Limited Growth?

Given the way the summer's been going for retailers, quarterly results can be overshadowed by questions of what's to come. That seems to be the case today, seeing how Limited (NYSE: LTD  ) beat expectations, although a slow August may give some reasons to fret about future growth.

Limited's second-quarter profits increased 45% to $148 million, or $0.31 per share. (That figure includes a $0.02-per-share benefit from the sale of Limited's interest in Galyan Trading) Net sales increased 10%, while same-store sales experienced a 9% boost. (However, for anyone who wanted to take a closer look at Limited and pull a Fool favorite, the cash flow statement, Limited didn't provide one today, so you'll have to wait for the subsequent 10-Q filing.)

Limited's results beat the consensus expectation, and it increased its 2004 earnings outlook to the $1.30-to-$1.35-per-share range and announced a share buyback and its regular dividend.

However, the apparel group experienced some sluggishness in August. This comes despite the fact that the company has been cooking up ways to reinvigorate the two clothing chains.

Limited Express dual-gender stores have been "encouraging" in a test, and the company plans to expand on the concept. Also, work-related fashions for young people are doing well. However, the casual segment has been flagging in August, especially considering the amount of promotional activity the company did last year this time, which made for a tough comparison, Limited said in its conference call (transcript courtesy of Thomson StreetEvents).

Given continued difficulties with the clothing concepts, one might wonder whether mall-based competitors such as Aeropostale (NYSE: ARO  ) , American Eagle Outfitters (Nasdaq: AEOS  ) , Ann Taylor's (NYSE: ANN  ) Loft chain, and Motley Fool Stock Advisor pick Gap's (NYSE: GPS  ) stable of stores are pinching Limited and Express.

On the bright side, of course, Limited still gets boosted by the popularity of its Victoria's Secret and Bath & Body Works chains. Both are ubiquitous destinations that occupy extremely specific niches. Over recent months, when the Limited and Express chains struggled, these chains offset the damage. (This quarter, Victoria's Secret same-store sales lifted 7%, while Bath & Body Works increased 20%.)

Limited has a forward P/E of 15, which doesn't seem too pricey in the retail space if you get past the exception of worries that growth may stall. However, there's still the consideration that retail sales this summer have experienced a seesawing overall. Things might not be so dull for Limited.

If you want to talk about fashion, check out the What to Wear? board, only on

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

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