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Limited Brands Speeding Pink Expansion

Capital expenditures budgeted to rise 10.5 percent to about $650 million.

Limited Brands Inc. plans to more than double the store count of its Pink division and boost Pink’s representation in Victoria’s Secret stores as part of a more than 10 percent expansion of capital expenditures in the new year.

Pink, which takes a more youthful approach to innerwear, swimwear and sleepwear than its big sister Victoria’s Secret, grew to 34 U.S. stores totaling 109,000 square feet in 2012 and is budgeted to better than duplicate that growth rate in 2013, expanding to 83 stores with 282,000 square feet. The store count in Canada is expected to remain unchanged at 10.

In a Thursday morning conference call to discuss fourth-quarter results and 2013 guidance, Sharen Turney, chief executive officer of Victoria’s Secret, noted that “growth in lingerie and Pink” were the primary catalysts for a 3 percent increase in VS’ fourth-quarter same-store sales, while beauty business was flat and holiday performance, “although above last year, missed our expectations.”

Stuart Burgdoerfer, chief financial officer, told analysts on the call that 2013 capital expenditures are projected to reach $650 million, 10.5 percent above the $588 million invested in the business last year. “The increase in capex versus last year is attributable to increased real estate investment at Victoria’s Secret, primarily to increase square footage,” he said. “As we previously noted, only about 20 percent of our current stores carry the full Pink assortment.”

The company is projecting a net decrease in the number of VS stores in the U.S. to 972 from 985, with total square footage up slightly to 6.1 million. The Canadian store count will grow to 24 from 16, while U.K. units expand to five from two.

Although initially disappointed with 2013 guidance issued late Wednesday for earnings of $2.82 to $3.12 a diluted share, below the $3.24 EPS earlier expected by analysts, investors warmed to the Columbus, Ohio-based specialty retailer’s plans Thursday. Shares gained $1.03, or 2.3 percent, to close at $45.53 in Nasdaq trading. Burgdoerfer indicated on the call that profit pressures, strongest during the first half of the year, are expected to ease in the back half.

In the fourth quarter, the company, which also operates the Bath & Body Works and La Senza chains, posted a 14.5 percent rise in net income to $411.4 million, or $1.39 a diluted share, from $359.4 million, or $1.17, a year earlier. Adjusted earnings tallied $1.76 a share and were 2 cents ahead of analysts’ consensus projection. Sales for the 14 weeks ended Feb. 2 rose 9.7 percent to $3.86 billion from $3.52 billion with same-store sales rising 5 percent.

For the full year, Limited’s net earnings fell 11.4 percent to $753 million, or $2.54 a diluted share, from $850.1 million, or $2.70, in 2011. Sales advanced 0.9 percent to $10.46 billion from $10.36 billion.