Business Context and Reporting Period
This Form 10-K covers the fiscal year ended February 1, 2003, for Limited Brands, Inc. (the parent company of Bath & Body Works, Victoria's Secret, and Express). The Company operates in three primary segments: Victoria's Secret (intimate apparel and beauty), Bath & Body Works (personal care and home fragrance), and Apparel (Express and Limited Stores). The reporting period reflects a strategic restructuring, including the acquisition of the remaining minority interest in Intimate Brands, Inc. in March 2002 and the sale of the Lerner New York business in November 2002, which is now reported as a discontinued operation.
Key Financial Metrics
Revenue by Segment (Fiscal 2002):
- Victoria's Secret Stores: $2.647 billion
- Bath & Body Works: $1.781 billion
- Express: $2.073 billion
- Limited Stores: $638 million
- Henri Bendel: $38 million
Operational Metrics:
- Total Store Count: 4,036 stores as of February 1, 2003 (down from 4,614 in the prior year due to the Lerner sale and store closures).
- Employees: Approximately 98,900 associates (70,500 part-time).
- Market Capitalization: Aggregate market value of non-affiliate common stock was approximately $7.22 billion as of the last business day of the second fiscal quarter.
Debt and Liquidity:
The filing references a 364-day revolving credit agreement dated June 28, 2002, and the issuance of $300 million in 6 1/8% notes due December 1, 2012. Specific consolidated debt balances, cash flow totals, and profit margins are incorporated by reference to the 2002 Annual Report and are not explicitly detailed in the provided text.
Material Changes Versus Prior Period
- Segment Reclassification: Following the acquisition of Intimate Brands, Inc., the Company resegmented its business from two segments (Intimate Brands and Apparel) to three (Victoria's Secret, Bath & Body Works, and Apparel). Historical data has been reclassified.
- Discontinued Operations: The sale of Lerner New York (522 stores) in November 2002 resulted in a significant reduction in total store count. Lerner's results are now treated as discontinued operations.
- Store Count Reduction: Total retail stores decreased by 578 from the prior year, driven primarily by the disposal of Lerner New York and the closure of 158 stores, partially offset by 108 new openings.
- Express Integration: The Company continued converting Express Women's and Men's stores into dual-gender locations.
Guidance, Outlook, and Risks
Management Commentary and Outlook:
Management emphasizes rapid inventory turnover and markdowns to maintain fresh merchandise. The business is highly seasonal, with the fourth quarter (holiday season) accounting for approximately one-third of net sales. Cash requirements peak in the third quarter to build inventory for the holidays.
Risks and Contingencies:
- Legal Proceedings: The Company is involved in lawsuits regarding labor practices in Saipan (conditional preliminary settlement approval granted in October 2002) and shareholder derivative actions regarding corporate governance (motions to dismiss pending). Management does not expect these to have a material adverse effect.
- Operational Risks: Risks include changes in consumer spending, competition, weather patterns, and supply chain disruptions, specifically noting the impact of the SARS outbreak in Asia on foreign production sources.
- Forward-Looking Statements: The filing includes a Safe Harbor statement cautioning that future results may differ materially from projections due to economic conditions, security concerns, and other factors beyond the Company's control.
Investor Verification Checklist
- Financial Statements: Verify specific consolidated revenue, net income, and cash flow figures in the 2002 Annual Report (incorporated by reference), as they are not listed in this text.
- Discontinued Operations: Confirm the financial impact of the Lerner New York sale and the specific treatment of discontinued operations in the income statement.
- Legal Settlements: Monitor the final approval status of the Saipan labor practice settlement and the outcome of the shareholder derivative litigation.
- Supply Chain: Assess the ongoing impact of the SARS outbreak and other geopolitical factors on merchandise sourcing from Asia.
- Debt Obligations: Review the terms of the $300 million 6 1/8% notes and the revolving credit facilities for covenants and maturity schedules.