We maintained our Neutral recommendation on L Brands, Inc. , a specialty retailer of women’s intimate and other apparel, with a target price of $61.00. The stock currently carries a Zacks Rank #2 (Buy).
We believe that L (formerly Limited) Brands’ sustained focus on cost containment, inventory management, merchandise and speed-to-market initiatives have kept it afloat in a sluggish consumer environment. The company’s foray into international markets is likely to provide long-term growth opportunities.
L Brands commands a leading position in the lingerie, personal care and beauty segments. We believe that the company’s innovation in merchandise and exclusive assortments remain popular among consumers and sets it apart from peers.
The company’s strength was well evident from its second-quarter fiscal 2013 results, wherein earnings of 61 cents a share came a penny ahead of the Zacks Consensus Estimate and rose 22% from the prior-year period. The consumers, who cut back on their discretionary spending during the recession, are now gradually opening their wallets.
The company also raised its fiscal 2013 earnings guidance to a range of $3.06 to $3.21 per share. The company had earlier projected earnings between $2.95 and $3.15 per share.
However, in the near-term, margins are likely to remain muted on account of probable pressure on merchandise margins. Going forward, management expects gross margins to be down year over year both for the third quarter and fiscal 2013. Moreover, stiff competition and erratic consumer behavior still remain major causes of concern.
Given the pros and cons, risk and reward fairly balance each other.
Other Stocks to Consider
Other stocks worth considering in the retail sector includes Citi Trends, Inc. (CTRN - Analyst Report), which holds Zacks Rank #1 (Strong Buy), and Ann Inc. (ANN - Snapshot Report) and DSW Inc. (DSW - Snapshot Report), both of which carry a Zacks Rank #2 (Buy).