After decades of taking it slow overseas, Limited Brands Inc. is charged up and aims to double international revenues to $2 billion in three years.
“We’re taking it very seriously,” Limited’s chairman, chief executive and founder Leslie H. Wexner said during an analysts’ meeting in Columbus, Ohio, on Tuesday. “A paradigm shift happened in the last 12 months.”
Wexner said the $1 billion in revenue currently generated abroad is “very profitable” and that Limited’s La Senza intimate apparel chain in Canada, acquired in 2007, is “an area of accelerating growth.…We will start plowing forward very aggressively.”
“Over the next three years we should double the size of our international business,” added Martin Waters, executive vice president of the international division. “We learned that our brands have appeal all over the world and we have learned how to make money.”
The executives cited “a menu of opportunity” including:
• Rebuilding La Senza in Canada, which has struggled in the last two years.
• Opening 30 to 40 Bath & Body Works stores in Canada annually over the next few years; by the end of November, there will be 31.
• Opening Pink stores in Canada, with the first opened last week and four more bowing over the next few weeks.
• Seeking a “really big scale” franchise partner, probably for BBW, to cover expansion across an entire continent, like Europe or Asia.
• Testing BBW in travel-related locations including airports.
• Adding Victoria’s Secret flagships in strategic markets, including Japan in 2012 at the earliest.
• Building Victoria’s Secret Direct overseas from the current $100 million in volume.
Wexner long stuck to the belief that transporting U.S. fashion brands overseas was a losing proposition. However, he now has a different outlook since the company shed its sportswear businesses — Abercrombie & Fitch, Express and Limited Stores — leaving it with the more profitable Victoria’s Secret and BBW brands, and with no significant square footage growth currently seen in the U.S.
Still, Wexner sounded a word of caution. “We are firewalling off international from the U.S. domestic business,” he said. “The golden goose is North America. We don’t want to go down that dark hole of being successful there and getting screwed up here.”
The economy, he predicted, will be “fluffing along maybe a year, maybe two. I don’t believe we are seeing the end of the world. The world is stabilized. Customers are largely stabilized….I am pretty optimistic about the Christmas season. We have made progress across the enterprise.…The whole mind-set of the business is younger, more emotional, even the vocabulary. Women are saying, ‘I want to be a bombshell.’ Years ago, it was ‘I want to be an angel.’ I am optimistic on a relative basis.”
He cited a sustained improvement in the performance of BBW and “better execution of ideas” at VS. Overall, “there has been an improvement through the fall.”
On Monday, the $8.6 billion Limited updated its guidance, projecting third-quarter earnings per share between zero and a loss of 4 cents versus its previous estimate of a loss of seven to 12 cents, but the outlook for October comp-store sales worsened to negative low- to midsingle digits, versus the earlier estimate of roughly flat. Limited’s shares fell on Tuesday since analysts had originally expected a better comp-sales performance.(For more on stocks, see page 14.)
Free cash flow for 2009 (cash flow from operations less capital expenditures) is expected to be between $500 million and $600 million, compared to a previous estimate of $350 million to $450 million. Wexner said Limited wants to return to 15 percent growth in the top line and 15 percent gain in operating income by 2012, but to reach that target, not met since 2004, margins and sales trends must improve. Wexner emphasized that better merchandise with “emotional content” and the international opportunities are the drivers. “We want to build back to that model. We think it’s quite doable,” Wexner said. “We are not trying to fast dance to slow music.” In 2008, Limited had a 7.9 percent operating margin.
As far as the U.S., Wexner said “the next big thing” is the Henri Bendel accessories stores. “We think that’s [potentially] a big, big business.” He said the new Bendel’s format is in a debugging stage. He also said Victoria’s Secret Sport is another potential big thing.
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