Express Exit from Apparel for Limited

by MR Magazine Staff

NEW YORK – Limited Brands Tuesday took two giant steps away from the apparel business and, citing softness in one of the businesses it expects to retain, Victoria’s Secret, reduced its first quarter guidance.

The Columbus, Ohio-based specialty retailer reported that it had agreed to sell a 67% stake in its Express brand to affiliates of Golden Gate Capital for US$548 million, expected to generate after-tax proceeds of about $425 million upon closing, expected no later than July 6.

Additionally, the firm said it was seeking “strategic options” for its Limited Stores division, with no fixed timetable for its ultimate resolution.

Jay Margolis, currently president of LB’s apparel group, will lead Express as CEO. Express will retain its brand name, management and staff as well as its Columbus headquarters.

Express had 2006 revenues of $1.7 billion and 631 locations. Limited has 253 stores and its sales last year were $493 million.

The plans to shed its two principal apparel assets confirm details that were first reported in Women’s Wear Daily.

Concurrently, LB said that it was lowering its first quarter earnings guidance to $0.12 to $0.14 a diluted share, as compared to initial guidance of $0.25 to $0.28 and its year-ago performance of $0.25. The company cited “lower-than-anticipated sales and merchandise margins at each of its brands in the first quarter, particularly Victoria’s Secret.”

It also estimated second quarter EPS of $0.20 to $0.24, down from $0.28. The guidance excludes any impact from the plans for Express and Limited.

“Our strategic agenda focuses on growth in the intimate apparel and personal care and beauty segments of our business,” said Leslie Wexner, chairman and chief executive officer of LB. “Consistent with our past practices, we intend to return excess cash to shareholders.”

Wexner said the company had been “very encouraged” by progress at Express over the last year and a half. “We continue to believe in Express and its potential,” he said. “In fact, we structured this transaction specifically in order to continue to participate in the growth of Express through our 33% ownership interest.”

Banc of America Securities LLC advised LB on the partial sale of Express and has been retained in the exploration of plans for Limited Stores. Morgan Stanley will provide financing to Golden Gate Capital in its acquisition of its stake in Express.

Golden Gate is a private equity firm with over $3.4 billion under management. One of its affiliates, Appleseed’s Topco, completed its acquisition of Blair Corp on May 1, and it had previously purchased the Spiegel and Newport News units of the bankrupt Spiegel Group.

In addition to Limited, Express and Victoria’s Secret, LB’s brands include Bath & Body Works, White Barn Candle and Henri Bendel. The company operates 3,768 stores.