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L Brands Dismal Comparable Sales Run Continues to Hurt Stock

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L Brands, Inc. (LB - Free Report) continues to disappoint investors with dismal comparable sales performance for the eighth straight month. This specialty retailer of women’s intimate and other apparel, beauty and personal care products reported 7% drop in comps for the four-week ended Jul 29, 2017 following declines of 9%, 7%, 5%, 10%,13%, 4% and 1% in June, May, April, March, February, January and December, respectively. Moreover, net sales for July decreased 1.2% to $767.7 million.

Following disappointing comps results, the company’s shares tumbled 6.1% yesterday. In fact in the past six months, the stock has plunged 29.7%, wider than the industry’s fall of 19.5%.

L Brands’ comps declined 10% at Victoria’s Secret but increased 1% at Bath & Body Works. The exit from the swim and apparel categories had a 4 percentage points and 5 percentage points adverse impact on overall company and Victoria’s Secret comparable sales, respectively.

For the 13-week ended Jul 29, 2017, the company’s comps had declined 8%, while sales decreased 4.7% to $2.755 billion. The exit from the swim and apparel categories had a 6 percentage points and 9 percentage points adverse impact on overall company and Victoria’s Secret comparable sales, respectively.

Apart from L Brands, Costco Wholesale Corporation (COST - Free Report) , Zumiez Inc. (ZUMZ - Free Report) and The Buckle, Inc. (BKE - Free Report) came out with comparable sales results for the month of July. While comparable sales for Costco and Zumiez increased 6.2% and 5.1%, respectively, that of Buckle declined 8.4%.

Merchandise margins

Victoria’s Secret merchandise margin rate increased in July on account of the favorable impact of exiting non-core operations in the prior year and enhancement in the beauty business. The company announced that in August it will concentrate on new fashion in Body by Victoria Collection in the lingerie business and back to school in the Pink business.

However, in case of Bath & Body Works merchandise margin rate was down in July compared with last year. In August, the company will focus on new seasonal collections in body care, home fragrance, and soap and sanitizer business.

Outlook

L Brands expects comps to decline in low to mid-single digits in August. The exit from the swim and apparel categories would hurt the comps by 2%.

However, we believe that the company’s operational efficiencies, together with its new and innovative collections may help augment sales. Further, its foray into international markets is likely to provide long-term growth opportunities and generate increased sales volumes. Management now envisions second-quarter earnings to be at the high end of its earlier provided guidance range of 40–45 cents a share.

L Brands currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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