L Brands Comps Down 2% In September, Dismal Run To Persist

L Brands, Inc. (NYSE:LB) continues to disappoint investors with dismal comparable sales performance for the tenth straight month. This specialty retailer of women’s intimate and other apparel, beauty and personal care products reported 2% drop in comps for the five-week ended Sep 30, 2017 following declines of 4%, 7%, 9%, 7%, 5%, 10%,13%, 4% and 1% in August, July, June, May, April, March, February, January and December, respectively. Moreover, net sales for September increased 1% to $981.6 million.

L Brands’ comps declined 5% at Victoria’s Secret but increased 4% at Bath & Body Works. The exit from the swim and apparel categories had 2 percentage points and 3 percentage points adverse impact on overall company and Victoria’s Secret comparable sales, respectively. Further, hurricanes impacted the September total sales by nearly 1 percentage point.

For the 35-week ended Sep 30, 2017, the company’s comps had declined 7%, while sales decreased 4% to $7.015 billion. The exit from the swim and apparel categories had 5 percentage points and 8 percentage points adverse impact on overall company and Victoria’s Secret comparable sales, respectively.

Apart from L Brands, Zumiez Inc. (NASDAQ:ZUMZ) , The Cato Corporation (NYSE:CATO) and The Buckle, Inc. (NYSE:BKE) came out with comparable sales results for the month of September. While comparable sales for Zumiez increased 9.3% that of Cato and Buckle declined 11% and 5.7%, respectively.

Merchandise margins

Victoria’s Secret merchandise margin rate decreased in September. In October, the company announced it will concentrate on the sexy impressive collections and Pink wear everywhere bra.

Moreover, in case of Bath & Body Works merchandise margin rate was down in September compared with last year owing to rise in promotional. The company will focus on new seasonal collections in body care, home fragrance, and soap and sanitizer business.

Outlook

L Brands expects comps to decline in low-single digits in October. The exit from the swim and apparel categories would hurt the comps by nearly 1%.
The company has underperformed the industry in a year as it continues to face short-term challenges due to its decision to exit the swimwear category, which according to analysts have failed to generate desired results. In fact, the stock has plunged 40% in a year, wider than the industry’s fall of 28.3%.

The effect of the short-term challenges can easily be seen in the company’s sale performance which has declined year over year and also missed the Zacks Consensus Estimate in the past few quarters. Management anticipates comps to decline in low-single digits in September. The company projects comps (excluding Victoria's Secret swim and apparel) in the third quarter to be in the range of flat to down low-single digit. For fiscal 2017, the company envisions comps to be down low-to-mid-single digits.

L Brands currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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