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Why Is L Brands (LB) Up 2% Since Last Earnings Report?
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A month has gone by since the last earnings report for L Brands (LB - Free Report) . Shares have added about 2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is L Brands due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
L Brands Q3 Earnings Beat
L Brands, Inc. delivered fourth straight quarter of positive earnings surprise, when it reported third-quarter fiscal 2018 results. Meanwhile, revenues came almost in line with the Zacks Consensus Estimate. Following the results, the company raised fiscal 2018 earnings guidance. However, the company decided to reduce its annual dividend from $2.40 to $1.20. The company will save nearly $325 million from the reduction in dividend, which will be used in deleveraging of the company’s balance sheet.
Detailed Quarterly Discussion
In the quarter under review, L Brands’ quarterly earnings came in at 16 cents per share, which outpaced the Zacks Consensus Estimate by a penny. However, the bottom line declined 46.7% year over year. Per L Brands, robust results at Bath & Body Works overshadowed the company’s dismal performance at Victoria’s Secret.
Meanwhile, net sales advanced 6% to $2.77 billion. The top-line figure was almost in line with the Zacks Consensus Estimate of $2.76 billion. Furthermore, L Brands’ comparable sales (including direct sales) were up 4% in the quarter. However, store-only comps were flat year over year.
While sales at Victoria’s Secret Stores declined 5.2% to $1,177.8 million, Victoria's Secret direct sales increased 18.6% to $351 million. Total Victoria’s Secret sales rose 0.7% to $1,528.8 million, while comparable sales declined 2%.
Bath & Body Works’ total sales were up 17.2% to $956.2 million, with a 10% rise in comparable sales. Victoria’s Secret and Bath & Body Works International sales surged 16.6% to $134 million. Other revenues increased 5.2% to $155.9 million.
Adjusted gross profit grew 3% to $1,022.9 million, while gross margin decreased 90 basis points (bps) to 36.9%. Gross margin contraction can be primarily attributed to reduction in merchandise margin rate. Adjusted operating income plunged 33% to $155.6 million, with the operating margin contracting 320 bps to 5.6%.
Store Update
In the first nine months of fiscal 2018, L Brands opened one Victoria’s Secret store and shuttered seven outlets, taking the total count to 1,163 stores. In the same period, 48 Bath & Body Works stores were inaugurated and 17 were closed, which aggregated to 1,725 stores. At the end of the third quarter, this specialty retailer of women’s intimate and other apparel had 69 International stores, 23 Henri Bendel stores and 125 La Senza stores (the United States and Canada). As of Nov 3, 2018, L Brands operated 3,109 stores.
Total franchised stores (as of Nov 3, 2018) were 849, including 227 Victoria’s Secret Beauty & Accessories, 42 Victoria’s Secret, eight Pink, 206 Bath & Body Works and 186 La Senza stores. Also, the franchised stores comprised 170 and 10 Travel Retail stores of Victoria’s Secret Beauty & Accessories and Bath & Body Works, respectively.
Other Financial Details
L Brands exited the quarter with cash and cash equivalents of $348.4 million, down from the prior-year quarter’s tally of $734.9 million. Long-term debt increased marginally to $5,814.3 million from $5,704.7 million a year ago. Shareholders’ deficit came in at $1,311.5 million.
For fiscal 2018, the company projects capital expenditures to be $625 million. It continues anticipating free cash flow of $800 million for the same period.
In the quarter under review, the company repurchased 0.3 million shares for $10 million. At the quarter-end, it had $78.7 million remaining under the current share buyback program of $250 million.
Guidance
Management issued guidance for the fourth quarter and riased its view for fiscal 2018.
L Brands anticipates fourth-quarter comps to rise in the range of 1-4%. Sales in the quarter are expected to be about 1 to 2 points higher than comps. Further, gross margin is expected to decline year over year and SG&A costs are anticipated to escalate considerably as a percentage of sales. Gross margin will be negatively impacted by decrease in merchandise margin rate. Earnings per share are envisioned in the range of $1.90 to $2.10 compared with $2.11 registered in the prior-year quarter.
For fiscal 2018, the company continues to anticipates comps to be up low-single digits. Gross margin rate is likely to decrease year over year. Also, SG&A costs are expected to increase year over year.
All said, management increased its fiscal 2018 earnings per share guidance to $2.60-$2.80 from the range of $2.45-$2.70. L Brands posted earnings of $3.20 per share a year ago. The company anticipates total sales growth of about 3-4 points higher than comps on account of square footage and international growth and also owing to implementation of the new accounting standard for revenue recognition.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, L Brands has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise L Brands has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is L Brands (LB) Up 2% Since Last Earnings Report?
A month has gone by since the last earnings report for L Brands (LB - Free Report) . Shares have added about 2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is L Brands due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
L Brands Q3 Earnings Beat
L Brands, Inc. delivered fourth straight quarter of positive earnings surprise, when it reported third-quarter fiscal 2018 results. Meanwhile, revenues came almost in line with the Zacks Consensus Estimate. Following the results, the company raised fiscal 2018 earnings guidance. However, the company decided to reduce its annual dividend from $2.40 to $1.20. The company will save nearly $325 million from the reduction in dividend, which will be used in deleveraging of the company’s balance sheet.
Detailed Quarterly Discussion
In the quarter under review, L Brands’ quarterly earnings came in at 16 cents per share, which outpaced the Zacks Consensus Estimate by a penny. However, the bottom line declined 46.7% year over year. Per L Brands, robust results at Bath & Body Works overshadowed the company’s dismal performance at Victoria’s Secret.
Meanwhile, net sales advanced 6% to $2.77 billion. The top-line figure was almost in line with the Zacks Consensus Estimate of $2.76 billion. Furthermore, L Brands’ comparable sales (including direct sales) were up 4% in the quarter. However, store-only comps were flat year over year.
While sales at Victoria’s Secret Stores declined 5.2% to $1,177.8 million, Victoria's Secret direct sales increased 18.6% to $351 million. Total Victoria’s Secret sales rose 0.7% to $1,528.8 million, while comparable sales declined 2%.
Bath & Body Works’ total sales were up 17.2% to $956.2 million, with a 10% rise in comparable sales. Victoria’s Secret and Bath & Body Works International sales surged 16.6% to $134 million. Other revenues increased 5.2% to $155.9 million.
Adjusted gross profit grew 3% to $1,022.9 million, while gross margin decreased 90 basis points (bps) to 36.9%. Gross margin contraction can be primarily attributed to reduction in merchandise margin rate. Adjusted operating income plunged 33% to $155.6 million, with the operating margin contracting 320 bps to 5.6%.
Store Update
In the first nine months of fiscal 2018, L Brands opened one Victoria’s Secret store and shuttered seven outlets, taking the total count to 1,163 stores. In the same period, 48 Bath & Body Works stores were inaugurated and 17 were closed, which aggregated to 1,725 stores. At the end of the third quarter, this specialty retailer of women’s intimate and other apparel had 69 International stores, 23 Henri Bendel stores and 125 La Senza stores (the United States and Canada). As of Nov 3, 2018, L Brands operated 3,109 stores.
Total franchised stores (as of Nov 3, 2018) were 849, including 227 Victoria’s Secret Beauty & Accessories, 42 Victoria’s Secret, eight Pink, 206 Bath & Body Works and 186 La Senza stores. Also, the franchised stores comprised 170 and 10 Travel Retail stores of Victoria’s Secret Beauty & Accessories and Bath & Body Works, respectively.
Other Financial Details
L Brands exited the quarter with cash and cash equivalents of $348.4 million, down from the prior-year quarter’s tally of $734.9 million. Long-term debt increased marginally to $5,814.3 million from $5,704.7 million a year ago. Shareholders’ deficit came in at $1,311.5 million.
For fiscal 2018, the company projects capital expenditures to be $625 million. It continues anticipating free cash flow of $800 million for the same period.
In the quarter under review, the company repurchased 0.3 million shares for $10 million. At the quarter-end, it had $78.7 million remaining under the current share buyback program of $250 million.
Guidance
Management issued guidance for the fourth quarter and riased its view for fiscal 2018.
L Brands anticipates fourth-quarter comps to rise in the range of 1-4%. Sales in the quarter are expected to be about 1 to 2 points higher than comps. Further, gross margin is expected to decline year over year and SG&A costs are anticipated to escalate considerably as a percentage of sales. Gross margin will be negatively impacted by decrease in merchandise margin rate. Earnings per share are envisioned in the range of $1.90 to $2.10 compared with $2.11 registered in the prior-year quarter.
For fiscal 2018, the company continues to anticipates comps to be up low-single digits. Gross margin rate is likely to decrease year over year. Also, SG&A costs are expected to increase year over year.
All said, management increased its fiscal 2018 earnings per share guidance to $2.60-$2.80 from the range of $2.45-$2.70. L Brands posted earnings of $3.20 per share a year ago. The company anticipates total sales growth of about 3-4 points higher than comps on account of square footage and international growth and also owing to implementation of the new accounting standard for revenue recognition.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, L Brands has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise L Brands has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.