Editor's Note: The original article correctly asserted that Limited Brands does not provide a balance sheet or statement of cash flows with its earnings releases. As a clarification, however, the company does furnish this information on its website.
A nasty first quarter -- in which Limited Brands
Let's not let management off the hook though, either; the company still needs to prove that its multiple divisions can get firing on all cylinders. The company had been trying to reposition the Express brand, but instead alienated current customers with higher prices while failing to pull in the new customers it expected. It was a bold attempt, but with transactions down 25% for the quarter, it's going to be an uphill climb to resurrect the brand. A potential saving grace for the business' apparel side is that sister apparel line Limited did improve its profitability in the quarter.
The bad news at Express doesn't necessarily extend to the rest of the company. The lingerie side, led by Victoria's Secret, and the health and beauty side, led by Bath & Body Works, both turned in relatively strong performances against tough comparisons a year ago. To fuel future growth, Limited Brands plans to use Victoria's Secret stores to further expand its new Pink line of clothing and accessories in the third quarter and eventually add Pink stores in 2006.
Also before the end of the year, the company plans to launch Bath & Body Works on the Web, where the company feels there is a strong demand for its products. During the quarter the company also acquired Slatkin & Co., which is best known for high-end home fragrances. Slatkin will be a wholly owned subsidiary, and in the future the company expects that Slatkin will help to continue the growth that Bath & Body Works has experienced over the years. Plans in lingerie and health and beauty point to growth potentially picking up again by the end of the year.
While I am impressed that management owned up to its mistakes on the conference call, the earnings release is severely lacking. With no balance sheet or cash-flow statement, the press release and corresponding conference call don't provide much of a picture beyond the income statement. While investors can and should wait for the 10-Q filing with the SEC, the lack of a balance sheet in its press release puts the company on par with Enron's earnings releases.
Before you fill my inbox with messages telling me that Limited Brands is no Enron, let me save you the trouble. I agree, Limited Brands is a proven company. However, the level of disclosure is not acceptable, especially when most companies and other retailers such as TJX Companies
Overall, I continue to think Limited Brands is worth following as a potential value investment because shares are already cheap, the company is an aggressive buyer of its shares, and it pays a healthy dividend while investors wait for growth to resume. That said, I would still wait for the 10-Q before making any decisions.
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