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L Brands (LB) Back on Track, October Comparable Sales Up 2%

Zacks Equity Research

L Brands, Inc. LB finally broke its streak of declining comparable sales in October, giving a much needed boost to its stock. This specialty retailer of women’s intimate and other apparel, beauty and personal care products reported 2% gain in comps for the four-week ended Oct 28, 2017. Moreover, net sales for October increased 5% to $794.1 million. As a result, the stock surged more than 10% in after-hour trading session on Nov 1.

We note that comps have declined 2%, 4%, 7%, 9%, 7%, 5%, 10%,13% and 4% in September, August, July, June, May, April, March, February and January,  respectively.

L Brands’ comps increased 1% at Victoria’s Secret and 5% at Bath & Body Works. The exit from the swim and apparel categories had 1 percentage point and 2 percentage points adverse impact on overall company and Victoria’s Secret comparable sales, respectively.

Moreover, for the 13 weeks ended Oct 28, 2017, comps decreased 1%, while net sales inched up 1% to $2.618 million. Exit from swim and apparel categories impacted total sales and Victoria’s Secret comparable sales by 2% each.

For the 39-week ended Oct 28, 2017, the company’s comps had declined 6%, while sales decreased 3% to $7.809 billion. The exit from the swim and apparel categories had 5 percentage points and 7 percentage points adverse impact on overall company and Victoria’s Secret comparable sales, respectively.

Apart from L Brands, Zumiez Inc. ZUMZ and Costco Wholesale Corporation COST came out with comparable sales results for the month of October. Both Zumiez and Costco Wholesale witnessed comps increase of 6.6% and 7.5%, respectively.

Merchandise margins

Victoria’s Secret merchandise margin rate decreased in October. The company announced that it will concentrate on Dream Angels collection as well as holiday apparel in Pink business in November.

Moreover, in case of Bath & Body Works merchandise margin rate was down in October compared with last year due to overall mix of business.

Outlook

Following, robust October sales number the company updated third-quarter earnings view. The company expects earnings to be at the high end of its previously estimated guidance range of 25-30 cents. However, it retained full year 2017 earnings projection of $3.00-$3.20 per share.

L Brands expects comps to be flat in November. The exit from the swim and apparel categories would hurt the comps by nearly 1%.

The company, which shares space with American Eagle Outfitters, Inc. AEO has underperformed the industry in a year primarily 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 33% in a year, wider than the industry’s fall of 28.2%. L Brands currently carries a Zacks Rank #4 (Sell).

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

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