Victoria's Secret: It was founded by a man and sold to another man

            Roy Raymond felt embarrassed trying to purchase lingerie for his wife in a public department store environment.  He was an alumnus of Tuft’s University and a graduate from Stanford Business School.  To open Victoria’s Secret he took a $40,000 bank loan and borrowed $40,000 from relatives. Its name is derived from the 19^th century Queen of England, Queen Victoria.  She is said to be a notorious prude despite having 9 children with Prince Albert.  By the way, the Victoria’s Secrets’ Angels are chosen by their appeal to women and not men!   In the company’s first year of operation, it earned about $500,000.  Shortly after, he started a mail order catalogue and opened three more stores.  In 1982, after five years of operation, Victoria’s Secret had grown to have six stores and a 42-page catalogue.  Now Victoria’s Secret was grossing roughly $6 million per year.  However, also in 1982, he sold the company to Leslie Wexner, who is the founder of Limited brands (NYSE: LTD).  He bought Victoria’s Secret for only $4 million.  By the early 1990’s the company had become the largest American retailer of lingerie, doing over $1 billion in revenue.  In the fiscal year of 2009, Victoria’s Secret was worth over $5 billion.  Mr. Wexner bought Victoria’s Secret for $4 million USD in 1982 and by the early 1990s it was doing over $1 billion in revenue.  Talk about a sound investment. Sadly, on August 26, 1993, Roy Raymond committed suicide by jumping off the Golden Gate Bridge.

            In 1912, Bella Cabakoff emigrated with her parents from Russia to Columbus, Ohio.  At the early age of 21, she became the youngest buyer for the Lazarus Department store chain.  After spending over 20 years with Lazarus, she and her husband Harry Wexner opened a women’s clothing store names Leslie’s (after their son) on State Street in Columbus.  In 1963, he borrowed $5,000 from his aunt and $5,000 from the bank and opened a store at the Kingsdale Shopping Center in Upper Arlington.  This store was named “The Limited” because the store only had clothes for younger women, different from his parents’ general merchandise store. In 1969, Wexner took The Limited Brands public.  The 1980s started the acquisitions spree.  In 1982, he bought the Victoria’s Secret brand, store, catalogue and bought 207 Lane Bryant stores.  In 1985, a single Henri Bendel store was purchased for $10 million and 798 Lerner stores for $297 million.  It also bought 25 Abercrombie and Fitch stores in 1988, which then phased the stores out in 1996 as it spun off into a public company (NYSE: ANF).  In the 1990s such stores as Bath and Body works, Structure (converted to Express Men and sold to Sears), and Limited Too were also developed.  Later in 1998, Victoria’s Secret beauty became known as The White Barn Candle Company and began to become a home fragrance brand.  In August 2007, Limited brands transferred 75% of the ownership of its flagship Limited chain to buyout firm Sun Capital Partners Inc.  The remaining shares were sold to Sun Capital Partners Inc. in 2010.  Les Wexner is worth $3.2 Billion as of 2011.

            Limited Brands, Inc is worth $12.2 billion at current marker value.  The company has a dividend of $.80 and has a yield of 2%.  They have not missed a quarterly earnings report since November 20, 2007.  Since inception the stock has split 3 times.  A 3 for 2 split in June of 1986, a 2 for 1 split in June 1990 and another 2 for 1 split at the end of May in 2000.  Besides VF Corp  (NYSE:VFC) and Gap (NYSE: GPS), Limited Brands is the largest clothing conglomerate listed on the NYSE (although Nike is bigger then all three of these companies put together- their in a class of their own, respectively).    

           

            Retail is a tough business; the failure rate of a new startup is enormous.  They do not sell a commodity you must have like oil or electricity.  They have to go through different avenues to make their product known and coveted.  Retail is almost solely based on marketing towards a certain audience. Everyone needs utilities like electricity and running water!  In the cutthroat world of retail it surprises me how well some of these companies do year over year, quarter after quarter, bad economy or worse economy. Do you think retail is an industry that will always grow?  And if so, is the sky the limit, no pun intended!

Can anyone take a bite out of Apple?

           A huge stock price and with no dividend, a cult following, the largest technology company ever (even bigger then Microsoft in its heyday), a company that comes out with a $500 device (ipad) and they cannot keep it in their stores (in this economy), continually blows past their quarterly marks, considered more than innovators and more like Jedi Knights.  This is what people used to call Macintosh. 

            Will it continue?  Will there be something great that comes out and knocks it off its block?  It won’t be the Amazon kindle (not when Amazon is losing money on the kindle per device [costs them $201.50 and sells it for $199.99]).  Apple makes $200 per Ipad (so $300 to produce).  Of main concern with Apple should not be the iphone or the ipad, it should be the itunes store itself.  This is the anchor to the enormous ship they built called the USS Apple.  Amazon has tried to catch up with the android store and delivering their own video content.  But we all know that the itunes store is far superior to anything out there, especially with the introduction of the icloud.  The icloud makes you want to buy more content thru the itunes store because you can now have it saved indefinitely and put it on any of your devices (wirelessly nonetheless).  Nevertheless, Apple is a retailer; they do have to sell products to meet their bottom line.  Will the product cycle for Apple hit a dry spell soon?  Did Mr. Jobs leave this Earth giving all he could?  Has the pipeline been dried out so to speak?

            Then you can look at a company like Exxon Mobil.  It is fair to compare Apple to Exxon because of the sheer volume of sales and market capitalization.  Recently, in brief periods here and there, Apple has been larger than Exxon by market cap.  Apple was the largest company in the world.  But, Apple gives no dividend; Exxon gives $1.88 a year plus a little over 2% yield.  To think that Apple can go toe to toe with an entity that literally produces the lifeblood of the world is quite bold to say at the least.  Apple is the high-end retailer of electronics. A country club if you will.  Nobody needs Apple products, but most people can’t live without them, or think they can’t.  In order for the global economy to function there has to be crude oil, has to be! You need oil whether you like it or not.  So for there to be someone out there larger then a company that produces a resource that is vital to day to day life, wouldn’t you say that’s impressive?

            A week ago or so an analyst came out and put a $665 price target on Apple.  This means that if Apple were to reach that price their market capitalization would be $617.8 Billion (929.4 million shares X $665 per share).  To think that they could be roughly $200 Billion larger then the largest oil company on the planet is completely and totally mind-boggling.  Is it possible for Apple to really be worth that much?  We all know Exxon will keep raking in their normal record-breaking profits at around $20 Billion a quarter.  Are in we a time where a technology company is more vital to the global economy then a resource that runs the economy single handedly?      

Philip Morris, Who’s that my Grandfather??

No, Philip Morris is not your grandfather.  However, the company of Philip Morris has been around longer than (or almost as long as) your grandparents.  It was first incorporated in 1902.  I find it interesting that most of their consumers probably have no idea who they are.  Well, “they” are a company with annual revenue of around $30 billion, and a gross profit of almost 60% ($17.5 billion).  They have consistently raised their dividend since spinning off from their wholly owned subsidiary Altria in 2008. They own 7 of the 15 top cigarette brands around the globe.  They deal with none of the tax restrictions of the United States because they are Philip Morris International.  So, why waste time talking about a cigarette maker? 

            I look at this company as what it is – a business that has one of the most (if not the most) addictive products in the world, but which is 100% legal.  If Philip Morris said they were going to suspend all cigarette sales for just one day, what do you think would happen?  If they were to say a pack of Marlboro’s will now cost $20 a pack, do you think people would pay it?  Now, if you’re an investor or a money manager, you’re in the business of making money, right?  No other company in the world can raise prices on a dime and know they will not get hurt one bit.  The business of cigarettes and tobacco has been through pandemonium and back.  At this point in time, a person knows what they are getting into.  Even without advertising, the brand has grown significantly.

            There is no reason why a wealth management company would not put a big chunk of their client’s money in this.  Every 3 months they give a regular dividend of $.77 or $3.08 for the year; they also sport about a 4% yield. It’s no wonder that some of the biggest players have a huge piece of this pie.  State Street owns 74.4 million shares, Vanguard owns 69.8 million shares, and Blackrock Institutional owns 43.8 million shares.  Every three months State Street receives $52.3 million just for owning the shares they have, regardless of what the stock price does.  Isn’t this the perfect company from an investor’s standpoint? 

            It is also peculiar that Philip Morris’s quarterly numbers are never at the forefront of CNBC, like, let’s say, Intel. Maybe it is the old saying, “Out of sight out of mind.”  It has to be because of what they do and what they sell.  But I ask you, as someone who wants to make money, someone who wants more than steady growth, someone who never has to check the price of the stock for 20 years – what better company is there?  They have been around for nearly over 100 years and will absolutely be around for another century.  

What’s in your wallet?