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L Brands (LB) Posts Sturdy Holiday Sales, Comps Tick Up 5%

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Zacks Equity Research
·4 min read
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Amid a challenging retail backdrop, L Brands, Inc. LB posted strong holiday sales results that exceeded management’s initial expectations. Strength in the Bath & Body Works segment and improved Victoria’s Secret performance aided the upbeat outcome. Industry experts cited that reduced promotional activity, better merchandise assortment and growth in the direct channel helped the company navigate through the pandemic-hit environment. Markedly, the company provided an encouraging view for the final quarter.

This specialty retailer of women's intimate and other apparel, personal care, and beauty and home fragrance products is targeting fourth-quarter fiscal 2020 earnings between $2.70 and $2.80 per share. The current Zacks Consensus Estimate for the quarter’s earnings is pegged at $1.90.

A Closer Look at the Holiday Sales

L Brands informed that comparable sales for the nine-week period ended Jan 2, 2021, increased 5% versus a decline of 3% witnessed in the nine-week period ended Jan 4, 2020. We note that the company generated net sales of $3.836 billion for the nine weeks ended Jan 2, 2021. This reflects a year-over-year decline of about 1.8% from net sales of $3.906 billion posted in the nine weeks ended Jan 4, 2020.

At the Bath & Body Works segment, comparable sales grew 17%, including a comparable sales gain of 5% at stores. Notably, sales in the direct channel surged 64%. The company also highlighted that merchandise margin rate increased meaningfully for the quarter-to-date period.

Coming to Victoria’s Secret, comparable sales dropped 9% during the holiday period. This reflects comparable sales decline of 23% at stores. However, sales in the direct channel advanced 24%. Moreover, the merchandise margin rate rose significantly for the quarter-to-date period.

Meanwhile, Andrew Meslow, CEO said, “Bath & Body Works continues to deliver record results, demonstrating the strength of the brand. The turnaround at Victoria’s Secret also continues to gain momentum, driven by an improved merchandise assortment and focused execution of retail fundamentals and our profit improvement plan.”

Undeniably, L Brands is focused on containing costs, managing inventory and optimizing capital expenditures. It is on track with its previously-announced profit improvement plan and intends to generate approximately $400 million in annual savings. The company continues to revamp business by staying customer-focused, enriching assortments, and enhancing store and online experiences.

Shares of this Zacks Rank #1 (Strong Buy) company have rallied 143.5% in the past year compared with the industry’s rise of 46.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wrapping Up

The holiday season, which accounts for a sizeable chunk of yearly revenues, is a make or break for retailers. Taking into account consumers’ product preferences and growing inclination toward online shopping due to social distancing, and greater stay at-home and work-from-home trends, retailers have ramped up investments in digitization to provide a seamless shopping experience.

To beat the COVID-19 blues, retailers started rolling out holiday shopping deals earlier this year with an extended promotional period to avoid rush at stores, given the health concerns. Markedly, Amazon’s AMZN two-day special Prime Day mega shopping event, Target’s TGT "Deal Days" and Walmart’s WMT five-day “Big Save Event” were carried out in October.

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