Management at Limited Brands (LTD) was very clear to analysts at the most recent investor day, stating that the future of the company was in the Bath & Body Works and Victoria’s Secret brands, and not in apparel units Express and Limited. Not that it needed to be said, as the two apparel units only contributed $27 million to operating profits in the year ended February 3rd, 2007 – less than 3% of the company total of $1.176 billion.
Various reports today say that the company is in talks to sell the apparel group, including all Express and Limited stores, to Schottenstein Stores Corp. and Gordon Brothers Group for an estimated $1 billion dollars. There are even rumors that the president of Limited Brands’ apparel group, Jay Margolis, is interested in taking the apparel group private himself in a management-buyout offer.
Sales fell 3% at Express stores in the past 12 months and 10% over at Limited stores, as 117 locations were shut down during the period, bringing the combined total to 918 as of February this year. Total sales for the past year were $493 million at Limited stores and $1.749 billion at Express stores, for a combined total of $2.24 billion.
If a sale was approved in the $1 billion range, it would value the businesses at less than 0.5 time sales – low by retail standards but not a bad deal considering that the apparel group has a combined operating loss of $81 million over the past three years.
The Limited Brands that would be left over would still have over $8 billion in annual sales, along with double-digit sales growth in the two leading brands. This should be enough to drive LTD’s stock multiple higher, as the poor performance of the apparel group has kept valuations in the low teens for several years. The market seems to be echoing this sentiment, driving the stock 5% higher in early trading to $27.97. The stock is in the middle of its 52-week range of $23.54 to $32.60.
Ryan Barnes
April 24, 2007
Ryan Barnes can be reached at [email protected]; he does not own securities in the companies he covers.
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