It might take some time, but recent moves by Limited Brands
Overall, Limited reported a 3% increase in comparable-store growth versus June 2006. This trend came in slightly higher than analysts' estimates of 2.9%. Some rival retailers posted healthy gains in June same-store sales growth, including American Eagle Outfitters (NYSE: AEO), up 8%, and Abercrombie & Fitch (NYSE: ANF), up 2%. The list of less fortunate shops included Gap (NYSE: GPS), down 5%, and Ann Taylor Stores
The price of Limited stock has moved little since the company reported its Q1 results, and the company maintains a relatively low PEG ratio of 1.28 and a dividend yield of 2.2%. Both factors continue to make it a solid value play.
Two recent developments should encourage Limited shareholders: an announced accelerated share repurchase and the completion of the company's sale of Express. In late June, the retailer announced its plan to increase a previously announced $500 million share repurchase program to $1 billion. Limited also said it would accelerate the timing of the repurchases, funding them through the issuance of $1.25 billion of debt. I believe this is a well-timed decision, given the company's depressed stock price. Limited also needs to boost EPS, following a Q1 in which that metric declined 48% year over year. I also think levering up to do this is a sound decision, given the company's reasonable debt-to-equity ratio of 0.64 as of May 5.
I would expect little complaint from existing shareholders on the decision to sell 75% of its ownership of Express to Golden Gate Capital, since the apparel chain saw 8% decreases in comparable-store sales in 2004 and 2005 and another 1% decrease in 2006. It might still be premature to say that Limited is out of the woods, but the company appears to be headed in the right direction.
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American Eagle Outfitters and Gap are Motley Fool Stock Advisor selections. Gap is a also an Inside Value pick.