Limited Brands Seems Limited - Analyst Blog

We have recently initiated coverage on Limited Brands Inc. (LTD), a specialty retailer in the United States, with a Neutral recommendation and a target price of $20, as we anticipate it to perform in-line with the industry.

Based in Columbus, Ohio, the company sells women’s intimate and other apparel, beauty and personal care products, home fragrance products and accessories. The company sells its merchandise through specialty retail stores, which are primarily mall-based, and through its websites, catalogue and other channels. The company conducts its business primarily through two reportable segments -– Victoria’s Secret and Bath & Body Works.

Limited Brands’ sustained focus on cost containment, inventory management and merchandise initiatives has enabled the company to manage itself efficiently, even in a difficult consumer environment.

Further, driven by encouraging sales results, Limited Brands seeks to expand aggressively in Canada. The stores are generating sales volumes nearly two and a half times higher than the U.S. average. The company plans to open 30 to 40 Bath & Body Works in fiscal year 2010. The company is also eyeing other international markets, such as Europe and Japan.

However, the company faces stiff competition from chain specialty stores, department stores and discount retailers on attributes such as marketing, design, price, service, quality and brand image. The competitors' larger number of stores, greater market presence, brand recognition and financial resources will likely continue to weigh on LTD's results.

Limited Brands is actively managing its capital. It now expects fiscal year 2009 capital expenditures to be about $225 million, significantly down from $479 million in 2008 and $749 million in 2007, resulting in free cash flow generation between $500 million and $600 million. The company expects to end the year with about $1.5 billion in cash. The company’s strong liquidity will position it to drive future growth.

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