Limited Brands, Inc. (LTD), a specialty retailer of women’s intimate and other apparel, beauty and personal care products, recently posted first-quarter 2011 results.
Street analysts had over a week to ponder the company’s scores. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Report Review
Limited Brand’s quarterly earnings of 40 cents a share came only a penny ahead of the Zacks Consensus Estimate, but rose 60% from 25 cents earned in the prior-year quarter on an improving sales environment.
Limited Brands, which competes with Gap Inc. (GPS) and Hanesbrands Inc. (HBI), posted net sales of $2,217 million, which climbed 14.8% from the prior-year quarter, but fell short of the Zacks Consensus Estimate of $2,219 million.
Comparable-store sales for the quarter jumped 15% compared with 10% registered in the year-earlier quarter. Comps rose 12% in February, 14% in March and 20% in April.
Consumers, who cut back their discretionary spending during the recession, are now gradually loosening their purse strings.
Guidance
Management expects second quarter earnings in the range of 38 cents to 43 cents and fiscal 2011 earnings between $2.25 and $2.45 per share.
Limited Brands expects comparable-store sales for the second quarter and fiscal 2011 to be up in the low to mid single-digit range.
Agreement of Estimate Revisions
In the last 30 days, 8 out of 16 analysts covering the stock increased their projections, whereas 2 analysts lowered their estimates for second-quarter 2011. For third-quarter 2011, 6 analysts revised their estimates downward, whereas 3 analysts revised their estimates upward.
For fiscal 2011 and 2012, 15 and 14 analysts, respectively, revised their estimates upward with none lowering the estimates in the last 30 days.
Magnitude of Estimate Revisions
For second-quarter 2011, the Zacks Consensus Estimate inched up by a penny to 43 cents and for the third quarter it remains stagnant at 22 cents in the last 30 days.
In the last 30 days, the Zacks Consensus Estimates for fiscal 2011 climbed by 9 cents to $2.44 and for 2012 it soared by 6 cents to $2.82 per share.
The estimates in the current Zacks Consensus for second-quarter 2011 range from a low of 41 cents to a high of 44 cents a share. For fiscal 2011, the estimates range from $2.36 to $2.50.
Our View
Limited Brands’ sustained focus on cost containment, inventory management, and merchandise initiatives has kept it afloat in a sluggish retail environment, as evident from its first-quarter 2011 results. The company’s Bath & Body Works segment is gaining traction, driven by a rise in store transactions, enhancement in the direct channel business and growth in new stores.
Victoria’s Secret Stores has been performing well, and the company is constantly revamping its La Senza brand. Limited Brands is keen to enhance its retail footprint across the globe by expanding aggressively in Canada and other international markets. However, stiff competition and erratic consumer behavior remain matters of concern.
Currently, we have a long-term Neutral rating on the stock. However, Limited Brands holds a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation.
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