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L Brands (LB) Ups Q1 Earnings View, Boosts Shareholder Returns

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Shares of L Brands, Inc. (LB - Free Report) surged nearly 9% on Mar 12, following its move to raise first-quarter fiscal 2021 earnings view alongside plans to bolster shareholder value and repay debt. The actions indicate that management is positive regarding the company’s performance in the forthcoming periods.

The company is pleased with its quarter-to-date performance, across both Bath & Body Works and Victoria’s Secret businesses. So far into the first quarter, the company has been witnessing strong sales and margins. Backed by such trends, management raised its expectations for the quarter. The company expects first-quarter earnings in the range of 55-65 cents per share, reflecting an increase from the earlier view in the band of 35-45 cents. The outlook excludes charges related to early repayment of debt. The Zacks Consensus Estimate for earnings in the first quarter is currently pegged at 45 cents per share. We note that the company reported a loss of 99 cents in the year-ago quarter.

Additionally, the company announced a new share repurchase program worth $500 million. This replaces exiting authorized program, under which it has $79 million remaining. The new buyback authorization includes the company’s entry into a Rule 10b5-1 repurchase plan to repurchase shares worth up to $250 million. This will allow the company to carry out share repurchases even at times when the company might be prevented to be doing so by securities law or self-imposed trading blackout periods. Further, the company reinstated its quarterly dividend worth 60 cents per share, effective June 2021.

Additionally, the company is executing the repayment of debt worth $1.035 billion, through a call for all $285 million of the outstanding bonds due Feb 15, 2022, and all $750 million of the outstanding secured bonds due Jul 1, 2025. The company issued this call on Mar 12, 2021, and anticipates using $1.1 billion in cash to complete the debt repayment.



Management highlighted that the company had taken a series of actions last year to improve financial efficacy and operations. These efforts supported the company’s performance during the third and fourth quarter of fiscal 2020, while enhancing liquidity as well as its cash position. The recent moves are an extension to the company’s commitment toward bolstering financial leverage as well as boost shareholder returns. This is likely to aid in better positioning the company for separation of its Bath & Body Works and Victoria’s Secret businesses in August.

In context of the separation, management is evaluating all options, including a spin-off of the Victoria’s Secret business into a public company or a private sale of the business. The strategy is expected to simplify the company’s organizational structure. Notably, L Brands has been undertaking several steps to restructure business and drive growth. In fact, the company’s sustained focus on cost containment, inventory management, merchandise and speed-to-market initiatives has kept it afloat in a competitive environment. Apart from these, the company continues to revamp its business by improving store experience, localizing assortments and enhancing its direct business.

We expect this Zacks Rank #1 (Strong Buy) company to continue reaping gains from its well-chalked strategic growth efforts. Shares of the company have surged 54.7% in the past three months compared with the industry’s rise of 29.3%.

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