* Sales growth rate not sustainable in long run - analysts
* Limited Brands June comparable sales beat estimates
* Shares close 4.5 percent higher
By Nivedita Bhattacharjee
July 5 When women shop for lingerie at
Victoria's Secret, they focus on the product and do not worry so
much about saving money.
Equity analysts say its relatively well-to-do clientele like
trying out the latest in cuts and colors, although some industry
watchers worry about the pace of sales growth.
On Thursday, parent company Limited Brands Inc,
which also owns Bath & Body Works, La Senza and Henri Bendel,
was one of the few retailers that posted better than expected
sales at stores open at least a year in June, a month when
consumers were getting more skittish.
"They have no competition in the market," said Jennifer
Davis, retail sector analyst at Lazard Capital Markets. "Limited
has done a great job of planning promotions better and because
they don't have competition, there's no pressure."
Limited Brands, which gets about 65 percent of its sales
from Victoria's Secret, has seen sales at established stores
rise 6 percent or more all through the year, beating the retail
sector's mean each time, according Thomson Reuters I/B/E/S.
The company has also been able to raise prices successfully.
The average price for bras at the Victoria's Secret semi-annual
sales was about $29.99 this year, said Davis. That compares with
$19.11 to $26.99 last year.
"I only shop here at sale, but my daughters only wear this
brand," said Minnie Zubair, who was buying for her 27- and
28-year old daughters at the Victoria's Secret on Chicago's
Michigan Avenue. "The economy does not affect me directly. It is
not a big concern and they make good products, my daughters
The stock is up almost 21 percent over the past year. On
Thursday, Limited beat Wall Street estimates for June sales
handily in a month when high unemployment and anxiety about the
economy made retailers on average miss estimates for June sales.
Limited shares rose 4.5 percent to close at $46.12 on
Thursday on the New York Stock Exchange and were the fourth-best
performing stock in the Standard & Poor's 500 index.
Analyst Davis, who rates the stock "buy," said she expects
it to go up to $55, as the company has "a lot of opportunity to
grow sales and margins in the back half of this year."
Although specialty retailers Chico's FAS Inc and
American Eagle Outfitters Inc have their own lingerie
brands - Soma Intimates and Aerie - as do department stores, no
one innovates as much as Limited does, analysts said.
"Their competition long ago used to be the Targets and the
Penneys," said Rahul Sharma, managing director of investment
management firm Neev Capital.
"(But) lingerie for department stores is a lower price point
merchandise and much easier to get wrong. That's the reason a
lot of companies don't innovate. That helped Limited," added
Sharma, who focuses on the retail industry.
However, the investment manager said he would be more
"comfortable" if same-store sales at the company rose at the
more manageable range of 4 percent to 5 percent.
"At these levels, you get used to it and think it'll always
comp up 6 or 7 percent and that can't happen forever," he said.
The company does not provide an absolute sales outlook, but
forecast that same-store sales would rise in the low to mid
single digit range at the beginning of each month. It has beaten
its own sales estimates each month for at least a year.
"They give forward guidance in the first five days of the
month, so they don't really know how the month is going to go,"
said Jaime Katz, an analyst with Morningstar.
"It's really a best guess ... management would prefer to
underestimate and over deliver rather than have it the opposite
way. The Street's OK with that."
Still, there are some who are more cautious.
Analyst Laura Champine of Canaccord Genuity Securities has a
"hold" rating on the stock and said Limited shares appeared to
be fully valued.
Champine also said the stock was pricey for a retailer that
was not opening many stores.
And while the bulls are banking on Limited getting a benefit
from lower cotton and other material costs in the back half of
the year, Champine said lapping up already high comparable sales
would make it challenging for the company to sustain its growth.
She also said cheaper cotton costs are not as big a benefit
for the company.
"Cotton is a lesser percentage of overall costs for Limited.
It wasn't that big of a hit and it won't be that big of a help,"