Investors see upside for Limited Brands

By Martinne Geller

NEW YORK (Reuters) - Limited Brands Inc (LTD.N) said it expects that new products and in some cases higher prices will help it deliver on a higher earnings forecast for the year, sending its shares up 14 percent on Thursday.

Some investors took the comments as a sign that Limited, the operator of Victoria's Secret and Bath & Body Works, could even beat a raised earnings view it gave late on Wednesday.

"They are effectively articulating their message of the strategy for the second half (of the year), that earnings should continue to achieve the high end (of the outlook range)," said CL King analyst Mark Montagna.

"Now the minimum expectation is that they hit the higher end of their guidance range, with plenty of investors looking for them to beat expectations, or beat that high end."

On Wednesday, Limited reported a 35 percent rise in adjusted quarterly earnings that soundly beat Wall Street forecasts, and it raised its outlook for the fiscal year.

Limited now expects 2008 earnings of $1.45 to $1.60 per share, up from its prior outlook of $1.38 to $1.58 per share.

While other retailers have warned investors that the second half of the year could be tough for business, Limited executives projected confidence.

"At this stage, we're not expecting any material change in the macro or micro economic indicators for the balance of this year and we're planning our business accordingly," Martyn Redgrave, chief administrative officer, said on a conference call with analysts.

Over the last year, the company has focused on reducing inventory levels and cutting costs as it sought to avoid profit-eating markdowns.

Limited said it is updating its signature collection of products at Bath & Body Works, which sells products such as shampoo, body lotion and perfume, with improved ingredients and more sophisticated packaging.

The new products will be anywhere from 5 percent to 15 percent more expensive, and the company said that so far those prices have seen no resistance from consumers in test markets.

JOLLY HOLIDAY NOT A SURE THING

At Victoria's Secret, the company is working to soften the brand's image. Examples include taking mannequins out of store windows and replacing them with fabric mannequin forms and offering lingerie items that are more color coordinated.

Yet with the lion's share of the company's annual profit riding on the holiday season in the fourth quarter, some skepticism remains.

For the current third quarter, the company forecast flat revenue. It also forecast same-store sales declines in the low single-digit range for the third quarter and the full year.  Continued...