Limited shares fall, store changes to boost '08
LOS ANGELES (Reuters) - Shares of Limited Brands Inc. (LTD.N) fell more than 3 percent on Thursday, a day after the retailer of lingerie, apparel and beauty products lowered its February same-store sales forecast and posted a 15 percent decline in quarterly net income.
Analysts cited declining gross margins and a rise in spending at Limited Brands, whose chains include Victoria's Secret, Express, Limited and Bath & Bodyworks.
Stifel Nicolaus analyst Richard Jaffe, who has a "hold" rating on its shares, said in a report that gross margin declines in the quarter were the result of more promotions before Christmas and markdowns after the holiday.
"This suggests to us that the brands are showing their maturity: with the products requiring both more promotional and advertising support and discounted prices to drive sales and market share," Jaffe wrote, adding that he considered margin improvement unlikely in 2007.
In a conference call with analysts, the company's chief financial officer said on Thursday that strategic changes, such as enlarging Victoria's Secret stores, were not expected to boost profitability in 2007 but should begin contributing to profitability in 2008.
Limited plans to start increasing the square footage of the average Victoria's Secret store by about 50 percent this year, CFO Martyn Redgrave said during the company's quarterly conference call.
The retailer, which is striving to increase market share in its main lingerie chain, plans to continue closing underproductive apparel stores and converting its Express stores to offer clothing for both men and women, Redgrave said. Square footage in its apparel division will decrease by about 12 percent this year.
Redgrave said the company plans to open 35 new Victoria's Secret stores and remodel another 105 stores to the new larger store size during 2007, resulting in a square footage increase of 8 to 10 percent during 2007.
On Wednesday, Limited said that cold weather in February hurt lingerie sales around Valentine's Day. The company lowered its same-store sales forecast to a rise in the low to mid-single digits from an earlier view of a rise in the high single digits.
Lazard analyst Todd Slater, who rates the stock a "buy," noted in a report on Thursday that strength in Victoria's Secret's line of more casual sleepwear, Pink, would help drive same-store sales in March and April.
Shares of Limited Brands were down 3.36 percent to $26.75 in afternoon trade.
(Additional reporting by Jessica Wohl)
