Why L Brands Stock Fell 4.6% In Spite Of Positive Comps

Shares of L Brands, Inc. (NYSE:LB) witnessed a decline of around 4.6% in spite of delivering improved comparable sales (comps) for March 2018. Though comps grew for the fourth consecutive month, it wasn’t enough to placate investors who were let down by the decline in PINK comps. In fact, sources revealed that PINK witnessed its first comps decline in the company’s record. Well, management blamed the drop in PINK comps on softness in its swim business, which it plans to discontinue.

Coming to numbers, comps for the five-week period (ended Apr 7, 2018) rose 4%, after improving 3% and 7% in February and January, respectively. Net sales, in the month under review, rose 7% to $1.02 billion. While, comps inched up 1% at Victoria’s Secret, the same at Bath & Body Works improved 10%. Moreover, Victoria’s Secret merchandise margin rate fell significantly in March, primarily due to rise in promotional activities to boost traffic. However, in case of Bath & Body Works, merchandise margin rate was flat compared with last year.

Notably, March comps received nearly 2 points boost from early Easter, which is expected to dent comps in April.

Price Performance

Ever since the company announced fourth-quarter results on Feb 28, shares of this specialty retailer of women’s intimate and other apparel, beauty as well as personal care products have declined 26.7%. Moreover, in a month, the stock has declined 12.4% as against the industry’s rise of 1.7%. The downside stemmed from soft outlook for first-quarter and fiscal 2018.

Management anticipates first-quarter comps to be in low-single digits. Sales are projected to be nearly 5 points higher than comps. Further, gross margin is expected to decline marginally due to a fall in merchandise margin rate, somewhat offset by lower buying and occupancy expenses. This Zacks Rank #5 (Strong Sell) company envisions earnings per share in the range of 15-20 cents, showing a fall from 33 cents in the year-ago quarter.

For fiscal 2018, the company’s gross margin rate is likely to stay in line with the prior-year quarter’s tally.

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