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Bear of the Day: L Brands (LB)

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L Brands, Inc. LB continues to struggle as its key brand, Victoria's Secret, is under pressure from new brands and start-ups. This Zacks Rank #5 (Strong Sell) saw same-store-sales decline in the important holiday quarter.

L Brands operates 2,943 company-owned specialty retail stores in the United States, Canada, the UK, Ireland and Greater China under three brands: Victoria's Secret, Victoria's Secret PINK and Bath & Body Works. There are also about 700 franchise stores. L Brands also has e-commerce websites for Victoria's Secret and Bath & Body Works.

Holiday Sales Disappoint

On Jan 9, L Brands reported its fourth quarter, or holiday quarter, net sales which fell 4.1% to $3.906 billion from $4.072 billion a year ago.

Comparable store sales, one of retail's important metrics, fell 3% for the 9 week period. This is coming on the back of a positive 4% comp a year ago.

L Brands also guided earnings per share below its own prior guidance, at $1.85 versus the previous guidance of $2.00. This was also below consensus of $1.95.

Analysts Cut Full Year Estimates

Given the weak fourth quarter guidance, it's not surprising that analysts moved to lower Fiscal 2020 earnings estimates.

The Fiscal 2020 Zacks Consensus Estimate fell to $2.22 from $2.29 in the last week.

That's an earnings decline of 21.3% as the company made $2.82 last year.

5 analysts also lowered Fiscal 2021 earnings estimates pushing the Zacks Consensus Estimate down to $2.16 from $2.27. That's a further earnings decline.

L Brands has struggled the last few years.

Here is its 5 year price-to-consensus chart which shows that earnings have been on the decline for 5 years.

Is This a Buying Opportunity?

Shares hit 5-year lows in 2019 and have moved higher, but they're still down 24% over the last year and 76% over the last 5 years.

They're cheap, with a forward P/E of 8.9.

L Brands continues to pay its hefty dividend, currently yielding 6.1%.

But many still see competitors, such as American Eagle Outfitter's (AEO - Free Report) Aerie lingerie brand, as a threat.

Still others believe that Bath & Body Works should be spun-off.

Investors might want to wait on the sidelines until there's a plan. The company will report fourth quarter results on Feb 26.

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