L Brands (LB) Raises Q1 Earnings View on Robust Sales Trends

Not even a month has gone by since women’s intimate and other apparel retailer, L Brands (NYSE:LB), Inc. LB, has again raised earnings view for first-quarter fiscal 2021. Management said that the revised view was fueled by improving sales trends, mainly buoyed by the odd shifts in the consumer spending patterns.

Relaxation in the pandemic-induced restrictions, government stimulus payments and other factors were tailwinds. Such strengths have also resulted in stronger projections at both Bath & Body Works and Victoria’s Secret for the same quarter.

Incidentally, the company now envisions earnings per share between 85 cents and $1.00 for first-quarter fiscal 2021, up from the earlier-guided band of 55-65 cents. This outlook excludes charges connected with the early extinguishment of debt. We note that the company reported a loss of 99 cents in the year-ago quarter. Moreover, the Zacks Consensus Estimate for fiscal first-quarter earnings currently stands at 62 cents, which is likely to witness higher revisions in the coming days.

However, management notified that there is no certainty that the aforesaid positive trends would continue, given the volatile landscape. In its earlier release on Mar 12, the company said that it is seeing strong sales and margins. It had also announced a new share repurchase program worth $500 million. This replaced the exiting authorized program, under which the company had $79 million remaining.

The new buyback authorization includes the company’s entry into a Rule 10b5-1 repurchase plan to repurchase shares worth up to $250 million. This will allow the company to carry out share repurchases even at times when it might be prevented to be doing so by securities law or self-imposed trading blackout periods. Further, the company reinstated its quarterly dividend worth 60 cents per share, effective June 2021.

Additionally, the company is executing the repayment of debt worth $1.035 billion through a call for all $285 million of the outstanding bonds due Feb 15, 2022, and all $750 million of the outstanding secured bonds due Jul 1, 2025. The company issued this call on Mar 12, 2021, and anticipates using $1.1 billion in cash to complete the debt repayment.

We note that L Brands had taken several actions to drive financial efficacy, which has been aiding the company’s performance and enhancing liquidity as well as cash position. Markedly, the company ended fiscal 2020 with cash and cash equivalents of $3,902.5 million. Recent actions are further supporting to improve financial leverage and bolster shareholder returns, thus positioning the company for the separation of its Bath & Body Works and Victoria’s Secret businesses in August.

Impressively, shares of this Zacks Rank #1 (Strong Buy) company have increased 60.7% in the past three months and outshone its industry’s 15.2% rally.

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