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Investment Overview for Limited Brands (NYSE:LTD)
Below are key drivers of Limited Brands' value that present opportunities for upside or downside to the current Trefis price estimate for Limited Brands:
Victoria's Secret US Stores
- Victoria's Secret U.S. Revenue per Square Foot:
Victoria's Secret U.S. revenue per square foot increased from $581 in 2009 to $817 in 2012 as consumer spending picked up and the brand launched new products. Going forward, we expect revenue per square foot to increase and reach $1,020 by the end of the Trefis forecast period.
If revenue per square foot increases to $1,200 by the end of the Trefis forecast period, there could be 10% upside to the Trefis estimate for Limited Brands. On the other hand, if it remains at the same level, there can be 10% downside to the Trefis estimate.
- Victoria's Secret US Stores EBITDA Margin:
Victoria's Secret US stores EBITDA margin increased to 25.76% in 2012 primarily due to higher merchandise margins. Going forward we expect the figure to increase and reach 26.6% by the end of the Trefis forecast period.
If margins increase to 29% by the end of the Trefis forecast period, there could be 5% upside to the Trefis estimate for Limited Brands. On the other hand, if it decreases to 24.5%, there can be 5% downside to the Trefis estimate.
Limited Brands sells lingerie, personal care & beauty products, apparel and accessories. The company owns the following brands: Victoria's Secret, PINK, Bath & Body Works, C.O. Bigelow, La Senza, White Barn Candle Co. and Henri Bendel brands.
Limited Brands is one of the largest specialty retailers in the U.S. with over 2,600 specialty stores nationwide. The company also operates in Canada as well as 40 other countries.
Additionally, the company's products are sold through the Victoria's Secret Catalog and online.
We believe Victoria's Secret U.S. and Bath & Body Works U.S. stores are the largest sources of value for Limited Brands.
Margins for Bath & Body Works Higher, But Average Size and Revenue Share Higher for Victoria's Secret
EBITDA margins for Victoria's Secret is around 25% compared to 28% for Bath & Body Works. However, the average size of a Victoria's Secret U.S. store is almost 2.5x that of Bath & Body Works. Victoria’s Secret generates close to $5 billion in sales a year. It is the fastest growing brand with revenue share increasing from 40% in 2009 to 48% in 2012.
Diversity of Products has Increased
Intimate Apparel used to be uniform with very few differences among products. Style and Fit were consistent across brands with very little diversity. However, over time, many new innovations have occurred leading to more variety and more customized options for women.
Increasing Competition in U.S. Intimate Apparel Industry
Women’s intimate apparel industry in the U.S. has witnessed an increase in competition as more lingerie brands have ventured into this very lucrative business. Many retailers such as Kohl's and JC Penney have added new lingerie lines and have started offering services such as bra fitters. Other apparel retailers such as American Eagle Outfitters are also offering a wide range of women's intimates. The heightened competition is a change from the prior two decades, when Victoria's Secret largely had the market to itself.
Effective Merchandising and Marketing Key to Growth in Personal Care & Beauty Market
In the developed U.S. personal care and beauty market, price competition is fierce, brand loyalty is low and private label is a real threat to manufacturers. The challenge for manufacturers in this category is to offer added benefits that will drive consumers away from budget product lines. With few non-users to convert and limited population growth, the burden of further expansion comes down to marketing efforts and product innovation
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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