Why L Brands (LB) Shares Plunged Despite Upbeat Outlook
Shares of L Brands, Inc. LB struggled to find safe haven despite an upbeat earnings projection for the final quarter of fiscal 2015. The stock plunged 10.6% over the last two trading sessions. Moreover, announcement of shareholder friendly moves failed to put a check on the decline. Let’s delve deeper into what went wrong.
L Brands disappointed investors with its comparable-store sales (comps) performance. Comps for the four-week period ended Jan 30, 2016, declined 2% year over year taking a sharp “U” turn following an increase of 8% registered in December. The sales results for the month under review were weighed upon by a timing shift in the Victoria’s Secret semi-annual sale into December. However, net sales did climb 4% to $811.3 million from $783.1 million recorded a year ago.
L Brands comps declined 4% at Victoria’s Secret stores but increased 2% at Bath & Body Works, while direct sales at Victoria’s Secret increased 21%.
Apart from its monthly sales results, the company also reported its fourth-quarter fiscal 2015 sales figures. Net sales increased 8% to $4,395 million from $4,069 million in the year-ago quarter, and also surpassed the Zacks Consensus Estimate of $4,378 million. On the other hand, comps improved 6% in the quarter. Comps advanced 5% at its Victoria’s Secret Stores and 6% at Bath & Body Works. Moreover, sales increased 15% at Victoria’s Secret Direct.
The impressive sales performance in the fourth quarter of fiscal 2015 prompted management to raise the earnings guidance. L Brands now projects earnings of nearly $2.05 per share for the final quarter, up from $1.85–$1.95 forecasted earlier. The current Zacks Consensus Estimate for the quarter is pegged at $2.05.
L Brands, in order to enhance shareholders’ returns, raised its annual dividend by 20% to $2.40 a share and also declared a special dividend of $2.00 per share. Both the quarterly dividend of 60 cents and the special dividend will be paid on Mar 4 to shareholders of record as of Feb 19.
In addition, the company’s board of directors authorized a new share buyback program of $500 million, including $17 million remaining under the earlier announced authorization. In 2015, the company bought back $483 million worth of shares.
This Zacks Rank #3 (Hold) company operates about 3,005 stores worldwide, as of Jan 30, 2016. It commands a market-leading position in the lingerie, personal care and beauty segments. We believe that L Brands’ innovative merchandise and exclusive assortments make it popular among consumers and lends uniqueness to its brand. The company, with its operational efficiencies as well as new and wide selection of merchandise, is well positioned to capitalize on the same.
Apart from L Brands, Zumiez, Inc. ZUMZ, The Cato Corp. CATO and The Buckle, Inc. BKE recorded comps decline of 4.6%, 7% and 11.3%, respectively, in the month of January.
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