Financial Analysis On Limited Brands 2006

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Table of Contents

Contents Page …………………………………………………………….…..... 1 Chapter 1: Introduction………………………………………………………… 2 Chapter 2: Five-year Analysis………………………………………………….. 3 Chapter 3: One-year Projection………………………………………………...18 Chapter 4: Debt Capital Structure…………………………………………….. 23 Chapter 5: Equity Capital Structure………… …………………………………25 Chapter 6: Outlook andRecommendations..................................................…...26 References………...…………………………………………………………….27 Appendix A: Copies of original financial data Appendix B: Articles referenced

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Chapter 1: Introduction

Limited Brands, Inc. operates in the specialty retail business in the United States. The company is organized under three business groups: women's intimate apparel, personal and beauty care, and apparel.Limited Brands sells merchandise through its retail stores and through direct response channels such as catalogue and e-commerce. Established as The Limited, founder and owner Leslie Wexner opened the first women’s apparel store in Kingsdale mall in Columbus, Ohio in 1963. The Limited’s first public stock offering was issued in 1969. Today, Limited Brands owns seven retail brands with over 3,590stores operating throughout the country (Limited Brands History, 2006). Limited Brands is parent to Victoria’s Secret, which accounts for the entire lingerie division; Express, The Limited, and Henri Bendel, which form the apparel division; and Bath & Body Works, C.O. Bigelow, and The White Barn Candle Co., which make up the personal care division.
Beauty & Personal Victoria's Secret, Care, $2,912$4,448

The company was listed on the New York

Stock Exchange in 1982. Still headquartered in Ohio,
Apparel, $2,339

Limited Brands receives more than 49% of its

revenues from its strongest brand, Victoria’s Secret, with over $4,400 million recorded for 2005. The apparel division generates 24% revenues with $2,300 million, and the personal care division returns 28% revenues with almost$3,000 million recorded in January 2005 (Market Line, 2006). The company's operations are seasonal in nature and consist of two principal selling seasons which are spring for the first and second quarters, and fall for the third and fourth quarters of the year. The fourth quarter, including the

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holiday season, accounted for approximately one-third of net sales in 2005, 2004 and 2003. Chapter2: Five-Year Ratio Analysis Profitability Ratios Gross Profit Margin GPM has been fairly stable over the past five years. However, there has not been any significant increase. From 2001 thru 2003, there was a small increase of 0.01%. Even though sales increased by 6% during this period, costs of goods sold also increased by 5%; thus, the $511 million increase in sales is not very noticeablebecause costs also rose.
Limited Brands Inc.
Gross Profit Margin
36.70% 36.64% 36.60% 36.50% 36.40% 36.39% 36.30% 36.20% 36.10% 36.00% 35.91% 35.88% 35.90% 35.80% 35.81% 35.70% 2001 2002 2003 2004 2005

The following two years maintained the same figures, but the number in both periods dropped by 4%. This decrease was due to the fact that although sales continued increasing by 8.5%, costs increasedby a larger

percentage, 9.4%. The large amount for costs of sale in 2004 was due to a one-time pretax charge of $61 million in order to reflect some corrections in the accounting practices the company used to apply (Limited Brands Inc. Annual Report 2005, p57)1.

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In consultation with its independent auditors, Limited Brands concluded that its accounting practices related to theaccounting for straight-line rent and the depreciation and amortization of leasehold improvements and certain landlord allowances were not correct.

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Had it not been for that pretax charge, cost of goods sold would have been $5,969 million instead of the $6,030 million that were reported. Compared to its apparel industry, Limited Brands Inc. did not do so well either. The industry has a current...