LIMITED’S 4TH QUARTER TOPS WALL ST. ESTIMATES
Byline: Diane E. Picard / Sharon Edelson
NEW YORK — Despite ongoing problems at Express and a $12 million pretax charge from the prospective sale of its U.K. subsidiary, Penhaligon’s, the Limited Inc. managed to surpass Wall Street estimates by reporting fourth-quarter earnings rose 6.3 percent.
Earnings reached $213.4 million, or 78 cents a share, slightly ahead of Wall Street’s estimate of 76 cents.
Also on Tuesday, Intimate Brands Inc., which is 83 percent owned by Limited, reported fourth-quarter operating earnings gained 19.6 percent to $157.7 million, or 65 cents, compared to analysts’ expectations of 63 cents.
The Limited earned $200.7 million, or 60 cents, a year ago, adjusted for the spinoff of Intimate Brands. Limited’s sales for the period ended Feb. 1 rose 13 percent to $2.96 billion from $2.63 billion. Same-store sales were ahead 3 percent overall.
Limited’s stock inched ahead 1/2 to 18 1/2, while Intimate Brands stock was unchanged at 18 7/8 on the New York Stock Exchange Tuesday.
Express, which has been suffering from a long-term identity crisis, continues to drain Limited’s earnings. Turning the division around is a top priority for the company’s executive team.
Express posted sales of $403.6 million for the fourth quarter. Same-store sales were off 12 percent and gross margins and operating income were down “significantly,” the company said in a conference call.
According to analysts, Express’s operating income declined $80 million from last year. The Limited declined to comment.
Inventories at Express are below the year-ago level, and clearance sales are under way to eliminate remaining fall merchandise, the company said.
In an effort to rebuild the chain, Express is returning to its roots in juniors with Michael Weiss, former vice chairman of The Limited, at the helm. “It’s obviously going to be tough,” said Janet Joseph Kloppenburg, retail analyst at Robertson Stephens. “They have to build brand equity.”
Express began moving towards a younger customer last year, but the effort was not received well, analysts said. The chain missed several key looks for fall, including short sweaters that stop at the waistband, a style that proliferated at juniors chains such as Wet Seal, Contempo Casual and Gadzooks.
“They got into the stretch hip-hugger look too little too late,” said Richard Jaffe, vice president and research analyst at Schroder Wertheim. “It comes down to execution. Spring is likely to be an ongoing disaster. Managing the liquidation of unappealing merchandise will be Michael Weiss’s responsibility. Any improvement becomes a spring ’98 story.”
The Limited said it expects same-store sales at Express to be “significantly down” in the first quarter, and slightly better but still negative in the second quarter.
The Limited Stores may be benefiting from Express’s shift to a younger customer, since the divisions have reportedly cannibalized each other for years. Margins and operating income at Limited Stores were up significantly but still short of expectations, the company told analysts. Fourth-quarter sales were $252 million and comps inched ahead 1 percent.
Sales at Lerner New York were $341.1 million, with same-store sales ahead 9 percent. In a statement, Leslie H. Wexner, chairman and chief executive officer, said Lerner’s delivered “a five-fold increase in operating income for the year on a comparable-store sales increase of 8 percent.”
Also on Tuesday, in its continuing effort to beef up design in all its divisions, Limited announced that Glenda Ahrens-Koda was named vice president of design for Limited Stores. She was a design director at A Line Anne Klein.
Lane Bryant reported sales of $252.2 million, with comps dipping 1 percent. A series of initiatives including a new store prototype and updated fashions are expected to bring improvements at the large-size chain. [See sidebar, this page.]
Comp-store sales at Henri Bendel were down 8 percent, and sales??? were $24.6 million. In the conference call, Limited said that Bendel’s was faced with merchandising and fashion miscues during the quarter, but is working to fix those problems.
Bendel’s has yet to turn a profit since it was purchased by the Limited in 1985. Last August, Bendel’s hired Angela Arhendts, former president of Donna Karan New York and Donna Karan Essentials, to develop a Henri Bendel signature collection.
“This is an effort to establish their own brand and bank on this brand,” said Randolph Duke, who worked on the Bendel’s line before leaving in September to design the Halston collection. “They are under tremendous pressure to turn this into something. There were many figures thrown about as to how many stores they wanted to open by the year 2000, but they’ve had trouble just getting to six stores. The merchandise mix is a big part of that. What does Henri Bendel stand for?”
“They made Bendel’s like the Limited,” a Wall Street retail analyst said. “Their merchandising technique, for example, is to go narrow and deep in the stockkeeping units and carry the same shirt in 50 colors. You do make more money with long production runs, but that’s not how you run a carriage trade business.”
In contrast to the women’s divisions, each of the businesses in IBI have strong identities.
Led by powerful performances at Bath & Body Works and Victoria’s Secret Stores, Intimate Brands had a per-share earnings increase of 24 percent over last year’s quarter, when it earned $131.9 million, or 52 cents. Sales increased 18.8 percent to $1.16 billion from $977.1 million. IBI is expected to grow 15 percent in 1997.
At Bath & Body Works, sales increased 58 percent, and profits were ahead 60 percent, driven by a successful holiday season. Jennifer Black Groves, a retail analyst at Black & Co, said IBI delivered on its expectations and beat her operating earnings estimates by 5 cents a share.
“They have built a strong foundation and expect a 16 percent gain in earnings in 1997,” she said. “They are really building a powerhouse with these companies.”
Bath & Body Works’ sales advanced 59 percent to $753 million, and profits were up 55 percent. Sales for the quarter were $374.8 million, with a same-store sales gain of 15 percent.
The division added 252 stores in 1996 and plans to open 210 stores in 1997.
At Victoria’s Secret Catalog, sales of $209 million were up only 1 percent, but operating profits grew 27 percent.
Victoria’s Secret Stores fourth-quarter sales were $540.5 million with a same-store sales increase of 5 percent. Operating earnings were up 14 percent.
After the charge for the intended sale of Penhaligon’s, The Limited’s full year earnings were $434.2 million, or $1.54. The Limited has signed a letter of intent to sell Penhaligon’s, a retailer of perfumes and gift items, which had 1996 sales of $5.5 million.
Last year, the Limited earned $890.3 million, adjusted for the initial public offering of 16.9 percent interest in Intimate Brands Inc., the sale of a 60 percent in Limited’s credit card bank and a reduction in the company’s outstanding shares after a self-tender offer of 85 million shares.
Actual net income was $961.5 million, or $2.68, including a pretax gain of $649.5 million for the Intimate Brands IPO.
For the year, after the Penhaligon’s charge, earnings rose 20 percent to $258.2 million, or $1.02, from $213.6 million, or 85 cents.
Two of the Limited’s smaller business showed potential in the quarter. Limited Too had a significant improvement in operating income and an 8 percent same-store sales gain. Sales at Cacique were $28.7 million, and comps were ahead 6 percent.