This summary is based on the third quarter fiscal 2007 earnings call conducted by Limited Brands. (LTD) on November 20, 2007.
Management:
EVP and CAO: Martyn Redgrave
EVP and CFO: Stuart Burgdoerfer
CEO of Victoria''s Secret: Sharen Turney
CEO of Bath & Body Works: Diane Neal
SVP of Investor, Media, and Community Relations: Tom Katzenmeyer
Key Investors Issues
- Net income fell by 48% from $24 million in the prior year to $12.1 million.
- Sales decreased 10% to $1.9 billion.
- The firm repurchased 14.6 million shares of stock for $335.6 million as the Board authorized an additional $250 million repurchase program.
Year-to-date Results:
- Sales rose 20% to $6.9 billion from $6.4 billion in the prior year.
- Net income was up 40% to $329 million or 85 cents a share.
- The firm realized a loss of $72 million on the divestiture of Limited Stores.
Third Quarter Highlights
The firm reported a 48% drop in earnings to $12.1 million or 3 cents per share, from $23.5 million or 6 cents a share in 2006, due to declining mall traffic.
- The earnings mix was driven by Victoria''s Secret Direct and the challenges related to the distribution center.
- Despite softness in the stores channels of brands as reflected in the negative 3% comparable sales against expectation for flat comparables, the firm was able to offset the earnings impact of this sales mix through greater than anticipated expense savings.
- The negative 3% comparable sales were driven by negative traffic levels as a result of a tough environment versus specific assortment issues.
Sales decreased by 10% from $2.1 billion in the prior year to $1.9 billion due to weaknesses in the stores channel and reduced mall traffic
- Gross margin decreased 400 basis points to 31.9%, the result of the net impact of the recognition of Mast sales to Express and Limited Stores partially offset by the elimination of the lower margin apparel business.
- The remaining decline is the result of a significant decline in the gross margin rate at Victoria''s Secret Direct and to a lesser extent deleveraging, buying and occupancy at the Victoria''s Secret stores.
The SG&A rate improved by 410 basis points to $553 million from $692.8 million in the prior year and in line with the previous guidance.
- Key drivers of the rate improvement include, the net impact of the recognition of Mast sales to Express and Limited Stores partially offset by the elimination of the apparel businesses which drove over half the rate improvement and the benefit of the Aircraft gains.
- Improvements were also driven by the benefit of home, office, marketing and other expense reductions, and an offset due to the impact of lower sales volumes and incremental expenses at Victoria''s Secret Direct.
- Total operating income declined $5 million to $61.1 million.
- The Victoria''s Secret segment operating income declined by $52.3 million to $77.7 million, Bath & Body Works segment dropped $2 million to a loss of $1.1 million and the other segment improved by $47.7 million to a loss of $15.2 million.
Capital restructuring activities including the impact of the additional debt in the share repurchases were about 2 cents per share.
- Retail inventories were down 14% per square foot at costs in line with targets and the firm continues to target retail inventory per square foot to be down 20% to 25% by year end.
- The firm repurchased 14.6 million shares of stock for $335.6 million and had $96.4 million remaining in the current $250 million program.
- Additionally the Board has authorized an additional $250 million repurchase program.
Segment Highlights:
-
Victoria''s Secret segment sales including La Senza increased 9% to $1.077 billion as comparable store sales decreased 4%.
- Total segment operating income declined 40% or $52 million to $77.7 million, driven by a decline at Direct as a decline in operating income of Victoria''s Secret stores was largely offset by the La Senza''s operating profit.
-
Victoria''s Secret store comparables declined by 4% and total sales declined 1% to $735 million.
- Operating income dollars declined and the operating rate declined by over 200 basis points driven by buying and occupancy deleverage.
- The merchandise margin rate was flat and SG&A leveraged as a percent of sales due to decline in marketing stand.
- The core bra, panty and sleepwear business was down relative to the prior year while the PINK and Beauty business posted year-over-year growth.
- Going forward, the firm will focus on executing the best holiday possible, continuing to introduce and launch new and innovative product and executing its real estate strategy.
The holiday season will feature the launch of a new Very Sexy Wave with lace bra, fresh PINK assortment and a new Supermodel fragrance launch in Beauty.
