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The Limited Latest Apparel Retailer That Faced Struggles in Changing Industry

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01/10/2017 | 12:54pm CET
By Suzanne Kapner 

Leslie Wexner, the chief executive of L Brands Inc., saw the changes that would roil today's apparel industry a decade ago.

In 2007, Mr. Wexner sold 75% of Limited Stores, once the cornerstone of his empire, to the private-equity firm Sun Capital, part of a broader move to focus on lingerie and personal-care products through his Victoria's Secret and Bath & Body Works brands.

Over the weekend, Limited Stores LLC said it would close all of its 250 stores nationwide as it looks for a buyer for the business.

Like Gap Inc., J. Crew Group Inc. and other apparel retailers, the Limited has struggled to compete with fast-fashion and discount sellers such as Zara and T.J. Maxx. In addition, declining foot traffic at many shopping centers has hurt traditional mall stores like the Limited.

It has the added burden of being saddled with debt. In a letter to employees reviewed by The Wall Street Journal, Finance Chief Larry Fultz said that due to a heavy debt load and tough retail environment, the company has to be sold or it will close altogether. In November, the Journal reported that the company hired Guggenheim Partners to advise it on a possible sale.

"Private equity has been a curse on retail," said Howard Davidowitz, the chairman of Davidowitz & Associates Inc., a consulting and investment banking firm, explaining that retailers lack the steady earnings stream to service the debt typically associated with these deals.

A call to Sun Capital was referred to a representative for the Limited, who declined to comment.

In 1963, Mr. Wexner opened the first Limited -- a nod to its narrow focus on women's sportswear -- in Columbus, Ohio. He became known for his sharp merchandising skills.

"When he believed in something, he bought it to the moon," Mr. Davidowitz said. "When you went into the stores, they had it in every color and the display was so dramatic."

Other innovations included stocking new merchandise every five or six weeks rather than every four or five months, Mr. Davidowitz said. And like the fast-fashion chains of today, Mr. Wexner tested small batches of goods before introducing them chainwide.

Realizing early on the importance of sourcing, he bought Mast Industries, an apparel importer that he later sold to private-equity firm Sycamore Partners.

By 1995, Limited had grown to more than 700 stores, and Mr. Wexner's company, then called Limited Brands Inc., largely consisted of apparel chains, including Express, Abercrombie & Fitch Co., Lerner New York, Lane Bryant, Henri Bendel and The Limited Too.

Over the next decade, however, the CEO backed away from apparel, selling or spinning off many of those chains and instead focused on growing Victoria's Secret and Bath & Body Works. He changed Limited Brands's name to L Brands in 2013.

"These changes are born of careful and I believe thoughtful strategy shifts," Mr. Wexner said in 2007 when he announced the sale of Express to Golden Gate Capital.

The Limited was already struggling before its sale to Sun Capital. By February 2007, its store count had shrunk to 260, and its sales had fallen to $493 million from $577 million three years earlier.

Its parent didn't receive any cash proceeds from the sale, and instead recorded a $72 million pretax loss. Sun Capital contributed $50 million in equity and arranged a $75 million credit facility for a 75% stake. It acquired the remaining 25% of the company in 2010.

"Limited failed to change their approach to a rapidly changing consumer, " said Liz Dunn, CEO of consulting firm Talmage Advisors. "Their stores were too big, their assortment wasn't that special, and the brand became stale."

It is a predicament faced by myriad apparel sellers, including American Apparel LLC, Aéropostale Inc., Pacific Sunwear of California Inc. and Wet Seal Inc., which have each filed for bankruptcy protection in recent years.

"The old playbook has stopped working," Ms. Dunn said. "It's evolve, or die."

--Lillian Rizzo contributed to this article.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

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Financials ($)
Sales 2017 15 479 M
EBIT 2017 1 381 M
Net income 2017 616 M
Finance 2017 75,6 M
Yield 2017 3,80%
P/E ratio 2017 15,83
P/E ratio 2018 11,60
EV / Sales 2017 0,62x
EV / Sales 2018 0,61x
Capitalization 9 653 M
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Mean consensus HOLD
Number of Analysts 31
Average target price 25,7 $
Spread / Average Target 6,4%
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Arthur L. Peck Chief Executive Officer & Director
Bob J. Fisher Non-Executive Chairman
Sabrina L. Simmons CFO, Principal Accounting Officer & Executive VP
Paul Joseph Chapman Chief Information Officer & Executive VP
Mayo A. Shattuck Independent Director
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