Stock Of The Day 6/25 LTD - Limited Brands

[James Boston]

I'll start on a simple premise. How many chicks do you know who shop at Victoria's Secret?

[TGoldman]

As much as I like the idea of telling girls that I'm a part owner of Victoria's Secret... I don't really like this pick. The biggest thing that peaks my interest is the relatively high level of insider ownership at 13% and especially the insider buying taking place in May.

Then I look at their balance sheet and see a lot of long-term debt along with very mediocre earnings growth, margins, and returns on equity relative to the rest of the industry. I think there are other companies within this industry that have better prospects.

[James Boston]

I see a company that owns too many brands, some of which have to be muddying up that balance sheet. They have a CEO who's willing to let go, as he did with Abercrombie. I like the company because it is so unexciting. They're still making money, they are IMO a little undervalued because they haven't done anything lately, they are proven winners in the retail game, and I think they'll come up with something sooner or later.

[vulturesrow]

James, how do their inventory ratios look?

[James Boston]

Don't know.

[TGoldman]

For what it's worth, their inventory ratios look better than ever. Using the info from Yahoo Finance...

Jan-05 Quarter end
Inventory Turoverover = Cost of Goods Sold / Average Inventory = 1.78
Inventory Period = 365 / Invetnory Turnover = 205

Oct-04 Quarter
0.82
446

Jul-04 Quarter
1.26
290

May-04 Quarter
1.30
281

[RunDownHouse]

They don't look all that great to me. FCFY of about 1.5% in 05, 10% in 04, and (7.9%) in 03. Fairly low EPM as well.

Anybody have any comps handy for the industry?

[James Boston]

Are you sure those numbers are right? If you're figuring quarterly turnover, why use a full year as your inventory period? I would think 91 would be the period, but I honestly don't know.

[TGoldman]

The numbers are right as far as Yahoo Finance accurately captures the numbers from LTD's SEC filings. I know for a fact, though, that Yahoo Finance doesn't always do this correctly. If you do the math yourself, please double check my figures and let me know of any mistakes.

You're right, I made a mistake with the inventory period. If we're talking about quarters as I did, we need to use 91 for the numerator in calculating the turnover. Or we could switch entirely to annual figures.

[James Boston]

I didn't doubt your finacncial figures, just the numerator. I just thought that that was entirely too high of a quarterly turnover, but's it's still good.

[vulturesrow]

[ QUOTE ]
I didn't doubt your finacncial figures, just the numerator. I just thought that that was entirely too high of a quarterly turnover, but's it's still good.

[/ QUOTE ]

Well with a business like this inventory turnover is important and it would appear that their numbers are decent. I think most big firms are rating this stock as a hold but I am lukewarm about buying this stock.

[alekhine8]

The good - they are trading at about 15 P/E and are paying out a 2.82% annual dividend yield at its current price.

Thats about it though. They aren't really expanding and their same store sales are pretty stagnant. And their first quarter this year pretty much sucked.

I would keep an eye on it only from a value investing perspective. If they fell to $19 or so because of some weak overall retail/apparel data or have another poor quarter or two, it would be worth buying.

[James Boston]

[ QUOTE ]
I would keep an eye on it only from a value investing perspective. If they fell to $19 or so because of some weak overall retail/apparel data or have another poor quarter or two, it would be worth buying.


[/ QUOTE ]

That's where I see the money, and as I pointed out earlier, I doubt all their stores are performing on par with the company. I have no information on the performance of each different brand, but my guess is some are leagues away from the rest e.g. Victoria's Secret. Over time, I wouldn't be shocked to see them spin off the laggards as they did with Abercrombie. I think it's at a decent price, but no doubt at $19 it would be a great 10+ year investment.

[vulturesrow]

I definitely agree with this. When you think "lingerie", you think Victoria's Secret. Bath and Body Works probably has close to the same branding power. So this is definitely something in their favor. So I agree it might be a good value investment if it falls to about the price you said. But right now I just get a big meh feeling when I look at this stock. /images/graemlins/smile.gif

[adios]

According to Yahoo, 26 analsysts have earnings estimates for the year and 18 have revenue estimates. As I've stated many times I have no believe that my knowledge would be better than the collective knowledge of this many analsysts. The chances that this stock is fairly priced to me are overwhelming which means that the chances that this security is undervalued are very underwhelming.