L Brands Delivered Lukewarm January Sales, But Is Gearing Up To Announce An Impressive Fourth Quarter

| About: L Brands, (LB)

Summary

On February 4, L Brands announced net sales of around $4.4 billion for the quarter ended January 30, 2016, depicting an 8% year-on-year growth.

The January sales were a bit disappointing on account of the shift of Victoria's Secret's semiannual sales into December.

The company has guided its fourth quarter earnings per share to be around $2.05, exceeding the earlier guidance of $1.85 to $1.95.

Our $89 price estimate for L Brands is at around 10% premium to the current market price.

L Brands (NYSE:LB), the parent company of Victoria's Secret and Bath & Body Works, delivered moderate performance in January. However, the company is about to release yet another impressive quarter results on February 25th. On February 4th, L Brands announced net sales of around $4.4 billion for the quarter ended January 30, 2016, depicting an 8% year-on-year growth. Its comparable store sales grew by 6% year on year, during the same period. Over its history, L Brands experienced its best performance in fiscal 2015 (fiscal year ends in January). However, the January sales were a bit disappointing on account of the shift of Victoria's Secret's semiannual sales into December. The comparative store sale decreased by 2%, but even then, L Brands' January net sales increased by 3.6% to $811.3 million. The company has guided its fourth quarter earnings per share to be around $2.05, exceeding the earlier guidance of $1.85 to $1.95.

Our $89 price estimate for L Brands is at around 10% premium to the current market price.

Victoria's Secret's January Remained A Bit Dampened, However Victoria's Secret Direct Performed Well

The January comparable sales for Victoria's Secret stores declined by 4% year on year due to the shift of the semiannual sales and the company's current restructuring of its beauty business. In its Q3 2015 earnings call, the company's management spoke about the restructuring initiatives. The beauty business had been lagging behind for around three years. Hence, the brand is trying to shift its focus from the fantasy beauty products to fine fragrance and high-end body care products. The management believes that the restructuring will reap significant benefits in the long run. In line with its fresh monthly themed product displays, Victoria's Secret will focus on the season of love and Valentine's Day for February.

January sales for Victoria's Secret's direct grew by 21% on a year-on-year basis. The growth was boosted by a later start of the semiannual sales in December. However, the merchandise merchant rate for this division remained dampened as compared to last year on account of a planned sport event. The direct division is showing improved performance every consecutive month, and it seems that the company is reaping the benefits of exiting its $350 million worth, but poor performing, retail division.

Bath & Body Works' Growth Was Partially Dampened By The Canadian Business

Bath & Body Works' January comparative store sales increased by 2% over the 16% growth witnessed last year. The main driver for this growth was the impressive semiannual sales. Though the merchandise margin rate was up for January, a part of the growth was dampened by the unfavorable exchange rates in Canada. The brand will focus on 'Let's go to Italy' themed collections in its signature, home fragrance, and soap and sanitizer business for February.

Disclosure: No positions.