This summary is based on the second quarter fiscal 2007 earnings call conducted by Limited Brands, Inc. (LTD: chart) on August 23, 2007.
CAO: Martyn Redgrave
CFO: Stuart Burgdoefer
CEO, Victoria''s Secret: Sharen Turney
CEO, Bath & Body Works: Diane Neal
SVP, Communications: Tom Katzenmeyer
VP, IR: Amie Preston
Key Investors Issues
- EPS were 67 cents a share compared to 28 cents a share last year.
- Net income was $264.4 million, up from $113.1 million in the year-ago period.
- Revenue rose to $2.62 billion from $2.45 billion a year ago.
Second Quarter Highlights
The second quarter has been a quarter of transformational change for Limited Brands.
- For some time the company has been communicating strategic agenda, focusing on growth in intimate apparel as well as personal care and beauty businesses.
- The company closed on the transactions to sell a 75% interest in Express to Golden Gate Capital.
- The company closed on a transaction to transfer a 75% interest in Limited Stores to Sun Capital Partners, which demonstrates commitment to this strategic agenda.
The company announced its intent to reduce expenses by $100 million.
The company has made significant progress towards that goal. 75% of targeted savings result from headcount reductions and substantially all of those reductions were implemented in July. In addition to the reductions, the company has realigned corporate support functions and about 200 people were transferred from the center, or corporate organization, into Victoria''s Secret and Bath & Body Works.
The company has completed $1.25 billion in new debt financing. Limited Brands has recently completed $1 billion share repurchase program under which it has repurchased 38.7 million shares, which is approximately 10% of previously outstanding shares. Board of Directors has authorized an additional $250 million share repurchase.
The company took actions on several non-core assets.
Easton Town Center, which the company accounts for under the equity method, was refinanced and the company recognized cash proceeds of $102 million and a pretax gain of $100 million. The company decided to close six-store Diva London accessories test which was not meeting expectations.
- The company continues to make progress against initiatives to grow core businesses and execute well on all of the fundamentals of being an outstanding fashion retail brand operator.
- The company is on track to expand the average size of Victoria''s Secret footprint by roughly 50% over the next five years. This year, that activity will result in square footage growth for Victoria''s Secret stores of 8% to 10%. The company has a five-year plan that encompasses 80% of store locations.
In BBW, the company is focused on square footage growth through the opening of new Bath & Body Works stores in off-mall locations.
The company has growth opportunities in BBW''s new Internet and catalog businesses. In fact, it is investing in new front end, Internet, and call center systems for all of direct channel businesses and the company has just opened a brand-new distribution center to support the growth of both the existing Victoria''s Secret direct business and the new Bath & Body Works direct business.
The company is continuing to invest in enterprise-wide technology initiatives in the area of supply chain, shared services, and customer relationship marketing. These capacity and technology enhancing investments are also having a negative impact on earnings. But the company remains confident that they will deliver future positive returns.
La Senza''s sales were $113.1 million and comparable store sales increased 2%, which were below expectations.
- Sales growth was supported by aggressive promotions and as a result, merchandise margins were down to last year.
- As expected, La Senza''s results were about neutral to earnings per share.
- The company continues to expect that the La Senza acquisition will be modestly accretive in 2007.
- The company has been testing the sale of Victoria''s Secret beauty products in a small number of La Senza stores in the spring, and based on the encouraging results of that test the company will be expanding it to all La Senza stores this fall.
- The company is continuing to work closely with partners in La Senza in Canada and also to learn more about their international business.
The company was focused on getting the balance right between comparable store sales growth and the inventory and marketing investments to support the expected growth.
Based upon the opportunities that the company has identified in the holiday season, it is cautiously optimistic that the company will be able to increase operating income dollars in both of core brands for the fall season.
