Limited Brands To Cut Workforce By 10%, Raise $1.25 Bln In Debt; Increases Share Repurchase Program To $1 Bln

Limited Brands Inc. (LTD), a specialty retailer in apparels and beauty products, revealed plans to refocus its business on key growth areas, reduce costs and accelerate programs to return value to its shareholders. The company said that in order to reduce SG&A expenses significantly with expected savings of approximately $100 million annually beginning in fiscal year 2008, it would reduce headcount by about 10% at the corporate and brand home offices, in addition to reduction of other operating expenses. The company also said it plans to issue $1.25 billion in debt to fund share repurchases, the recent acquisition of La Senza and other general corporate requirements, and added that is increasing the share repurchase program to $1 billion from the previously announced $500 million.

Limited Brands said that one-time costs and the specific impact on the financial results for fiscal year 2007 would be provided at a future date once specific plans are finalized.

Leslie Wexner, chairman and chief executive officer, Limited Brands said, "To improve overall profitability, we have launched a broad effort to streamline the company, enhance productivity and efficiency, and focus resources on the most promising growth opportunities. Increasing our previously declared stock repurchase program and accelerating the pace of our repurchases reflect the strength of our balance sheet, our confidence in the company's future growth prospects and our commitment to returning value to shareholders.”

Limited Brands operates under three segments - The Victoria's Secret segment, which sells women's intimate and other apparel as well as beauty products, and accessories, the Bath & Body Works segment, which sells personal care, beauty, and home fragrance products, and the Apparel segment, which includes the Express stores and Limited stores.

However, in recent years, the Victoria's Secret and Bath & Body Works chains have grown rapidly, pushing apparel to the background. Limited Brands has referred to Victoria's Secret, in particular, as a “megabrand” with major growth prospects. Currently, sales of skin-care products, cosmetics, and lingerie make up the bulk of Limited's revenue.

The Columbus, Ohio-based company said that it initiated a complete review of its selling, general and administrative expenses with a view to re-sizing and realigning its expense structure to reflect its new enterprise structure. The company stated that the 10% reduction in headcount includes the elimination of open positions, reduction of current staff and transfers to the new Express business in conjunction with the upcoming sale. No reductions are anticipated in stores, distribution centers or call centers. The current corporate and brand home office employment of the company is approximately 5,300 associates.

Limited Brands said that it is increasing the previously announced $500 million share repurchase program to $1 billion, and added that it repurchased $190.5 million worth of shares under the program. Further, the company said that it intends to accelerate the rate of repurchases.

Previously, Limited Brands had revealed that it signed a definitive agreement with affiliates of private-equity firm Golden Gate Capital to sell a 67% ownership stake in its Express Brands for pre-tax cash proceeds of $548 million. The transaction is expected to close on July 6, 2007, subject to closing conditions. The company noted that the Department of Justice granted early termination of the waiting period applicable to the acquisition of an ownership interest in Express under the Hart-Scott-Rodino Antitrust Improvement Act of 1976.

Limited Brands said that it continues to explore strategic alternatives for its Limited Stores business and added that it has not established any timetable for completion of the Limited Stores process. Limited Stores' 2006 net sales were $493 million and it currently has 253 store locations. Though the retailer has bought, sold, created, and spun off numerous chains over the years, it always had stuck with the Limited apparel division, the original business founded in 1963 by Leslie Wexner. In the 1980s, Wexner's company was the nation's largest specialty retailer. A little more than a decade ago, apparel accounted for 70% of the company's sales.

Limited Brands also said that it evaluating the feasibility of alternatives involving certain other non-core assets, including real estate and other investments. However, the company disclosed that it is not considering alternatives for Mast Industries Inc., which is strategic to the sourcing and production of merchandise for Victoria's Secret, Pink and La Senza.

For the recent first quarter, the company reported a 47% drop in net income to $52.93 million or $0.13 per share from $99.38 million or $0.25 per share in the same period last year. The company attributed the decline in net income to lower merchandise margins and lower-than-anticipated sales at each of its brands in the quarter, particularly Victoria's Secret. However, net sales for the quarter rose 11% to $2.31 billion from $2.07 billion in the year-earlier period. Comparable store sales or same-store sales, a key retail metric that measures sales at stores open for at least a year, increased 4% for the 13 weeks ended May 5, 2007, over the same period last year.

The company had stated that it expects trends will continue to be challenging in the second quarter, especially at Victoria's Secret.

In the past year, Limited Brands also has taken steps toward expanding internationally. In January, the company completed its acquisition of La Senza Corp., an intimate apparel retailer based in Canada. Limited Brands paid $609 million for the company, which owns and operates 326 stores in Canada and licenses the operations of 341 stores in 34 other countries.

In Friday's regular trading session, LTD is currently trading at $28.05, up $0.86 or 3.16% on a volume of 3.71 million shares. In the 52-week period, the stock has been trading in a range of $23.54-$32.60.