Specialty retailer Limited Brands‘ (NYSE:LTD) November 2012 sales results beat market expectations and indicate that it is well poised for the holiday season. The strong numbers were mainly driven by Limited Brands’ strong brand recognition in the U.S. and partially by its record Thanksgiving weekend.  A retailer’s brand image plays a vital role in deciding its performance. On this front, Limited Brands’ Victoria’s Secret and Bath & Body Works, both dominate their respective segments. The National Retail Federation expects the company’s holiday sales to increase by 4.1% through online shopping (an estimated 17% sales increase).
Brand Recognition and Limited Competition will Help
The holiday season is always an important time for retailers as they can generate up to one-third of their annual revenues during November-December months. Victoria’s Secret and Bath & Body Works’ extensive brand recognition in the U.S., enables the retailer to successfully launch new collection in its product assortments. The newness in Victoria’s Secret products, such as angel fantasies bras, angel gold fragrance, flirt bra and vintage fleece received good response, leading to 4% comparable store sales growth in November 2012.  Adding some glamor to their publicity strategy, the brand organized a holiday fashion show featuring Rihanna, Justin Bieber and Bruno Mars. 
Following the previous quarter, Bath & Body Works’ signature collection, home fragrance and soap & sanitizer business continued performing well in November.  For the festive season, they are launching their sparkling blackberry woods fragrance in the signature collection.  An exclusive holiday collection and gifts for both of the brands will also be introduced.
Fortunately for Limited Brands, the competition is limited in the women’s intimates, with Victoria’s Secret being the dominant of the lot. The other main competitors are Gap (NYSE:GPS), American Eagle Outfitters (NYSE:AEO) and some department stores, but with its strong positioning in the market, Limited Brands might seem like an obvious choice for the customers.
Online Sales to drive Holiday Sales
Online sales in the U.S. are expected to increase by about 17% and account for 10% of the country’s consumer spending during the holiday season.  On Black Friday, online sales increased by about 26% y-o-y to $1 billion, indicating the kick start to the holidays. For Limited Brands, online sales cumulatively account for about 15% of the revenues. According to our estimates they constitute about 25% of the company’s value due to higher operating margins. Hence, along with response to brand image, online shopping is likely to complement Limited Brands’ holiday sales.
Our price estimate for Limited Brands Stands at $50 , which is roughly in line with the market price.Notes: