This is a summary of the fourth quarter fiscal 2008 earnings call as presented by Limited Brands Inc. (LTD) on February 26, 2009
Management
-
Executive Vice President and Chief Administrative officer:Martyn Redgrave
-
Executive Vice President and Chief Financial Officer:Stuart Burgdoerfer
-
Chief Executive Officer, Victoria’s Secret: Sharen Turney
-
Chief Executive Officer, Bath & Body Works: Dian Neil
-
Vice-President of Investor Relations: Amy Preston
Key Investors Issues
- Earnings per share were 68 cents excluding certain significant items
- Net sales were $2.991 billion versus $3.228 billion last year and comps were down 10 %.
- Operating income was $153.1 million which is over 75% down from $621.4 million obtained last year;
Full Year Highlights
Earnings per share were $1.05 versus $1.21 last year excluding significant items of 40 cents per share in 2008 and 68 cents per share in 2007.
- Sales were $9.043 billion compared to $10.086 billion last year and comps were down 9%.
- The gross margin rate declined 110 basis points to 33.2% and the SG&A rate improved by 50 basis points.
- Total operating income decreased $143.5 million to $717.5 million.
By segment, the Victoria''s Secret segment decreased by $50.8 million to $619.8 million.
- Bath and Body Works decreased by $85.7 million to $215.5 million and 2007 apparel operating income of $19.6 million was eliminated in connection with the disposition of those businesses.
- The other segment operating loss decreased by $12.7 million to a loss of $117.8 million.
- Capital expenditures in 2008 were $479 million and depreciation and amortization was $343 million.
Fourth Quarter Highlights
Traffic levels declined versus previous trends and the environment was extremely competitive and promotional.
- As a result the sales and merchandise margins were below initial expectations. The firm continues to be focused on the conservative management of retail fundamentals.
- Inventories were clean, below the initial targeted levels and down 34% per square foot on a 2-year basis.
- Over the last 18 months the firm has taken actions to reduce the expense base by $150 million and also taken further actions by reducing the home office headcount by approximately 400 associates or roughly 10%.
Pay increases have been suspended for salaried associates and reducing other controllable expenses across the enterprise.
- These actions should result in annualized expense savings of between $200-250 million. Approximately $150 million of this will benefit 2009.
- The firm continues to reduce capital expenditures, from a high of $749 million in 2007 to $479 million for 2008 and now to a target of roughly $200 million in 2009.
- Free cash flow in 2008 was $475 million and the firm ended the year with $1.2 billion in cash. Finally, Limited Inc also proactively renegotiated covenants on term loan and revolving credit facilities.
The firm ended 2008 in compliance with all covenants and with significant cushion in leverage and fixed charge coverage financial covenants.
- For 2009 the firm had to restructure borrowing facilities to ensure flexibility in the event of a continued deterioration in the economic environment.
- This action coupled with substantial cash flow, strong existing liquidity and lack of near-term debt maturities gives Limited Inc great advantage as it continues to navigate through this very stormy and uncertain economy.
The firm is planning to implement the last phase of the supply chain systems project at Victoria’s Secret stores this summer.
- . Over the past five months since opening the BBW stores in Canada they are achieving about 2.5 times the average U.S. store sales volume.
- As a result the firm plans to open approximately 20 more stores in Canada in 2009.
- In addition, tests of the Henri Bendel Accessory Stores are continuing and the firm is planning to open six new locations this year.
Sales La Senza were $133.7 million, down 19% and comps were down 10%.
- Although it had no impact on comps, foreign currency translation negatively impacted total sales by roughly $30 million.
- Operating income dollars and rate were both down significantly to last year excluding the impact of the impairment charge.
- The most significant driver of La Senza''s operating income decline was a decline in the merchandise margin rate which was driven by higher promotional activity and the weakening of the Canadian dollar as La Senza purchases merchandise in U.S. dollars.
Limited Inc reported earnings of 5 cents per share versus $1.10 last year including certain significant items.
