Update: L Brands Beats Forecasts

Aug.21.14 | About: L Brands, (LB)

Summary

Despite reporting strong revenue and earnings growth for the quarter, L Brands barely budged in after hours trading.

Although it was nice to see higher profits, the real surprise was a big jump in sales driven by comparable store sales growth and increased store count.

Management upped its expectations for the retailer moving forward but its profit forecast may make hitting the mark set by analysts difficult to achieve.

After the market closed on Aug. 20, L Brands (NYSE:LB) announced its revenue and earnings for the second quarter of its 2014 fiscal year. Despite beating on both the top and bottom lines, the retailer's shares just inched up modestly in after hours trading, suggesting that Mr. Market had already anticipated strong results for the quarter.

Earnings Overview

Last Year's Forecasted Actual
Revenue (billions) $2.52 $2.65 $2.68
Earnings per Share $0.61 $0.62 $0.63
Click to enlarge

For the quarter, L Brands reported revenue of $2.68 billion. This represents a respectable 6% jump over the $2.52 billion management reported the same quarter a year earlier and was slightly above the $2.65 billion analysts anticipated for the quarter. According to its press release, this rise in revenue was driven by a 3% improvement in comparable store sales (even as direct sales stayed flat), combined with a 12% increase in store count from 2,629 locations to 2,942.

Looking at sales, the picture was pretty impressive. Unfortunately, the same cannot necessarily be said of the retailer's profits. For the quarter, L Brands reported earnings per share of $0.63, just $0.01 higher than forecasted and 3% greater than the $0.61 Mr. Market hoped to see. Even though sales rose for the quarter, the company's bottom line was held back a bit by an almost 1% increase in share count and a rise in its cost of goods sold from 60.7% of sales to 61%.

For the rest of the year, management has not provided an updated outlook for revenue but has announced what it believes is likely in terms of profits. If they are accurate in their assessment, then L Brands will likely earn between $3.03 and $3.18, up from the $3.00-$3.15 range previously expected by management and placing analyst forecasts of $3.17 within its upper range of what's reasonable.

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