SEC Filing Summary: The Limited, Inc. (10-Q)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended July 29, 2000, and the twenty-six weeks ended on that date. The registrant is The Limited, Inc., a retailer of women's and men's apparel, intimate apparel, and personal care products. The company operates primarily through its "Apparel Businesses" (Express, Lerner, Lane Bryant, Limited Stores, Structure) and "Intimate Brands" (Victoria's Secret, Bath & Body Works). The filing notes that results for Limited Too (TOO) and Galyan's are excluded from 2000 comparisons due to a spin-off and sale of majority interest in 1999, respectively.
Key Financial Metrics
| Metric | 13 Weeks Ended July 29, 2000 |
13 Weeks Ended July 31, 1999 |
26 Weeks Ended July 29, 2000 |
26 Weeks Ended July 31, 1999 |
|---|---|---|---|---|
| Net Sales | $2,262,977 | $2,267,821 | $4,371,413 | $4,372,619 |
| Gross Income | $744,077 | $727,647 | $1,439,604 | $1,381,015 |
| Operating Income | $158,192 | $127,201 | $282,590 | $217,531 |
| Net Income | $77,573 | $57,482 | $140,523 | $102,933 |
| Diluted EPS | $0.17 | $0.12 | $0.31 | $0.22 |
| Cash & Equivalents | $321,503 | $490,322 | $321,503 | $490,322 |
| Long-Term Debt | $400,000 | $750,000 | $400,000 | $750,000 |
| Working Capital | $899,015 | $865,591 | $899,015 | $865,591 |
Note: All figures in thousands except per share amounts.
Material Changes vs. Prior Period
- Profitability Surge: Operating income increased 24% for the quarter and 30% year-to-date (YTD). Net income rose 35% for the quarter and 37% YTD. This growth is largely attributed to the absence of a $13.1 million special charge in 1999 related to the Limited Too spin-off and improved gross margins.
- Revenue Stability: Net sales remained flat quarter-over-quarter ($2.263B vs $2.268B) and YTD ($4.371B vs $4.373B). This stability masks significant structural changes: a 6% comparable store sales increase and the addition of 220 new Intimate Brands stores were offset by the loss of Limited Too and Galyan's sales and store closures in the apparel segment.
- Segment Performance:
- Intimate Brands: Sales increased 13% Q/Q and 14% YTD. Victoria's Secret Stores saw a 12% comparable store sales increase. Bath & Body Works sales grew 17% driven by 177 new stores.
- Apparel Businesses: Sales increased 3% Q/Q and 2% YTD. Express led with a 12% comparable store sales increase, while other banners (Lerner, Lane Bryant, Limited Stores) faced declines or flat sales.
- Debt Reduction: Long-term debt decreased from $950 million in July 1999 to $550 million in July 2000 (including current portion), driven by the repayment of $100 million in floating rate notes and the absence of $300 million in notes issued in 1999.
- Cash Flow: Net cash used for operating activities was $15.6 million for the 26 weeks ended July 29, 2000, compared to $23.1 million provided in the prior year. This shift was due to increased inventory builds for the fall season and timing of tax payments.
Guidance, Outlook, and Risks
- Capital Expenditures: The company anticipates spending $425 million to $450 million on capital expenditures for the full year 2000, with $325 million to $350 million allocated to new stores and remodeling.
- Stock Split: A two-for-one stock split was executed in May 2000. In conjunction, the company retired 163.7 million treasury shares, resulting in a non-cash charge against retained earnings.
- Legal Proceedings:
- Saipan Labor Lawsuits: Two complaints allege labor practice violations by manufacturers in the Northern Mariana Islands. The company is a defendant but believes the outcome will not have a material adverse effect.
- Shareholder Derivative Actions: Lawsuits regarding the rescission of a Contingent Stock Redemption Agreement and a 1999 tender offer are pending. Management does not expect a material adverse effect.
- Accounting Changes: The company anticipates adopting FAS 133 (Derivatives) in February 2001 but expects no significant impact due to limited use of derivatives.
Investor Verification Checklist
- Adjusted Comparability: Verify the "Adjusted Income Information" tables which exclude Limited Too and Galyan's from 1999 results to understand true organic growth (e.g., adjusted net sales growth of 4% Q/Q).
- Inventory Levels: Review the $1.21 billion inventory balance and the $163.9 million cash outflow for inventory increases, assessing the risk of markdowns for the upcoming fall season.
- Apparel Segment Turnaround: Monitor the performance of the Apparel Businesses, which reported an operating loss of $12.8 million for the quarter, contrasting sharply with the $170.7 million profit from Intimate Brands.
- Debt Covenants: Confirm compliance with the $1 billion revolving credit agreement covenants regarding working capital and debt-to-net-worth ratios.
- Tax Contingency: Note the ongoing IRS assessment regarding foreign affiliate earnings (1992-1996) and the $112 million payment made in 1999, though management deems the risk non-material.