THE RED-HOT EXPRESS HELPS LIMITED PULL IN 38.5% HIKE IN PROFIT

Byline: Thomas J. Ryan / With contributions from Melanie Kletter / Arnold J. Karr

NEW YORK — “I guess it’s our time again. It’s time for fashion.”
That’s Michael Weiss, president of Express, summing up the sparkling performance of the Express chain during the first quarter, which helped The Limited Inc. deliver a 38.5 percent hike in profits during the period.
Express was powered by more colorful merchandise, a broader price spectrum and accelerated deliveries for greater change on the selling floors.
“We really do believe that the trend is significantly with us,” said Weiss. “When we looked back, we saw the last one lasting eight or nine years, so we’re looking for this trend to be quite good.”
Limited’s earnings also were driven by surprising improvement at Limited Stores and a surge in profits at Intimate Brands. Two other trend-sensitive retailers, Hot Topic and Benetton, gave fashion credit for a better climate for full-price selling as they reported their quarterly results Monday.
Overall, earnings rose to $63 million, or 28 cents a share, for the quarter ended April 29, from $44.6 million, or 19 cents, a year ago, topping Wall Street expectations of 25 cents. Excluding Limited Too, spun off in early 1999, year-ago earnings were $45.5 million. Sales nudged up 0.2 percent to $2.11 billion from $2.1 billion, but excluding year-ago results from Too, would have climbed 4.9 percent. Same-store sales gained 8 percent.
Breaking out the results of its apparel division:
Express’s same-store sales jumped 16 percent, with “record” merchandising margins. Operating profits were “up significantly.” Sales were $346.5 million.
Lerner’s same-store sales dipped 3 percent, with gross margins and operating profits down. Officials said it didn’t have enough “wow items” compared with last fall and described the mix as a “little too young” for Lerner’s core customer. Sales were $220.4 million.
Lane Bryant’s same-store sales rose 3 percent, but operating income was down. Officials said Bryant missed some trends, and an adjusted floor set would hit the floors May 22. Sales totaled $220.2 million.
Limited Stores’ same-store sales advanced 8 percent and gross margins and operating income were “up significantly.” The good performance came despite a more than 20 percent reduction in inventories, and stemmed from good initial results from its Virtual Stretch program. Sales reached $157.3 million.
Structure’s comps fell 4 percent and gross margins and operating profits were “down significantly.” Its performance was hampered by a more than 20 percent cut in inventory and a quick fashion shift from a “utility, baggy look to a cleaner look.” Sales were $112.7 million.
Overall operating earnings in its apparel division surged to $12.4 million from $1.3 million in 1999, with same-store sales ahead 6 percent and gross margins up 180 basis points. Limited’s profits were also buoyed by Intimate Brands, which last week reported earnings climbed 28.8 percent to $67.9 million, or 27 cents a share. Sales gained 5.2 percent to $1.01 billion. Limited owns 84 percent of IBI, which operates Victoria’s Secret and Bath & Body Works.
Limited said its “other” division, which includes Henri Bendel, cut its operating loss to $4.2 million from $7 million. The reduced loss reflects the exit from Gaylan’s, which was sold last year. Bendel, which now operates one store on Fifth Avenue following a downsizing in 1998, had sales of $9.8 million, with comparable sales ahead 11 percent, though its operating income was flat.
Although Express was the star among Limited’s apparel brands, Limited Stores was the surprise, particularly given that Limited hinted last year it might close the chain if results didn’t improve.
“We are encouraged by performance at Limited stores,” said V. Ann Hailey, executive vice president and chief financial officer. “Given its progress, we are not at this point considering closing the business.” The chain lost money in the period, but a solid response to its Virtual Stretch initiative lifted traffic. “We are encouraged, but not complacent about the progress of that business,” said Hailey.
Express clearly benefited from a shift from what Weiss described as “pretty androgynous fashion” for the young in the last five to seven years to more color, fabrics and silhouettes across the chain. “We are bringing in constant new deliveries of fashion,” said Weiss. But moves to bring design and merchandising 100 percent in-house also helped the chain realize “a consistent spirited brand image” in the store, said Weiss. “Talking about a brand is one thing, but making the dance go along with the music is something entirely different, and I really do believe that the execution of the brand is really quite good,” he said. Also driving Express results were a greater breadth of prices and deeper inventories in certain areas. For instance, Express had previously focused on the midprice range with its cotton-Lyrca blends in its cut-and-sew group. But these core offerings have been complemented by cotton rib T-shirts at opening prices and items using rayon, nylon and other fibers at higher ones.
“We’re hitting a much broader spectrum of the market,” Weiss said. A similar tactic is being used in sweaters. The denim business was aided by more aggressive inventory commitments than in the past.
“We’re seeing strength in both novelty and basics,” Weiss said. “Novelty is turning faster, as it always does. They either like it or hate it. But the big, big dollars are coming from the core basic.”
For fall, Express’s focus will be on knit tops, sweaters and denim, as well as on “wear-to-work clothes,” a category that was understocked last September. Intimate apparel, initially rolled out to 400 stores last fall, is being rolled out to the entire chain.
Hailey said the company was under “various stages” of “the brand growth process” with each chain and would continue to commit cash investments to “the best brands and best businesses.”
John Morris, an analyst at Gerard Klauer Mattison, said The Limited was benefiting from efforts to improve quality and styling and be more trend-right, even at chains that lagged during the quarter, such as Lerner.
“They are really well positioned to ride the wave of heightened fashion interest on the part of the consumer,” said Morris. “You had Express hitting the mark and the Limited chain really coming on strong, so they’re really in a good position for the second half.”
Marcia Aaron, at Deutsche Banc Alex. Brown, said the Limited was doing a better job interpreting fashion for each chain rather than layering trends across all chains.
“Now they’re really trying to understand what the fashion is and that some fashions may not be appropriate for each division. There’s much more clarity between chains than before,” said Aaron.

Hot Topic
Hot Topic, the fast-growing teen retailer, reported sales generated without the aid of promotions helped the company more than triple first-quarter earnings as sales increased 58.5 percent.
The music-inspired chain, which now operates 228 stores, said earnings in the quarter ended April 29 gained to $2.4 million, or 23 cents a share, from $635,000, or 7 cents, a year ago. Per-share results reflect a 2-for-1 stock split effective December 1999.
Sales surged to $44.8 million from $28.3 million, and were ahead 24.1 percent on a comparable-store basis.
The company, based in City of Industry, Calif., announced that Elizabeth (Betsy) McLaughlin, president, had been elected to the board.
“Merchandise margins were particularly strong, as we had no promotional activity during the quarter,” she said. “Our inventories at the end of April were on plan, and our inventory aging was well below last year.”
Margins grew to 37.4 percent of sales from 34.5 percent a year ago.
The company noted that the 12 new stores opened during the quarter performed above plan, and Internet sales gained 359 percent from last year’s first quarter.

Benetton Group
Emphasis on full-price apparel selling helped increase Benetton Group SpA’s net income from continuing operations by 15.8 percent to $20.7 million during the first quarter of 2000.
The sale of the Formula One Team to the Renault Group added $87.1 million in extraordinary net income to Benetton’s figures, catapulting net income for the quarter to $107.8 million. (Dollar figures have been converted from Italian lire at current exchange.)
The company, based in Ponzano, Italy, reported sales declined 2.6 percent to $390.1 million. The deconsolidation of Formula One was responsible for the displacement of about $17.4 million in revenue from last year’s first quarter. The company noted that revenues from its sports segment declined approximately $11.8 million from year-ago levels, but the seasonal nature of the sports equipment business was said to make this shortfall “recoverable during the course of the year.”
Apparel sales increased 5 percent during the quarter and units were up 8.5 percent.
“The positive results in the clothing sector have been homogeneously obtained throughout all the principal markets,” the company said in a statement, “and have also been influenced by the good performance of the directly managed megastores, which will continue to be opened in historical and commercial centers in the coming months, in particular in Paris and London.”
A spokesman for the company said Benetton would continue to convert stores to corporate ownership from licensed or franchised stores, its previous concentration.
Benetton projected that its yearend increase in revenues would be approximately 8 percent, “a figure obtained partly by ever greater full-price sales in stores, thanks to a timely resupplying of updated products that limits reduced-price sales periods to a minimum.”
In its continuing efforts to accelerate production and delivery, Benetton’s Sports Equipment division chose MatrixOne’s eMatrix Internet architecture to help integrate incompatible business processes throughout the life cycles of its products. MatrixOne’s products help businesses access critical information on design, production and distribution, regardless of their location along the supply chain.