Covering Limited Brands (NYSE:LTD) has to be one of the cushier jobs out there. I've mentioned before that the company's annual report is easy on the eyes, so I wasn't at all surprised that the Victoria's Secret materials the company distributed at its annual investor update meeting today were also an easy read.
It's easy to forget that there's a real business here. Not just a real business, but a very good one, with a history of delivering value to shareholders through capital gains and dividends.
Limited Brands's big profit drivers for the last five years have been the beauty (Victoria's Secret) and personal care (Bath & Body Works) businesses, and that's not going to change. The company's strategy over the next few years involves expanding these businesses with new products, while continuing to offer customers an intriguing alternative to the department store-experience found at places like Federated's (NYSE:FD) Macy's. The best example of this strategy is a number of new "destination brands" that Limited will roll out in its beauty and personal care businesses.
Limited's "destination brands" in personal care won't bear the Bath & Body Works label, and they won't only be available in Limited-affiliated stores. The company will control both the product and the distribution channel for goods like the Wexler line of skin care products that Limited plans to roll out. If the strategy works, Limited will have a few new brands that customers crave, and the company's sales will benefit. If the strategy fails, it doesn't appear as though the company has a lot to lose.
Over the last decade, the company has transitioned away from its apparel businesses and toward its beauty and personal care businesses. Those two divisions now make up two-thirds of the company's revenues and all of its profits. Limited's biggest concern is that other third -- its apparel businesses Limited and Express. The apparel business has been struggling, with same-store sales declines going back to the third quarter of 2004. However, the comparisons are getting a bit easier going forward, and the company has been listening to its apparel customers and changing its offerings.
Limited also has a history of spinning off, selling, and reorganizing its brands to match its strategy, so it's not impossible that the company could do likewise to realize some of the value in its maligned apparel business. Indeed, the stock is up today over 4% partly because a Bank of America analyst predicted that Limited would either turn around or sell its Express chain within the next two years.
Limited isn't the only attractively priced retailer out there. Desirable retail plays span the gamut from everyday retailers such as Wal-Mart (NYSE:WMT) to specialty retailers like American Eagle Outfitters (NASDAQ:AEOS) and Timberland (NYSE:TBL). But Limited's new "destination brands" strategy is a bit unique and, combined with its nearly 3% dividend yield, makes the company worth a second look.
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Nathan Parmelee owns shares in American Eagle Outfitters but has no financial stake in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
