Victoria's Not So Secret

Limited Brands (NYSE: LTD  ) is best known for its Victoria's Secret and Bath & Body Works retail concepts. Its shareholders know it best as a font of wealth.

As expected, fourth-quarter results released this morning were strong. Same-store sales were up a robust 8%, revenue increased 9%, and net income rose 10% over the prior-year period.

Limited Brands spent 2003 mining its operations for cash. The company sold its Structure brand to Sears (NYSE: S  ) and sold off the Charming Shoppes (Nasdaq: CHRS  ) stock it received in exchange for Lane Bryant. It also reported a $208.4 million non-operating gain from the sale of 14.5 million shares of Alliance Data Systems (NYSE: ADS  ) , the culmination of a 1996 merger of its private-label processing and credit business with J.C. Penney's (NYSE: JCP  ) back-office network and card processing unit.

Previous asset distributions included the sale of Abercrombie & Fitch (NYSE: ANF  ) and the shareholder spinoff of Too (NYSE: TOO  ) . These sales, combined with years of profitability, have culminated in $3.1 billion in cash and cash equivalents. Debt is more modest at $648 million.

For years, analysts have asked, "What is Limited going to do after selling all these brands?" Perhaps the question should have been: "Can this company find gold in its remaining operations?" And the answer looks to be yes. Management likes its future so much it announced a Dutch auction to acquire a minimum of 8.5% of the outstanding stock for $1 billion.

Mounting operating profits, plus share buybacks, plus cash (still more than $2 billion after the buyback), and a 20% increase in the annual dividend all adds up to real shareholder gold. Whitney Tilson was correct a year ago when he labeled the stock "cheap" at $11.89. But is there still value at $20 a share?

Management expects earnings to increase 13%-15% in 2004, including the impact of the buyback. Although its gross margin is similar to its peers, the cash and a relative lack of debt enhance Limited Brands' profitability. It is no secret that its ongoing brands are strong. The solid-gold balance sheet is no secret, either.

It could very well be that the low-lying fruit has been plucked. Still, given the lack of surprises, Limited Brands should keep pace with the market; that is, until the executives put that cash toward creating still more golden value.

If you want to discuss this company with other investors -- or just the Victoria's Secret catalog -- join the conversation in the Motley Fool'sLimited Brands discussion boards.

Fool contributor W.D. Crotty does not own any companies mentioned.

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