Add
LTD to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| LTD > SEC Filings for LTD > Form 10-Q on 5-Dec-2008 | All Recent SEC Filings |
5-Dec-2008
Quarterly Report
The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The following information should be read in conjunction with our financial statements and the related notes included in Item 1. Financial Statements.
Executive Overview
Current Economic Environment
The U.S. retail sector and our business have been facing a very difficult environment during most of 2008. We view the current economic environment as highly uncertain and, as a result, have taken a defensive stance in terms of the management of our business. We continue to manage our business conservatively and we have focused on the execution of retail fundamentals including:
• Management of inventories, which have decreased significantly on a square foot basis over the past two years;
• Reduction of overhead expenses; and
• Reduction of our planned capital expenditures.
At the same time, we are aggressively focused on bringing compelling merchandise assortments, marketing and store experiences to our customers. We are also focused on capitalizing on the opportunities available to us in this difficult environment. We believe that our brands, which lead their categories and offer high emotional content at relatively low unit values, are well positioned heading into the holiday season.
Third Quarter Earnings
Our third quarter 2008 diluted earnings per share decreased to $0.01 from $0.03 in the third quarter of 2007. The third quarter 2007 diluted earnings per share included $25 million ($0.04 per share) of pre-tax gains related to the sale of corporate aircraft.
Victoria's Secret
Victoria's Secret sales grew 3% driven by 20% growth in the direct channel business as we anniversaried the 2007 operational issues at the new distribution center. In the stores channel, net sales declined 1% as a result of a comparable store sales decline of 8% which was partially offset by sales related to new and expanded stores. The gross profit rate decreased driven primarily by an increase in the buying and occupancy rate. The general, administrative and store operating expense rate declined driven primarily by decreased spending on technology investments in the direct channel business. As a result of these factors, Victoria's Secrets' third quarter operating income increased $9 million to $75 million.
Bath & Body Works
Bath & Body Works sales declined 1% and comparable store sales declined 7%. The gross profit rate decreased due to a significant decrease in the merchandise margin rate partially driven by increased customer response to traditional promotional activity coupled with an increase in the buying and occupancy rate associated with negative comparable store sales. The general, administrative and store operating expense rate increased due to enhanced marketing support for the Signature Collection restage and fleet segmentation as well as store selling expenses driven by store growth. As a result of these factors, Bath & Body Works third quarter operating loss increased $22 million to $29 million.
Results of Operations
Operating Income-Third Quarter of 2008 Compared to Third Quarter of 2007
The following table provides our segment operating income (loss) and operating
income rates (expressed as a percentage of net sales) for 2008 in comparison to
2007:
Operating Income Rate
Third Quarter 2008 2007 (a) 2008 2007
(in millions)
Victoria's Secret $ 75 $ 66 6.7 % 6.1 %
Bath & Body Works (29 ) (7 ) (6.8 )% (1.7 )%
Other (b) (c) (5 ) 3 (1.5 )% 0.6 %
Total Operating Income $ 41 $ 62 2.2 % 3.2 %
|
(a) Amounts presented are restated to conform with the corporate cost allocation methodology adopted at the beginning of 2008. For additional information, see Note 15 to the Consolidated Financial Statements included in Item 1. Financial Statements.
(b) Includes Corporate, Mast and Henri Bendel.
(c) In 2007, includes $25 million in gains related to the sale of corporate aircraft. For additional information, see Note 6 to the Consolidated Financial Statements included in Item 1. Financial Statements.
For the third quarter of 2008, the operating income decreased $21 million to $41 million and the operating income rate decreased to 2.2% from 3.2%. The operating income decrease for the third quarter of 2008 was driven by the following:
• At Bath & Body Works, the operating loss increased $22 million to $29 million primarily driven by sales and gross profit declines as well as increases in general, administrative and store operating expenses.
Partially offset by
• At Victoria's Secret, operating income increased $9 million to $75 million driven by a 20% increase in net sales in the direct channel business as we anniversaried the 2007 operational issues at the new distribution center.
Operating Income-Year-to-Date 2008 Compared to Year-to-Date 2007
The following table provides our segment operating income (loss) and operating
income rates (expressed as a percentage of net sales) for 2008 in comparison to
2007:
Operating Income Rate
Year-to-Date 2008 2007 (a) 2008 2007
(in millions)
Victoria's Secret $ 407 $ 360 10.6 % 9.7 %
Bath & Body Works 6 6 0.4 % 0.4 %
Apparel (b) NA 250 NA 28.7 %
Other (c) (d) (e) 23 (127 ) 2.8 % (14.8 )%
Total Operating Income $ 436 $ 489 7.2 % 7.1 %
|
(a) Amounts presented are restated to conform with the corporate cost allocation methodology adopted at the beginning of 2008. For additional information, see Note 15 to the Consolidated Financial Statements included in Item 1. Financial Statements.
(b) Express and Limited Stores were divested in July 2007 and August 2007, respectively. In 2007, operating income includes a $230 million net gain on the divestiture of the Apparel segment. For additional information, see Note 5 to the Consolidated Financial Statements included in Item 1. Financial Statements.
(c) Includes Corporate, Mast and Henri Bendel.
(d) In 2008, includes a $109 million net gain on joint ventures. For additional information, see Note 5 and Note 10 to the Consolidated Financial Statements included in Item 1. Financial Statements.
(e) In 2007, includes restructuring and impairment charges totaling $53 million, which excludes $6 million of minority interest income associated with the charges and $25 million in gains related to the sale of corporate aircraft. For additional information, see Note 6 to the Consolidated Financial Statements included in Item 1. Financial Statements.
NA Not applicable
For year-to-date 2008, operating income decreased $53 million to $436 million and the operating income rate remained relatively flat. Year-to-date operating income included the following significant items:
• In 2008, a $109 million net gain on joint ventures.
• In 2007, a $230 million net gain associated with the divestiture of the Apparel segment, $53 million of restructuring and impairment charges (which excludes $6 million of minority interest income associated with the charges) and $25 million in gains related to the sale of corporate aircraft.
Additional changes in year-to-date operating income were driven by an increase of $47 million to $407 million at Victoria's Secret primarily driven by increased net sales of 11% and improved operating performance in the direct channel business.
Store Data
The following table compares third quarter of 2008 store data to the comparable
periods for third quarter of 2007 and year-to-date 2008 store data to the
comparable periods for year-to-date 2007:
Third Quarter Year-to-Date
Sales Per Average Selling Square Foot 2008 2007 % Change 2008 2007 % Change
Victoria's Secret Stores $ 124 $ 136 (9 )% $ 417 $ 456 (9 )%
La Senza (a) (b) 117 135 (13 )% 386 351 10 %
Bath & Body Works 104 113 (7 )% 344 373 (8 )%
Sales Per Average Store (in thousands)
Victoria's Secret Stores $ 703 $ 726 (3 )% $ 2,330 $ 2,400 (3 )%
La Senza (a) (b) 349 383 (9 )% 1,136 1,072 6 %
Bath & Body Works 248 265 (6 )% 816 875 (7 )%
Average Store Size (selling square feet)
Victoria's Secret Stores 5,692 5,406 5 %
La Senza (b) 2,996 2,874 4 %
Bath & Body Works 2,375 2,362 1 %
Total Selling Square Feet (in thousands)
Victoria's Secret Stores 5,943 5,509 8 %
La Senza (b) 953 891 7 %
Bath & Body Works 3,919 3,756 4 %
|
(a) Excluding the impact of currency fluctuations sales per average selling square foot decreased 10% for the third quarter of 2008 and increased 5% year-to-date 2008 and sales per average store decreased 6% for the third quarter of 2008 and increased 1% year-to-date 2008.
(b) Metric excludes independently owned La Senza stores.
The following table compares third quarter of 2008 store data to the comparable periods for third quarter of 2007 and year-to-date 2008 store data to the comparable periods for year-to-date 2007:
Third Quarter Year-to-Date
Number of Stores (a) 2008 2007 2008 2007
Victoria's Secret
Beginning of Period 1,036 1,006 1,020 1,003
Opened 13 17 38 29
Closed (5 ) (4 ) (14 ) (13 )
End of Period 1,044 1,019 1,044 1,019
La Senza (b)
Beginning of Period 319 302 312 291
Opened 1 9 11 23
Closed (2 ) (1 ) (5 ) (4 )
End of Period 318 310 318 310
Bath & Body Works
Beginning of Period 1,635 1,544 1,592 1,546
Opened 18 48 77 58
Closed (3 ) (2 ) (19 ) (14 )
End of Period 1,650 1,590 1,650 1,590
Apparel
Beginning of Period - - - 918
Opened - - - -
Closed - - - (49 )
Disposed - - - (869 )
End of Period - - - -
|
(a) Excludes Henri Bendel store locations (4 in 2008 and 2 in 2007) and Bath & Body Works stores in Canada (5 in 2008 and 0 in 2007). In addition, we closed our 6 Diva London stores locations during the second quarter of 2007.
(b) Number of stores excludes independently owned La Senza stores.
Third Quarter of 2008 Compared to Third Quarter of 2007
Net Sales
The following table provides net sales for the third quarter of 2008 in
comparison to the third quarter of 2007:
Third Quarter 2008 2007 % Change
(in millions)
Victoria's Secret Stores $ 731 $ 735 (1 )%
Victoria's Secret Direct 270 225 20 %
La Senza 111 117 (5 )%
Total Victoria's Secret 1,112 1,077 3 %
Bath & Body Works 424 430 (1 )%
Other (a) 307 416 (26 )%
Total Net Sales $ 1,843 $ 1,923 (4 )%
|
(a) Other includes Corporate, Mast and Henri Bendel.
The following table provides a reconciliation of net sales for the third quarter of 2008 to the third quarter of 2007:
Victoria's Bath &
Third Quarter Secret Body Works Other Total
(in millions)
2007 Net Sales $ 1,077 $ 430 $ 416 $ 1,923
Comparable Store Sales (54 ) (25 ) - (79 )
Sales Associated With New, Closed, Divested
and Non-comparable Remodeled Stores, Net
(a) 44 17 - 61
Direct Channels 45 2 - 47
Mast Third-party Sales and Other - - (109 ) (109 )
2008 Net Sales $ 1,112 $ 424 $ 307 $ 1,843
|
(a) Victoria's Secret includes a $9 million decrease in net sales at La Senza related to currency fluctuations.
The following table compares third quarter of 2008 comparable store sales to third quarter of 2007:
Third Quarter 2008 2007
Victoria Secret Stores (8 )% (4 )%
La Senza (5 )% NA
Total Victoria's Secret (8 )% (4 )%
Bath & Body Works (7 )% (3 )%
Henri Bendel 5 % (3 )%
Total Comparable Store Sales (7 )% (3 )%
|
NA Not applicable
For the third quarter of 2008, our net sales decreased $80 million to $1.843 billion and comparable store sales decreased 7%. The decrease in our net sales was primarily driven by the following:
Victoria's Secret
For the third quarter of 2008, net sales increased $35 million to $1.112 billion and comparable store sales decreased 8%. The increase in net sales was primarily driven by:
• At Victoria's Secret Direct, net sales increased 20% as we anniversaried the 2007 operational issues at the new distribution center which negatively impacted net sales in 2007. In addition, 2008 net sales reflected strong performance in swimwear, dresses, shoes and accessories;
Partially offset by:
• At La Senza, net sales decreased due to unfavorable currency fluctuations and a merchandise assortment that did not overcome the challenging economic environment;
• At Victoria's Secret Stores, net sales decreased across many categories primarily driven by a merchandise assortment that did not overcome the challenging economic environment. The declines were mostly offset by growth related to new and expanded stores as well as an increase in Pink.
The decrease in comparable store sales was primarily driven by the factors cited above.
Bath & Body Works
For the third quarter of 2008, net sales decreased $6 million to $424 million and comparable store sales decreased 7%. The decrease in net sales and comparable store sales was primarily driven by softness in traffic and the challenging economic environment.
Gross Profit
For the third quarter of 2008, our gross profit decreased $28 million to $580 million and our gross profit rate (expressed as a percentage of net sales) remained relatively flat at 31.5% primarily driven by the following:
Victoria's Secret
For the third quarter of 2008, the increase in gross profit was primarily driven by:
• At Victoria's Secret Direct, gross profit increased significantly as a result of the 20% increase in net sales and an increase in merchandise margin associated with anniversarying the 2007 operational issues at the new distribution center;
Partially offset by:
• At La Senza, gross profit decreased driven by a decrease in merchandise margin due to unfavorable currency fluctuations and a comparable store sales decrease of 5%;
• At Victoria's Secret Stores, gross profit decreased driven by increased buying and occupancy expenses.
The decrease in the gross profit rate was driven primarily by an increase in the buying and occupancy expense rate. The merchandise margin rate remained relatively flat.
Bath & Body Works
For the third quarter of 2008, the decrease in gross profit was driven by the impact of a decrease in net sales, a decrease in merchandise margin related to an increase in customer response to promotional activity and an increase in buying and occupancy expenses associated with store real estate activity.
The decrease in the gross profit rate was equally driven by a decrease in the merchandise margin rate and an increase in the buying and occupancy rate due to the factors cited above.
General, Administrative and Store Operating Expenses
For the third quarter of 2008, our general, administrative and store operating expenses decreased $7 million to $539 million primarily driven by:
• the elimination of costs related to the technology joint venture that was closed in December 2007;
• the elimination of costs related to the personal care business that was sold in the first quarter of 2008;
• expense reductions across all of our segments in categories such as store selling and home office;
Partially offset by:
• gains of $25 million related to the sale of corporate aircraft in 2007.
The general, administrative and store operating expense rate increased to 29.3% from 28.4% primarily driven by the impact of lower net sales at Mast.
Other Income and Expense
Interest Expense
The following table provides the average daily borrowings and average borrowing
rates for the third quarter of 2008 and 2007:
Third Quarter 2008 2007
Average daily borrowings (in millions) $ 2,907 $ 2,919
Average borrowing rate (in percentages) 5.89 % 6.31 %
|
For the third quarter of 2008, our interest expense decreased $3 million to $44 million. The decrease was driven by a decrease in average borrowing rate and a decrease in average borrowings.
Interest Income
For the third quarter of 2008, our interest income decreased $1 million to $5 million. The decrease was driven by a decrease in average effective interest rates partially offset by an increase in average invested cash balances.
Provision for Income Taxes
For the third quarter of 2008, our effective tax rate decreased to (30.8%) from 47.5% in the third quarter of 2007. The change in the effective tax rate is the result of changes in income tax reserves and other items on $3 million of pre-tax income for the third quarter of 2008.
Results of Operations-Year-to-Date 2008 Compared to Year-to-Date 2007
Net Sales
The following table provides net sales for year-to-date 2008 in comparison to
year-to-date 2007:
Year-to-Date 2008 2007 % Change
(in millions)
Victoria's Secret Stores $ 2,405 $ 2,426 (1) %
Victoria's Secret Direct 1,074 966 11 %
La Senza 358 322 11 %
Total Victoria's Secret 3,837 3,714 3 %
Bath & Body Works 1,376 1,414 (3) %
Express (a) NA 659 NM
Limited Stores (a) NA 211 NM
Total Apparel (a) NA 870 NM
Other (b) 839 860 (2) %
Total Net Sales $ 6,052 $ 6,858 (12) %
|
(a) Express and Limited Stores were divested in July 2007 and August 2007, respectively.
(b) Other includes Corporate, Mast and Henri Bendel.
NA Not applicable
NM Not meaningful
The following table provides a reconciliation of net sales for year-to-date 2008 to year-to-date 2007:
Victoria's Bath &
Year-to-Date Secret Body Works Apparel Other Total
(in millions)
2007 Net Sales $ 3,714 $ 1,414 $ 870 $ 860 $ 6,858
Comparable Store Sales (161 ) (105 ) - - (266 )
Sales Associated With New, Closed,
Divested and Non-comparable
Remodeled Stores, Net (a) 176 55 (870 ) - (639 )
Direct Channels 108 12 - - 120
Mast Third-party Sales and Other - - - (21 ) (21 )
2008 Net Sales $ 3,837 $ 1,376 $ - $ 839 $ 6,052
|
(a) Victoria's Secret includes a $13 million increase in net sales at La Senza related to currency fluctuations.
The following table compares year-to-date 2008 comparable store sales to year-to-date 2007:
Year-to-Date 2008 2007
Victoria Secret Stores (8) % 1 %
La Senza 0 % NA
Total Victoria's Secret (7) % 1 %
Bath & Body Works (8) % (1) %
Express (a) NA 6 %
Limited Stores (a) NA 4 %
Total Apparel (a) NA 5 %
Henri Bendel 7 % 0 %
Total Comparable Store Sales (7) % 1 %
|
(a) Express and Limited Stores were divested in July 2007 and August 2007, respectively.
NA Not applicable
For year-to-date 2008, our net sales decreased $806 million to $6.052 billion and comparable store sales decreased 7%. The decrease in our net sales was primarily driven by the following:
Victoria's Secret
For year-to-date 2008, net sales increased $123 million to $3.837 billion and comparable store sales decreased 7%. The increase in net sales was driven by:
• At Victoria's Secret Direct, net sales increased 11% driven by strong performance in certain categories including swimwear and dresses as well as anniversarying the 2007 operational issues at the new distribution center;
• At La Senza, net sales increased due to favorable currency fluctuations throughout the first half of the year, new store growth and incremental sales of Victoria's Secret Beauty product;
Partially offset by:
• At Victoria's Secret Stores, net sales decreased across many categories primarily driven by a merchandise assortment that did not overcome the challenging economic environment. The declines were partially offset by growth related to new and expanded stores and an increase in Pink.
The decrease in comparable store sales was primarily driven by the factors cited above.
Bath & Body Works
For year-to-date 2008, net sales decreased $38 million to $1.376 billion and comparable store sales decreased 8%. The decrease in net sales and comparable store sales was primarily driven by softness in traffic and the challenging economic environment.
Apparel and Other
For year-to-date 2008, Apparel net sales decreased $870 million as a result of the divestitures of Express and Limited Stores. In addition, Other net sales decreased $21 million to $839 million primarily driven by the personal care business that was sold in the first quarter of 2008.
Gross Profit
For year-to-date 2008, our gross profit decreased $231 million to $1.982 billion and our gross profit rate (expressed as a percentage of net sales) increased to 32.7% from 32.3% primarily driven by the following:
Victoria's Secret
For year-to-date 2008, gross profit increased primarily driven by:
• At Victoria's Secret Direct, gross profit increased driven by the impact of the 11% increase in net sales and increase in merchandise margin partially offset by the increased buying and occupancy expenses associated with the new distribution center;
• At La Senza, gross profit increased driven by favorable currency fluctuations;
Partially offset by:
• At Victoria's Secret Stores, gross profit decreased driven by increased buying and occupancy expenses, partially offset by improvements in . . .
|
|