Byline: Thomas J. Ryan

NEW YORK--Wall Street analysts are questioning the prospects for a turnaround by The Limited Inc. this fall after the corporation reported Tuesday that profits slumped 21.1 percent in the second quarter.
"I'm not convinced at all that fall is going to be better for The Limited," said Robert F. Buchanan, retail analyst at NatWest Securities. "One way or another, the company seems to find a way to disappoint Wall Street."
The Limited, pulled down by the women's sportswear chains,
reported that same-store sales fell 13 percent in the second quarter ended July 30. The women's group, which comprises about two-thirds of the corporate revenues, has suffered through most of the Nineties and continues to draw fire. Without an improvement in Express or Limited Stores, chances of a decent second half are slim.
The weakness at the core women's group was offset by strength at Victoria's Secret stores and catalog, Bath & Body Works, Structure men's wear, Abercrombie & Fitch and Limited Too girls. These chains overall had more than a 75 percent gain in operating profits on a 10 percent increase in same-store sales.
Still, analysts expect to see some improvement in the women's stores in the second half and are impressed by new fall merchandise at Limited Stores.
"Who knows if they'll get it right this time, but the stores definitely have a point of view," said Jeffrey B. Edelman, at C.J. Lawrence. "It's disappointing on the women's side in sales," said Harry Ikenson, senior vice president of Mabon Securities. "However, the company is managing its expenses well and getting some good margin improvement out of some of its businesses."
Edelman said Limited Stores is unquestionably apparel for the workplace. Express, by contrast, is "clearly more sportswear-oriented," he said.
Barry Bryant, at Ladenburg Thalmann, said Express merchandise "looks pretty good," but fairly conservative.
"I think they got too far out on the curve and pulled their horns in. We'll see if it costs them," he said, pointing out that more conservative looks have less downside risk but don't carry as much potential for volume that a hot fashion item would.
In the quarter, total earnings for the corporation slid to $53.8 million, or 15 cents a share, from $68.2 million, or 19 cents, a year earlier. Earnings were battered by heavy markdowns at Limited Stores and Express, but were in line with analysts' estimates.
Sales dropped 6.1 percent to $1.58 billion from $1.69 billion, with same-store sales down 7 percent.
Thomas H. Tashjian, at First Manhattan Co., said Lerner New York is starting to improve after several stalled attempts at a turnaround, and he said Express and Limited Stores may start to recover in the second half.
"The Limited Stores merchandise selection looks pretty good, although it's a bit pricy," Tashjian said. Among the women's chains, Express and Limited Stores were the worst performers, with sales, gross margins and operating profits down significantly, the company told analysts in a conference call. On a same-store basis, Express was down in the high teens, and Limited Stores off in the low 20 percent range.
Lerner's same-store sales showed improvement due to tighter inventory controls. Total sales were down in the mid-single digits, but gross margins and operating profits rose significantly. Lane Bryant's operating income was flat compared with a record level last year. Same-store sales were off in the mid-single digits, while gross margins were "up nicely," a spokesman said. At Henri Bendel, operating income was also flat, with same-store sales off in the low single digits, but gross margins were higher.
Regarding the women's chains, Leslie H. Wexner, chairman and chief executive officer, said in a statement that the 13 percent sales drop was consistent with the pattern seen throughout the season and in line with his expectations.
"Inventory levels in our women's apparel businesses were purposefully planned conservatively. We were determined not to have an overhang of summer merchandise into the fall season," Wexner said. "As a result, we are positioned to improve the sales and earnings opportunities as our fall merchandise moves into the stores."
Operating profits at Victoria's Secret stores nearly doubled, with gross margins up significantly and same-store sales rising in the double digits. It was the most profitable division.
Victoria's Secret Catalogs also had a significant hike in operating profits, propelled by a sales rise in the high 30 percent range. Gross margins were even with last year. The catalog also plans to open a second telephone sales center Sept. 19 in Kettering, Ohio.
At the Cacique lingerie chain, operating profits were down, with gross margins off and same-store sales down in the low single digits.
The men's divisions "produced solid improvements over last year," Wexner said. At Structure, operating profits were level with last year, with flat gross margins, but same-store sales climbed in the high single digits. Wexner also said Structure implemented plans to test its first catalog this fall.
Abercombie & Fitch's operating profits were up significantly, as gross margins improved dramatically and same-store sales increased in the midteens.
Wexner also highlighted Bath & Body Works, which posted a substantial gain in gross margins and operating profits and a same-store increase of around 45 percent.
The Limited Too girls' chain had "meaningful sales and operating income improvement," with same-store sales ahead in the low 20s.
In the half, earnings declined 10.1 percent to $101.1 million, or 28 cents, from $112.5 million, or 31 cents, a year ago. Sales slipped 4.1 percent to $3.07 billion from $3.2 billion, with same-store sales off 4 percent.
Inventories were off 4.1 percent in the quarter, to $867 million from $904 million a year earlier. The Limited guided analysts to an earnings range of 23 to 28 cents for the third quarter, which compares with 22 cents a year earlier. For the year, The Limited said it was comfortable with the mid- to upper level of analysts' estimates of $1.25 to $1.35 a share. The Limited earned $1.08 last year.
Limited stock was up 1/4 to 19 on the New York Stock Exchange Tuesday.

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