- A pre-tax, non-cash impairment charge of $215 million or 63 cents per share reduce the value of La Senza goodwill and other intangible assets in accordance with the applicable accounting principles specifically SFAS 142.
- A pre-tax charge of $22.6 million or 4 cents per share to accrue for severance charges related to a home office headcount reduction of roughly 10%.
- Finally, a tax benefit of $15 million or 5 cents per share primarily related to certain discrete, foreign and state income tax items.
Excluding the above 2008 significant items and the 2007 significant items totaling 16 cents per share, the fourth quarter earnings per share were 68 cents versus 94 cents last year.
- Net sales were $2.991 billion versus $3.228 billion last year and comps were down 10%.
- The gross margin rate decreased 440 basis points to 34.3% driven roughly equally by the decline in the merchandise margin rate and buying and occupancy expense de-leverage.
- SG&A dollars declined by $41.3 million or 6% and the SG&A rate increased by 30 basis points. Roughly half of the dollar improvement was the result of lower cost at Victoria''s Secret Direct related to technology in the distribution center.
Total operating income decreased $182.9 million to $390.7 million.
- By segment, the Victoria''s Secret segment decreased by $96.8 million to $213.4 million.
- Bath and Body Works decreased by $85.9 million to $209.4 million.
- The other segment operating loss was roughly flat at $32.1 million as a decline in Mast operating income was offset by expense favorability.
Limited Inc ended the year with $1.2 billion in cash and it should generate between $350-450 million in free cash flow in 2009.
- The free cash flow and cash position along with the additional $1 billion available under the revolving credit facility results in very strong liquidity which is more than sufficient to fund working capital, capital expenditures, dividends and any other foreseeable needs.
Sales for total segments including La Senza decreased 4% to $1.767 billion. Comp store sales were down 10%.
- Total segment operating income decreased $96.8 million or 470 basis points to $213.4 million primarily driven by a decline at the Victoria’s Secret stores.
- Victoria''s Secret stores comps declined by 10% and total sales decreased 5% to $1.185 billion. Comp store sales for the quarter were below expectations.
- Pink Friday, was a record sales day for us but, traffic fell significantly in the first few weeks of December. Overall, the customer was more responsive to promotion.
This was seen in increased CRM redemption rates and high balance of promotional sales.
- The firm responded by pulling up the bra sale and the semi-annual sale and implementing targeted promotions across the store.
- This helped it appropriately manage inventory to target levels but as a result merchandise margin rates in the quarter were significantly lower than planned.
- Buying and occupancy and SG&A expenses de-leveraged on the negative 10% comp.
- During the holidays customer responded well to newness and product that was special or differentiated with color and embellishment.
- The positive response to the Big Heart theme which was colorful and fresh.
- The firm continue to be pleased by the strength in the teen sub-brand compared to the rest of the brand and competitors.
Bra sales were up aided by the pre-Christmas bra sale. The launches met expectations and fashion bras in particular were strong.
- However, weakness in beauty in part due to the macro environment but also due to a lack of newness in the beauty pipeline.
- Sales for the web and catalog business were $449.2 million, up 4%. This was below expectation as the firm was lapping last year''s issues with the distribution center.
- Demand as measured by total orders received was well below the spring trends and was negatively impacted by the pull back in catalog circulation in the third quarter 2008.
There was a significant decline in the gross margin rate which adversely affected operating income rates and in turn operating income dollars.
- The sales softness and promotional activity more than offset the profit improvements initially anticipated from lapping the DC issues in 2007.
- The new distribution center continues to meet shipping and accuracy milestones and supported several record days in the holiday time period.
- Based on current sales projections the firm is preparing contingencies and specific actions to continue to match inventory levels to projected sales declines.
In late January and early February Limited Inc featured Vintage Victoria which featured classic Victoria''s Secret sexy and feminine lingerie and Beauty introduced Noir, a new fragrance just in time for Valentines Day.
- This month the firm introduced the new Body Bare line at the entry price point of $29.50. Last week Limited Inc launched in all stores its swimwear collection which was tested in 350 stores last year.
- In Beauty a new Pink Body Care line was introduced.
- In the direct channel, the firm is experiencing softness in the face of a highly promotional external environment and responding by leveraging the store channel intimate apparel initiative.
Swimwear alone has more than 500 styles from which to choose on line.
- In apparel the firm is driving a quality initiative and offer new and exciting products in all of the categories.
- Early indications are that the environment will remain very difficult but the firm has worked hard to build a deep, emotional connection to its customers.
- The firm continues to be one of the most recognized and most desired brands in the world and that connection is the firm''s best incentive.
Black Friday was the biggest date ever for Bath and Body Works with customer responding favorably to the newness in the assortment and their in-store experience.
- The Signature collection restage launched in 400 stores in the eastern half of the United States and rolled nationwide earlier this month helped the firm to test and learn and to roll out the remaining 1,200 stores successfully.
- January comps were stronger than expected driven by the successful semi-annual sale. Despite some positive news the firm faced some major challenges.
- Traffic was below expectations and required the firm to be more promotional than planned. Additionally, customers spent less in each transaction than last year.
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