Limited Brands Earnings Preview: Margins in Focus

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L Brands

Limited Brands (NYSE:LTD) is scheduled to announce its Q1 fiscal 2012 earnings on May 16th. [1] As the company already disclosed its Q1 sales along with its April sales, [2] we expect the earnings release will center around the company’s gross margins. Limited Brands is a specialty apparel retailer focused on lingerie, beauty and personal care products and competes with Abercrombie & Fitch (NYSE:ANF), American Eagle Outfitters (NYSE:AEO), Ann (NYSE:ANN) and Gap (NYSE:GPS).

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See our full analysis of Limited Brands

Limited’s margins in focus

Limited Brands announced its Q1 sales along with its April sales, and so we expect the company’s gross margins to be the main focus on Wednesday. We expect the margins to improve on a q-o-q basis, as the  company should benefit from declining cotton prices, which recently reached a 21-month low owing to extensive supply and Asia’s lower industrial output. Although cotton prices impact apparel retailers that depend more heavily in intimate apparel like Limited to a lower extent than the rivals such as Abercrombie & Fitch, the declining cotton prices should result in a slight improvement in the company’s margins.

Additionally, Limited should also benefit from the increase in its direct-to-consumer business, which carries higher margins compared to its retail channel. The company should particularly gain from the spike in intimate apparel mobile-commerce sales during the week leading to Valentine’s Day. See: Intimate Apparel Mobile Sales Spike Around Valentine’s Day

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Limited Brands to announce Q1 earnings on May 16th, Source: Limited’s IR []
  2. Limited discloses Q1 sales results, Source: Limited’s IR []