It has been about a month since the last earnings report for L Brands (NYSE:LB), and LB stock has added about 7% in that time frame.
Will the recent positive trend in LB stock continue leading up to its next earnings release, or is LB 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.
LB Stock: Q1 Earnings Top, Revenue in Line With Estimates
L Brands came up with first-quarter fiscal 2018 results, wherein earnings of 17-cents-per-share outpaced the Zacks Consensus Estimate of 15 cents, though it slumped 48.5% year-over-year. Also, management lowered its guidance for fiscal 2018, which sent shares of this specialty retailer of women’s intimate and other apparel down 4.9% during yesterday’s after-market trading session.
Moving back to LB’s first-quarter results, the company’s net sales advanced roughly 8% to $2,625.8 million. The figure was almost in line with the Zacks Consensus Estimate of $2,625.9 million. Furthermore, L Brands’ comparable sales (including direct sales) were up 3% in the quarter. However, store-only comps decreased 2% year-over-year.
Sales at Victoria’s Secret Stores inched lower by 0.9% to $1,235.9 million, while Victoria’s Secret’s direct sales were up 23.4% to $353.5 million. Total Victoria’s Secret sales rose 3.7% to $1,589.4 million, while comparable sales rose 1%.
Bath & Body Works’ total sales were up 12.2% to $760.4 million, with an 8% rise in comparable sales. Victoria’s Secret and Bath & Body Works International sales surged 30.8% to $135.1 million. Other revenues increased 15.3% to $140.9 million.
Gross profit grew 4.5% to $943.8 million, while gross margin reduced 120 basis points (bps) to 35.9%. Operating income plunged almost 26% to $154.8 million, with the operating margin contracting 270 bps to 5.9%.
Store Update
In the quarter under review, LB opened one Victoria’s Secret store and shuttered six outlets, taking the total count to 1,165 stores. In the same period, 13 Bath & Body Works stores were inaugurated and 11 were closed, which totaled to 1,696 stores. Further, the company had 60 Victoria’s Secret and Bath & Body Works International stores, 24 Henri Bendel stores and 124 La Senza stores (U.S. and Canada) at the end of the first quarter. As of May 5, 2018, LB operated 3,069 stores.
Management plans to open 125-153 total Victoria’s Secret and Bath & Body Works International stores (wholly owned and licensed) in fiscal 2018, with plans to shut down 32-44 stores. This will take the company’s total Victoria’s Secret and Bath & Body Works International store count to 760-800 stores. Also, L Brands intends to introduce and close two and six La Senza International stores, respectively, which will take its International count to 190 in fiscal 2018.
Total franchised stores as of May 5, 2018 were 830, comprising 237 Victoria’s Secret Beauty & Accessories, 37 Victoria’s Secret, six Pink, 188 Bath & Body Works and 192 La Senza stores. Also, the franchised stores include 163 and 7 Travel Retail stores of Victoria’s Secret Beauty & Accessories and Bath & Body Works, respectively.
Other Financial Details
LB exited the quarter with cash and cash equivalents of $1,031.5 million, down from the prior-year quarter’s tally of $1,554.9 million. Long-term debt increased marginally to $5,718.6 million from $5,701.5 million a year ago. Shareholders’ deficit came in at $968.6 million.
For fiscal 2018, the company projects capital expenditures to range between $675 million and $700 million, down from $750 million projected earlier. Meanwhile, LB now anticipate free cash flow of $800 million in fiscal 2018, compared to the prior guidance of $900 million.
LB Guidance
Management issued guidance for second-quarter and lowered its view for fiscal 2018.
L Brands company anticipates second-quarter comps to rise in low-single digits. Further, gross margin is expected to decline YOY and SG&A costs are anticipated to escalate considerably as a percentage of sales. Earnings-per-share are envisioned in the range of 30-35 cents-per-share versus 48 cents recorded in the year-ago quarter.
For fiscal 2018, LB now envisions comps to be up low-single digits. Earlier, management projected the same to increase in the 2-4% range. Gross margin rate is now likely to decrease YOY, whereas it was anticipated to remain flat before. Also, SG&A costs are expected to increase YOY. All said, management lowered its fiscal 2018 EPS guidance from a range of $2.95-$3.25 to $2.70-$3.00. In the year-ago period, the company posted earnings of $3.20-per-share.
How Have Estimates Been Moving Since Then?
In the past month, LB stock investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to nine lower. Last month, the consensus estimate has shifted downward by 22.7% due to these changes.
L Brands Price and Consensus
VGM Scores
At this time, LB stock has a subpar Growth Score of D; however, its Momentum is doing a bit better with a C. Following the exact same course, LB stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, LB stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Zacks’ style scores indicate that the company’s stock is suitable for value and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It’s no surprise LB has a Zacks Rank #5 (Strong Sell). We expect a below average return from L Brands stock in the next few months.
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