Seeking Alpha
Long/short equity, tech, large-cap, energy
Profile| Send Message|
( followers)  

Summary

  • The operating income for the retail company increased by 5% to $375.9 million in this quarter.
  • The earnings per share were $0.63 and last year for the same quarter EPS were reported as $0.61.
  • It is expected that L Brands revenue growth will stay two percentage points ahead of comparable sales growth.
  • Due to the major expansion plans both on the domestic as well as international scale, the share price for L Brands is expected to rise.

L Brands (NYSE:LB) reported its second quarter earnings for the year 2014, on August 20th, with the company continuing its impressive performance in an environment that has proved tough for many apparel retailers in U.S.

Earnings Report (Q2) Overview

The operating income for the retail company increased by 5% to $375.9 million in this quarter compared to $357.8 million in the same quarter in the previous year. The net income was reported as $188.4 million whereas last year's figures showed $178.9 million as the net income. The gross profit for the latest quarter increased by 5.6 percent to $1,044.4 million while the gross margin lowered from 39.3 percent in last year's same quarter to 39 percent this quarter. Operating income boosted by 5.1 percent to $375.9 million whereas operating margin decreased by 10 basis points to 14.1 percent.

The earnings per share were $0.63 and last year for the same quarter EPS were reported as $0.61. For the second quarter 2014, the net sales were reported as $2.675 billion, this showed a 6% increase as compared to the net sales figure for the second quarter of fiscal year 2013 that was $2.516 billion. The earnings report presented a 3% increase in L Brands comparable store sales for the second quarter while its competitors struggled to even match the levels that they gained in the prior year.

Due to these results, L Brands elevated its full year earnings per share outlook. The company expects its full year EPS to reach around $3.03-$3.18 compared to its previous forecast of $3.00 to $3.15 a share. Although after the first quarter results, L Brands decreased its full year earnings per share guidance because it was expected that there might be some unfavorable effects due to discontinuation of certain categories. L Brands made an announcement that it was not continuing business in some of the product categories in Victoria's Secret direct and beauty business which will lead to more concentration on profitable zones and core product lines to be better developed. The newly established outlook reinstates the fact that other categories are performing well and have strong sales figures.

Performance in current economic environment

In the present economic environment, the retail industry in U.S is facing a decline with most of the retail companies recording a consistent fall in store traffic. Despite the changes in the extreme weather conditions and decreasing unemployment, many retailer businesses have failed to provide strong performances. L Brands has proved to be one of the few retailers who have performed well even under these circumstances.

Earlier in August, L Brands stated that it was expecting higher earnings than its previous outlook; this called for a profit of 57 cents to 62 cents a share. The company also claimed to have achieved an increase in sales by 6% therefore reaching $2.68 billion for the quarter. During the same time, it also had an improvement in sales by 3% excluding the sales for outlets that were recently opened or closed.

The company is now expecting earnings of 26 cents to 31 cents a share for the third quarter of fiscal year 2014. This forecast includes the negative impact of the discontinued categories in the Victoria's Secret direct and beauty operations. The impact is projected to be around 10 cents to 12 cents a share, meaning 3 to 4 cents in the third quarter. The company has declared that it aims to focus on more core product lines. For August, the company expects low single-digit comp increase.

Stability in Revenue Growth

After the decline in the quarter with the holiday season, where extreme winter weather and low demand for the brands products led to a fall in the company's earnings, the results achieved by L Brands in the first and second quarter of fiscal year 2014 show a significant improvement in the company's performance. L Brands sales increased by 5% in the first quarter and they increased by 3% in the second quarter, for the fiscal year 2014. While comparable store sales were boosted by 2% in the first quarter and it rose by 3% in the second quarter. It was noticed that sales growth was ahead comparable sales growth by three percentage points in both quarters.

It is expected that L Brands revenue growth will stay two percentage points ahead of comparable sales growth due to their plans to expand both in the local as well as global market. Around 110 to 120 Victoria's Secrets stores are set to open internationally within 2014. And about 20 to 30 stores for Bath & Body Works are set to open up. L Brands also plans to open outlets within U.S as well, with about 33 PINK stores, 14 Bath & Body Stores and 13 Victoria's Secrets stores in 2014.

Conclusion

The earnings report for the second quarter of 2014 for L Brands showed significant momentum of growth gained by the retailing company. Favorable performance in this quarter has positively impacted the stock of the company, where it opened at $63.81 today and closed at $63.72 the prior day. L Brands stock's price estimate is $63.95, which is a little more than its market price. Due to the major expansion plans both on the domestic as well as international scale, the share price for L Brands is expected to rise. If the company continues with this rising trend, boosts in revenue and improvements in earnings per share are also expected.

Source: How Does L Brands' Second Quarter Report Impact The Stock?