Stimulating Sales at Limited

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It might take some time, but recent moves by Limited Brands (NYSE: LTD) -- along with a couple of consecutive months of comparable-store sales growth -- have this Income Investor selection headed on the right track. For those Fools out there with a one-track mind, the retailer's Victoria's Secret line experienced comparable-store sales growth of 8% for the month of June. This increase follows a May in which comparable-store sales moved up 5% for its intimate-apparel business.

Overall, Limited reported a 3% increase in comparable-store growth versus June 2006. This trend came in slightly higher than analysts' estimates of 2.9%. Some rival retailers posted healthy gains in June same-store sales growth, including American Eagle Outfitters (NYSE: AEO), up 8%, and Abercrombie & Fitch (NYSE: ANF), up 2%. The list of less fortunate shops included Gap (NYSE: GPS), down 5%, and Ann Taylor Stores (NYSE: ANN), which saw same-store sales decline by 8.4%.

The price of Limited stock has moved little since the company reported its Q1 results, and the company maintains a relatively low PEG ratio of 1.28 and a dividend yield of 2.2%. Both factors continue to make it a solid value play.

Two recent developments should encourage Limited shareholders: an announced accelerated share repurchase and the completion of the company's sale of Express. In late June, the retailer announced its plan to increase a previously announced $500 million share repurchase program to $1 billion. Limited also said it would accelerate the timing of the repurchases, funding them through the issuance of $1.25 billion of debt. I believe this is a well-timed decision, given the company's depressed stock price. Limited also needs to boost EPS, following a Q1 in which that metric declined 48% year over year. I also think levering up to do this is a sound decision, given the company's reasonable debt-to-equity ratio of 0.64 as of May 5.

I would expect little complaint from existing shareholders on the decision to sell 75% of its ownership of Express to Golden Gate Capital, since the apparel chain saw 8% decreases in comparable-store sales in 2004 and 2005 and another 1% decrease in 2006. It might still be premature to say that Limited is out of the woods, but the company appears to be headed in the right direction.

For Foolishness without limit, check out:

• Emptying the Racks at Limited
• The Limits of Limited
• Stretched to the Limit at Limited

Limited Brands is a Motley Fool Income Investor recommendation. For stocks that generate great total returns to beat the market, come try the newsletter free for 30 days.

American Eagle Outfitters and Gap are Motley Fool Stock Advisor selections. Gap is a also an Inside Value pick.

Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Motley Fool has a disclosure policy.