More than a month has gone by since the last earnings report for L Brands, Inc. . Shares have added about 2.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
L Brands Q2 Earnings Top, Sales Misses Estimates
L Brands came up with eighth-straight quarter of positive earnings surprise, as it reported second-quarter fiscal 2017 results. However, the company’s revenues lagged the Zacks Consensus Estimate for the fourth quarter in row.
The company posted quarterly earnings of 48 cents per share beating the Zacks Consensus Estimate of 45 cents and also came above the company’s initial guidance of 40-45 cents, on account of cost optimization as well as non-operating income gains. However, the company’s earnings declined 31% year over year.
This specialty retailer of women’s intimate and other apparel reported net sales of $2,755 million, down 5% from $2,889.7 million in the prior-year quarter. The figure was also below the Zacks Consensus Estimate of $2,764 million. L Brands comparable sales (including direct sales) were down 8% during the quarter. Further, store only comps also decreased 6% year over year. During the quarter, the exit of the swim and apparel categories had an adverse impact of 6% and 9%, respectively to total company comps and Victoria’s Secret comps.
Sales at Victoria’s Secret Stores declined 8% to $1,351 million, while Victoria's Secret Direct sales decreased 26% to $295.3 million. Total Victoria’s Secret sales dropped 12% to $1,646.3 million, while comparable sales declined 14%. Decrease in total Victoria’s Secret sales can be attributable to high-single digits fall in lingerie sales in comparison with the prior-year quarter. However, PINK registered sales growth in mid-single digits. Meanwhile, excluding the impact of the exit of the swim and apparel categories Victoria’s Secret comps declined 5%.
In an effort to streamline Victoria’s Secret business, the company made some strategic changes in 2016. L Brands stated that the strategic efforts will persist in 2017, which is likely to put pressure on the results. However, it is confident of achieving growth in the long run and envisions annual operating income increase of 10%.
Bath & Body Works’ total sales rose 7% to $860.3 million, with 6% rise in comparable sales. Strong performances of the company’s home fragrance assortment drove the segment sales. Victoria’s Secret and Bath & Body Works International’s sales were up 14% to $113.9 million. Other revenues increased 11% to $134.5 million.
Adjusted gross profit dropped 8% to $1,027.9 million, while gross margin contracted 120 basis points (bps) to 37.3% primarily due to buying and occupancy expenditure deleverage during the quarter. Adjusted operating income decreased 26% to $300.9 million, while the operating margin fell 320 bps to 10.9%. Decline in operating income was chiefly due to Victoria’s Secret.
Store Update
During the quarter, L Brands opened six Victoria’s Secret stores in total and shuttered nine outlets, consequently taking the total count to 1,174 stores. During the period, 17 Bath & Body Works stores were opened and 12 were closed, which took the total count to 1,698 stores. The company had 16 Victoria’s Secret U.K. and 29 Henri Bendel stores at the end of quarter. As of Jul 29, 2017, L Brands operated 3,077 stores.
Total franchised stores as of Jul 29, 2017, were 794 that comprised 236 Victoria's Secret Beauty & Accessories, 27 Victoria’s Secret, five Pink, 155 Bath & Body Works and 198 La Senza stores.
Other Financial Details
The company the quarter with cash and cash equivalents of $1,360.3 million, up from the prior-year quarter’s figure of $1,272.7 million. The long-term debt decreased to $5,703.6 million from $5,705.8 million in the year-ago period. Moreover, shareholders’ deficit is pegged at $912.3 million.
During the second quarter, management incurred capital expenditures of $207 million, and now projects the same to be roughly $800 million for fiscal 2017. The company now anticipates generating free cash flow of $650-$700 million during the fiscal year, down from the prior estimate of $750-$850 million.
In reported quarter, the company repurchased 1 million shares for $49.2 million. At the end of quarter, it had $120.8 million remaining under the current share buyback program of $250 million.
Guidance
The company trimmed fiscal 2017 guidance. Management now projects earnings in the band of $3.00-$3.20 per share for fiscal 2017, down from the previous guidance of $3.10-$3.40 and also below the fiscal 2016 earnings of $3.74 and fiscal 2015 earnings of $3.99. Moreover, the company expects the fiscal third-quarter earnings in the range of 25-30 cents, compared with prior-year quarter earnings of 42 cents.
L Brands now anticipates comparable sales (excluding Victoria's Secret swim and apparel) in the third quarter to be in the range of flat to down low-single digit. For fiscal 2017, the company envisions comparable sales to be down low-to-mid-single digits, and anticipates total sales growth to be about 3 points higher than comps on account of square footage growth and also due to a 53rd week.
Gross margin is anticipated to deteriorate year over year during the third quarter as well as fiscal 2017.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the past month as none of them issued any earnings estimate revisions.
VGM Scores
At this time, the stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
The Zacks Consensus Estimate for the current quarter moved down over the last 30 days. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are looking for a below average return from the stock in the next few months.
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Why Is L Brands (LB) Up 2.5% Since the Last Earnings Report?
More than a month has gone by since the last earnings report for L Brands, Inc. . Shares have added about 2.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
L Brands Q2 Earnings Top, Sales Misses Estimates
L Brands came up with eighth-straight quarter of positive earnings surprise, as it reported second-quarter fiscal 2017 results. However, the company’s revenues lagged the Zacks Consensus Estimate for the fourth quarter in row.
The company posted quarterly earnings of 48 cents per share beating the Zacks Consensus Estimate of 45 cents and also came above the company’s initial guidance of 40-45 cents, on account of cost optimization as well as non-operating income gains. However, the company’s earnings declined 31% year over year.
This specialty retailer of women’s intimate and other apparel reported net sales of $2,755 million, down 5% from $2,889.7 million in the prior-year quarter. The figure was also below the Zacks Consensus Estimate of $2,764 million. L Brands comparable sales (including direct sales) were down 8% during the quarter. Further, store only comps also decreased 6% year over year. During the quarter, the exit of the swim and apparel categories had an adverse impact of 6% and 9%, respectively to total company comps and Victoria’s Secret comps.
Sales at Victoria’s Secret Stores declined 8% to $1,351 million, while Victoria's Secret Direct sales decreased 26% to $295.3 million. Total Victoria’s Secret sales dropped 12% to $1,646.3 million, while comparable sales declined 14%. Decrease in total Victoria’s Secret sales can be attributable to high-single digits fall in lingerie sales in comparison with the prior-year quarter. However, PINK registered sales growth in mid-single digits. Meanwhile, excluding the impact of the exit of the swim and apparel categories Victoria’s Secret comps declined 5%.
In an effort to streamline Victoria’s Secret business, the company made some strategic changes in 2016. L Brands stated that the strategic efforts will persist in 2017, which is likely to put pressure on the results. However, it is confident of achieving growth in the long run and envisions annual operating income increase of 10%.
Bath & Body Works’ total sales rose 7% to $860.3 million, with 6% rise in comparable sales. Strong performances of the company’s home fragrance assortment drove the segment sales. Victoria’s Secret and Bath & Body Works International’s sales were up 14% to $113.9 million. Other revenues increased 11% to $134.5 million.
Adjusted gross profit dropped 8% to $1,027.9 million, while gross margin contracted 120 basis points (bps) to 37.3% primarily due to buying and occupancy expenditure deleverage during the quarter. Adjusted operating income decreased 26% to $300.9 million, while the operating margin fell 320 bps to 10.9%. Decline in operating income was chiefly due to Victoria’s Secret.
Store Update
During the quarter, L Brands opened six Victoria’s Secret stores in total and shuttered nine outlets, consequently taking the total count to 1,174 stores. During the period, 17 Bath & Body Works stores were opened and 12 were closed, which took the total count to 1,698 stores. The company had 16 Victoria’s Secret U.K. and 29 Henri Bendel stores at the end of quarter. As of Jul 29, 2017, L Brands operated 3,077 stores.
Total franchised stores as of Jul 29, 2017, were 794 that comprised 236 Victoria's Secret Beauty & Accessories, 27 Victoria’s Secret, five Pink, 155 Bath & Body Works and 198 La Senza stores.
Other Financial Details
The company the quarter with cash and cash equivalents of $1,360.3 million, up from the prior-year quarter’s figure of $1,272.7 million. The long-term debt decreased to $5,703.6 million from $5,705.8 million in the year-ago period. Moreover, shareholders’ deficit is pegged at $912.3 million.
During the second quarter, management incurred capital expenditures of $207 million, and now projects the same to be roughly $800 million for fiscal 2017. The company now anticipates generating free cash flow of $650-$700 million during the fiscal year, down from the prior estimate of $750-$850 million.
In reported quarter, the company repurchased 1 million shares for $49.2 million. At the end of quarter, it had $120.8 million remaining under the current share buyback program of $250 million.
Guidance
The company trimmed fiscal 2017 guidance. Management now projects earnings in the band of $3.00-$3.20 per share for fiscal 2017, down from the previous guidance of $3.10-$3.40 and also below the fiscal 2016 earnings of $3.74 and fiscal 2015 earnings of $3.99. Moreover, the company expects the fiscal third-quarter earnings in the range of 25-30 cents, compared with prior-year quarter earnings of 42 cents.
L Brands now anticipates comparable sales (excluding Victoria's Secret swim and apparel) in the third quarter to be in the range of flat to down low-single digit. For fiscal 2017, the company envisions comparable sales to be down low-to-mid-single digits, and anticipates total sales growth to be about 3 points higher than comps on account of square footage growth and also due to a 53rd week.
Gross margin is anticipated to deteriorate year over year during the third quarter as well as fiscal 2017.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the past month as none of them issued any earnings estimate revisions.
L Brands, Inc. Price and Consensus
L Brands, Inc. Price and Consensus | L Brands, Inc. Quote
VGM Scores
At this time, the stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
The Zacks Consensus Estimate for the current quarter moved down over the last 30 days. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are looking for a below average return from the stock in the next few months.