L Brands, Inc., (NYSE:LB) formerly Limited Brands, is an international American fashion retail company that operates many well-known brands such as PINK, Bath & Body Works, and Victoria's Secret among a few others. L Brands has shown solid growth over the years and currently operates over 2600 US stores while selling its products to nearly 800 world-wide franchised and company-operated locations.
Through January, Victoria's Secret retail stores hosted their semi-annual sale and little did I expect that it would apply to their share prices as well. In combination with the recent beating in the market and the stock's recent downward trend, we are now at a price that has declined about 22% since its recent 52-week high. If you look at the chart below, you'll see that this is the biggest decline we have seen since the crisis. With L Brands being a strong performer in the retail sector, I would like to propose the high probability of its quick recovery from this minor dip as it has previously proven in the past that similar downtrends don't last long.
2013 Marked a potential end to massive dividends
Over the last few years L Brands randomly paid generous, special dividends in addition to their usual quarterly payouts and by the end of 2012 these dividends went as high as $3. For 2012 these dividends totaled an additional $4.25 per share (about $1.2 billion) on top of their quarterly dividends and in 2011 this was an extra $3. Unfortunately these dividends were absent in 2013 where their cash may have been limited in comparison to 2012. This was likely due to a greater than foreseen amount of store promotions that were held to keep their foot-traffic ideal and while it was effective, it ate into their margins. With the possibility of such trends continuing, returning dividend payouts back to normal, investors may have taken the opportunity to get out, pushing the stock down.
With the chart below taken from the NASDAQ website, you can see the additional payouts in 2011, and 2012 as well as their absence in 2013.
Although I expect their rapid growth to slow in the upcoming years, L Brands still seems to be on route to continue growth through 2014 and beyond as they continues to effectively tackle new ways to generate profits. That being said, it should be noted that caution is advised, especially ahead of earnings later in February as they have recently announced a Q4 EPS expectation of $1.60 versus their guided $1.82.
I would like to add that earlier through the stock's decline this month, a Forbes article mentioned that L Brands was in the oversold territory while it was priced at around $57. Although I agreed with it, I still thought that it was at an uneasy price to take advantage of. However, after seeing L Brands continued downtrend to the $52 range while showing a resistance to the market's decline, specifically Monday's high volume session as seen below, I believe that L Brands has a very strong potential to climb upwards from here.