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Clothing retailer Limited Brands (NYSE: LTD ) reported a steady position in its Q1 2012 earnings release. Like a Friends spin-off, it brought nothing new to the party yet managed not to be the worst thing in its time slot. The market was blase about the results but got nervous about future projections, driving the stock down.
Canned laughter ringing hollow
Compared with Q1 last year, revenue fell 3% to $2.15 billion. This fall was offset by a 9% decline in cost of goods sold. As a result, gross margins actually increased from 38% in 2011 to 42% in 2012. Overall, net income fell 25% compared with the same period last year.
However, 2011 included a guest appearance by $86 million of income from the sales of Express (NYSE: EXPR ) stock. On an adjusted basis, Limited net income fell only 4% and earnings per share actually rose $0.01 because of a 2011 share buyback. There, now doesn't everyone feel better? We're back to almost exactly where we started.
Will there be another season
Limited has done very well for itself since the beginning of 2009, and the company is still on the right, if not the most interesting, track. Same-store sales grew 7% this quarter, which is a smashing success when compared with Abercrombie & Fitch (NYSE: ANF ) and its 5% drop.
A lot of the drag that Limited has experienced has come from the La Senza lingerie brand. To address this failure, Limited has already closed 31 company-run Canadian stores, representing more than 10% of the total footprint. Same-store sales at La Senza were down 1% compared with last year. Victoria's Secret and Bath & Body Works both grew same-store sales 9% and 6%, respectively.
Next time on The Limited
The company is going through a dull but useful period. It's paying close attention to sales figures and using growth and costs to help it define its store distribution. As everyone in retail has gleefully pointed out, the worst of consumer-spending cutbacks seem to be behind us. The 2011 holiday season was a nightmare of competing discounts and thin margins. This year has already returned some pricing power to brands.
I expect Limited to have a slow, but by no means bad, year. If it can continue to manage costs through this slow period, it should be well positioned to make gains in 2013. Since its turnaround in 2009, the share price has steadily grown more than 350%. I see no reason the stock's trajectory should be hurt by a season or two of slow sales, as the underlying business is still solid.
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