We have maintained our long-term Neutral recommendation on L Brands, Inc. (LTD) with a target price of $55.00.
Why the Reiteration?
L Brands commands a market leading position in the lingerie, personal care and beauty segments. We believe that the company’s innovation in merchandise and exclusive assortments remain popular among consumers and sets it apart from peers. This is well evident from the recently concluded quarter, where both top and bottom line numbers were impressive and handily surpassed the Zacks Consensus Estimate. Moreover, the company witnessed a healthy rise in May sales wherein comps increased 3% for the month.
We believe that the consumers, who cut back on their discretionary spending during the recession, are now gradually opening their wallets and Limited Brands with its operational efficiencies, new and innovative assortments and upcoming bra and fragrance launches remains well positioned to capitalize on the same.
However, this Zacks Rank #3 (Hold) stock stated that margins are likely to remain muted in the near-term. Moreover, the third quarter remains challenged as the company typically generates lowest volumes during that time. Going forward, management expects gross margins to be down year over year both for the second quarter and fiscal 2013. Alongside, stiff competition and lingering economic woes remain short-term deterrents for the stock.
Other Stocks to Consider
Until any further upward revision in the Zacks Rank of Limited Brands, the other stock worth considering in the non-food retail, wholesale sector include Big 5 Sporting Goods Corp. (BGFV), which holds a Zacks Rank #1 (Strong Buy) and is expected to continue with its upbeat performance. The Gap, Inc. (GPS) and Cabela's Incorporated (CAB), carrying a Zacks Rank #2 (Buy) are also worth considering.
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