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Things You Need to Know Ahead of L Brands’ (LB) Q1 Earnings


L Brands, Inc. LB is slated to report first-quarter fiscal 2018 results on May 23. In the trailing four quarters, the company beat the Zacks Consensus Estimate by an average of 6.6%.The Zacks Consensus Estimate for first-quarter earnings, which has declined by a couple of cents in the past seven days, is pegged at 15 cents.

Let’s see how things are shaping up prior to this announcement.

A Brief Introspection

Shares of L Brands have declined 7.8% and underperformed the industry in the past six months. The stock further came under pressure after management projected first-quarter fiscal 2018 earnings to come in at the lower end of its earlier view of 15-20 cents a share.

L Brands, Inc. Price, Consensus and EPS Surprise

L Brands, Inc. Price, Consensus and EPS Surprise | L Brands, Inc. Quote

Shrinking gross margin also remains a concern. The company had earlier forecast gross margin to contract in the first quarter. Gross margin, an important financial metric, has shown constant deceleration in the past few quarters. In the first, second, third and fourth quarters of fiscal 2017, adjusted gross margin contracted 320, 120, 190 and 100 basis points to 37.1%, 37.3%, 37.8% and 42.3%, respectively

Nevertheless, L Brands’ efforts to streamline Victoria’s Secret business, localizing assortments and enhancing direct business bode well. First-quarter fiscal 2018 net sales jumped 8% year over year to $2.63 billion, while comps improved 3% — reflecting an increase of 1% and 8% at Victoria’s Secret and Bath & Body Works brands, respectively. Comps for the four-week ended May 5 were flat following an advancement of 4% in March and 3% in February.

Furthermore, total Victoria’s Secret revenues increased 3.7% and Bath & Body Works brands revenues rose 12.2% on a year-over-year basis.

What the Zacks Model Unveils

Our proven model shows that L Brands is not likely to beat estimates this quarter as the stock does not have the right combination of two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — 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 an Earnings ESP of +0.29% and a Zacks Rank #5 (Strong Sell). Consequently, making 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:

Best Buy BBY has an Earnings ESP of +2.01% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target TGT has an Earnings ESP of +0.32% and a Zacks Rank #3.

Kroger KR has an Earnings ESP of +4.99% and a Zacks Rank #3.

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