There are so many one-time items in Limited Brands' (NYSE:LTD) third-quarter earnings report, you have to search to find out what happened. Those making the effort will see that same-store sales rose 1%, revenue rose 2%, and net income (after removing one-time items) was ahead 12% (and met analyst expectations).

The news was greeted with three brokerage downgrades.

Christmas, the peak season for Limited Brands, is on the horizon. The company said it was comfortable that it will end 2004 with full-year earnings of $1.35 to $1.42 a share -- a rather high 19 to 20 times forward earnings. Or is it?

In the second quarter, Limited Brands had same-store sales growth of 9% and a 10% bump in sales. It expected 2004 earnings of $1.30 to $1.35 a share -- lower than the latest guidance even with such a sluggish third quarter.

Investors should focus on the Dutch auction the company is using to buy back up to $2 billion of its stock -- that's roughly 69 million shares, or 15% of the outstanding shares.

Some of that cash came from the company selling non-core assets in 2003. Men's store Structure was sold to Sears (NYSE:S), and Charming Shoppes (NASDAQ:CHRS) shares (received in exchange for Lane Bryant) were sold, as were 14.5 million Alliance Data Systems (NYSE:ADS) shares received in a credit card deal with J.C. Penney (NYSE:JCP) in 1996.

Limited Brands wants to have a much smaller share base in 2005 for Victoria's Secret and Bath & Body Works to gush cash over. Some will question whether the Limited and Express stores will continue to be pinched by mall-based competitors such as Gap (NYSE:GPS) and Ann Taylor (NYSE:ANN), but the real news is that the low-yielding cash is being used to shrink the share base.

Analysts are forecasting earnings of $1.62 in 2005. Account for the reduced number of shares if 69 million shares are repurchased, and the increased debt expense, and earnings could come in as high as $1.80 a share -- or 15 times 2005 earnings. That is an extremely reasonable price to pay for a company with the quality brand names in Limited's portfolio.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.