L Brands Inc (NYSE:LB), facing increased competition for customers shopping for bras and underwear, reported revenues for Q1 dropped nearly 7 per cent to $2.44 billion. LB stock holders are pushing up the shares almost 5.5% this morning in pre-market trading following the report that earnings of $94.1 million, or 33 cents per share, topped a consensus number of 29 cents.
The Columbus, Ohio-based company said Q1 operating income was $209.2 million, according to a company statement on Wednesday. Comp sales for first quarter dropped 9%, which LB said was due to its exit from the swim and apparel categories, That had a negative impact of 6 percentage points and 9 percentage points, respectively, to total company and its Victoria’s Secret unit’s’ comparable sales.
L Brands is battling American Eagle Outfitters (NYSE:AEO), Gap Inc (NYSE:GPS) and Lululemon Athletica inc. (NASDAQ:LULU) in the bra and underwear space. With the added decline of mall traffic, LB’s stores, including La Senza and Bath & Body Works, are struggling. Former parent The Limited filed for Chapter 11 bankruptcy protection in January about a week after announcing that it was shutting down all 250 stores in operation. Some 4,000 jobs were cut.
As InvestorPlace contributor Luke Lango noted earlier this week, L Brands’s “valuation ostensibly looks compelling (12.5 times trailing earnings now versus about 25 times just a year ago), but there really aren’t any signs of a turnaround materializing.” He wrote that the valuation on a forward basis also implies more room to fall for LB stock. “The stock is trading at 14.6 times next year’s consensus earnings-per-share estimate. That isn’t terribly cheap for a struggling retailer with tons of mall exposure. It also doesn’t stack up well with a mid-single-digit earnings growth outlook (which is what the always overly bullish Street expects over the next five years).”
LB management increased its guidance for full-year 2017, and now expects EPS in the range of $3.10 to $3.40, up from previous forecast of $3.05 to $3.35. For Q2, the company expects earnings in the range of 40 cents to 45 cents per share.
LB stock has decreased more than 30% in the last six months which the S&P 500 index has added almost 8% in the same period.