Unlike the glamorous models posing in its Victoria Secret's catalogs, Limited Brands (NYSE: LTD) doesn't look so hot right now. With gas prices at all-time highs, few consumers have enough cash left over to splurge on expensive lingerie or premium-priced creams from Bath and Body Works.
At first glance, the first-quarter earnings Limited reported after the market closed yesterday more than doubled to $0.28. However, it took a one-time gain to get to that figure. Excluding the net gain from the sale of a joint venture, Limited's bottom line fell to $0.10 per share. That still came in ahead of what analysts were projecting -- the key reason why the stock is trading up today.
However, sales trends remain worrisome. Total sales fell nearly 17%, as new store openings failed to offset an 8% drop in same-store sales. Expanding Victoria Secret's store base did help the segment's total sales figure increase 4%, but Bath & Body saw sales drop 5% on an unpleasant 11% decrease in comps.
Moving down the income statement, quarterly results remained murky because of continued noise from Limited's decision to sell its namesake store to private equity firm Sun Capital and divested the Express chain to Golden Gate Capital. By stripping out these distractions, Limited hoped to increase profitability through management's self-proclaimed "aggressive expense management." However, the improvement was minimal, as the drop in sales from the lost divisions hurt Limited's ability to leverage labor and other costs.
Management is slowing overall new store growth, given the worsening economic climate. But it still has a long-term plan to open more and larger Victoria's Secret stores, with similar plans for Bath & Body. It also mentioned plans to focus on international expansion, particularly in Canada, the Middle East, and Duty Free shops. Finally, it has big plans for its direct business, which consists of online sales and the popular Victoria's Secret catalog.
But until these initiatives start to positively affect the top line, Limited's potential will remain, well, limited. The company has a history as one of the most innovative retailers out there, having already spun off successful chains such as Tween Brands (NYSE: TWB) and Abercrombie & Fitch (NYSE: ANF). Too bad it hasn't been able to get its own house in order for some time now.
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