This summary is based on the first quarter fiscal 2007 earnings call conducted by Limited Brands, Inc. (LTD) on May 24, 2007.
Senior Vice President of Investor, Media and Community Relations: Tom Katzenmeyer
Executive Vice President and Chief Administrative Officer: Martyn Redgrave
Chief Financial Officer: Stuart Burgdoerfer
Victoria’s Secret Chief Executive Officer: Sharen Turney
Chief Executive Officer of Bath & Body Works: Neil Fiske
Senior Vice President of Investor, Media and Community Relations: Tom Katzenmeyer
Key Investors Issues
- EPS were 13 cents a share compared to 25 cents a share last year.
- Net income was $52.9 million down from $99.4 million a year ago.
- Revenue rose to $2.31 billion from $2.08 billion last year.
First Quarter Highlights
Comparable store sales increased 4% on the low side of initial expectations, and total sales increased 11% to $2.311 million.
Gross margin decreased 320 basis points to 34.8%, below plan, driven by a decline in merchandise margin, particularly at Victoria’s Secret.
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Victoria’s Secret operating income decreased $72 million.
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Bath & Body Works decreased by $17.5 million.
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Apparel increased by $2 million.
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Other segment net expense decreased $10.1 million.
Retail inventories were up 27 % per foot at cost versus up 47% per square foot at the end of the fourth quarter last year.
Apparel inventory was up 17% per square foot at cost.
Growth and inventory has moderated and is consistent with initial estimates. The drivers of the increase are generally consistent with initial estimates, with the majority of the increase in core seasonless basics.
The stores, remodeled as tests in the lasts few years, have produced internal rates of return in excess of 30%.
In addition to the square footage growth through opening new Bath & Body Works stores in off mall locations, the company has growth opportunities in BBW’s Internet and catalog businesses. The company is investing in new technology and distribution compassion tease to support the growth that support existing Victoria’s Secret Direct business and new Bath & Body Works direct business.
Total SG&A dollar spending increased by 15%, in line with initial expectations, deleveraging by 110 basis points.
This incremental spending was driven primarily by the following.
About 30% of the dollar increase is attributable to the addition of SG&A’s costs. Half of the dollar increase is attributable to store selling costs, which deleveraged by 110 basis points. This increase was related to additional payroll hours to support sales growth, which was driven by a high single digit growth in transactions, and mid single growth in units per transaction.
The remainder of the increase relates to an increase in marketing costs, primarily at Victoria’s Secret. Marketing expense deleveraged by 60 basis points.
The company continues to invest in infrastructure and technology initiatives.
The company announced the sale of a 67% interest in express and intention to explore strategic options for Limited stores.
Board has authorized a new $500 million share repurchase program.
