With the end of the shopping season, many retailers have reaped the benefits of a profitable 4th quarter (note AEOS, ARO, etc.). While same store sales for LTD were up 4% for December, it was below the 9% that analysts were expecting, which pushed the stock downwards after hitting a 52 week high.
http://www.marketwatch.com/news/story/limited-...
For January however, LTD forecasted same-store sales gains at a rate in the "high single digits."
Some analysts believed that same store sales by its Express and Limited brands were affected by warmer weather across the East coast, resulting in lower sales of its outerwear, and also a lower SSS percentage. However, its Victoria's Secret and Bath and Body Works brands did fairly well during the same time, with VS' SSS up 10% for the month of December.
With the advent of Valentine's Day, I believe that there is still much potential to be realized in sales in LTD's VS and BBW divisions, which should hedge its performance against this season's poorer performing divisions, Limited and Express. This is contrary to other retailers which do not enjoy such a benefit during the pre-Valentine's Day shopping time.
LTD has yet to release its 4th quarter earnings, though analysts are expecting 1.09 per share. Last year, LTD reported .98 per share for the 4th quarter. If LTD's earnings report and forecast turns out to be favorable, LTD's current valuation is an excellent time to enter into the stock as it has retreated slightly off its recent highs, but is yet at support at 27.50 to 28.00. If it falls below support, its next support level is at 27. Its MACD has changed from bearish to bullish within the past 2 days, and its PE ratio is much lower than other retailers (currently 15-16 vs 23 and 22 for AEOS and ARO respectively*).
However, it must be noted that LTD is still in a downtrend with no breakout so far, and it may continue to trend downward until they release their 4th quarter earnings report.
I still recommend LTD as a buy, with a tight stop loss at around 27.50.
* Note: It is arguable whether or not companies like AEOS and ARO directly compete with LTD, as they may be competing in different niches within the apparel market, especially since apparel is a whimsical and subjective sector. Note that they are used here for the convenience of argument.
$28.15 (01/16/07)
