The Limits of Limited

Limited (NYSE: LTD  ) is paring down its portfolio of brands. Confirming recent speculation, the company announced that it's selling a large stake in its Express concept.

The company will sell 67% of the Express apparel concept to Golden Gate Capital for $548 million, though it still plans to participate in the concept's growth through its remaining 33% stake. It's retaining the Limited retail concept for the time being, but exploring options for that concept as well. Meanwhile, Limited intends to focus on its Victoria's Secret and Bath & Body Works retail brands. Both have been impressive growth stories for the company over the last several years, though Victoria's Secret has lost some sex appeal under increasing margin pressure.

In conjunction with its Express announcement, Limited slashed its Q1 and full-year guidance. The company now expects first-quarter earnings of $0.12 to $0.14 per share, compared to previous guidance for $0.25 to $0.28 per share. (The low end of that original guidance would have been flat year over year.) Limited related the decrease to lower-than-expected sales and merchandising margins at all its concepts, including Victoria's Secret, and predicted tricky second-quarter trends as well.

The full year's not looking too hot, either. Limited forecast earnings of $1.55 to $1.65 per share, versus its previous guidance of $1.75 to $1.90. The new figures will lag Limited's fiscal 2007 earnings of $1.68 per share.

The company intends to continue returning cash to shareholders, at least. Its dividend-paying policy helped earn Limited a Motley Fool Income Investor recommendation. But with increasing vulnerability at Victoria's Secret and Bath & Body Works, widely considered Limited's strongest growth segments, it's easy to see why investors may be less than optimistic at present.

When speculation arose in late April that Limited might sell the Limited and Express chains, the stock went wild. But reality's proved less impressive than those expectations, between Limited's pared-down guidance and the indications that one its strongest brands needs repairs. I think there are better, more promising buys in retail -- perhaps Chico's (Nasdaq: CHS  ) . The once-proud retailer's stock has been severely pummeled following a tough year, but its plans and initiatives for recovery suggest that it might be a bargain. Right now, though, I've reached my limit on Limited.

Limited is a Motley Fool Income Investor pick. To discover the other dividend-paying stocks the Fool has recommended, click here for a 30-day free trial.

Alyce Lomax does not own shares of any of the companies mentioned.