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.