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L Brands (LB) Loses 12% on Dull Show by Victoria’s Secret


There seems to be no respite for L Brands, Inc. LB, which slipped 12.1% following the release of its June 2018 sales results. This is because comparable sales (comps) fell 1% at Victoria’s Secret despite an extended sale and slashed prices.

Management admitted that the semi-annual sale had seen a soft start which had impelled it to extend it by two more weeks compared to last year to clear inventory. This led to a substantial decline in merchandise rate compared to the year-ago period.

Although net sales increased 6% to $1.282 billion in June, it compared unfavorably with May’s net sales growth of 10%. Further, after reporting comps growth of 5% in May, this Zacks Rank #4 (Sell) company registered 3% comps growth for the five weeks ended Jul 7. This 3% growth was backed by 10% comps year-over-year increase in Bath & Body Works for two straight months. However, the merchandise margin rate declined.

The company had earlier provided bleak second-quarter outlook and trimmed view for fiscal 2018 in the wake of stiff competition from brick-&-mortar and e-retailers. We note that the stock has declined 10.6% in the past three months against the industry’s rise of 7.1%.

L Brands anticipates second-quarter and fiscal 2018 comps growth in low-single digits. Further, gross margin, an important metric which shows a company’s financial health, has been constantly decelerating in the past few quarters. In the first quarter, gross margin contracted 120 basis points to 35.9% year over year and is expected to decline again in the second quarter.

Earnings per share in the second quarter are expected in the range of 30-35 cents versus 48 cents in the year-ago quarter. Management lowered fiscal 2018 earnings per share guidance to a range of $2.70-$3.00 from $2.95-$3.25. In the year-ago period, the company reported earnings per share of $3.20.

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