Despite the ailing Victoria Secret business, L Brands, Inc. (LB - Free Report) is in the green, backed by strength in its Bath & Body Works brand as well as” Go-Forward” strategy. Moreover, better-than expected results in second-quarter fiscal 2020 added charm to the stock.
Markedly, this specialty retailer’s stock has surged 79.4% over the last three months, compared with the industry’s rise of 29.2%.
We note that management is on track with making Bath & Body Works and Victoria’s Secret, as standalone companies. In addition to this, it is progressing well with expense management plans. Let’s delve deeper.
Focus on Bath & Body Works is Yielding
While L Brands’ Victoria Secret label has been in toils, the company’s Bath & Body Works’ segment performance has been commendable. The lineup witnessed total sales growth of nearly 13% during the second quarter of fiscal 2020, while comparable sales (stores and direct business) soared 123%. In fact, the brand’s direct channel sales performed remarkably, surging 191% in the said quarter.
Going ahead, management expects to keep gaining from the pent-up demand for hygiene products like soaps and sanitizers in this brand category. Body Care and Home Fragrance products have also been performing well. We note that the company, as part of its Go-Forward strategy, continues to be committed to make Bath & Body Works chain a “pure-play public company”.
Measures to Curb Costs are Encouraging
Progressing with its the Go-Forward strategy, during the second quarter, management concluded the comprehensive review of its home office organizations. This helped lower overhead expenses and decentralize significant shared corporate and other functions to create standalone companies. The measures resulted in reduction of about 15% of its corporate staff.
Such moves along with steps to improve Victoria’s Secret performance and contain costs in other business areas are likely to result in approximately $400 million of annualized cost reductions. Of the targeted cost reduction plan, the company anticipates to accomplish nearly $175 million in the remainder of fiscal 2020.
Other Notable Efforts
L Brands continues to revamp its business by improving store experience, localizing assortments and enhancing its direct business. It also remains committed to improve performance by staying customer-focused and enhancing online services.
Moreover, to improve Victoria’s Secret business, the company has undertaken measures such as lowering store selling costs through changes in the management structure, and negotiation for rent relief. Store optimization plan is also on the cards. On its last earnings call, the company highlighted that it shuttered 210 Victoria’s Secret stores in the United States and Canada. It is on track to close approximately 250 stores in the current fiscal. The company, in co-operation with suppliers, is identifying opportunities to lower merchandise costs in order to increase merchandise margin rates at Victoria’s Secret.
Wrapping up, we believe that this Zacks Rank #3 (Hold) company will continue to stay afloat, backed by prudent brand-management efforts coupled with expense-reduction moves.
Other Retail Stocks to Bet On
Target Corporation (TGT - Free Report) has an expected long-term earnings growth rate of 7.2% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sprouts Farmers Market (SFM - Free Report) has an expected long-term earnings growth rate of 9.2% and a Zacks Rank #2 (Buy).
Best Buy (BBY - Free Report) , also a Zacks Rank #2 stock, has long-term earnings growth rate of 8.5%.
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