By  on July 10, 2007

After selling the bulk of the core Limited Stores division Monday to a private equity firm, Limited Brands founder Leslie H. Wexner is pursuing his plan to remold the company into a global purveyor of intimate apparel and personal care.

The sale of this division and the deal to sell Express, signed last month, complete an evolution of the group, led by Wexner as chairman and chief executive officer, from an apparel-only retailer to one that generates most of its profits and revenues from innerwear and beauty products.

The 44-year-old company sold a 75 percent stake in the firm's namesake Limited Stores to an affiliate of Sun Capital Partners Inc. in a noncash deal. The private equity firm will contribute $50 million in equity capital to the business and arrange for a $75 million credit facility. The transaction is expected to close in the next 30 days. Limited will not receive any cash from the deal, and expects to record an aftertax loss of $42 million on the transaction. Limited Stores is a contemporary brand of women's apparel sold in 260 stores in 42 states.

Limited Brands also said it closed on an agreement to sell a majority interest in its Express nameplate to Golden Gate Capital for $602 million. The stake, initially for 67 percent of the company, was upped to 75 percent, and the $602 million includes an additional $54 million for the increased stake.

"We have moved from a portfolio of brands and businesses to an enterprise powered by two world-leading brands: Victoria's Secret and Bath & Body Works…the best brands in intimate apparel and personal care,'' Wexner said in a statement. "These strategic actions will better position Express and Limited Stores for future growth and profitability and enable the ‘new' Limited Brands to derive the benefit of our increased focus."

The company's apparel brands, which once accounted for more than 70 percent of revenues, now represent less than 20 percent of Limited Brands' revenues of $10.7 billion a year. Limited had sales last year of $493 million, and Express had revenues of $1.7 billion, according to the company. Victoria's Secret and BBW now account for the bulk of sales.

International expansion is high on the company's agenda, a company spokeswoman said, confirming recent market rumblings. Propelling that interest is the company's La Senza operation in the intimate apparel market."We do believe that there is an opportunity internationally,'' the spokeswoman said. "We are working with La Senza to better understand the dynamics. We understand the success of their brand in Canada, so that helps us to better understand the broader, bigger North American picture. The way they work with their licensees internationally also helps us to understand how to do business abroad. They have two international business models already in place, and we are at the beginning of our ability to explore [internationally]."

She said the company had not set any time frame for international expansion. While La Senza has opened many doors, the fundamental question for Limited management to consider is the appropriate next step, the spokeswoman said.

"We are pleased to have entered into an agreement with an affiliate of an experienced financial sponsor,'' Linda Heasley, co-president of Limited Stores, said in a statement. "This transaction will provide Limited Stores with an opportunity to benefit from Sun Capital's extensive retail experience as we deepen the penetration of our target audience — young, sexy American women in their late 20s that need contemporary fashions for work and play."

Aaron Wolfe, vice president of Sun Capital Partners Inc., said in a statement, "Limited Stores is an iconic American retailer with a loyal customer base. We are looking forward to working with Linda Heasley, Avra Myers and the rest of the team to fuel growth and maximize Limited Stores potential."

As for Express, Stefan Kaluzny, managing director of Golden Gate Capital, said in a statement: "This is a terrific day for Express, its associates and Golden Gate Capital. We are very excited about the prospects for the company, one of the leading specialty retailers in the country."

The private equity firm also said it had named Michael Weiss ceo of Express. Weiss led Express for most of the period from its founding in 1980 to his retirement in 2004, Golden Gate said.

The sale proceeds from Express are expected to be used partly for the company's $1 billion stock repurchase program announced on June 22, the company spokeswoman said.

A financial source said that BBW and Victoria's Secret were brands that could be taken overseas. Express and Limited didn't have the potential for that type of exposure.For now, the company is sticking with its current name, preferring the tag "new" Limited Brands to highlight the shift in focus, the spokeswoman said.

Analyst Mark Montagna at C.L. King said, "I think at some point, perhaps, the company may change its name. What might it be? I don't know. Maybe the company will resurrect Intimate Brands."

Wexner started the company with a single store called Limited, which opened in Columbus, Ohio, in 1963. Over the years, the retailer has gone through various sell-offs and spin-offs.

In 1995, the retailer established Intimate Brandwwwws as a separate entity just for Victoria's Secret and BBW. The new entity was reintegrated into Limited Brands in 2002. Abercrombie & Fitch was spun off in 1998, and New York & Co. was sold to Bear Stearns in 2002.

Montagna believes the future of the Limited Stores and Express businesses is an increased presence in strip shopping centers. As for Victoria's Secret and BBW, "There are some operating synergies between the two since Victoria's Secret also sells perfume and lotions. The two are the most dominant brands for their particular sub-sectors. Both have been posting operating margins consistently at 18 percent each," he said.

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