L Brands May Comps Rise: Should You Expect A Turnaround?

After reporting flat comparable sales (comps) for the month of April, L Brands, Inc. (NYSE:LB) registered comps growth of 5% for the four weeks ended Jun 2, 2018. Comps for the month under review fared far better than the prior-year period, when the metric declined 7%. Moreover, net sales rose 10% to $851.9 million during the month under review.

While, comps rose 2% at Victoria’s Secret, the same at Bath & Body Works improved 10%. Moreover, Victoria’s Secret merchandise margin rate fell significantly in May, primarily due to higher promotional activities to boost traffic. In case of Bath & Body Works, merchandise margin rate was also down.

Nevertheless, overall sales and comps growth for the month under review might have come as a respite to investors, who were bogged down by this Zacks Rank #5 (Strong Sell) stock’s bleak second-quarter outlook and trimmed view for fiscal 2018 in the wake of stiff competition both from brick-&-mortar and e-retailers. The stock has declined 12% in the past three months compared with the industry’s growth of 8%.

L Brands anticipates second-quarter and fiscal 2018 comps to rise in low-single digits. Further gross margin, an important financial metric, which gives an indication about the company’s health has shown constant deceleration in the past few quarters. In the first quarter, gross margin contracted 120 basis points to 35.9%. For the second quarter, the metric is again expected to decline year over year.

L Brands, Inc. Price, Consensus and EPS Surprise

L Brands, Inc. Price, Consensus and EPS Surprise | L Brands, Inc. Quote

Second-quarter earnings per share are envisioned in the range of 30-35 cents per share versus 48 cents recorded in the year-ago quarter. Management lowered fiscal 2018 earnings per share guidance to a range of $2.70-$3.00 from $2.95-$3.25. In the year-ago period, the company reported earnings of $3.20 per share. As a result, the Zacks Consensus Estimate for the second quarter and fiscal 2018 has declined by 9 cents and 22 cents to 34 cents and $2.83, respectively.

To improve performance, L Brands continues to revamp its business by improving store experience, localizing assortments and enhancing its direct business. In order to drive growth, it remains focused on adding the entire PINK and lingerie assortments at its Victoria’s Secret stores and seeks to expand in the adjacent categories.

Quite apparent, management is not sitting idle, instead focusing on revamping and repositioning the business. However, the measures may take time to produce desired results. So, for the time being you can focus on below mentioned stocks.

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