WTSLA The Wet Seal - Class A (MM)

Limited Brands Inc. (LTD), a specialty retailer of women’s intimate and other apparel, beauty and personal care products, posted comparable-store sales growth of 3% for the five-week period ended December 29, 2012, but fell short of analysts’ expectations. The owner of Victoria's Secret Direct and La Senza chains succumbed to the economic impasse, which dampened the enthusiasm from the holiday season.

We observed that the rate of growth in comps also decelerated from an increase of 5% registered in November 2012 and 7% in December 2011. Comparable-store sales are now expected to rise in the low single-digits in January 2013.

Other retailers who experienced soft comparable-store sales were The Cato Corporation (CATO) and Wet Seal Inc. (WTSLA), registering a sharp drop of 7% and 9.7%, respectively.

Comparable-store sales for December remained flat at Victoria’s Secret Stores & Victoria’s Secret Beauty, but rose 7% at Bath & Body Works & The White Barn Candle Co. However, comps dropped significantly by 9% at La Senza. Sales at Victoria’s Secret Direct remained even.

Limited Brands, which competes with Hanesbrands Inc. (HBI), said that net sales for December jumped 4.2% to $1,947 million from $1,868 million posted in the comparable prior-year month.

In terms of performance, Limited Brands, the operator of 2,631 specialty stores in the United States, fared below its competitor, Gap Inc. (GPS), which posted comparable-store sales growth of 5%.

Limited Brands’ comparable-store sales climbed 6% for the 48 week-period ended on December 29, 2012. Net sales dropped 1.2% to $9,472 million for the period compared with net sales of $9,590 million last year. The year-ago period sales included $702.4 million from a third-party apparel sourcing business that was sold in November 2011.  

Let’s Conclude

The company’s Bath & Body Works segment is gaining traction, driven by a rise in store transactions, enhancement in the direct channel business and new stores. Victoria’s Secret Stores have been performing well, and the company is revamping its La Senza brand alongside.

Limited Brands is keen on augmenting its retail footprint across the globe by expanding aggressively in Canada and other international markets. Moreover, the company’s strong liquidity positions it for growth and higher returns. However, stiff competition and erratic consumer behavior still remain matters of concern.

Currently, we have a long-term “Neutral” recommendation on the stock. Moreover, Limited Brands holds a Zacks #3 Rank that translates into a short-term “Hold” rating.

 
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