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| LTD > SEC Filings for LTD > Form 10-Q on 4-Sep-2009 | All Recent SEC Filings |
4-Sep-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 second 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 $2.067 billion, driven by a comparable store sales decrease of 9%, and our operating income decreased $28 million to $158 million. The decrease in operating income is primarily related to the decrease in net sales partially offset by our continued focus on reducing expenses. Our second quarter 2009 diluted earnings per share decreased to $0.23 from $0.30 in the second quarter of 2008 primarily due to the factors cited above. For additional information related to our 2009 financial performance, see "Results of Operations."
In June 2009, we issued $500 million of 8.50% notes due in June 2019 through an institutional private placement offering. Through September 4, 2009, we have reduced our 2012 maturities by $500 million through the repurchase of $108 million of notes due in December 2012 and the prepayment of $392 million of our Term Loan.
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.
Store Data
The following table compares second quarter of 2009 store data to the comparable
periods for second quarter of 2008 and year-to-date 2009 store data to the
comparable periods for year-to-date 2008:
Second Quarter Year-to-Date
2009 2008 % Change 2009 2008 % Change
Sales Per Average Selling Square Foot
Victoria's Secret Stores $ 140 $ 159 (12 %) $ 261 $ 293 (11 %)
La Senza (a) (b) 92 121 (24 %) 160 221 (28 %)
Bath & Body Works 131 137 (5 %) 230 239 (4 %)
Sales Per Average Store (in thousands)
Victoria's Secret Stores $ 803 $ 885 (9 %) $ 1,498 $ 1,628 (8 %)
La Senza (a) (b) 281 356 (21 %) 488 648 (25 %)
Bath & Body Works 311 326 (5 %) 545 567 (4 %)
Average Store Size (selling square feet)
Victoria's Secret Stores 5,755 5,610 3 %
La Senza (b) 3,087 2,976 4 %
Bath & Body Works 2,374 2,373 0 %
Total Selling Square Feet (in thousands)
Victoria's Secret Stores 6,020 5,812 4 %
La Senza (b) 945 949 0 %
Bath & Body Works 3,886 3,880 0 %
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(a) Excluding the impact of currency fluctuations, sales per average selling square foot decreased 14% and 15% for the second quarter and year-to-date 2009, respectively, and sales per average store decreased 11% and 12% for the second quarter and year-to-date 2009, respectively.
(b) Metric excludes independently owned La Senza stores operated by licensees.
The following table compares second quarter of 2009 store data to the comparable periods for second quarter of 2008 and year-to-date 2009 store data to the comparable periods for year-to-date 2008:
Second Quarter Year-to-Date
2009 2008 2009 2008
Number of Stores (a)
Victoria's Secret
Beginning of Period 1,040 1,028 1,043 1,020
Opened 6 11 10 25
Closed - (3 ) (7 ) (9 )
End of Period 1,046 1,036 1,046 1,036
La Senza (b)
Beginning of Period 318 318 322 312
Opened 2 4 2 10
Closed (14 ) (3 ) (18 ) (3 )
End of Period 306 319 306 319
Bath & Body Works
Beginning of Period 1,638 1,626 1,638 1,592
Opened 1 18 7 59
Closed (2 ) (9 ) (8 ) (16 )
End of Period 1,637 1,635 1,637 1,635
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(a) Excludes Henri Bendel store locations (6 in 2009 and 2 in 2008) and Bath & Body Works Canada store locations (14 in 2009 and 0 in 2008).
(b) Number of stores excludes independently owned La Senza stores operated by licensees.
Results of Operations
Second Quarter of 2009 Compared to Second 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
Second Quarter (in millions)
Victoria's Secret $ 126 $ 183 9.7 % 12.4 %
Bath & Body Works 44 41 8.3 % 7.3 %
Other (a) (12 ) (38 ) (5.5 )% (14.6 )%
Total Operating Income $ 158 $ 186 7.6 % 8.1 %
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(a) Includes Corporate, Mast, Henri Bendel and Bath & Body Works Canada.
For the second quarter of 2009, operating income decreased $28 million to $158 million and the operating income rate decreased to 7.6% from 8.1%. The drivers of the operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for the second quarter of 2009 in
comparison to the second quarter of 2008:
2009 2008 % Change
Second Quarter (in millions)
Victoria's Secret Stores $ 838 $ 913 (8 )%
La Senza 109 135 (19 )%
Victoria's Secret Direct 359 423 (15 )%
Total Victoria's Secret 1,306 1,471 (11 )%
Bath & Body Works 534 553 (3 )%
Other (a) 227 260 (13 )%
Total Net Sales $ 2,067 $ 2,284 (10 )%
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(a) Includes Mast, Henri Bendel and Bath & Body Works Canada.
The following table provides a reconciliation of net sales for the second quarter of 2009 to the second quarter of 2008:
Victoria's Bath &
Secret Body Works Other Total
Second Quarter (in millions)
2008 Net Sales $ 1,471 $ 553 $ 260 $ 2,284
Comparable Store Sales (109 ) (28 ) (1 ) (138 )
Sales Associated With New, Closed, Divested
and Non-comparable Remodeled Stores, Net 21 6 9 36
Foreign Currency Translation (13 ) - - (13 )
Direct Channels (64 ) 3 - (61 )
Mast Third-party Sales and Other - - (41 ) (41 )
2009 Net Sales $ 1,306 $ 534 $ 227 $ 2,067
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The following table compares second quarter of 2009 comparable store sales to second quarter of 2008:
Second Quarter 2009 2008
Victoria's Secret Stores (12 )% (8 )%
La Senza (11 )% 4 %
Total Victoria's Secret (12 )% (7 )%
Bath & Body Works (5 )% (8 )%
Henri Bendel (12 )% 11 %
Total Comparable Store Sales (9 )% (7 )%
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For the second quarter of 2009, our net sales decreased $217 million to $2.067 billion and comparable store sales decreased 9%. The decrease in our net sales was primarily driven by the following:
Victoria's Secret
For the second quarter of 2009, net sales decreased $165 million to $1.306 billion and comparable store sales decreased 12%. The decrease in net sales was primarily driven by a merchandise assortment that did not overcome the challenging economic environment:
• At Victoria's Secret Stores, net sales decreased across many intimate apparel categories, Pink and beauty. The declines were partially offset by growth related to new and expanded stores as well as increases in swimwear;
• At Victoria's Secret Direct, net sales decreased 15% with decreases in apparel and most other merchandise categories;
• At La Senza, net sales decreased due to decreases across most merchandise categories and unfavorable currency fluctuations.
The decrease in comparable store sales was equally driven by lower average dollar sales and a decline in total transactions.
Bath & Body Works
For the second quarter of 2009, net sales decreased $19 million to $534 million and comparable store sales decreased 5%. The decrease in net sales was primarily driven by a decrease in store transactions. The decrease was partially offset by growth in the direct channel business and growth from new and expanded stores. From a merchandise category perspective, the decrease in net sales was primarily driven by discontinued product lines. The decrease in comparable store sales was driven by declines in total transactions partially offset by higher average dollar sales.
Other
For the second quarter of 2009, net sales decreased $33 million to $227 million related to lower third-party sales at Mast.
Gross Profit
For the second quarter of 2009, our gross profit decreased $93 million to $668 million and our gross profit rate (expressed as a percentage of net sales) decreased to 32.3% from 33.3% in the second quarter of 2008. The decrease in the gross profit rate is primarily driven by a decline at Victoria's Secret partially offset by an increase within the Other segment associated with the decline in lower margin Mast third-party sales. Results by segment are as follows:
Victoria's Secret
For the second 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;
• 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 lower merchandise margin due to the decline in net sales and unfavorable currency fluctuations.
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 second quarter of 2009, the decrease in gross profit was driven by lower merchandise margin primarily as a result of the decline in net sales.
The gross profit rate was up to last year driven by an increase in the merchandise margin rate partially offset by an increase in the buying and occupancy rate due to deleverage associated with the decline in net sales.
Other
For the second quarter of 2009, the increase in gross profit was primarily driven by the introduction of our brands into new international markets. The gross profit rate increased primarily as a result of a decline in lower margin Mast third-party sales.
General, Administrative and Store Operating Expenses
For the second quarter of 2009, our general, administrative and store operating expenses decreased $56 million to $519 million primarily driven by expense reductions across all of our segments in home office and marketing in conjunction with our enterprise cost initiatives. In addition, store selling expenses decreased due to the reduction in sales.
The general, administrative and store operating expense rate remained flat at 25.1% primarily driven by the factors cited above.
Net Gain on Joint Ventures
In April 2008, we recorded a pre-tax impairment charge of $19 million related to a joint venture. The charge consisted of writing down the investment balance, reserving certain accounts and notes receivable and accruing a contractual liability. In July 2009, we recognized a pre-tax gain of $9 million ($14 million net of related tax benefits) associated with the reversal of the accrued contractual liability as a result of the divestiture of the joint venture. The pre-tax gain is included in Net Gain on Joint Ventures on the 2009 Consolidated Statements of Income.
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