results of our core US businesses. Our operating income rate increased significantly in the second quarter and this gives us confidence that we are on track towards our 15% operating income rate goal.

We also were enthusiastic about the opportunity for the growth of our businesses outside the United States. So before I turn it over to Stuart, I’d like to provide you with an update on our international businesses beginning with the La Senza business.

On last quarter’s call, I discussed various actions that we’re taking to improve the results of La Senza, including closing the underperforming Girl business, improving product assortment and store experiences, and moving the creative and merchant teams from Montreal to Columbus, Ohio.

We accomplished the move in the past month, and our new Columbus-based team is made up of a great core of key leaders and associates who relocated to Montreal and a complementary group of team members from other parts of Limited Brands and the retail industry.

Now, it will take some time for the benefits for these changes to be realized, including the benefit of the new team, and to have an impact on the business. We are already beginning to see some results from intensifying our focus on bras and panties and our store remodel tests, and we are confident that we will continue to see improvement.

In the second quarter, La Senza comps were flat and sales were $101.8 million, and the merchandise margin rate increased significantly. As a result of the costs of approximately $3 million related to the relocation of the business, La Senza’s operating income was down to last year.

Now, turning to out other businesses in Canada, we ended the quarter with 39 Bath & Body Works stores and six Pink stores. We continue to be very pleased with the performance of these stores. Last week we opened our first Victoria’s Secret store outside of the United States in the West Edmonton Mall in Alberta, and we are very encouraged by the early results.

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