Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended July 29, 1995, for The Limited, Inc. (the parent company of Bath & Body Works, Victoria's Secret, and other retail brands). The filing includes unaudited consolidated financial statements for the thirteen and twenty-six weeks ended July 29, 1995, compared to the same periods in 1994.
Key Financial Metrics
| Metric | 13 Weeks Ended July 29, 1995 | 26 Weeks Ended July 29, 1995 |
|---|---|---|
| Net Sales | $1,718.6 million | $3,306.8 million |
| Gross Income | $423.7 million (24.7% margin) | $826.4 million (25.0% margin) |
| Operating Income | $96.8 million | $176.8 million |
| Net Income | $48.8 million | $88.0 million |
| Earnings Per Share (Diluted) | $0.14 | $0.25 |
| Cash and Equivalents | $262.6 million (as of July 29, 1995) | |
| Working Capital | $1,700.8 million | |
| Total Debt (Short-term + Long-term) | $900.0 million ($250M short-term notes + $650M long-term) | |
| Net Cash Used in Operating Activities | ($4.8 million) for 26 weeks | |
| Capital Expenditures | $170.3 million for 26 weeks |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 8% year-over-year for both the quarter and the year-to-date period, driven primarily by the net addition of 352 stores.
- Profitability Decline: Despite sales growth, Net Income decreased 9% for the quarter and 13% year-to-date. Operating income margins compressed due to higher markdowns, increased buying/occupancy costs, and lower sales productivity in new stores.
- Segment Performance:
- Intimate Brands (Victoria's Secret, Bath & Body Works): Sales increased 20% year-to-date. Bath & Body Works was the fastest-growing business with 96% sales growth year-to-date.
- Women's Businesses (Express, Lane Bryant, The Limited): Sales were flat year-to-date, with comparable store sales declining 2%.
- Acquisition: The company acquired Galyan's Trading Company (6 sporting goods stores) for $18 million in cash and stock on July 2, 1995.
- Debt Structure: Short-term borrowings increased by $250 million in May 1995 to fund a planned corporate restructuring (spin-off of two new public companies).
Guidance, Outlook, and Risks
- Corporate Restructuring: The Board approved a plan to create two new public companies: "Intimate Brands, Inc." (Victoria's Secret, Bath & Body Works, etc.) and a second company for women's businesses (Express, Lane Bryant, etc.). The company plans to sell a significant interest in its credit card bank and distribute proceeds to shareholders.
- Capital Expenditure Outlook: The company anticipates spending $325 million to $350 million on capital expenditures for the full year 1995, with $230 million to $270 million allocated to new and remodeled stores.
- Liquidity: Management expects to fund 1995 capital needs primarily through operating cash flows. The company maintains $840 million in available committed credit lines.
- Risks and Contingencies:
- Tax Dispute: The IRS has assessed additional taxes and interest for 1989 and 1990 regarding foreign operations. The company is vigorously contesting this, though management believes the outcome will not be materially adverse.
- Inventory Levels: Inventories are up on a per-store basis, with unplanned increases at Lane Bryant and Structure due to sales shortfalls.
Investor Verification Checklist
- Verify the progress and timeline of the proposed spin-off into "Intimate Brands, Inc." and the women's business entity.
- Monitor the resolution of the IRS tax assessment regarding 1989-1990 foreign operations.
- Track inventory levels and markdown rates for the Fall selling season, particularly for Lane Bryant and Structure.
- Confirm the repayment schedule of the $250 million short-term debt borrowed in May 1995 in relation to the spin-off transactions.
- Review the performance of the newly acquired Galyan's sporting goods stores.