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Stores for Sale for a Limited Time Only

Women's apparel stalwart Limited Brands, Inc. has something new for sale: two of its sagging brands, Limited and Express. The firm is looking to fetch $1 billion for the divisions.

That will leave the company focused on its more successful Bath & Body Works and Victoria’s Secret operations, in addition to its C. O. Bigelow, Henri Bendel, La Senza and White Barn Candle Co., according to a report from Women’s Wear Daily.

Limited Brands is no stranger to selling its under-performing businesses. During CEO Leslie Wexner’s tenure, the 43 year-old firm has divested a number of its businesses, including Lane Bryant, Tween Brands, Inc., New York & Co. and Abercrombie & Fitch.

The $10.6 billion Columbus, Ohio–based company, which has also been reported to have hired Merrill Lynch to help it find a buyer, declined to comment. In 2006, its Express stores posted a 1 percent decrease in same store sales growth, while the Limited chain posted a decrease of 4 percent.

Analysts say retail real estate owners should expect at least some closings among the 918 stores combined; including 658 Limited and 260 Express stores. In 2006, the Limited Brands’ apparel division opened just two new stores, but closed 119. No plans have been outlined to grow either the Limited’s or Express in 2007.

The big question is whether the closings will be part of a turnaround strategy or a full-scale liquidation. Judging by the groups in the running so far, both scenarios are possible. Limited’s group president Jay Margolis is reportedly considering a management buyout and would continue to operate the chain. Other suitors mentioned include Schottenstein Stores Corp. and Gordon Brothers, an asset management firm. Gordon Brothers did not return calls.

Gordon Brothers is the name that troubles most observers. In August 2005, the firm bought the women’s clothing chain, Casual Corner, from Retail Brand Alliance for $250 million. Within months, the Boston, Mass.-based firm had shuttered half the 1,000 stores and liquidated the business. With no proven track record in retail turnarounds, Gordon might be in for a repeat performance, says Howard Davidowitz, chairman of Davidowitz & Associates, a New York City-based retail consulting and investment banking firm.

“What have they ever run that wasn’t liquidated?” Davidowitz notes. If they win, “a ton of stores are going to be closed.”

Most of Gordon’s previous retail acquisitions have been co-investments. In November 2004, the firm bought Canada’s largest doll retailer Dollarama with Bain Capital Partners, and in 2006, it partnered with Bruckmann, Rosser, Sherrill & Co. to buy the national gift chain Things Remembered from the Luxottica Group. It also owns a stake in Toys ‘R’ Us, with Bain Capital and Kohlberg Kravis Roberts & Co.

Columbus, Ohio-based Schottenstein, meanwhile, does have more of a record in the turnaround game. The company reversed the fortunes of American Eagle Outfitters, after buying $21.2 million of its shares in Sept. 2005, and successfully operates Filene’s Basement and DSW chains. However, its holdings also include SB Capital Group, a retail liquidator.

“I don’t think a liquidation is likely, but it’s obvious that (whoever buys the chains) should be downsizing the stores,” says Jeff Green, owner of Mill Valley, Calif.-based retail consulting firm Jeff Green Partners.

Most retail analysts are in favor of the sale. One characterized the fashion apparel sector as a “zero sum game.” The operating margins for Limited’s apparel divisions have to be below 5 percent, estimates Morningstar analyst Brady Lemos, while those of its lingerie and personal care brands are close to 20 percent.

“The company would be stronger if they focused on those divisions, they have been trying to turn around Express and Limited for a very long time, without much success,” Lemos says.

As for the future of Limited Brands, after the sale, the company plans to focus on growing its lingerie and personal care businesses. Its golden goose Victoria’s Secret has 30 percent market share of the intimate apparel sector right now and saw its same store sales grow 11 percent in 2006. It is also in expansion mode, with plans to add another 140 stores this year, to its existing total of 1,003 in the United States and 323 in Canada. In January 2007, Limited Brands also acquired the Canadian lingerie chain La Senza Corp., for $628 million.

“They find that they can put the Victoria’s Secret and Bath & Body Works in smaller markets and put more of them in urban areas,” Green says.

Last year, Bath & Body Works saw its same store sales increase 10 percent at 1,546 locations. In 2007, it plans to open 55 additional stores.

On Thursday, Limited stock was at $28.58 per share at midday trading. After Tuesday’s Women’s Wear Daily report, shares of the company stock rose 10.5 percent, from $26.63 on Monday to $29.43 by 3:00 p.m. on Wednesday.

Limited Brands has experience in both sales to other companies and IPOs. Its plus size women’s apparel chain Lane Bryant was sold to Charming Shoppes, Inc. in 2002 for $280 million in cash and $55 million in stock. Abercrombie & Fitch and Tween Brands, Inc., which operates Limited Too and Justice stores, were taken public, in 1996 and 2006, respectively.

By Elaine Misonzhnik

TAGS: News
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