We believe that L Brands, Inc.’s LB sustained focus on cost containment, inventory management, merchandise and speed-to-market initiatives have kept it afloat in a soft consumer environment. This is reflected by the company’s comparable-store sales (comps) performance in November. Comps for the month rose 7%, following a 5% increase in October.
L Brands commands a market-leading position in the lingerie, personal care and beauty segments. We think that the company’s innovation in merchandise and exclusive assortments remains popular among consumers, setting it apart from peers. Further, L Brands’ foray into international markets is likely to offer long-term growth opportunities as these stores continue to perform well in addition to generating increased sales volumes.
Further, the company, with its operational efficiencies as well as new and innovative assortments, remains well positioned to capitalize on the same. This is evident from L Brands’ positive earnings surprise history. In the trailing seven quarters, the company surpassed the Zacks Consensus Estimate by an average of 3.6%.
In the last concluded quarter (third-quarter fiscal 2015), L Brands posted earnings of 55 cents a share that beat the Zacks Consensus Estimate by a couple of cents. Also, the bottom line increased 25% year over year, backed by higher sales and improved margins. Consequently, management raised its earnings per share projection for the fiscal year. On the other hand, net sales increased by 7%, but fell short of the Zacks Consensus Estimate for the third straight quarter, making investors a little cautious.
L Brands now envisions earnings in the band of $1.85–$1.95 per share for the fourth quarter, and between $3.69 and $3.79 for fiscal 2015, up from $3.58–$3.73 predicted earlier. Management hinted that foreign currency headwinds are likely to impact the company’s results. L Brands’ fourth-quarter and full-year earnings per share are expected to be adversely impacted by 5 cents and 12 cents a share, respectively, from foreign exchange fluctuations.
Nevertheless, L Brands continues to revamp its business by improving store experience, localizing assortments and enhancing its direct business. We believe that these measures will help the company to generate incremental sales and increase store transactions through a higher conversion rate.
The pros and cons embedded in the stock are well reflected by its Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Investors interested in the retail space may consider well-ranked stocks such as Abercrombie & Fitch Co. ANF, American Eagle Outfitters, Inc. AEO and Express Inc. EXPR, all carrying a Zacks Rank #1 (Strong Buy).
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