Limited Brands vs. The Gap : Outlook

Limited Brands Outlook

Limited's Q4 write down of its La Senza lingerie unit and costs associated with their 10% workforce reduction struck the retailer hard last quarter. Limited expects FY 2009 earnings of $0.60 to $0.85 per share, below Wall Street's expectations for earnings of $0.89/share.

Riding March's bank rally, Limited shares surged 36% from February 20th to April 13th, leading Citi Investment Research analyst Kimberly Greenberger to cut the retailer to "hold" from "buy". Greenberger noted that the shares had become properly valued "given Limited's strong dividend, solid liquidity, long-dated debt maturities and achievable earnings per share estimates."

The Gap Outlook

Struggles at Gap's lower-priced Old Navy division are somewhat disconcerting, given consumers recent preference for value chains. Comparable store sales fell 12% last year, compared with a 4% drop in 2007. Furthermore, Wall Street is concerned that Gap has been slow to cut inventory stockpiles quick enough to keep pace with declining demand. Morgan Stanley cut Gap to "equal weight" from "overweight" on March 5, citing pressured margins and further strains on discretionary spending. On a positive note, Gap does have close to $2 billion in cash reserves and a modest debt load. eresting development is unraveling in Washington with FedEx, a non-union payroll compared with UPS's largely unionized workforce, threatening to cancel billions of dollars in contracts with Boeing if a pro-labor amendment to a recent FAA bill is passed. FedEx could be hit with rising costs if the Teamsters are able to unionize their contract workers with the help of the new FAA bill amendment.

Stock Battle Index

• Limited Brands vs. The Gap: Home
• Limited Brands vs. The Gap: Brands
• Limited Brands vs. The Gap: Revenues
• Limited Brands vs. The Gap: Stock Performance
• Limited Brands vs. The Gap: Outlook
• Limited Brands vs. The Gap: Who's Better