Shoppers are looking for more casual pajamas, antibacterial toiletries and moderately priced underwear, executives at Limited Brands (LTD) say. The parent company of the Victoria's Secret and Bath & Body Works chains posted better than expected results in the third quarter and upgraded its forecast for the rest of the year, thanks to cost-cutting and improved sales of some products.
Limited Brands' net income was $6.1 million, after factoring out some gains from tax adjustments, compared to $4.2 million the same time last year. That translates into a gain of two cents per share; analysts had forecast a one-cent loss.
Beating the Forecasts
CFO Stuart Burgdoerfer upgraded the company's forecast for the fourth quarter and the year, saying Limited Brands now expects earnings of 71 cents to 86 cents per share for the quarter and 93 cents to $1.08 for the year. That beats the forecast of 75 to 90 cents for the year that executives had made when announcing their second-quarter results in August.
The company anticipates that its gross profit margin rate will keep growing across all its businesses, but comparable sales will still be down in the low to mid-single digit percentages during the fourth quarter, he told analysts during a conference call.
Sales for the third quarter were down 3.5%, and comparable sales were down 2%, below the same time last year. Comparable sales -- those in stores open at least a year -- were down 4% at Victoria's Secret and up 2% at Bath and Body Works.
Profiting from Anxiety
It's a turnaround for Bath & Body Works, which expects to do well for the holidays, thanks to the recessionary focus on home and hearth -- and a bit of flu anxiety. The chain relaunched some of its antibacterial products in time for the H1N1 flu outbreak, and they have been selling well, said Diane L. Neal, CEO of the toiletries retailer.
Total sales were up 3% for the quarter, even with weaker traffic -- likely a result of lower mall traffic. But thanks to the increased sales and cost cutting, this was was the chain's first profitable quarter since 2002, Neal said.
Meanwhile, Victoria's Secret sales were an improvement over previous quarters, said Sharen Jester Turney, CEO of the lingerie chain. "I think some of that improvement came from applying what we learned last season," she said.
Lower Price Points
Victoria's Secret is reaching a better balance in pricing by introducing new products aimed at the lower price points, especially its Pink brand. That reflected in better bra sales, which were offset by weaker sales of panties and flat beauty sales. In sleepwear, Jester Tunney noted, sales of more casual products are doing much better than "glamour" nightgowns. She speculates that that's due to casual sleepwear being a popular gift item, which bodes well for the holiday.
Victoria's Secret is expecting to ride an improvement in apparel sales heading into the holiday season. Limited's Chairman, Leslie Wexner, had promised an investor's meeting in October that the company was turning around and would get its "mojo" back by the holidays.
Jester Tuney said Victoria's Secret had chosen to move its semiannual sale from December to January and cut back on promotions, even if it does lose some traffic, but it does have some "contingency promotions" it can execute quickly if necessary. "First and foremost, we are prepared," she said.
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