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| LTD > SEC Filings for LTD > Form 10-Q on 5-Jun-2009 | All Recent SEC Filings |
5-Jun-2009
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
The U.S. and Canadian retail environment remained challenging in the first quarter of 2009 and our financial performance in 2009 continued to be negatively impacted by the global economic downturn. Our net sales decreased 10% to $1.725 billion, driven by a comparable store sales decrease of 7%, and our operating income decreased $144 million to $65 million. The decrease in operating income is primarily related to the 2008 pre-tax gain on the divestiture of joint venture of $128 million offset partially by a pre-tax impairment charge of $19 million associated with another joint venture. Our first quarter 2009 diluted earnings per share decreased to $0.01 from $0.28 in the first quarter of 2008 primarily due to the factors cited above. For additional information related to our 2009 financial performance, see "Results of Operations."
We continue to take a defensive stance in terms of the management of our business and have focused on the execution of retail fundamentals. We are focused on managing inventory levels, operating expenses, capital expenditures and cash and liquidity. At the same time, we are aggressively focusing on bringing compelling merchandise assortments, marketing and store experiences to our customers. We will look for, and capitalize on, those opportunities available to us in this difficult environment. We believe that our brands, which lead their categories and offer high emotional content at accessible prices, are well positioned in 2009.
Store Data
The following table compares first quarter of 2009 store data to the first
quarter of 2008:
2009 2008 % Change
Sales per Average Selling Square Foot
Victoria's Secret Stores $ 122 $ 135 (10 )%
La Senza (a) (b) 67 99 (32 )%
Bath & Body Works 98 100 (2 )%
Sales per Average Store (in thousands)
Victoria's Secret Stores $ 698 $ 743 (6 )%
La Senza (a) (b) 204 290 (29 )%
Bath & Body Works 234 238 (2 )%
Average Store Size (selling square feet)
Victoria's Secret Stores 5,745 5,504 4 %
La Senza (b) 3,038 2,934 4 %
Bath & Body Works 2,376 2,373 0 %
Total Selling Square Feet (in thousands)
Victoria's Secret Stores 5,974 5,658 6 %
La Senza (b) 966 933 4 %
Bath & Body Works 3,891 3,858 1 %
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(a) Excluding the impact of currency fluctuations sales per average selling square foot decreased 16% and sales per average store decreased 13%.
(b) Metric excludes independently owned La Senza stores operated by licensees.
The following table compares first quarter of 2009 store data to the first quarter of 2008:
2009 2008
Number of Stores (a)
Victoria's Secret
Beginning of Period 1,043 1,020
Opened 4 14
Closed (7 ) (6 )
End of Period 1,040 1,028
La Senza (b)
Beginning of Period 322 312
Opened - 6
Closed (4 ) -
End of Period 318 318
Bath & Body Works
Beginning of Period 1,638 1,592
Opened 6 41
Closed (6 ) (7 )
End of Period 1,638 1,626
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(a) Excludes Henri Bendel store locations (5 in 2009 and 2 in 2008) and Bath & Body Works Canada store locations (7 in 2009 and 0 in 2008).
(b) Number of stores excludes independently owned La Senza stores operated by licensees.
Results of Operations
First Quarter of 2009 Compared to First Quarter of 2008
Operating Income
The following table provides our segment operating income (loss) and operating
income rates (expressed as a percentage of net sales) for 2009 in comparison to
2008:
Operating Income Rate
2009 2008 2009 2008
(in millions)
First Quarter
Victoria's Secret $ 87 $ 149 7.8 % 11.9 %
Bath & Body Works 4 (6 ) 1.0 % (1.4 )%
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(a) Includes Corporate, Mast, Bath & Body Works Canada and Henri Bendel.
(b) 2008 includes a $109 million net gain on joint ventures. For additional information, see Note 8, "Divestitures", and Note 13, "Equity Investments and Other."
For the first quarter of 2009, operating income decreased $144 million to $65 million and the operating income rate decreased to 3.8% from 10.9%. The drivers of the operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for the first quarter of 2009 in
comparison to the first quarter of 2008:
2009 2008 % Change
(in millions)
First Quarter
Victoria's Secret Stores $ 727 $ 761 (4 )%
La Senza 81 112 (28 )%
Victoria's Secret Direct 317 381 (17 )%
Total Victoria's Secret 1,125 1,254 (10 )%
Bath & Body Works 402 399 1 %
Other (a) 198 272 (27 )%
Total Net Sales $ 1,725 $ 1,925 (10 )%
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(a) Other includes Mast, Henri Bendel and Bath & Body Works Canada.
The following table provides a reconciliation of net sales for the first quarter of 2009 to the first quarter of 2008:
Victoria's Bath &
Secret Body Works Other Total
(in millions)
First Quarter
2008 Net Sales $ 1,254 $ 399 $ 272 $ 1,925
Comparable Store Sales (73 ) (10 ) (1 ) (84 )
Sales Associated With New, Closed, Divested
and Non-comparable Remodeled Stores, Net 27 10 6 43
Foreign Currency Translation (19 ) - - (19 )
Direct Channels (64 ) 3 - (61 )
Mast Third-party Sales and Other - - (79 ) (79 )
2009 Net Sales $ 1,125 $ 402 $ 198 $ 1,725
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The following table compares first quarter of 2009 comparable store sales to first quarter of 2008:
First Quarter 2009 2008
Victoria Secret Stores (9 )% (7 )%
La Senza (14 )% 0 %
Total Victoria's Secret (10 )% (6 )%
Bath & Body Works (3 )% (11 )%
Henri Bendel (16 )% 6 %
Total Comparable Store Sales (7 )% (8 )%
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For the first quarter of 2009, our net sales decreased $200 million to $1.725 billion and comparable store sales decreased 7%. The decrease in our net sales was primarily driven by the following:
Victoria's Secret
For the first quarter of 2009, net sales decreased $129 million to $1.125 billion and comparable store sales decreased 10%. The decrease in net sales was primarily driven by a merchandise assortment that did not overcome the challenging economic environment:
• At Victoria's Secret Direct, net sales decreased 17% with decreases across most categories, most notably apparel;
• At Victoria's Secret Stores, net sales decreased across many intimate apparel categories. The declines were partially offset by growth related to new and expanded stores, an increase in beauty driven by successful new product launches and an increase in Pink;
• At La Senza, net sales decreased due to decreases across most categories and unfavorable currency fluctuations.
The decrease in comparable store sales was primarily driven by lower average unit retail prices partially offset by increases in merchandise units per transaction and store traffic.
Bath & Body Works
For the first quarter of 2009, net sales increased $3 million to $402 million and comparable store sales decreased 3%. The increase in net sales was driven by the direct channel and growth from new and expanded stores. From a category perspective, increases in the Signature Collection and home fragrance categories were partially offset by our performance brands including Aromatherapy and True Blue Spa. The decrease in comparable store sales was primarily driven by declines in store traffic and lower average unit retail prices offset partially by an increase in merchandise units per transaction and conversion.
Gross Profit
For the first quarter of 2009, our gross profit decreased $93 million to $548 million and our gross profit rate (expressed as a percentage of net sales) decreased to 31.8% from 33.3% in the first quarter of 2008, primarily driven by the following:
Victoria's Secret
For the first quarter of 2009, the decrease in gross profit was primarily driven by:
• At Victoria's Secret Stores, gross profit decreased driven by lower merchandise margin as a result of the decline in net sales and increased promotional activity to drive sales. In addition, buying and occupancy expenses increased as a result of investment in our new and remodeled stores;
• At Victoria's Secret Direct, gross profit decreased driven by lower merchandise margin as a result of the decline in net sales and increased promotional activity to drive sales. The decrease in merchandise margin was partially offset by a decrease in buying and occupancy expenses primarily as a result of improved efficiencies related to the new distribution center;
• At La Senza, gross profit decreased driven by a decrease in merchandise margin due to the weakening of the Canadian dollar and the decline in net sales.
The decrease in the gross profit rate was driven primarily by a decrease in the merchandise margin rate due to the factors cited above. In addition, the buying and occupancy expense rate increased due to deleverage associated with the decline in net sales.
Bath & Body Works
For the first quarter of 2009, the decrease in gross profit was driven by the impact of a decrease in merchandise margin related to an increase in promotional activity to drive sales partially offset by favorable physical inventory results. The decrease in gross profit was also driven by an increase in buying and occupancy expenses associated with store real estate activity.
The decrease in the gross profit rate was driven by a decrease in the merchandise margin rate and an increase in the buying and occupancy rate due to the factors cited above.
Other
For the first quarter of 2009, gross profit declined as a result of the divestiture of a joint venture in April 2008. The gross profit rate increased as a result of a decline in lower margin Mast third-party sales.
General, Administrative and Store Operating Expenses
For the first quarter of 2009, our general, administrative and store operating expenses decreased $58 million to $483 million primarily driven by:
• expense reductions across all of our segments in categories such as store selling and home office in conjunction with our enterprise costs initiatives;
• the elimination of costs related to the personal care business that was divested in the first quarter of 2008; and
• a reduction in marketing expenses.
The general, administrative and store operating expense rate decreased to 28.0% from 28.1% primarily driven by the factors cited above.
Net Gain on Joint Ventures
In April 2008, we and our investment partner completed the divestiture of a personal care joint venture to a third-party. We recognized a pre-tax gain of $128 million on the divestiture. The pre-tax gain is included in Net Gain on Joint Ventures on the 2008 Consolidated Statement of Income. In addition, we recorded a $19 million impairment charge related to another joint venture. The charge consisted of writing down the investment balance, reserving certain accounts and notes receivable and accruing a contractual liability. The impairment of $19 million is also included in Net Gain on Joint Ventures on the 2008 Consolidated Statement of Income.
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