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Wexner Touts International Growth

Leslie Wexner, chairman and ceo of Limited Brands, cited the possibility of opening "several hundred" stores in the Middle East.

Leslie H. Wexner, chairman and chief executive officer of $9 billion Limited Brands Inc., is back at it — looking at the big picture, especially abroad.

“I would guess the potential on international is probably equal to the U.S. If I believe I could do $20 billion in North America, there is probably another $20 billion across the world,” he said, with Limited’s major brands — Victoria’s Secret, Pink, La Senza and Bath & Body Works. “You get to $40 billion. It’s a very big number.”

Wexner’s global perspective came in response to a question during the investors’ update meeting Wednesday. “There is tremendous demand from franchisees, developers and most importantly from customers. It’s really quite good,” he said.

Wexner cited the possibility of opening “several hundred” stores in the Middle East, including 200 in Turkey. And in Brazil, where a new 1,000-square-foot Victoria Secret airport store is running at about a $10 million annual rate, “The perception of Victoria, Victoria’s Secret beauty and accessories is pretty damn high,” Wexner said. “Brazil probably has the potential for 300 to 500 stores.”

His optimism is pumped by the current state of Limited Brands, which is expected to end this year with $1.73 in per share profits, $550 million to $650 million in cash and under $300 million in debt. Ninety-nine percent of the store fleet is running cash positive after taxes, and Limited has a goal of achieving a 15 percent operating margin by 2012, from 9.9 percent in 2009 and 14.6 percent in 2004. Last spring, the company “bumped up” against 12 percent. “We haven’t seen such good times in a long time — really robust times, since the invention of the mall,” Wexner said in his opening comments.

The chairman’s message harkened back to the Eighties and early Nineties when he was prone to lofty projections on small brands he intended to blow out into billion dollar businesses. It happened with Victoria’s Secret, Pink and BBW, but the apparel businesses Limited sold off and Henri Bendel, which it retains, fell short.

While bullish on the international possibilities, Wexner gave no indication on how rapidly Limited would grow overseas, but it would appear slow. “The approach to international we have is very conservative,” he said. “There are a lot of baby steps. We don’t want to take a giant step, fall down and have to regroup,” as other retailers have done, he noted. “We want to make sure we have the right people before we let it rip.…The hurdle is the talent on the international side. We won’t go very fast until we are way ahead of ourselves in terms of talent.”

He added: “There is no certainty that the six BBW stores that opened in the Mideast will have positive results. We are in kind of a test mode. We are trying to be thoughtful.” Limited’s franchising partner in the Middle East is M. H. Alshaya Co. “We would like for [Alshaya] to be a partner for all of our brands in this region of the world,” Wexner said. “Finding partners on a regional basis makes it easier.”

According to Martin Waters, president of Limited Brands International, “We are thinking about the world as having a small number of really capable partners,” possibly one per region.

Back in the U.S., “I believe in a five-year period, the domestic businesses could have the potential to double in size,” Wexner said. “We won’t double in numbers of stores. The Pink fleet could probably double or triple in size. [The stores] are largely undersized. There is some growth in real estate, in square footage, not necessarily in doors.”

Sources said Limited’s La Senza lingerie chain in Canada will soon invade the U.S., with a prototype in the works. Limited recently transferred La Senza’s creative functions in Montreal to Limited headquarters in Columbus, Ohio.

On another domestic front, Henri Bendel “is kind of incubating,” Wexner said. “If we do such a good job in Victoria’s Secret and Bath & Body Works, why can’t we transfer those skills to brands like Bigelow and Bendel?” There are currently 10 Bendel units at 2,000 square feet each, which represent “a spectacular opportunity — a low priority one,” Wexner said. The Fifth Avenue flagship “is what it is — a big store.”

For the holiday season, Wexner said, “My overall outlook is cautious. I think the world, as far as it matters for us, looks uncertain. There is a lot of funny stuff. From an outlook point of view, it’s about flat. I think we are going to bump along, bad news one day, good news another. My personal outlook is we will have a good holiday,” barring any major unforeseen external circumstances.

Wexner’s philosophy on expansion is fundamentally different from Gap Inc., which sees its domestic business as mature and is aggressively opening franchised and company-owned stores abroad despite ongoing difficulties in the U.S. Last week, Gap forecast a dramatic shift in the balance of its business whereby international and online operations are seen generating 27 percent of revenues by 2013 versus 16 percent in 2007. However Wexner stressed a retailer can’t be successful overseas until it gets it right at home. “Without that strength, there is really nothing for us to do overseas,” he said.

He sees the world as “really flat at retail. The best global competitors seem to be doing better everywhere.…The categories we are in — lingerie and beauty — move internationally easier than apparel and other categories. Angel [the Victoria’s Secret subbrand] sells just as well in Singapore as it does in South America. The strength of our exports are the strengths in our domestic market.” While acknowledging there could be bumps in the road to international growth, “The biggest bump is disrupting the golden goose which is the domestic business,” Wexner said.

In Canada, Limited owns the La Senza chain, and will have 60 BBW stores by yearend. There are a handful of Pink stores in Canada, and recently three Victoria’s Secret flagships opened, with a fourth imminent. Outside North America, there will be 18 VS travel and tourism stores by yearend. Also, La Senza products are sold through franchised stores in 40 countries; Victoria’s Secret Direct sells in about 80 countries, and Victoria’s Secret Beauty products are sold in 23 countries through duty free shops. VS will open on Bond Street in London in 2012.

Another place Wexner clearly doesn’t want to be is the apparel business. In the last several years, he sold off Express, Limited, Abercrombie & Fitch and Limited Too. “If I was starting today, I would not start an apparel business. The apparel business sucks.”