Bath & Body WorksBath & Body Works is Limited Brands' (LTD) second most valuable division after Victoria's Secret, representing 25% of the firm's estimated equity value. These two divisions make up almost 60% of the stock value by our estimates and help differentiate the company from other retailers like Abercrombie & Fitch (ANF), American Eagle (AEO), AnnTaylor (ANN) and Gap (GPS).

Below, we take a quick look at the outlook for the two main drivers to our Bath & Body Works forecast: its U.S. sales per square foot, and its EBITDA margins.

Bath & Body Works U.S. Stores at a Glance

Bath & Body Works caters to the complete well being of customers by providing shower gels and lotions, aromatherapy, antibacterial soaps, candles and personal care accessories. The core of Bath & Body Works offerings are its Signature Collection, antibacterial and home fragrance product lines, which together make up the majority of its sales and profits.

The key drivers of profitability for Bath & Body Works stores in U.S. include:

1. Revenue Per Square Foot

The average annual revenue per square foot of BBW stores in U.S. decreased from $697 in 2006 to $587 in 2009 before rising to about $600 in 2010. The three-year decline primarily resulted from falling sales due to weak store traffic and the challenging economic environment. BBW U.S. stores' revenue per square foot increased in 2010 from the low of 2009 as the economic environment improved and store traffic increased.

Going forward, we believe the revenue per square foot for Bath & Body Works stores in the U.S. will grow at a constant rate reaching almost $800 by the end of our forecast period.

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2. U.S. Stores' EBITDA Margin

We estimate that EBITDA margin for BBW stores in the U.S. decreased from 20% in 2005 to just under 12% in 2008. The decrease was attributable to two factors: First, a decline in stores' gross profit margins due to higher expenses and increased promotional activities designed to drive sales, and second, higher general, administrative and store operating expenses.

In 2010, the EBITDA margin for BBW stores in the U.S. increased to over 20%, due primarily to an increase in gross profit driven by a better sales mix, which helped gross margins, as well as lower operating expenses. Going forward, we estimate Bath & Body Works US stores' EBITDA margin will remain constant at current levels through the Trefis forecast period.

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Our price estimate for Limited Brands' stock stands at $33.36, which is about 20% below the market price, though if sales and profit margins improve beyond our forecast, there could be upside to these forecasts. You can see these by modifying the charts above.

See our complete analysis of Limited Brands' stock.

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jglegal

to ggschk - Food for thought -- If the owner of BBW was the President you would not be complaining. The matter speaks for itself - BBW continues to contribute to the economic growth of our country and has provided steady employment throughtout this difficulty period without any government bailouts! I certainly hope your employer does not see your post - you may not not have job; you certainly would not work for me. Wakeup my countryman - the glass is half full and this story matters. It is one of the greatest examples of the "American Dream."

May 17 2011 at 8:06 PM Report abuse -1 rate up rate down Reply
ChrisFabiGuti

I am surprised. Considering they are expensive and I have not been there shopping for a year and a half.

May 17 2011 at 5:17 PM Report abuse rate up rate down Reply
justthe2ofus

Who really gives a $hit about this story. I don,t. Im more concernd about our Nations debt and the price of gas which Obama is doing nothing about because he is to busy worrying about his Re-Election !

May 17 2011 at 11:45 AM Report abuse +1 rate up rate down Reply
isoroku5

I quit shopping at BBW when they changed their line of men's products to their current horrible and outrageously overpriced offerings. There are alternatives to your products BBW in case you didn't know.

May 17 2011 at 10:42 AM Report abuse rate up rate down Reply
Sonja Dunbar

I've always thought that BBW should go into small town main streets that are trying to make a comeback. My hometown of 8000 people is struggling to get its downtown back to what it used to be years ago. My feeling is that a few carefully chosen chain stores would help to bring the locals downtown instead of going to Walmart and other big box discount stores on the outskirts. The town is in a tourist area and most towns in the area have little shops on their main streets now, but for the downtown to be viable through the long winters in the area some stores that would bring the local population downtown are needed. I think BBW would be perfect!

May 17 2011 at 9:41 AM Report abuse rate up rate down Reply