Victoria's Secret Is Sexy Again

A new boss has the lingerie and beauty company growing fastand lifting the fortunes of parent Limited Brands

Midway through the annual Victoria's Secret fashion show, which airs on Dec. 5 on CBS, a pink dog the size of a Trojan horse appears on stage. Soon half a dozen models dressed as cheerleaders hit the runway, carrying pink pom-poms and wearing matching varsity jackets with "Love Pink" on the back. It's all a not-so-subtle pitch for Pink, a boutique brand within the Victoria's Secret orbit.

Launched just two years ago, Pink is already a $700 million business. It is one reason why Limited Brands (LTD), Victoria's Secret's corporate parent, is in the pink again.

The Columbus (Ohio) retail giant reported a $23 million profit in the third fiscal quarter that ended Oct. 28, after only breaking even in the same period last year. In results some may find as striking as supermodel Gisele Bündchen strutting down the runway in feathered wings, Limited now expects its earnings for the full year to increase at least 29%, to $1.66 per share. The company's stock, a tepid performer for the first half of the decade, is up 34% so far in 2006, more than twice the performance of the S&P 500.

At an investor conclave on Nov. 6, Limited founder Leslie H. Wexner noted that Victoria's Secret has become the dominant brand in the company's corporate lineup. Limited owns six brands overall, including soap and hand cream merchant Bath & Bodyworks and the Express chain of apparel stores for young women and men.

Victoria's Secret, however, accounts for more than half of Limited's $10 billion in sales and an even larger share of earnings. "When you think about our company, it is Victoria's Secret," Wexner said. "This is where our future is."

Underwear Empire

Wexner's comments fueled speculation among analysts that he may spin off Limited's other apparel businesses, as he has done before with Abercrombie & Fitch (ANF) and Tween Brands (TWB), parent of teen retailer Limited Too. Victoria's Secret was once part of a separately traded company called Intimate Brands that Wexner brought back into the Limited fold in 2002.

When Wexner bought the struggling Victoria's Secret for $1 million in 1982, the company had just three stores and a catalog operation. It was a niche player in the underwear biz, more burlesque than Main Street. Before Victoria's Secret, the average woman had five bras, noted Edward G. Razek, Limited's chief marketing officer, at the investor conference—three white, one beige, and one black. "All five panties were white," he said.

Today, thanks to an aggressive store and product expansion by Victoria's Secret, lingerie drawers are full of underwear in a myriad of colors, fabrics, and styles. Panties have been replaced by boy shorts, thongs, v-strings, and hip huggers. A hot new product introduced last year was the IPEX bra, which uses laser-sculpted materials to keep it lightweight. The company applied for a patent on the technology.

Five-Year Growth Target: 100%

Until recently, Victoria's Secret's growth had slowed. Last year its sales were up just 5%. The number of stores shrank to slightly under 1,000. In May, Wexner promoted Sharon Jester Turney, the head of the brand's successful catalog and online operations, to head the whole business.

In this year's third quarter, sales at Victoria's Secret stores open for at least one year were up an industry-leading 17%. Turney now expects to double the size of the business in the next five years from its current base of $5 billion in sales. The strategy involves a focus not just on new lingerie designs but on other merchandise—makeup, swimwear, perfume, and the Pink brand, which sells pajamas and lingerie to a slightly younger demographic of 19- to 22-year-old women.

To do that, Victoria's Secret has been enlarging its best-performing stores. The company plans to increase its overall square footage by 8% to 10% next year. It'll boost the size of 140 of its stores by 50%.

"You'll see us adding more accessories at Pink," Turney told, "computer bags, luggage." As part of a regular annual promotion, the company will also be handing out over half a million stuffed pink dogs to customers who buy Pink beauty products this season. Turney and two supermodels will also be ringing the bell to close trading at the New York Stock Exchange on Dec. 4 and lighting the exchange's Christmas tree.

Tiffany Wright is all for the bigger stores and a wider selection of products in them. The 27-year-old medical products saleswoman in Los Angeles says she frequently buys Victoria's Secret dresses and shoes from the catalog. "Everything they do is very sexy," she says. "It'd be nice to try them on."