Limited Brands (NYSE:LTD) operates its Victoria’s Secret stores in North America and the U.K. Most of these stores are in the U.S. and they account for about 45% of the retailer’s revenues making it is the most important business segment for Limited Brands.  With its strong brand identity driven by successful marketing campaigns, Victoria’s Secret is the leader in the U.S. lingerie market. Through 1,020 Victoria’s Secret stores across U.S., Limited Brands Offers extensive product selection of lingerie, clothing, sleepwear, swimwear, fragrances, and beauty products.  In 2011, Victoria’s Secret U.S. stores generated $4.5 billion in revenues and $1 billion in EBITDA. 
Brand Recognition And Marketing
Victoria’s Secret is the leader in the U.S. lingerie market. It has limited competition for women’s mass market, high end lingerie. In the more general category, Victoria’s Secret, is one of the leading underwear brands. While most brands in the intimate apparel business stress on comfort and fit, Victoria’s Secret has emphasized on glamor, which has helped it develop a unique brand image.
One of Victoria’s Secret’s strengths is its very successful advertising strategy. In a business that sells image and lifestyle, advertising is of high importance. The retailer spends a substantial amount each year on advertising. Victoria Secret fashion show is a big driver of sales and a key element of its advertising strategy. The retailer recently organized a successful holiday fashion show featuring celebrities such as Rihanna, Justin Bieber and Bruno Mars. 
Victoria’s Secret supermodels as angels are one of the brand’s main campaigns. Through fashion shows and advertising, the retailer projects the brand being synonymous with beauty and desire.
Expansion Strategy Through Store Consolidation
Victoria’s Secret has a wide footprint in the U.S. market with over 1,000 stores. In order to improve its store economics, Limited Brands is closing its under-performing stores that has worked well for the retailer. While the store count has come down from 1,040 in 2009 to 1,017 in 2011, the revenue per square feet increased form $581 to $751 during the same period.  At the same time, the revenues have increased at an annual rate of about 15%. Going forward, we expect the consolidation strategy to continue. However, as Limited Brands is looking to expand Victoria’s Secret’s PINK brand, it will increase the number of PINK stores in the U.S. market.
Wide Product Range
Victoria’s Secret has introduced new lines of swimwear, fragrances and beauty products. The brand has expanded beyond lingerie into other product categories such as accessories, fragrances, shoes, sleepwear, handbags and luggage in the past, and has plans to roll out new initiatives in the future. Victoria’s Secret recently launched new products such as angel fantasies bras, angel gold fragrance, flirt bra and vintage fleece.  These products have received good customer response, and led to 4% increase in comparable store sales in November 2012. 
Victoria’s Secret launched PINK as the lifestyle brand of the retailer in 2004, targeting primarily college girls. Unlike Victoria’s Secret, the penetration of PINK in the U.S. market is limited, implying that the retailer has to work on its expansion. Opening exclusive new PINK stores and adding full merchandise of PINK to existing Victoria’s Secret stores should drive revenue per square foot higher in the future.
Additionally, the beauty segment is one of the fastest growing categories at Victoria’s Secret Stores. Currently beauty products represent nearly 20% of Victoria’s Secret’s U.S. sales. The category has higher revenue per square foot than the others, and therefore its expansion will reflect in the growth of the division’s overall revenue per square foot.
Increasing Competition In Women’s Intimate Apparel Market
An increasing number of brands have ventured into the women’s intimate apparel business in the U.S. Retailers such as Kohl’s and JC Penney have added new lingerie lines and have started offering services such as bra fitters. Moreover, established specialty retailers such American Eagle Outfitters (NYSE:AEO) and Abercrombie & Fitch (NYSE:ANF) have introduced new lingerie lines. The heightened competition has notably changed the market from what it was in the previous two decades, when Victoria’s Secret largely had the market to itself.
Our price estimate for Limited Brands Stands at $50, Implying a premium of about 5% to the market price.Notes: