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L Brands (LB) Q1 Earnings Meet Estimates, Sales Increase Y/Y
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L Brands, Inc. (LB - Free Report) posted first-quarter fiscal 2021 results, with the top- and the bottom line meeting the Zacks Consensus Estimate. Moreover, sales and earnings improved on a year-on-year basis. Additionally, management provided its earnings view for second-quarter fiscal 2021.
The company’s first-quarter performance gained from continued strength in the Bath & Body Works and Victoria’s Secret segments. Momentum in both businesses was driven by customer’s positive response to assortments, which in turn, led to reduced promotional activity and higher merchandising margin rates. Additionally, management is working toward the separation of Bath & Body Works and Victoria’s Secret into two leading publicly-traded companies.
This Zacks Rank #1 (Strong Buy) stock has surged 68.3% in the past six months compared with the industry’s rally of 39.3%.
Quarterly Discussion
L Brands delivered adjusted earnings of $1.25 per share, in line with the Zacks Consensus Estimate. The quarterly earnings increased significantly from adjusted loss of 99 cents reported in the year-ago quarter. The year-over-year upside can be attributed to better-than-expected sales and margin rates at both Bath & Body Works and Victoria’s Secret.
Net sales of $3,024 million were in line with the consensus mark and improved 82.8% on a year-over-year basis. The metric gained from relaxed restrictions associated with the pandemic as well as government stimulus payments. Management estimates that the government stimulus is likely to have positively impacted sales by nearly $50 million at Bath & Body Works and $75 million at Victoria’s Secret.
It is worth noting that the company’s sales during first-quarter fiscal 2020 were adversely impacted by pandemic-led store closures. The top line increased 15% from first-quarter fiscal 2019 level.
Comparable sales (stores and direct business) rose 21% during the reported quarter compared with an increase of 4% in the year-ago quarter. Comparable sales (stores only) rose 7% compared against a decline of 5% in the prior-year quarter.
Gross profit amounted to $1,413.8 million during the quarter, up from $288.6 million in the year-ago period. Gross margin expanded 2,350 basis points to 46.8%. The upside was driven by improvement in the merchandise margin rate and buying and occupancy expense leverage. Moreover, improved merchandising and selling strategies along with disciplined inventory management at Victoria’s Secret aided the company to pull back on its promotional activity. Such strategies drove growth in average unit retail and merchandise margin rates.
Adjusted operating income amounted to $572.1 million, up considerably from adjusted operating loss of $220.9 million in the year-ago quarter.
Segment Discussion
Bath & Body Works’ total sales increased 93.2% year over year to $ $1,469.5 million. Comparable sales (stores and direct business) surged 16%. Comparable store sales increased 12%. In the direct channel, sales increased 21% to $349.2 million. The company witnessed balanced growth across all merchandising categories, namely Home Fragrance, Body Care, Soaps and Sanitizers. Sales at Bath & Body Works International advanced 45.7% to $69.8 million. In U.S. and Canada stores, sales surged 148% year over year to $1,050 million.
Total sales in Victoria’s Secret surged 73.9% to $1,554.2 million. Comparable sales (stores and direct business) rallied 25%. Comparable store sales witnessed a rise of 3%, while sales in the direct business surged 69% to $520.9 million. The company witnessed strength across its Lingerie, PINK and Beauty businesses. Sales at Victoria’s Secret International increased 39% to $100.4 million. In U.S and Canada stores, sales increased 81.5% year over year to $932.9 million.
As of May 1, 2021, company-operated stores were 2,681, comprising 1,752 Bath & Body Works and 929 total Victoria's Secret stores. Total Victoria's Secret stores include 698 Victoria’s Secret, 143 PINK, 24 Victoria’s Secret Canada, two PINK Canada, 36 Victoria’s Secret Beauty and Accessories and 26 Victoria’s Secret China.
Total partner-operated stores were 757, including 281 Bath & Body Works, 104 Victoria’s Secret, 17 PINK and 196 Victoria’s Secret Beauty & Accessories. Further, partner-operated stores comprised 141 and 18 Travel Retail stores of Victoria’s Secret Beauty & Accessories and Bath & Body Works, respectively.
Outlook & Other Updates
The company expects second-quarter fiscal 2021 earnings in between 80 cents and $1 per share. This excludes one-time costs related to the spin-off of Victoria’s Secret. During second-quarter fiscal 2020, adjusted earnings amounted to 25 cents per share. The Zacks Consensus Estimate for second-quarter earnings is currently pegged at 79 cents per share. Given the impending separation and continued uncertainty in the business environment, the company did not provide full-year fiscal 2021 guidance.
We note that L Brands’ board has approved plans to spin-off Victoria’s Secret business into a standalone company. The move came in after a prolonged period of strategic analysis of the Victoria’s Secret business, including its sale. Moreover, the company believes that a spin-off is likely to boost shareholders’ value.
The spin-off will result in two independent public companies — Bath & Body Works and Victoria’s Secret. The transaction will be carried out through a tax-free spin-off of Victoria’s Secret to L Brands’ shareholders. The transaction is expected to be completed in August 2021, subject to customary closing conditions.
Management expects the spin-off to help each company maximize financial flexibility and boost strategic focus. This will enable the companies to thrive better in an evolving retail landscape. Management highlighted that the company has made significant progress in achieving a turnaround in the Victoria’s Secret business, by adopting strategies such as enhancing merchandising and marketing, driving top-line growth as well as undertaking actions to reduce costs. Backed by the prudent growth efforts, Victoria’s Secret is now well positioned to thrive as a standalone public company and continue with its global growth momentum. Over the coming months, the company will evaluate appropriate capital structures for each Bath & Body Works and Victoria’s Secret business.
Abercrombie & Fitch Company (ANF - Free Report) has a long-term earnings growth rate of 18% and a Zacks Rank #1.
Tapestry, Inc. (TPR - Free Report) , which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10%.
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L Brands (LB) Q1 Earnings Meet Estimates, Sales Increase Y/Y
L Brands, Inc. (LB - Free Report) posted first-quarter fiscal 2021 results, with the top- and the bottom line meeting the Zacks Consensus Estimate. Moreover, sales and earnings improved on a year-on-year basis. Additionally, management provided its earnings view for second-quarter fiscal 2021.
The company’s first-quarter performance gained from continued strength in the Bath & Body Works and Victoria’s Secret segments. Momentum in both businesses was driven by customer’s positive response to assortments, which in turn, led to reduced promotional activity and higher merchandising margin rates. Additionally, management is working toward the separation of Bath & Body Works and Victoria’s Secret into two leading publicly-traded companies.
This Zacks Rank #1 (Strong Buy) stock has surged 68.3% in the past six months compared with the industry’s rally of 39.3%.
Quarterly Discussion
L Brands delivered adjusted earnings of $1.25 per share, in line with the Zacks Consensus Estimate. The quarterly earnings increased significantly from adjusted loss of 99 cents reported in the year-ago quarter. The year-over-year upside can be attributed to better-than-expected sales and margin rates at both Bath & Body Works and Victoria’s Secret.
Net sales of $3,024 million were in line with the consensus mark and improved 82.8% on a year-over-year basis. The metric gained from relaxed restrictions associated with the pandemic as well as government stimulus payments. Management estimates that the government stimulus is likely to have positively impacted sales by nearly $50 million at Bath & Body Works and $75 million at Victoria’s Secret.
It is worth noting that the company’s sales during first-quarter fiscal 2020 were adversely impacted by pandemic-led store closures. The top line increased 15% from first-quarter fiscal 2019 level.
Comparable sales (stores and direct business) rose 21% during the reported quarter compared with an increase of 4% in the year-ago quarter. Comparable sales (stores only) rose 7% compared against a decline of 5% in the prior-year quarter.
Gross profit amounted to $1,413.8 million during the quarter, up from $288.6 million in the year-ago period. Gross margin expanded 2,350 basis points to 46.8%. The upside was driven by improvement in the merchandise margin rate and buying and occupancy expense leverage. Moreover, improved merchandising and selling strategies along with disciplined inventory management at Victoria’s Secret aided the company to pull back on its promotional activity. Such strategies drove growth in average unit retail and merchandise margin rates.
Adjusted operating income amounted to $572.1 million, up considerably from adjusted operating loss of $220.9 million in the year-ago quarter.
Segment Discussion
Bath & Body Works’ total sales increased 93.2% year over year to $ $1,469.5 million. Comparable sales (stores and direct business) surged 16%. Comparable store sales increased 12%. In the direct channel, sales increased 21% to $349.2 million. The company witnessed balanced growth across all merchandising categories, namely Home Fragrance, Body Care, Soaps and Sanitizers. Sales at Bath & Body Works International advanced 45.7% to $69.8 million. In U.S. and Canada stores, sales surged 148% year over year to $1,050 million.
Total sales in Victoria’s Secret surged 73.9% to $1,554.2 million. Comparable sales (stores and direct business) rallied 25%. Comparable store sales witnessed a rise of 3%, while sales in the direct business surged 69% to $520.9 million. The company witnessed strength across its Lingerie, PINK and Beauty businesses. Sales at Victoria’s Secret International increased 39% to $100.4 million. In U.S and Canada stores, sales increased 81.5% year over year to $932.9 million.
L Brands, Inc. Price, Consensus and EPS Surprise
L Brands, Inc. price-consensus-eps-surprise-chart | L Brands, Inc. Quote
Store Update
As of May 1, 2021, company-operated stores were 2,681, comprising 1,752 Bath & Body Works and 929 total Victoria's Secret stores. Total Victoria's Secret stores include 698 Victoria’s Secret, 143 PINK, 24 Victoria’s Secret Canada, two PINK Canada, 36 Victoria’s Secret Beauty and Accessories and 26 Victoria’s Secret China.
Total partner-operated stores were 757, including 281 Bath & Body Works, 104 Victoria’s Secret, 17 PINK and 196 Victoria’s Secret Beauty & Accessories. Further, partner-operated stores comprised 141 and 18 Travel Retail stores of Victoria’s Secret Beauty & Accessories and Bath & Body Works, respectively.
Outlook & Other Updates
The company expects second-quarter fiscal 2021 earnings in between 80 cents and $1 per share. This excludes one-time costs related to the spin-off of Victoria’s Secret. During second-quarter fiscal 2020, adjusted earnings amounted to 25 cents per share. The Zacks Consensus Estimate for second-quarter earnings is currently pegged at 79 cents per share. Given the impending separation and continued uncertainty in the business environment, the company did not provide full-year fiscal 2021 guidance.
We note that L Brands’ board has approved plans to spin-off Victoria’s Secret business into a standalone company. The move came in after a prolonged period of strategic analysis of the Victoria’s Secret business, including its sale. Moreover, the company believes that a spin-off is likely to boost shareholders’ value.
The spin-off will result in two independent public companies — Bath & Body Works and Victoria’s Secret. The transaction will be carried out through a tax-free spin-off of Victoria’s Secret to L Brands’ shareholders. The transaction is expected to be completed in August 2021, subject to customary closing conditions.
Management expects the spin-off to help each company maximize financial flexibility and boost strategic focus. This will enable the companies to thrive better in an evolving retail landscape. Management highlighted that the company has made significant progress in achieving a turnaround in the Victoria’s Secret business, by adopting strategies such as enhancing merchandising and marketing, driving top-line growth as well as undertaking actions to reduce costs. Backed by the prudent growth efforts, Victoria’s Secret is now well positioned to thrive as a standalone public company and continue with its global growth momentum. Over the coming months, the company will evaluate appropriate capital structures for each Bath & Body Works and Victoria’s Secret business.
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The Childrens Place, Inc. (PLCE - Free Report) , sporting a Zacks Rank #1, has a long-term earnings growth rate of 8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Abercrombie & Fitch Company (ANF - Free Report) has a long-term earnings growth rate of 18% and a Zacks Rank #1.
Tapestry, Inc. (TPR - Free Report) , which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10%.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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