Wednesday, May 16, 2007

Ahead of the Bell: Limited Brands (AP)

Three analysts downgraded Limited Brands Inc. after the clothing retailer cut its outlook for the year late Tuesday, saying stiff competition and shrinking profit margins are squeezing the company's Victoria's Secret brand.

The Columbus, Ohio-based operator of the Victoria's Secret, Bath & Body Works, and C.O. Bigelow brands said it agreed to sell a two-thirds stake in its Express division to private equity investor Golden Gate for $548 million cash. Express booked $1.7 billion in sales last year at 631 stores.

Limited Brands said it is also thinking of selling its Limited Stores division, which reported $493 million in sales last year through 253 stores. Limited Stores and Express combined accounted for about a fifth of the company's $10.67 billion in sales in 2006.

Analysts said the bigger story was in the company's updated 2007 profit target, which sank to $1.55 to $1.65 per share from an initial range of $1.75 to $1.90 per share.

The guidance reflects "deteriorating fundamentals" at Victoria's Secret, said Citigroup analyst Kimberly Greenberger, who downgraded Limited Brands to "Hold" from "Buy."

About a year ago, Victoria's Secret began stocking up its inventory, beefing up product launches and pushing promotions to try to steal market share from other retailers and boost sales, said Banc of America Securities analyst Dana E. Cohen.

That strategy has come at the expense of profit margin, Cohen said. Cohen downgraded Limited Brands to "Neutral" from "Buy."

Wachovia Securities analyst John D. Morris downgraded Limited Brands to "Market Perform" from "Outperform."

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