L Brands Trades Up 30% On Victoria's Secret Update

L Brands Inc (NYSE: LB) reported a strategic review and business update that prompted JPMorgan to double upgrade the stock.

The company announced it sees $400 million annualized cost reductions through a profit improvement plan for Victoria's Secret. The company also announced it has reopened most Bath & Body Works and Victoria's Secret stores in North America.

The L Brands Analyst: Matthew Boss upgraded L Brands from Neutral to Overweight with a price target lifted from $14 to $32.

The L Brands Thesis: L Brands said second-quarter total consolidated sales were down 20% while Victoria's Secret sales were down 40%, Boss wrote in the note. However, Bath & Body Works sales were up 10%, an impressive performance as around half of all stores was closed in the quarter.

Management said in late May that BBW same-store sales at re-opened brick and mortar stores were up 20% but that may have improved to 80% despite approximately 90% growth in the digital channel, the analyst wrote. A double-digit comp could be sustained moving forward versus the pre-COVID five-year average comp growth of 7.2%.

Meanwhile, reopened Victoria's Secret stores are operating at a low-90% store productivity rate (implies negative high-single-digit comps) and the online channel maintained a 30% growth rate in the second quarter.

L Brands also reiterated its plans to close 250 VS stores in 2020 and announced $400 million in annualized cost reductions. The math behind these figures implies an extra $1 in EPS and is accretive to the research firm's existing fiscal 2021 EPS base of $1.07.

Bottom line, L Brands is taking the necessary steps to establish BBW as a pure-play public company while focusing on improving profit at the standalone VS, the analyst wrote.

LB Price Action: Shares of L Brands hit a new 52-week high of $26.66 and were up more than 33% on the day.

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Image credit: Dwight Burdette, via Wikimedia Commons

Latest Ratings for LB

Jul 2020	B of A Securities	Maintains		Buy
Jul 2020	Credit Suisse	Maintains		Neutral
Jul 2020	JP Morgan	Upgrades	Neutral	Overweight

View More Analyst Ratings for LB
View the Latest Analyst Ratings

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