Retail week on Wall Street continues. Yesterday, we heard the good news from Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) -- read about those here and here. Tomorrow morning, it will be Limited Brands' (NYSE:LTD) turn to reveal its Q4 and full-year 2005 results. To get you ready for the big day, here are a few thoughts on where Limited has been, and where it might be going.

Wall Street Wisdom:

  • General consensus. Twenty-three analysts track Limited, but they're mainly an unenthusiastic lot. Only five give Limited a buy rating, with all the rest voting hold.
  • Revenues. Analysts will be looking for a bit more than 5% sales growth tomorrow. $3.51 billion is the target.
  • Earnings. Meanwhile, profits are set to simply explode. Wall Street believes that Limited boosted its quarterly profits by 16% over the year-ago quarter, to $1.01 per share.

Margin watch:
When you take a look at how Limited's margins have been trending, as reflected on the chart below, you may be tempted to wonder whether Wall Street is off its rocker. Judging from the rolling margins, the company appears to be slipping, becoming less profitable over time, and thus unlikely to turn in a profits improvement three times better than its sales improvement.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

36.8

36.7

35.9

35.2

34.9

34.6

Op.

11.1

11.2

10.9

10.2

9.8

9.3

Net

8.2

7.6

7.5

6.7

6.3

5.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
That said, three months ago, Limited pronounced itself "comfortable" with analyst estimates of $1 per share in profits. How, then, can a company whose profitability is disintegrating turn 5% sales growth into profits growth three times as large?

To find the answer, you need to understand that we're talking about per-share profits here -- not firmwide. With its profitability declining, chances are that Limited's net profits will rise by far less than 16%. But over the past year, Limited has reduced its share count by 15%. By reducing the number of slices into which it cuts the corporate profit pie, Limited ensures that each remaining shareholder will get a larger slice of its profits.

Competitors:
These include TJX (NYSE:TJX) and Motley Fool Stock Advisor recommendation Gap (NYSE:GPS).

Fool contributor Rich Smith does not own shares of any company named above. Home Depot is a Motley Fool Inside Value pick. The Fool has a disclosure policy.