A few years back, The Onion ran a spoof article in which it claimed that Microsoft was trying to copyright ones and zeros, in an attempt to corner the market on binary code. Of course, the problem with satire is, just when you think you've hit the jackpot on ridiculousness, reality trumps you.
Recently, Juicy Couture Inc. filed a lawsuit against Victoria's Secret, claiming that the lingerie giant had stolen many of its marketing gimmicks and design features. Among other things, Juicy stated that Victoria's Secret had copied:
Juicy's packaging, which resembles candy (Lingerie disguised as candy?!? Didn't Spencer's Gifts come up with this idea somewhere around 1978?).
Juicy's most popular color scheme, which revolves around the color pink (Pink? For girls? Clearly, Juicy's designers are underappreciated revolutionaries!).
Juicy's most popular design, in which its logo is emblazoned across the backside of the wearer (I wonder if Juicy's next step will be to go after all the lower-back tattoo wearers out there. Tramp-stampers, beware!).
While Victoria's Secret (a subsidiary of Limited Brands, Inc.: NYSE: LTD) may well be guilty of plundering the ideas of others (in particular, Katerina Plew, whose lawsuit seems to have a little more merit), it seems like Juicy is getting a little ridiculous. Intellectual property is all well and good, but is it legitimate to copyright the color pink?
Still, as a luxury item, lingerie is probably not selling all that well right now. Maybe Juicy needs the dough?
With recession fears, housing market worries and credit concerns, retailers have been facing tough times, especially during the holiday winter season of December and January when sales came with weak numbers. But on the heels of these disappointing results, retailers got a beam of hope as February's sales numbers showed a surprising increase.
Encouraging news for retailers showing a rebound in consumer spending during the past month came after world's largest retailer Wal-Mart Stores Inc. (NYSE: WMT) announced a rise of 2.6% for its February same-store sales. The company said that its same-store sales during the period were helped by strong gains from gas, food and flat-panel TVs. Analysts were expecting the retailer show an increase of 1.1% for its same-store sales, according to Thomson Financial.
Among other retailers that showed a rebound in February sales were Costco Wholesale Corp. (NASDAQ: COST) and Saks Inc. (NYSE: SKS), both of which reported stronger-than-expected gains. Apparel retailers Pacific Sunwear of California Inc. (NASDAQ: PSUN) also reported earnings results exceeding estimates of 6% sales growth last month.
For Limited Brands Inc. (NYSE: LTD), though, February didn't come with positive results. The company stated that higher energy and food prices put pressure on consumers who focused on necessities.
In a short story in the Wall Street Journal [subscription required], Sharen Turney, chief executive of of Victoria's Secret, confided during a conference call that the lingerie chain may have gotten off track at some point and may now be just too sexy.
Can there be such a thing as too sexy? There are times you can be too trashy, or too slutty, but can you be too sexy? I think not!
It may be that some of the advertisements on television are inappropriate for the time-slot. It may be that at times the ads are viewed like soft porn and teenage boys are the first to peruse the monthly mailing. But too sexy? That is a very strange comment coming from a company that has made a reputation for itself and pushed sales growth for years based on a foundation of sex appeal.
The Victoria's Secret chain is a division of the Limited Brands Inc. (NYSE: LTD) and Turney said she wants to bring a more sophisticated image back to the product line - hmm. I wonder if this is just a smoke screen to avoid criticism by conservatives in an election year.
I can just hear the discussion in the board room: "There are some folks that think we have gone too far, and that we present an image that is just too darn sexy. All those in favor of being less sexy raise your hands"
This just does not seem possible, does it? LTD closed yesterday at $17.82 but is down over 9% in midday trading. Maybe Wall Street traders prefer more sexy, not less?
Gallery: Victoria's Secret Fashion Show 2007
UPDATE: LTD closed at $15.85 down $1.87.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own shares of LTD.
"SEXY." The capital letters blared at me from the window of Victoria's Secret in Pioneer Place here in Portland. Next to the clean lovely windows of the Apple store, I felt I almost had to shield my eyes, to protect me from the glare. The mannequin dressed in a red bustier seemed more Elvira than Rebecca Romijn, the sweet face of Victoria's Secret when I was a loyal customer in my early 20s.
I'm not the only one turned off by the company's recent focus on sexy above all else. In rather shocking statements during this morning's Limited Brands Inc. (NYSE: LTD) analyst call, Victoria's Secret CEO Sharen Turney said the company has "gotten too much off our heritage" and was "too sexy," no longer the ideal "ultra-feminine."
With black lacquer and shocking pink decor, the "s" word thrown around like neon signs in a red-light district, and rather unsubtle displays, this isn't my mother's Victoria's Secret.
Bank of America says: "Q4 Beats on shares; Guidance implies a slow start to Q1."
LTD sells intimate apparel, personal care, women's clothes and beauty products through Limited, Limited Express, Victoria Secret & Bath & Body works. LTD reported operating income of $621 million. LTD says: "now expects February comps in the negative low double digit range verses its previous guidance for negative mid to high single digit comps."
LTD March option implied volatility of 48 is above its 26-week average of 42 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
MOST NOTEWORTHY: Level 3 Communications, BT Group and Limited Brands were today's noteworthy downgrades:
Merriman downgraded shares of Level 3 Communications Inc (NASDAQ: LVLT) to Neutral from Buy, as they believe the risks outweigh the rewards until the company can complete its integration and turn FCF positive.
BT Group Plc (NYSE: BT) was downgraded to Equal Weight from Overweight at Lehman to reflect the company's slowing revenue growth.
Bear downgraded Limited Brands Inc (NYSE: LTD) to Peer Perform from Outperform, citing the unfavorable macro backdrop, execution issues and management turnover.
OTHER DOWNGRADES:
Societe Generale lowered its rating on GlaxoSmithKline Plc (NYSE: GSK) to Hold from Buy.
Morgan Stanley downgraded Cox Radio Inc (NYSE: CXR) to Equal Weight from Overweight.
With numerous retail stocks hitting multi-year lows and daily headlines about weak consumer spending, something is interesting is happening: The people who should know the most about these companies, the insiders, are buying their own stock at an unprecedented clip, reports Bloomberg.
Executives at Limited Brands (NYSE: LTD) and Dillards (NYSE: DDS) have been scooping up their own beaten-down stock. Executives at Foot Locker (NYSE: FL) and Chico's (NYSE: CHS) have also been significant buyers.
Is this a bullish signal? Perhaps. After all, it's been said that while CEOs sell their shares for all kinds of reasons, they only buy stock for one reason: they think it's going up. That's a pretty good maxim, but it can lead you astray in some cases.
Tonight could prove to be one of those rare times when men and women everywhere will not be fighting over what to watch on television as the nation tunes in to the 2007 Victoria's Secret fashion show. What will be slightly different this time around will be the importance that the show places on its Pink line, a collection of clothes aimed at the college and young teen crowd [subscription required].
Sales at Victoria's Secret have been struggling lately as a result of declining mall visitors, as well as a couple of nasty fashion mistakes at its stores. There has been one bright spot, however, the company's Pink line. The retail line includes items such as colorful underwear, pajamas, clothing and accessories, all aimed at a younger-than-traditional Victoria's Secret audience.
The retailer's parent company, Limited Brands Inc. (NYSE: LTD), has already posted a dismal 48% drop in net income for its third quarter, and has warned investors not to expect too much out of its fourth quarter results either.
Limited Brands Inc. (NYSE: LTD), which operates Victoria's Secret and Bath & Body Works, has seen a surge in insider buying. With over 400,000 shares having been purchased by insiders over the last week or so, clearly they believe the stock is trading cheap. For investors looking for a cheap retail stock, Limited may be the play. Chairman and Chief Executive Leslie Wexner bought 280,000 shares between the previous Friday and last Tuesday, his first open-market purchases in over 13 years.
With a PE of 10.25 and a PEG of 1.01, the stock looks cheap, even with lower guidance. I think that international expansion is the key. Not only international sales but outsourcing the production to places like India are sure to keep costs low. With an expected economic slowdown in Q1 and Q2 2008, this may be a play for second half '08, as the economy will rebound and bring the consumer along with it. This is the kind of stock I would rather be a bit early in than late, because once the market starts to move Limited shares will surge.
Finally, it's one thing when a company announces and/or completes a stock buyback. They could do it for a host of reasons. But when insiders dip into their own pockets to buy shares, it usually is a pretty good sign the bottom is near.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/03/07.
The Wall Street Journal [subscription required] details some fascinating research on how activities in a CEO's private life affect his or her company's profitability or stock price. The most useful idea here is that investors can use Google Inc.'s (NASDAQ: GOOG) Google Earth to spot short selling opportunities.
One aspect of this research that did not surprise me was that if the CEO builds a huge home -- greater than 10,000 square feet -- the company's stock price declines. I have long noticed that when a company builds a huge new corporate headquarters building or names a sports stadium after itself, trouble often follows for investors in its stock. The reason for this link? The CEO is more focused on personal glorification than on expanding profits.
But what I found surprising and intrusive was that deaths in a CEO's family influence company profitability, according to a study by Danish researchers of 75,000 companies there. Here's the post-event change in return on assets of various deaths in a CEO's family:
Mega-trendy retailer Limited Brands (NYSE: LTD) announced the sale today of its Express Stores unit to private equity firm Golden Gate Capital, and in the same breath said it was evaluating the options for its Limited Stores segment -- the brand the company derives its name from. Despite the surface inscrutability of this decision (why sell the company's titular brands, the ones that are growing in gross profit while the company's other units are slipping bigtime?), it's one that analysts have been predicting for a while given that CEO Leslie Wexner has been hyping his Victoria's Secret unit as a "megabrand" upon which Limited's future prospects would hinge. Both Victoria's Secret and soap-and-lotion retailer Bath & Body Works, he insists, depend on products whose sales are more predictable than those of clothing.
While that's certainly true, it's also true that the profit margins for the cheap, trendy clothing sold by the company's Express and Limited stores are growing while the rest of the company's brands are falling. Today the company announced that it is revising its outlook for Q1 2007 downward significantly due to poorer-than-expected sales and merchandise margins at Victoria's Secret. After slashing the outlook from 25-28 cents a share to 12-14 cents a share, the stock was down significantly, $1.23 or 4.5% to $26.18, although after-market trading shows some nice recovery.
Perhaps the prediction isn't so easy, but the fact remains that the profit margins and same-store sales growth is a lot better on lemongrass- and magnolia-scented lotion than tank tops and skinny jeans. While Victoria's Secret and Bath & Body Works regularly record operating profit in the 20-30% range, a good quarter for Express and Limited stores hovers between 5% and 6%. Lingerie is sexy, and soap is way, way sexier -- and Limited Brands has picked this clean, sweet-smelling horse to ride for now.
As of February 3, 2007, Limited had 658 Express stores and 260 Limited stores; 1,326 stores in the Victoria's Secret unit (which includes the La Senza brand); and 1,546 Bath & Body Works stores.
Will players in the specialty retail field bring up solid March sales results this week? Who knows, but analysts expect this and, you know, analysts are always right (well, not exactly). At issue here is the expected strength of March sales in the specialty retail sector, reflecting a sales shift from April due to an earlier Easter. Who may suffer here? Specialty retailers of clothing, that's who.
OK, so what does that mean for April sales and beyond? A sour entry into late spring, perhaps? Who's in the cross-hairs of analysts in this sector? Try retailers like Talbot's (NYSE: TLB), Chico's FAS (NYSE: CHS), and Limited Brands (NYSE: LTD). Throw on that pile companies like Abercrombie & Fitch (NYSE: ANF), which may have seen lower sales due to bottoms (yeah, the "pants" kind) during this season shift that's happened in the last few weeks.
And the good news? While retailers like Pacific Sunwear (NASDAQ: PSUN), Hot Topic (NASDAQ: HOTT) and American Eagle Outfitters (NYSE: AEO) may have an above-average spring, sales are expected to slump over the summer season. Adjust positions accordingly I guess? Heh -- seasonality is the name of the game in clothing and much of specialty retail. The companies that can predict and adjust product lines as fast as possible are the winners.
On February 28, 2007, Limited Brands (NYSE:LTD) reported respectable results for the year ending February 3, 2007. The press release indicates that year to year growth was at least satisfactory. Earnings per share were reported at $1.68 as compared to $1.62 for the previous year. There have been changes in LTD's inventory valuation accounting which you'll also need to consider. Net income before the cumulative affect of accounting changes was $675.0 million as compared to $666.4 previous year. Also to be considered is the fact that 2006 totals are based on a 53 week year whereas 2005 numbers are based on one week less than that.
Limited Brands reports a same store sales increase of 7% year over year, using a 53 week benchmark for both years. When excluding that 53rd week and with an adjustment for gift card breakage (cards with little expectation of redemption), the stated increase in same store sales is 9%.
Limited Brands has adjusted guidance for first quarter 2007 downward from the upper single digits towards the mid to lower single digits for comparable store sales due in part to extreme weather conditions which they state had negatively affected the usual Valentine's Day sales spike in both Victoria's Secret stores and also at Bath and Body Works. LTD guidance suggests 4% to 13% EPS growth for 2007 for total EPS in the range of $1.75 to 1.90.
Limited Brands share value is holding up respectably in the face of the current market down turn. For my previous predictions regarding the expanding bear market please read here and here and here.
Limited Brands, Inc. (NYSE:LTD) successfully tendered and executed an offer to acquire all outstanding subordinate voting shares of La Senza Corporation, a leading apparel specialty retailer internationally and in Canada. According to a Limited Brands press release, La Senza Corporation owns and operates 326 La Senza Lingerie, La Senza Express, La Senza Spirit and La Senza Girl stores throughout Canada. Additionally, 341 La Senza and La Senza Girl stores are operated in 34 other countries in the world through corporate licensing and co-operation agreements.
La Senza subordinate voting shares outstanding were purchased for $48.25 per share for an approximate total of $609 million USD. It is reported that 14,202,648 subordinate voting shares, or 98.9% of total applicable voting shares were deposited to the share purchase offer. Limited Brands shall immediately proceed to acquire all remaining shares which were not deposited to the offer.
On February 2, 2007 Limited Brands announced their regular quarterly dividend of $.15 per share to become payable on March 16, 2007 to shareholders vested as of March 01, 2007. This marks the 129th consecutive quarter for which Limited Brands has paid a dividend.
Gary E. Sattler intends to take a position in Limited Brands shares this year.
A few years back, The Onion ran a spoof article in which it claimed that Microsoft was trying to copyright ones and zeros, in an attempt to corner the market on binary code. Of course, the problem with satire is, just when you think you've hit the jackpot on ridiculousness, reality trumps you.
With recession fears, housing market worries and credit concerns, retailers have been facing tough times, especially during the holiday winter season of December and January when sales came with weak numbers. But on the heels of these disappointing results, retailers got a beam of hope as February's sales numbers showed a surprising increase. 
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With numerous retail stocks hitting multi-year lows and daily headlines about weak consumer spending, something is interesting is happening: The people who should know the most about these companies, the insiders, are buying their own stock at an unprecedented clip, 
Tonight could prove to be one of those rare times when men and women everywhere will not be fighting over what to watch on television as the nation tunes in to the 
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Will players in the specialty retail field bring up solid March sales results this week? Who knows, but analysts expect this and, you know, analysts are always right (well, not exactly). At issue here is the expected strength of March sales in the specialty retail sector, 
Alcoa's Q2 2008 earnings transcript
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Wal-Mart might help your portfolio during the recession
