Go ahead, admit it. The headline "Woman sues Victoria's Secret claiming thong injury" was just too sensational to ignore.
You didn't need to click through to recall similarly outrageous lawsuits:
- A scalded patron suing McDonald's
(NYSE:MCD)for making coffee that was too hot.
- A losing gambler suing Hilton and Mandalay Bay Casino for extending him a line of credit when he was drunk.
- American Airlines passengers suing for extreme turbulence that inflicted 28 seconds of sheer terror.
- Sheetz Inc. sued by an employee who hurt her back opening a pickle jar.
What's this thong buzz really worth?
The winning party in these lawsuits is only part of the story for shareholders. (FYI, the gal who got a crick in her back because of the pickle jar did end up with $2.2 million for her pain and suffering.)
For right now, it's all about the buzz. And by my calculations, the "Thong Incident" that took place last month is worth roughly $1.4 million for Limited Brands
The more immediate impact on the investing equation for shareholders is what the publicity means -- good or bad -- for the brand. Some would even argue that the best press is free press. Brand building is pretty important and companies spend a fortune on it.
One way that businesses build their brand is through marketing and advertising campaigns. In Limited's case, advertising expenses for the most recent fiscal year totaled $519 million. That's 5% of sales and breaks down to $1.42 million per day. Most would agree that advertising is an expensive but necessary part of any clothing and apparel business, and the numbers seem to support that thesis.
|Clothing Retailer||Advertising Expenses (in Thousands)||
% of Total Revenue
Advertising $ per Day
Source: Capital IQ.
Can bad press lead to bad business?
As you can see, every year businesses spend hundreds of millions of dollars on advertising. With costs being so high, days where your company gets a free pop from the media are pretty rare and super valuable. Some would even argue that bad press is better than no press and that these silly newsworthy events will rarely damage a company's long-term prospects or brand.
The market appears to; the average three-month volume of Limited is 5.44 million shares per day. Now, it may be pure coincidence, but the day the story broke, Limited traded 6.45 million shares, making for a 18.5% increase!
It's all been done before
This isn't the first time Limited has had to tell Victoria's Secret. In March of 2007, a woman sued the company for $2 million because the metal ring attaching the cups of her bra had "seared" a mark on her chest. When the jury found out that this happened after she woke from an hour-long nap on a Puerto Rican beach, the case was promptly dismissed.
Human curiosity is a powerful thing, and it's tough to put a price on it. I would bet that Limited's skimpy piece of apparel will cause some folks to raise an eyebrow, go into a mall, and see what all the hype is about. In terms of value, this renegade thong could be worth more than its weight in gold.
Fool contributor Wade Michels steers clear of any legal issues by disclosing the stocks that he owns. Gap is a Stock Advisor and Inside Value pick. American Eagle has been recommended by Stock Advisor and is owned by the Motley Fool. The Fool's disclosure policy is worth more than a hundred golden ducats.