Ads so good they get paid for them
The Victoria Secret fashion show is famous all around the world, its basically a one hour advertisement for the company. According to forbes CBS pays Victoria Secret $1m a year to televise the event. Its the only one hour show dedicated to a single brand that plays all around the world in 192 countries. The showpiece of the show is the diamond studded fantasy bra. The showpiece bra has never been sold. Last years asking price was $10 million see Candice Swanepoel below with the 2013 piece. This exposure is invaluable to the brand and investors. The models also benefit, 16 out of the 21 models on Forbes highest paid model list have been or are Victoria Secret angels. As an ex-angel Australia's Miranda Kerr makes the top ten.
Source: Victoria Secret
Its amazing that such a global brand has only 17 Victoria Secret stores internationally. The global push is accelerating this year as the show will be run in London and not New York. The show will air December 9th. LB plans to grow overseas through a small number of franchisees. LB will receive a royalty retaining control over assortment, pricing and store design. One problem with overseas growth is that LB does not sell handbags one size does not fit all in lingerie products which will have to be tailored to each region.
Source: L Brands investor relations
The beauty of this business is literally beauty
Victoria secret is not just lingerie but also personal care. LB have opened 230 stand alone beauty and accessory stores on target for 300 at the end of the year. 60% of sales from these stores are beauty products with a focus on fragrance which are great gifts and travel easily internationally. There is the potential for 1,000 of these stores. LB also owns Bath and Body Works which they can leverage from. It is an important part of the business with the majority of stores (1,638 stores see below) yet Victoria Secrets contributes 62% of revenue. Importantly beauty, fragrance and lingerie are all high margin, high loyalty categories. The demand is so great that nearly all of their stores turn a profit.
Source: L Brands investor relations
Capital management has also been fantastic LB has returned $15.4 billion since 2000 more than half its current enterprise value of $23.5 billion. The 2% dividend is great when you have LB's international runway. Unfortunately the P/E multiple at 19x is quite high for the low double digit growth but it does have great long term potential. Just like the Victoria Secret show LB stock is one to watch.
Jason
Disclosure: Decisive has no position in Limited Brands (LB) stock
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.
