By  on June 26, 2007

Limited Brands Inc.'s stock repurchase plan could signal a sale of the Limited brand is close, an equity analyst said in a research note Monday.

The Columbus, Ohio-based retailer said last Friday it would cut costs by laying off 10 percent of its workforce at corporate headquarters and branch offices and increase shareholder value via share buybacks.

"We believe a sale of the Limited Stores division will happen relatively soon," said C.L. King & Associates analyst Mark Montagna. "With the May 15 announcement of a definitive agreement to sell Express, the company stated it would not issue a dictate of the future use of the $425 million of after-tax cash proceeds until it resolves the fate of Limited Stores. Friday's series of announcements addressed the use of this Express cash. Management confirmed this also encompasses any future cash uses from the sale of Limited Stores."

Montagna said Limited's announcement "implies the company has serious bidders in the process and has a solid estimate of the value it will receive in a sale. With that much knowledge, we believe Limited is close to a final resolution and subsequent announcement regarding Limited Stores."

The analyst has an "accumulate" rating on shares of Limited, which have been trading around $27. Montagna's price target on the company is $31. Limited Brands' 52-week high is $32.60, the low, $23.54.

Montagna said shares of the retailer "also deserve to appreciate" after Limited Brands said the five-year, compounded annual growth rate of Victoria's Secret's square footage was pegged at 8 to 10 percent. "Adding in the projected Bath & Body Works square-footage growth of 3 percent puts [Limited Brands] in square-footage growth ranges it has not seen in a decade," Montagna said.

In a separate note by Goldman Sachs & Co. analyst Margaret Mager, the analyst has a "neutral" rating on shares of Limited Brands.

"Based on our current 2008 earnings per share estimates, we estimate approximately 9 percent accretion from the sale of Express, cost savings and the increased buyback," Mager said. However, the likelihood fundamentals continue to remain pressured through year-end 2007 tempers the attractiveness of this accretion, positing the initiatives as support for the shares in the event [second-half] results fail to show improvement from current trends."Mager went on to say that Victoria's Secret continues to face merchandise issues that "pressure sales and margin results, especially in [the second half of 2007] where estimates were unchanged following the [first-half] shortfall. We believe Victoria's Secret's formula requires a revamp as supermodel marketing needs reinvigoration and the bra launch strategy hasn't been meeting plan."

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