BBWI

SEC Filing Summary: The Limited, Inc. (10-Q)

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for The Limited, Inc. (parent company of Bath & Body Works, Victoria's Secret, and Express) for the thirteen and thirty-nine weeks ended October 28, 2000. The company operates retail stores and direct-response businesses selling women's and men's apparel, intimate apparel, and personal care products. The financial statements are unaudited but have been reviewed by PricewaterhouseCoopers LLP.

Key Financial Metrics

Margins (Year-to-Date): Gross margin rate increased to 33.4% (from 31.9% in 1999). Operating income rate increased to 5.9% (from 4.8% in 1999).

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 5% in the third quarter and 2% year-to-date compared to 1999. Growth was driven by the Intimate Brands segment (Victoria's Secret and Bath & Body Works), which saw sales increases of 10% and 22% respectively in the quarter.
• Profitability: Net income rose 19% in the quarter and 32% year-to-date. Operating income increased 8% in the quarter and 23% year-to-date.
• Comparable Store Sales: Total comparable store sales increased 8% in the quarter and 7% year-to-date. Express led apparel businesses with an 18% comparable store sales increase in the quarter.
• Cash Flow: Net cash used for operating activities was $201.7 million for the 39-week period, an improvement from $299.8 million used in the prior year period. This usage was primarily due to inventory buildup for the fall season and tax payments.
• Capital Structure: The company repurchased $200 million of its own common stock in the first three quarters of 2000. Long-term debt decreased from $650 million in Oct 1999 to $400 million in Oct 2000.

Guidance, Outlook, and Risks

• Capital Expenditures: Management anticipates spending between $425 million and $450 million on capital expenditures for the full year 2000, primarily for new stores and remodeling.
• Outlook: The company expects 2000 capital expenditures to be funded by net cash provided by operating activities. Management highlights strong demand for new product introductions, specifically the "Body by Victoria" collection and Bath & Body Works' entry into hair and face care.
• Risks and Contingencies:
  • Legal Proceedings: The company is a defendant in lawsuits regarding labor practices in Saipan (Northern Mariana Islands) and shareholder derivative actions regarding the rescission of a Contingent Stock Redemption Agreement. Management does not expect these to have a material adverse effect.
  • Tax Matters: The IRS has assessed additional taxes for years 1992-1996 regarding foreign affiliates. A $112 million payment was made in 1999; management believes the ultimate resolution will not be materially adverse.
  • Forward-Looking Statements: Results may differ due to consumer spending patterns, competition, weather, and supply chain availability.

Investor Verification Checklist

• Cash Position: Verify the significant drop in cash and equivalents from $817 million at the start of the year to $6.2 million at period end, driven by operating cash usage and stock repurchases.
• Inventory Levels: Confirm inventory valuation and markdown reserves, as inventories increased to $1.58 billion (up from $1.05 billion at the start of the year) to support fall sales.
• Segment Performance: Review the divergence between the high-growth Intimate Brands segment and the flat/negative growth in certain apparel businesses (e.g., Limited Stores, Structure).
• Debt Covenants: Ensure compliance with the $1 billion revolving credit agreement covenants regarding working capital, debt, and net worth.
• Adjusted Earnings: Note that 1999 comparables are impacted by the spin-off of Limited Too and the sale of a majority interest in Galyan's; review "Adjusted Income Information" for normalized comparisons.