Dueling Fools
Limited Choices
September 8, 1999
The Bull Rebuttal
By
If I were to suggest to my buddy David that The Limited is another CMGI <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %>, only dressed in rayon fabric, he'd probably laugh so hard milk would come flying through his nose.
However, like the Internet venture capital specialist, it's hard to deny that The Limited has been a proven incubator of successful concepts. Even David would have to agree since he seems to be a fan of Intimate Brands, Abercrombie & Fitch, and Limited Too. Three years ago Limited Too was struggling. It was a mall weakling averaging just $224 in sales per square foot. Two years later The Limited had nurtured its young concept to produce $300 in sales per square foot.
This is not to say that The Limited won't keep the good stuff. The only Henri Bendel store the company has opened is making Fifi proud with $40 million in annual sales -- that's $900 a square foot, my Fifth Avenue friends.
Admittedly, The Limited won't have all of its chains running on all cylinders all the time. How can it? But the important thing to understand is that management has shown it is capable of turning a concept around when it needs to.
My worthy Fool seems concerned about what some of The Limited chains did last year. He chooses to ignore earnings that doubled last quarter. He is concerned about how the company will fare in the back-to-school third quarter, ignoring The Limited's spectacular August. Last month the company managed 12% in same-store sales growth. For those keeping score at home, that is 50% better than his beloved Gap's 8% comp showing last month and leaps beyond just about every other retailer.
There's a comfortable consistency in The Limited. If you take a look at the company's earnings per share over the last two years -- and projections over this year and next -- you find a healthy growth trend: $1.24, $1.46, $1.77, and $2.04. David is right: fashion is fickle. Polyester is fleeting. But smart management is forever. Why wouldn't you clean out the rack if a bargain like this came around? Buy one stock, get one free. You have the strong Intimate Brands giving the stock downside support, and you have unLimited upside as its wholly owned chains improve into generous spin-offs and online ventures.
Next: The Bear Responds