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L Brands (LB) Contemplating Options for La Senza: Here’s Why


Shares of L Brands, Inc. LB increased roughly 6% during the trading session on Oct 11. Analysts pointed two primary reasons behind investors’ euphoria. First, the company reported impressive September comparable sales (comps) results and second, management informed that it is exploring all possible alternatives for its La Senza business.

The company has been struggling with soft performance of its luxury lingerie brand and offloading of the same will enable it to focus on core operations to augment revenue and profitability. There are 126 company-owned and operated La Senza outlets in North America, while 188 non-company owned international outlets.

Recently, this specialty retailer of women's intimate and other apparel, beauty and personal care products had also announced that it would wind up all of its Henri Bendel operations. This includes shuttering of all 23 Henri Bendel outlets and related e-commerce website in January 2019.

Industry experts believe that apart from stiff competition, L Brands has been reeling under consumers’ changing preferences and spending pattern that continue to impact the performance of these brands. Management hinted that La Senza brand is likely to generate revenues of approximately $250 million and post operating loss of $40 million in fiscal 2018. Meanwhile, Henri Bendel is anticipated to report revenues of about $85 million and operating loss of $45 million in fiscal 2018.

We note that shares of this Zacks Rank #5 (Strong Sell) stock plunged 16.5% compared with the industry’s decline of 4.2% in the past six months.

September Sales Performance

Coming to September results, net sales jumped 8% to $1.058 billion from $981.6 million reported in the prior-year period. Comps for the five-week period ended Oct 6, 2018 rose 5%. Comps for the month under review fared better than the prior-year period, when the metric declined 2% and also showcased an improvement from August comps which inched up 1%.

After falling 5% in the month of August, Victoria’s Secret comps increased 1% in the month of September on account of growth witnessed in lingerie and beauty. This was partly offset by sluggishness in the Pink brand. Moreover, merchandise margin rate fell considerably in the month under review, primarily owing to higher promotional activity.

Comps at Bath & Body Works surged 13% in the month of September, following an increase of 15% in the preceding month. Merchandise margin rate increased owing to less promotional activity, partly offset by channel shift and supply chain costs.

Forget L Brands for Now, Buy These 3 Stocks

Boot Barn Holdings BOOT has an average positive earnings surprise of 31.8% for the trailing four quarters. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shoe Carnival SCVL delivered an average positive earnings surprise of 26.1% in the trailing four quarters. The stock carries a Zacks Rank #1.

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