Chain of retail apparel store operator Limited Brands (NYSE: LTD) will announce its fourth quarter earnings results on February 22, after the market closes. The company's results come on the heels of the largest retailer Wal-Mart (NYSE:WMT) announcing below than expected earnings for the fourth quarter.
Limited Brands is likely to report around15 percent earnings per share growth for the fourth quarter. The company had already revealed its fourth quarter revenue which is above Street estimates. The company's gross margin as well as operating margins hold key to its earnings results. However, the company lifted its earnings forecast for the fourth quarter when it had announced its December comparable store sales on January 5. Significantly, the company's latest indication is that it would meet its earnings at the higher end of its earlier guidance.
Wall Street analysts are estimating the Columbus, Ohio-based Limited Brands to deliver earnings of $1.46 a share on revenues of $3.47 billion. This represents earnings upside of 15.9 percent on revenue growth of 30 basis points. On February 2, the company indicated that its net sales rose 1.7 percent to $3.515 billion for the fourth quarter from $3.456 billion in the year-ago quarter. Comparable store sales increased 7 percent for the fourth quarter.
The company had earned $1.26 a share on revenues of $3.46 billion last year.
While releasing December comparable store sales numbers, Limited Brands lifted its adjusted earnings forecast to $1.42 - $1.46 a share from $1.28 - $1.43 a share projected earlier. Again, while releasing January comps, the company indicated that it was looking at the earnings to meet its higher end of its target. Analysts have also increased its earnings estimation to $1.46 a share from $1.42 a share two months back.
For the full year, the company generated revenues of $10.364 billion, up 8 percent from $9.613 billion. The comparable store sales witnessed 10 percent upside.
Q3 Results
Limited Brands reported net income of $94.3 million, up 54 percent from $61.3 million and earnings surged 72 percent to 31 cents a share from 18 cents a share in the year earlier quarter. On an adjusted basis too, net income increased 39 percent to $77.6 million or 25 cents a share.
Revenues grew 9.6 percent to $2.173 billion from $1.983 billion in the previous year quarter. Analysts' had estimated the company to earn 24 cents a share on revenues of $2.16 billion.
During the last four quarters, Limited Brands' earnings have consistently swept past analysts' estimations. The company earned $1.26 a share, 40 cents a share, 48 cents a share and 25 cents a share respectively for the same period. On the top line, the company generated revenues of $2.17 billion, $2.46 billion, $2.22 billion and $3.46 billion respectively in the last four quarters.
Gross margin witnessed continued downside during the last four quarters. The company's third quarter gross margin was 36.11 percent, down from 36.7 percent in the second quarter, 37.98 percent in the first quarter and 41.81 percent in the fourth quarter of last year.
Though operating margin improved to 8.56 percent in the third quarter from 7.89 percent in the second quarter, it is still short of 9.79 percent recorded in the first quarter.
For the trailing 12-month period, Limited Brands' operating margin of 12.7 percent is better than its rival Gap's (NYSE: GPS) 11.37 percent and Hanesbrands' (NYSE: HBI) 10.3 percent.
Analyst Take
While two analysts have Strong Buy rating, ten analysts have Buy rating for Limited Brands shares. Eleven analysts are recommending Hold, whereas one analyst terms the stock as Underperform.
iStock Punch
Limited Brands seems to have benefited from its cost cutting measures, inventory management besides merchandise initiatives in the previous quarters. Investors will be looking for another quarter of better than expected results. The company's stock closed on February 21st at $45.92, which is just 1.7 percent short of its 52-week high of $46.70. Any positive results could potentially lift the stock price to fresh yearly high.