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Things You Need to Know Before L Brands' (LB) Q2 Earnings

Zacks Equity Research

L Brands, Inc. LB is scheduled to release second-quarter fiscal 2019 results on Aug 21, after the market closes. We note that in the trailing four quarters, this specialty retailer of women’s intimate and other apparel, beauty, and personal care products had outperformed the Zacks Consensus Estimate. Let’s see what awaits this quarterly release.

How are Estimates Faring?

The Zacks Consensus Estimate for second-quarter earnings is pegged at 19 cents, suggesting a sharp decline from earnings of 36 cents reported in the year-ago quarter. Notably, the consensus mark has remained unchanged in the past 30 days. For revenues, the consensus estimate stands at $2,958 million, indicating a marginal decline of about 0.9% from the year-ago quarter’s reported figure.

Factors at Play

L Brands’ Victoria’s Secret brand has been witnessing soft sales for quite some time now, on account of stiff competition and consumers’ changing preferences. These trends may linger and affect the top line in the quarter under review.

Incidentally, management had earlier provided a soft guidance for second-quarter fiscal 2019. The company anticipates second-quarter comparable sales (comps) to be roughly flat. The change in total sales in the second quarter will be similar to the comps result due to the loss of La Senza and Henri Bendel sales.

Further, the company is grappling with strained margins for the past few quarters. Lower merchandise margin rate led to gross margin decline in the previous quarters. For the second quarter, management expects gross margin rate to contract year over year.

SG&A costs are likely to increase year over year owing to higher wage rate and expense associated to technology initiatives undertaken. This in turn raises concerns for the quarter to be reported. SG&A expense rate is anticipated to escalate on account of flat sales during the quarter under review.

Aforementioned factors may have a direct bearing on the second-quarter bottom line. For the said period, the company expects earnings per share between 15 cents and 20 cents, down from 36 cents reported in the year-ago period.

Nevertheless, L Brands’ remains focused on cost containment, inventory management, and merchandise and speed-to-market initiatives. Also, its focus on tapping international markets is likely to offer some cushion. The company has relaunched Victoria Secret’s swimwear category which is likely to boost traffic. Apart from these, it has been benefitting from strength of its Bath & Body Works or BBW brand. We expect the trend to continue in the impending quarter and offer some respite to the company.

L Brands, Inc. Price, Consensus and EPS Surprise

 

L Brands, Inc. Price, Consensus and EPS Surprise

L Brands, Inc. price-consensus-eps-surprise-chart | L Brands, Inc. Quote

What the Zacks Model Unveils

Our proven model does not conclusively show that L Brands is likely to beat earnings estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP— for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

L Brands has a Zacks Rank #3 but an Earnings ESP of 0.00%, which makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Target TGT has an Earnings ESP of +1.04% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores BURL has an Earnings ESP of +1.13% and a Zacks Rank #2.

Costco COST has an Earnings ESP of +0.30% and a Zacks Rank #3.

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