limited
inc
1997




THREE LIMITED PARKWAY • PO BOX 16000 • COLUMBUS • OHIO 43216 • 614. 415 7000




annual
report
The complete Financial
Summary, Management’s
Discussion and Analysis,
Financial Statements and
Notes to the Financial
Stat...
financial


  highlights
   t
                                                                                            ...
chairman’s
 letter
   Dear Partner



 b
                                                     had to be channeled into dis...
I’m not really interested in what Finance
      Retail doesn’t wait. It moves. And so must                                ...
in a number of the businesses’ greatest suc-
                                                              quickly. In Ann...
brands
   We are not building brand leadership.
                         We are building leadership brands.




  l
      ...
Victoria’s
Secret
Stores
NYSE: IBI
The world’s most
successful brand of
elegant intimate
apparel, foundations
and related ...
Structure
                        Geared to urban,
                        active, creative
                        young ...
The Limited
                           Modern American
                           sportswear for women.

Express
A lifesty...
Lane Bryant
                              The key fashion
                              destination for the large-
       ...
Abercrombie
& Fitch
NYSE: ANF
Quality, casual, classic
American sportswear
brand, targeted to the
young, hip customer.



...
talent
   Leaders must challenge their organizations to change.




  i
                     ’ll let you in on a little
  ...
There isn’t I left a good job for a great
a brand          one. Reinventing, refocusing The

in the        Limited is the ...
process
   Being first isn’t accidental; it’s deliberate and well planned.




  t
                                        ...
“Girl Care” drives
  traffic, making
  Limited Too a true
                          Express, Sweaters and MPR
  destinatio...
Lerner New York & “MPR”
                                                    MPR, teamwork,
                               ...
Structure becomes the
     “pants authority”




                                         Inspiration
                    ...
limited inc information
Directors                                              SAMUEL P. FRIED                            ...
Design: Sisman Design • Printing: Heritage Press • “Ac-cent-tchu-ate the Positive”: Lyric by Johnny Mercer, Music by Harol...
limited
inc
1997




THREE LIMITED PARKWAY • PO BOX 16000 • COLUMBUS • OHIO 43216 • 614. 415 7000




financial
info
The Chairman’s Letter,
and a description
of the brands, our talent
and processes can be
found in the accompanying
piece of...
contents
  3 Financial Summary


  4 Management’s Discussion and Analysis


 11 Consolidated Statements of Income


 11 Co...
The Limited, Inc.’s
 balance sheet provides
   continuing evidence
of financial strength and
     flexibility. The
  Compa...
Financial Summary
 (Thousands except per share amounts, ratios and store and associate data)
                             ...
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
limited brands annual report 1997_full
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limited brands annual report 1997_full

  1. 1. limited inc 1997 THREE LIMITED PARKWAY • PO BOX 16000 • COLUMBUS • OHIO 43216 • 614. 415 7000 annual report
  2. 2. The complete Financial Summary, Management’s Discussion and Analysis, Financial Statements and Notes to the Financial Statements can be found in the accompanying piece entitled “financial info” inserted into the center of this two-part annual report.
  3. 3. financial highlights t KEY Women’s Brands he Limited, Inc. is a $9.2 billion specialty Annual Growth Emerging Brands retailer which sells women’s, men’s and Intimate Brands Abercrombie & Fitch children’s apparel; lingerie; personal care products and sporting goods through its SALES ($ in millions) 1997 1996 1995 5,640 stores and two catalogues. The past few years have seen significant, positive 3,901 change in the business. This report seeks 4,282 4,294 to outline and clarify that change. 1,148 1,031 Operating Results 835 3,618 (Thousands except per share amounts) 2,997 2,517 1997 1996 1995 235 335 522 $9,188,804 $8,644,791 $7,881,437 Net Sales Total: $9,189 Total: $8,645 Total: $7,881 $480,099 $636,067 $613,349 Operating Income SELLING SQUARE FEET (in thousands) Adjusted Operating Income 1997 1996 1995 (excluding special charges) $706,314 $648,067 $612,035 $217,390 $434,208 $961,511 Net Income Adjusted Net Income (excluding gain in connection with IPOs and special charges) $341,199 $321,830 $311,230 18,780 18,075 19,235 $.79 $1.54 $2.68 Net Income per Diluted Share Adjusted Net Income per Diluted Share (excluding gain in connection with IPOs and special charges) $1.24 $1.14 $.87 3,763 3,572 3,146 $.48 $.40 $.40 Dividends per Share 5,047 5,328 4,230 1,006 792 1,234 Year-end Position Total: 28,400 Total: 28,405 Total: 27,403 (Thousands except financial ratios) NUMBER OF STORES 1997 1996 1995 1997 1996 1995 $4,300,761 $4,120,002 $5,266,563 Total Assets $937,739 $638,204 $2,018,960 Working Capital 1.9 1.7 3.5 Current Ratio 2,907 3,038 3,093 $650,000 $650,000 $650,000 Long-term Debt 32% 34% 20% Debt-to-equity Ratio $2,044,957 $1,922,582 $3,201,041 Shareholders’ Equity 867 859 812 11% 17% 32% Return on Average Shareholders’ Equity q 17% q 16% q 10% Adjusted Return on Average Shareholders’ Equity 1,710 A A A 1,609 1,293 q Excludes the effect on net income of the gain in connection with initial public offerings of $8,606 in 1997, 127 A 156 100 $118,178 in 1996, and $649,467 in 1995. Also excludes special charges of ($226,215) in 1997, ($12,000) in 1996 Total: 5,640 Total: 5,633 Total: 5,298 and $1,314 in 1995 (see Note 2 to the Consolidated Financial Statements). FACT: The Limited, Inc.’s 28,400,000 square feet of selling space equals 652 acres, which is roughly the size of 493 football fields. 1
  4. 4. chairman’s letter Dear Partner b had to be channeled into dis- ing Crosby’s been on my ciplined growth strategies. mind lately. Can’t get his Strategies that would yield voice out of my head. I the greatest return. Designed to unlock and just keep hearing him In my view, it’s just the beginning. Because, create even greater value for shareholders. singing: “You’ve got to what all these initiatives really do is allow us Let me share just some of the initiatives accentuate the positive. to put energy into the places where we get undertaken in the past few years: Eliminate the negative. the greatest payback. This is not about doing Latch on to the affirma- more things. It’s about doing fewer things. 1998 tive. Don’t mess with Mr. In-between.” Very well. Focusing on top stores, top busi- •Announced intent to establish Abercrombie & How true. How true. For me, and the nesses, top people. Not the bottom. Recog- Fitch as a fully independent public company business, they’ve become words to live by. nizing, and focusing on, what we’re best at. through an exchange offer If I could take one major lesson from the And doing it. 1997 past year, and continue to emphasize and We are not about averages. Or average per- • Sale of Newport Office Building apply it as we go forward, it would be to un- formance. In fact, I hate it when a business • Sale of The Tuttle Mall in Columbus derstand and appreciate the power of doing reports “average store performance.” It’s non- • Sale of Brylane stock a few things and doing them very well. sense. That’s not what performance is about. • Closure of 186 underperforming stores What’s really working? What’s driving Performance is about consistently focus- • Closure of Cacique performance? What matters? What doesn’t? ing on the top third, eliminating the bottom • Closure of all but one Henri Bendel store What do you do about it? third, and constantly raising the bar. 1996 If you had asked me, even three or four Let me give you an example. We spent a • 85 million share stock repurchase years ago, I would have said that we were significant amount of time in the past year • Sale of Penhaligon’s focused. And I would have believed it. repositioning Structure. We developed a • Initial public offering of Abercrombie & Fitch In retrospect, we weren’t. strategy to yield substantially better results • Closure of 135 underperforming stores In the past few years, our business has in pants, a critical category. And we tested it. 1995 gone through enormous streamlining, sig- When the results of the test were analyzed, •Initial public offering of Intimate Brands nificant growth, and substantial changes in I was, frankly, disappointed. Sales gains, on •Securitization of $1.2 billion in credit card leadership. We’ve eliminated entire business- average, were negligible. Then we probed a receivables es, sold significant but distracting assets, little deeper. “How’d the top third of the •Sale of 60% interest in Alliance Data Systems and strengthened our core brands. Indeed, stores perform?” The answer: “Up 65%.” •Closure of 79 underperforming stores we’ve reviewed our entire portfolio, and the Up 65%?! That’s not a win. It’s a gusher. Accentuate the positive. Eliminate the amount of energy that should be applied to “Why are we talking about averages? Get negative. each piece of that portfolio. We are not per- Substantial change. Streamlined opera- the best store managers together. Find out sonally immune to the laws of supply and tions. A multitude of distractions eliminated. what they did. Share best practices. Now.” demand. Our resources, while substantial, Unlocking shareholder value. Accentuate the positive. FACT: www.limited.com received 220,000+ visitors since its launch, 8/1/97, and 2,000+ copies of last year’s annual report have been downloaded. 2
  5. 5. I’m not really interested in what Finance Retail doesn’t wait. It moves. And so must Women’s Brands thinks of commercials, or display, or fashion. we. And as we move, I am determined that 1997 I want them to focus on their expertise, how we employ no tactics, none, zero, zilch, that % OF TOTAL SALES (in millions) they contribute to the brand. By the way, erode one scintilla of our brand equity. Those 1997 1996 1995 for you financial types reading this letter, I days are over. And they aren’t coming back. $3,901 $4,282 $4,294 42% will also note, no doubt to your great relief, Our focus on branding has forced us to re- 42% 49% 54% that I also have little interest in what the align our entire organization. We are, remem- advertising staff has to say about finance. ber, a collection of specialty store brands, SALES PER AVERAGE SELLING SQUARE FOOT Or distribution. I want each person concen- and, by definition as specialists, we must 1997 1996 1995 trating on what he or she can do, creatively, be best at, must dominate, single categories $251 $298 $323 Express that most reflect brand personalities. to add value. Focus the resources. Relent- $162 $169 $155 Lerner New York lessly. Even maniacally. Do the things you t $235 $228 $231 Lane Bryant o do that, you have to align, and know how to do. Do them well. And do them $200 $209 $198 The Limited even distort, the organization until they’re done. $736 $904 $1,002 Henri Bendel to win. Again, that’s not about Leaders must lead this process. And chal- $212 $225 $223 Total averages. It’s about intention- lenge their organizations to change. Peo- ally focusing design, market- ple, I’ve learned, do not, by nature, like to % OF TOTAL OPERATING INCOME (in millions) ing, display, finance, stores, distort. They like balance. And they worry 1997 1996 1995 q ($268) q $54 CEO time, everything, to win about being “out of balance.” And, I be- $64 A B the category. You can’t just be lieve, they bring that to the office. (56%) 10% 9% competitive. You have to be best at every- Baloney! q 1997 includes special and nonrecurring charges of A approximately $187 million relating to the closure of thing that makes the category important to Great businesses are all about distortion. five out of six Henri Bendel stores and charges the customer. How many styles? Fits? Col- Jack Welch doesn’t talk about averages. He associated with asset valuation impairment and the ors? Where’s the freshness? talks about excellence. Ray Kroc dominated closure and downsizing of certain stores, plus $13 million in inventory liquidation charges associated Look at Limited Too, a business posi- hamburgers. And announced every one he with the Henri Bendel closings. tioned to young girls. There, new fashions sold. You can’t win by pushing everything q 1995 includes a special and nonrecurring charge of $48 B million, primarily for store closings and downsizings. must land every week. That’s what their at once. We’ll win at what we’re best at. If Understand and appreciate the po customers expect. It’s what they demand. someone beats us there, they’ve really done Intimate Brands Limited Too has to be organized to deliver, something. 1997 or they can’t win. I’m also taking my own medicine. In addi- % OF TOTAL SALES (in millions) Getting ahead. Being first to market. tion to all of the initiatives outlined earlier, 1997 1996 1995 Lapping competition. All are important. I’ve taken steps to free myself up for what 39% $3,618 $2,997 $2,517 Victoria’s Secret was first to market with I believe I’m best at: spotting market voids, 39% 35% 32% “Angels,” a collection of sheer bras and pan- and inventing and refining brands with ties. That proved to be an enormous advan- large, mass consumer appeal and economic SALES PER AVERAGE SELLING SQUARE FOOT tage resulting in high sales and margins. viability to fill them. Last summer, I named 1997 1996 1995 Now, “English Lace” is ahead of the pack, and Ken Gilman Chief Administrative Officer, $495 $458 $459 Victoria's Secret Stores the results, not coincidentally, are terrific. to complement his duties as Vice Chair- $676 $684 $710 Bath & Body Works Being first isn’t an accident. It’s deli- man and better describe his role. He took on $260 $240 $225 Cacique berate. And well planned. You get focused, the added responsibilities of overseeing Real $532 $494 $482 Total and you make opportunities. You align the Estate, Legal, Distribution, and MIS func- organization around them. No sideshows. tions, and is leading the important initia- % OF TOTAL OPERATING INCOME (in millions) Relentlessly pursuing a few things. Doing tive to ensure our information technology 1997 1996 1995 q $505 q $458 them very well. systems are ready for any Year 2000 issues. $386 A B I expect each part of the business to apply In order for him to take on these addi- 105% 72% 63% q 1997 includes a $68 million charge related to the closing the same philosophy. Take the finance depart- tional responsibilities, Ken essentially had A of the Cacique business effective January 31, 1998. ment: inventory is the life of the business, to replace himself. He had to find a world- q 1996 includes a $12 million special and nonrecurring B and finance must focus its efforts around class CFO, one who understood large, mul- charge in connection with the sale of Penhaligon’s in early 1997. this critical piece of the whole. tidivisional businesses, and could step in FACT: If each of the 426 million Victoria’s Secret Catalogues printed in 1997 were lined up end-to-end, they would circle the earth 2.7 times. 4
  6. 6. in a number of the businesses’ greatest suc- quickly. In Ann Hailey, I believe he, and Emerging Brands cesses. I have, frankly, skewed his time over the business, made a perfect choice. She’s 1997 the past three years toward Victoria’s Secret, a world-class executive with important ex- % OF TOTAL SALES (in millions) 13% and the results, I think, have been obvious. perience in large, multidivisional, branded 1997 1996 1995 From the Fashion Show, to the “Angels” companies. Experience that is essential to $1,148 $1,031 $835 launch, to the “Million Dollar Miracle Bra,” our growth strategy. 13% 12% 11% Ed knows how to create “on-brand” market- I’ve always believed my strength is creat- ing strong brands. And now, I’ve set up ing that gets noticed and creates sales. I’ve SALES PER AVERAGE SELLING SQUARE FOOT the infrastructure to support that strength. charged Ed with building his organization 1997 1996 1995 Years ago, understanding that store design so that same creativity can be applied across $310 $321 $308 Structure was one of the longest lead-time brand the brands. $331 $277 $273 Limited Too issues, and one the businesses had to live With these additions, I now have trusted, Galyan’s Trading Co. with for years, I created a separate internal highly capable creative executives working (since 7/2/95) $283 $293 $184 division, run by Charlie Hinson, to control with me on the most critical pieces of the $311 $306 $288 Total store design and construction. Charlie and brand process: store design, fashion and % OF TOTAL OPERATING INCOME (in millions) his group have done spectacular work, the marketing. It’s leveraging my time, and, I 1997 1996 1995 envy of the industry, and he did afford believe, creating value for the business. q $159 $68 q $149 A B me great leverage in this important area of Clearly, there is much to do. The women’s 33% 11% 24% brand positioning. But in retrospect, we businesses need improvement, and we will didn’t go far enough. “Brand” encompasses focus significant energies there. Michael q 1997 includes $42 million of special and A more than store design. It’s also fashion Weiss has made quick and substantial pro- nonrecurring income relating to the gain from the sale of approximately one-half of the Company’s design. And it’s marketing. gress at Express, and I’m optimistic they interest in Brylane, offset by a valuation adjustment That’s why we recently created two new will recapture all of their lost momentum. on an investment where the carrying value is businesses, and named two new presidents The Limited is in the midst of a major permanently impaired. q 1995 includes 100% of WFNNB’s operating income B to work with me on these additional critical repositioning, with substantial work in front before interest expense and the gain from the components. We spent years recruiting Marie of them. Still the stores look the best they sale of a 60% interest in WFNNB, partially offset by special and nonrecurring charges. Holman-Rao because we believed she was have in years. If you haven’t been to one wer of doing a few things very well. the best leader for retail/brand design in lately, I’d strongly encourage you to do so. Abercrombie & Fitch America, with a proven track record, an ex- The IBI brands, Victoria’s Secret and 1997 cellent eye, and a great sense of what sells. Bath & Body Works, continue to perform % OF TOTAL SALES (in millions) 6% This year, she became President of Limited very well, and we will remain focused on 1997 1996 1995 Design Services, and, all I can say is, I wish their success. For our other businesses to $522 $335 $235 we could have been more persuasive earlier. succeed at the expense of these great brands 6% 4% 3% Marie’s impact, steady hand and maturity would not be a victory for anyone. are a great addition to our team, and she’s I’ve tried to give you a sense, in these few SALES PER AVERAGE SELLING SQUARE FOOT a great partner to me. pages, of how committed I am, and the bus- 1997 1996 1995 Now we have someone I can rely on to iness is, to identifying the few things that $462 $373 $354 Abercrombie & Fitch organize visual presentation and fashion di- create real value, and how we plan to con- rection. Someone I am in sync with, and centrate our efforts around them. These are presidents can respond to. Marie is com- not things we’re talking about. This is what pletely in tune with the direction of the we’re doing in every area of the businesses. businesses, and her instincts are uncanny. Unproductive stores are being closed. Brands We can talk in shorthand, and I already feel with big potential are being supported. In as if we’ve worked together for years. every way possible. It’s what we’ve done. It’s Speaking of working with someone for what we’ll continue to do. % OF TOTAL OPERATING INCOME (in millions) years, that is certainly the case with Ed Accentuate the positive. Eliminate the 1997 1996 1995 Razek, the new President of Limited Brand negative. Don’t mess with Mr. In-between. $84 $46 $24 and Creative Services. Ed has been my busi- 18% 7% 4% ness partner for years, and has been involved LESLIE H. WEXNER, CHAIRMAN
  7. 7. brands We are not building brand leadership. We are building leadership brands. l ast year, we kept talking about mer could care less about theory or process. close to their customer, well defined, and building brand leadership and, The customer responds to leadership clearly differentiated. It is our intention that frankly, I was never comfortable brands. The best in the market. Disney. each of our brands be as well defined, and with it. It sounded like academi- Coke. Victoria’s Secret. Leadership brands. differentiated, to their customer. Our newly cians spouting theory and devel- Big brands. Top of mind awareness. formed Design, and Brand and Creative Ser- oping process. Our goal is clear: we want to have fewer vices businesses were created to help clarify That’s not what we’re in busi- brands, but better brands. Lifestyle-focused and differentiate market positions, by brand, ness for. brands that can be category leaders. and keep them fresh. And brands that do major volume. I’ve We intend to support great brands in We’re in business to create cus- said it before: We’re only interested in brands every way possible. I’ve never believed, not tomer demand. Nothing happens until the with the potential to do $1 billion or more for a minute, that you can make a bad brand customer says “I’ll take it,” and the custo- Our focus on branding has forced us to realign our entire organization. annually. By that criterion, our brands must good through advertising. All you really be first, or, at the very worst, a damn fast sec- do is kill it. But a great brand, like Victoria’s ond, in their category, or they shouldn’t exist. Secret, should be, and is, supported with Fewer brands. Better brands. powerful, brand-right advertising. Victoria’s Why did we close Cacique? Because it was Secret, alone, will spend over $50 million on a bad idea? No. It wasn’t a bad idea. In fact, advertising this year. It wouldn’t surprise it was a good idea. But Victoria’s Secret is a me if that figure reached $100 million in the better one. Already positioned as the cate- very near future. gory leader. With infinitely greater opportun- To be frank, four years ago Victoria’s Secret ities. We elected to concentrate our resources, would not have been deserving of any media our energies, on the brand that has the great- support. They were really just another pro- est potential for return and brand exten- motionally priced retailer. Not anymore. In sions. That’s good for the brand, good for the four years, they’ve undergone a remarkable business, and good for our shareholders. transformation. Today, they are recognized Limited Too has quickly emerged as the worldwide. leader in its category. They are incredibly As a great brand. FACT: A recent “Most Recognized Brands” survey showed that Victoria’s Secret had moved from 26th to 9th in just two years. 8
  8. 8. Victoria’s Secret Stores NYSE: IBI The world’s most successful brand of elegant intimate apparel, foundations and related products for women. Galyan’s Trading Company The coolest interactive retail destination for sports enthusiasts and wannabes of all ages. Lerner New York Lerner New York brings its customers great style and value with the New York & Company sportswear brand.
  9. 9. Structure Geared to urban, active, creative young men in their mid-20s, Structure offers authentic, American-influenced classic sportswear with an edge. Victoria’s Secret Catalogue NYSE: IBI The world’s most famous catalogue is also an industry leader in profitability. Christmas dreams & fantasies
  10. 10. The Limited Modern American sportswear for women. Express A lifestyle brand offering hot new international fashion to young women. Limited Too Limited Too, the only specialty store specifically developed for fashion-aware girls, sells apparel and lifestyle and personal care products. 11
  11. 11. Lane Bryant The key fashion destination for the large- size customer (size 14–28); offering the best in jeans, sweaters, sportswear, suit separates and dresses as well as intimate apparel, hosiery and accessories. Henri Bendel Catering to today’s higher-income, modern, thirty-something woman, Bendel’s offers fashion apparel, cosmetics, accessories and gifts. 12
  12. 12. Abercrombie & Fitch NYSE: ANF Quality, casual, classic American sportswear brand, targeted to the young, hip customer. Bath & Body Works NYSE: IBI Healthy, natural, good- for-you personal care products and gifts from America’s heartland, presented in a service-oriented country environment. 13
  13. 13. talent Leaders must challenge their organizations to change. i ’ll let you in on a little Recent Changes & Additions secret—in any mall, the cool kids always work in the hot stores. management. Integrating ROB BERNARD big-time, heavyweight President, The Limited The same is true in our supply chain processes experience at multidivisional from factories to stores international businesses Rob’s career encompasses retail businesses. Want to is critical to our success. that, more important, think more than 20 years in know where the former of themselves as brands. American retailing, including President of J. Crew Group, Ann is an insightful, well- senior executive positions ED RAZEK the President of Banana rounded business executive at Liz Claiborne and Macy’s. President, Limited Brand and who is able to bring her vast Prior to joining The Limited, Republic, the President of Creative Services experience and objective Inc. he was President J. Crew catalogue, the Ed has worked, in one way approach to the disciplines of and Chief Operating Officer or another, with the children’s GMM at Sears, retailing. She’s a major at the J. Crew Group. businesses for over twenty partner in helping to build our Rob’s depth and breadth the GMM of Talbot’s, years. In partnership with businesses into brands while of experience will be and the Vice President of Stores at Pottery Les, he developed both unlocking shareholder value. essential as we continue Forenza and Outback Red for Barn work now? to reestablish The Limited The Limited, worked on the The Limited, Inc. as a dominant brand. MARIE HOLMAN-RAO initial positioning of Express, They all joined the business in the past President, Limited Design and has, for the past three Services year. As did the head designer at Eddie KEN GILMAN years, been involved in Vice Chairman and Chief every aspect of the Victoria’s The former President Bauer, a lead designer at Anne Klein, the Administrative Officer Secret brand. He will of Banana Republic, Marie head menswear designer at Calvin Klein, continue to extend that reports directly to Les, In addition to his duties as and many, many others. brand while spending and has responsibility not Vice Chairman, Ken assumed We’re talking about savvy, street smart, substantially more time with only for the overall design all responsibility for Real the women’s businesses in position of each business, Estate, MIS, Legal, seasoned professionals. People who could get the coming year. but also for the quality of Distribution, and Information a job anywhere. People whose former com- each individual business’s Technology in the past panies would have been very happy if they’d design organization. Marie is year. He leads the effort in PETER WHITFORD initially spending the bulk how to maximize the just stayed put. President, Structure of her time working with Rob profitability of our Real Estate Peter assumed the role of Bernard and The Limited, assets, and is charged President after serving as So, why here? Why now? clarifying their merchandise with the critical IT Year 2000 Structure’s General Because they see the future. This business, mix and customer profile. transformation. Ken played Merchandise Manager. Prior a senior role in all of the one of the great retail success stories of the to joining, Peter was recent IPOs, real estate sell- twentieth century, is positioned even better NICK LAHOWCHIC President of the retailer, offs, and store and business President, Limited Distribution “Country Road Australia.” for the twenty-first. closings. His expertise is Services He’s a good leader who A big acknowledgment for this enormous respected in both the retail understands brands. He has Nick joined us this year and financial communities. influx of new talent goes to Arnie Kanarick already begun to integrate from Becton Dickinson his design and merchandising where he was President of and his team in Human Resources, who set ANN HAILEY functions into the brand- Supply Chain Services. out to erase some enormous misconceptions Chief Financial Officer building process, while Before that, he led logistic about our business, and did just that. When radically transforming the management at Colgate- With stints at Pepsi, the real picture emerged, when seasoned business’s pants category Palmolive and Nabisco Brands. Nabisco, and Pillsbury, Ann to become immediately Nick is a proven leader, who brings important skills to professionals saw the opportunity, they came. more competitive. understands supply chain our executive mix: first-hand, In droves. FACT: The Limited, Inc. is the 18th largest employer in the U.S. (excluding the government and nonprofits) and the 7th largest retail employer. 14
  14. 14. There isn’t I left a good job for a great a brand one. Reinventing, refocusing The in the Limited is the best opportunity portfolio in retail. We’re putting together a that can’t team that will do just that. Rob Bernard be as President, The Limited Our brands can’t powerful be successful unless as Victoria’s all functional Secret. areas are aligned behind That’s the Les’ vision. goal. That’s my focus. Ken Gilman Ed Razek Vice Chairman and Chief Administrative Officer President, Limited Brand and Creative Services My goal is to set up design environments where creativity can flourish—incubators for brand innovation! Out of this comes an enormous opportunity for excitement, newness and fashion direction. Marie Holman-Rao President, Limited Design Services Don’t talk about I believe in brands—they are averages. Focus on the strategic platform for the top third. building shareholder value. Ann Hailey Les Wexner Chief Financial Officer Chairman 15
  15. 15. process Being first isn’t accidental; it’s deliberate and well planned. t from initial concept to quality control, right hroughout the business, our making up lost ground. And the sweater through to delivery. It means changing from processes have been reexamined inventory just looks better and better. merchant generalists to a team of special- and refined. It is all part of an ists: designers, sourcing and manufacturing ongoing effort to boost our Structure becomes the “pants authority” people, planning and allocation specialists, women’s businesses while con- You’ve got to be best at something. And for and merchants, all experts on the brand’s tinuing to grow our emerging young men, if you’re not a pants authority, customer. concepts, and strengthen our you’re nowhere. The Lerner New York team, led by Structure, while world-class brands. Here are a Richard Crystal, President; Jackie Corso, working on their few examples: Executive Vice President of Merchandis- brand positioning, ing; and Charlotte Neuville, Vice President Limited Too/Gryphon and the development changed their entire of Design, used the of “Girl Care” philosophy on pants MPR process to develop It started as a simple test of nail polish in in the past year. From the fit, to the styles, to 100 percent of Lerner June ’96 that was an immediate success, sell- the washes, to the pricing—everything was New York’s Spring ’98 ing 30,000 bottles per week. reviewed and revised to be brand consistent. merchandise. Since then, Limited Too, Gryphon, and The result? Pant transactions are up, The result? The best Mast Industries have developed 65 “Girl across all categories. made, best coordinated, Care” products with over 325 SKUs. And Stores have been deluged with product best designed spring knowledge and given targets to hit. Troops our customers love them. Particularly the presentation in the history of the business, have been rallied. Our VP of Stores even glitter toiletries, cosmetics and accessories. selling at ticket prices, and achieving broad changed his name from Pat to “Pant.” Well, Young girls, as it turns out, want it all. customer acceptance for the New York & not permanently. Limited Too has invented fabulous new Company brand. products, all of which are scented, like “Spar- Victoria’s Secret “ Angels” launch Express, Sweaters and MPR kle Splash” (glitter “Sheer” was big news in fashion. Victoria’s Express’s sweater team is the first Express body splash), “Glimmer Secret translated that news into one of team to be up and running with MPR. And Dust” (glitter powder), the biggest lingerie successes ever. it’s working. The rest of Express should be “Shimmerin’” (glitter “Angels,” a collection of sheer bras and on-line with it by Fall ’98. body lotion) and “Hi-Lite” (glitter hair panties, was developed, and subsequently Today, sweater designers are working with mascara). Yes, you read that right. launched, as the first major coordinated merchants. Discussing trends. And how they The “Girl Care” product line now repre- marketing effort between Stores and Cata- translate to the brand. Discussing voids. sents significant sales and profits and, logue. Five of the world’s most beautiful And how they are going to be filled. In turn, importantly, it drives traffic. The addition supermodels were cast, a both teams are working with production of these products has enhanced Limited famous director hired, wings people to get brand-right Too’s position as a destination store for girls were made, sets designed, ages 7–14, a place where they can go to and Tom Jones was added fashion made to high-qual- have fun. for humor. ity standards, and deliv- The national advertising ered on time. These specialists know campaign was picked up as Lerner New York & “MPR” news, by the media, and seen MPR. Merchandise Process Redesign. It how to do their jobs. by over 150 million people worldwide. means the complete rethinking and rework- And they’re doing them The rest is lingerie, and retailing, history. ing of a business’s merchandising process well. Express is quickly FACT: Founded in 1963, The Limited, Inc. was “born” the same year as Jim Carrey, Johnny Depp, Whitney Houston, Meg Ryan and Wesley Snipes. 16
  16. 16. “Girl Care” drives traffic, making Limited Too a true Express, Sweaters and MPR destination for girls Trends must translate to the brand Limited Too/Gryphon and the development of “Girl Care” Fit is an important part of getting the customer to say “I’ll take it!” Design fills the void 17
  17. 17. Lerner New York & “MPR” MPR, teamwork, and a commitment to quality Reviewing the merchandise plan Is it “on-brand?” Jeans, a must-win category, being fitted
  18. 18. Structure becomes the “pants authority” Inspiration comes from many places Every detail was considered , everything revised Being a pants authority is key when meeting the needs of urban, active young men. Victoria’s Secret “Angels” launch Great product + coordinated effort + supermodels, wings and Tom Jones = powerful new product launch Over 150 million people worldwide saw this launch 19
  19. 19. limited inc information Directors SAMUEL P. FRIED GALYAN’S TRADING COMPANY Vice President, General Counsel and Secretary Joel L. Silverman, Chief Operating Officer LESLIE H. WEXNER PETER Z. HORVATH VICTORIA’S SECRET STORES Chairman qC Vice President, Chief Financial Officer, Grace A. Nichols, President KENNETH B. GILMAN Merchandising Apparel VICTORIA’S SECRET CATALOGUE Vice Chairman and Chief Administrative Officer JACK LISTANOWSKY Cynthia D. Fields, President MARTIN TRUST Vice President and Chief Sourcing BATH & BODY WORKS President: Mast Industries, Inc. and Production Officer Beth M. Pritchard, President Andover, Massachusetts TIM LYONS EUGENE M. FREEDMAN GRYPHON Vice President, Taxes Senior Advisor to and Robert J. Ruttenberg, President Director of Monitor Company, Inc. q JON J. RICKER D ABERCROMBIE & FITCH CO. Vice President and Chief Information Officer Cambridge, Massachusetts Michael S. Jeffries, President E. GORDON GEE Other Officers MAST INDUSTRIES President: Brown University q A Martin Trust, President R. RICHARD AMARI Providence, Rhode Island Vice President, Group Chief Information Officer LIMITED BRAND AND CREATIVE SERVICES DAVID T. KOLLAT Edward G. Razek, President Chairman: 22, Inc. FRANK BALL Westerville, Ohio Vice President, Staffing LIMITED DESIGN SERVICES Marie Holman-Rao, President CLAUDINE B. MALONE PAUL E. DAWSON Financial & Management Consulting, Inc. q q Vice President, Information Services BD LIMITED DISTRIBUTION SERVICES McLean, Virginia Nicholas LaHowchic, President AL DIETZEL LEONARD A. SCHLESINGER Vice President, Public Affairs LIMITED REAL ESTATE George F. Baker Jr. Professor of George R. Sappenfield, President PATRICK HECTORNE Business Administration Vice President, Treasurer Harvard Business School LIMITED STORE PLANNING Cambridge, Massachusetts Charles W. Hinson, President THOMAS J. KATZENMEYER Vice President, Investor Relations DONALD B. SHACKELFORD Company Information Chairman of the Board: State Savings Bank q q q ABD THOMAS B. MCFADDEN Columbus, Ohio HEADQUARTERS Vice President, Group Chief Information Officer The Limited, Inc. ALLAN R. TESSLER JOHN S. MITCHELL Three Limited Parkway, Columbus, Ohio 43230 Chairman and Chief Executive Officer: Vice President, Taxes 614. 415 7000 International Financial Group, Inc. q q q BCD www.limited.com ROBERT A. MYERS New York, New York Vice President, Organization and ANNUAL MEETING ABIGAIL S. WEXNER Leadership Development The Annual Meeting of Shareholders is scheduled for: Attorney at Law q D 9:00 A.M., Monday, May 18, 1998 JEANNINE A. RALSTON Columbus, Ohio Three Limited Parkway, Columbus, Ohio 43230 Vice President, Store Systems BELLA WEXNER STOCK EXCHANGE LISTINGS PHILIP S. RENAUD, II Director Emeritus New York Stock Exchange (Trading Symbol “LTD”) Vice President, Insurance RAYMOND ZIMMERMAN London Stock Exchange Retired Chairman of the Board: ROBERT W. SEYBOLD Commonly listed in newspapers as “Limitd” Service Merchandise Co., Inc. q q Vice President, Group Chief Information Officer BD INDEPENDENT PUBLIC ACCOUNTANTS Brentwood, Tennessee RITA TREVINO-FLYNN Coopers & Lybrand L.L.P., Columbus, Ohio Vice President, Communications Company Officers OVERSEAS OFFICES COLLEEN A. WOODBURN Executive Committee Budapest, Hong Kong, Jakarta, London, Milan, Paris, Vice President, Compensation and Benefits Porto, Seoul, Shanghai, Taipei, Tokyo LESLIE H. WEXNER 10-K REPORT AND INFORMATION REQUESTS Business Leaders Chairman A copy of form 10-K is available without charge KENNETH B. GILMAN EXPRESS through the website, www.limited.com, or Vice Chairman and Chief Administrative Officer Michael A. Weiss, President upon written request to Thomas J. Katzenmeyer, Vice President, Investor Relations, at the V. ANN HAILEY LERNER NEW YORK headquarters listed above. For information please Executive Vice President and Chief Financial Officer Richard P. Crystal, President call 614. 415 6400. ARNOLD F. KANARICK LANE BRYANT STOCK TRANSFER AGENT, REGISTER, AND Executive Vice President and Chief Human Jill Dean, President DIVIDEND AGENT Resources Officer THE LIMITED First Chicago Trust Company of New York DANIEL P. FINKELMAN Robert E. Bernard, President PO Box 2500, Jersey City, New Jersey 07303-2500 Vice President, Planning 800. 317 4445 HENRI BENDEL BRUCE A. SOLL Tedford G. Marlow, President THE LIMITED, INC. Vice President and Counsel Founded 1963 STRUCTURE As of January 31, 1998, Functional Leaders Peter D. Whitford, President number of associates: 131,000 WADE BUFF LIMITED TOO Approximate shareholder base: 241,000 Vice President, Internal Audit Michael W. Rayden, President © 1997 The Limited, Inc. q Member of Compensation Committee q Member of Audit Committee q Member of Nominating Committee q Member of Finance Committee A B C D 20
  20. 20. Design: Sisman Design • Printing: Heritage Press • “Ac-cent-tchu-ate the Positive”: Lyric by Johnny Mercer, Music by Harold Arlen, © 1944 (Renewed) HARWIN MUSIC CO., All Rights Reserved
  21. 21. limited inc 1997 THREE LIMITED PARKWAY • PO BOX 16000 • COLUMBUS • OHIO 43216 • 614. 415 7000 financial info
  22. 22. The Chairman’s Letter, and a description of the brands, our talent and processes can be found in the accompanying piece of this year’s two-part annual report.
  23. 23. contents 3 Financial Summary 4 Management’s Discussion and Analysis 11 Consolidated Statements of Income 11 Consolidated Statements of Shareholders’ Equity 12 Consolidated Balance Sheets 12 Consolidated Statements of Cash Flows 13 Notes to Consolidated Financial Statements 19 Market Price and Dividend Information 19 Report of Independent Accountants
  24. 24. The Limited, Inc.’s balance sheet provides continuing evidence of financial strength and flexibility. The Company’s long-term debt-to-equity ratio declined to 32% at the end of 1997 and working capital increased 47%.
  25. 25. Financial Summary (Thousands except per share amounts, ratios and store and associate data) 1996 q q q 1995 q 1993 q 1991 q 1990 q q 1989 q 1988 1997 1994 1992 1987 ABE A B B AE B SUMMARY OF OPERATIONS $9,188,804 $8,644,791 $7,881,437 $7,320,792 $7,245,088 $6,944,296 $6,149,218 $5,253,509 $4,647,916 $4,070,777 $3,527,941 Net Sales $2,817,977 $2,496,579 $2,087,532 $2,114,363 $1,958,835 $1,990,740 $1,793,543 $1,630,439 $1,446,635 $1,214,703 $992,775 Gross Income $480,099 $636,067 $613,349 $798,989 $701,556 $788,698 $712,700 $697,537 $625,254 $467,418 $408,872 Operating Income Operating Income 5.2% 7.4% 7.8% 10.9% 9.7% 11.4% 11.6% 13.3% 13.5% 11.5% 11.6% as a Percentage of Sales Adjusted Operating q $706,314 q $648,067 q $612,035 798,989 q $698,939 $788,698 $712,700 $697,537 $625,254 $467,418 $408,872 Income C C C C Adjusted Operating Income as a q 7.7% q 7.5% q 7.8% q 9.6% 10.9% 11.4% 11.6% 13.3% 13.5% 11.5% 11.6% Percentage of Sales C C C C $217,390 $434,208 $961,511 $448,343 $390,999 $455,497 $403,302 $398,438 $346,926 $245,136 $235,188 Net Income Net Income as a 2.4% 5.0% 12.2% 6.1% 5.4% 6.6% 6.6% 7.6% 7.5% 6.0% 6.7% Percentage of Sales q $341,199 q $321,830 q $311,230 $448,343 q $389,382 q $446,380 $403,302 $398,438 $346,926 $245,136 $235,188 Adjusted Net Income D D D D D Adjusted Net Income q 3.7% q 3.7% q 4.0% q 5.4% q 6.4% 6.1% 6.6% 7.6% 7.5% 6.0% 6.7% as a Percentage of Sales D D D D D PER SHARE RESULTS $0.80 $1.55 $2.69 $1.25 $1.09 $1.26 $1.12 $1.11 $0.97 $0.68 $0.63 Net Income Per Basic Share Net Income Per Diluted Share $0.79 $1.54 $2.68 $1.25 $1.08 $1.25 $1.11 $1.10 $0.96 $0.68 $0.62 Adjusted Net Income q $1.24 q $1.14 q $0.87 q $1.08 q $1.23 $1.25 $1.11 $1.10 $0.96 $0.68 $0.62 Per Diluted Share D D D D D $0.48 $0.40 $0.40 $0.36 $0.36 $0.28 $0.28 $0.24 $0.16 $0.12 $0.12 Dividends $7.50 $7.09 $9.01 $7.72 $6.82 $6.25 $5.19 $4.33 $3.45 $2.64 $2.04 Book Value Weighted Average Diluted 274,483 282,053 358,371 358,601 363,234 363,738 363,594 362,044 361,288 360,186 376,626 Shares Outstanding OTHER FINANCIAL INFORMATION $4,300,761 $4,120,002 $5,266,563 $4,570,077 $4,135,105 $3,846,450 $3,418,856 $2,871,878 $2,418,486 $2,145,506 $1,929,477 Total Assets 5% 9% 20% 10% 10% 13% 13% 15% 15% 12% 13% Return on Average Assets Adjusted Return on q 8% q 7% q 6% q 10% q 12% 10% 13% 15% 15% 12% 13% Average Assets D D D D D $937,739 $638,204 $2,018,960 $1,750,111 $1,513,181 $1,063,352 $1,084,205 $884,004 $685,524 $567,639 $629,783 Working Capital 1.9 1.7 3.5 3.2 3.1 2.5 3.1 2.8 2.4 2.2 2.9 Current Ratio $404,602 $409,260 $374,374 $319,676 $295,804 $429,545 $523,082 $428,844 $318,427 $288,972 $283,590 Capital Expenditures $650,000 $650,000 $650,000 $650,000 $650,000 $541,639 $713,758 $540,446 $445,674 $517,952 $681,000 Long-Term Debt 32% 34% 20% 24% 27% 24% 38% 35% 36% 55% 93% Debt-to-Equity Ratio $2,044,957 $1,922,582 $3,201,041 $2,760,956 $2,441,293 $2,267,617 $1,876,792 $1,560,052 $1,240,454 $946,207 $729,171 Shareholders’ Equity Return on Average 11% 17% 32% 17% 17% 22% 23% 28% 32% 29% 31% Shareholders’ Equity Adjusted Return on Average q 17% q 16% q 10% q 17% q 22% 17% 23% 28% 32% 29% 31% Shareholders’ Equity D D D D D Comparable Store Sales 0% 3% (2%) (3%) (1%) 2% 3% 3% 9% 8% 3% Increase (Decrease) STORES AND ASSOCIATES AT END OF YEAR Total Number of 5,640 5,633 5,298 4,867 4,623 4,425 4,194 3,760 3,344 3,497 3,115 Stores Open 28,400,000 28,405,000 27,403,000 25,627,000 24,426,000 22,863,000 20,355,000 17,008,000 14,374,000 14,296,000 12,795,000 Selling Square Feet 131,000 123,100 106,900 105,600 97,500 100,700 83,800 72,500 63,000 56,700 50,200 Number of Associates q Includes the results of companies disposed of up to the disposition date. Effective April 30, 1989, the Company sold its Lerner Woman Division, effective August 31, 1993, A the Company sold 60% of its interest in Brylane, Inc. and effective January 31, 1996 the Company sold 60% of its interest in World Financial Network National Bank. q Includes the results of Abercrombie & Fitch subsequent to the February 1, 1988 acquisition date, Penhaligon’s subsequent to the July 2, 1990 acquisition date, Gryphon subsequent B to June 1, 1991 when the Company acquired a controlling interest and Galyan’s subsequent to the July 2, 1995 acquisition date. q Excludes the effect on operating income of special and nonrecurring items of ($213,215) in 1997, ($12,000) in 1996, $1,314 in 1995 (see Note 2 to the Consolidated Financial C Statements) and $2,617 in 1993. Additionally, inventory liquidation charges of ($13,000) related to Henri Bendel store closings are excluded from 1997. q In addition to excluding special charges listed in (c) above, excludes the effect on net income of the gain resulting from the initial public offerings of $8,606 for Brylane, Inc. in D 1997, $118,178 for a 15.8% interest in Abercrombie & Fitch in 1996, $649,467 for a 16.9% interest in Intimate Brands, Inc. in 1995 (see Note 1 to the Consolidated Financial Statements) and $9,117 for United Retail Group in 1992. q Fifty-three-week fiscal year. E 3

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