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Factors Setting the Tone for L Brands (LB) in Q4 Earnings

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L Brands, Inc. (LB - Free Report) is slated to report fourth-quarter fiscal 2017 results on Feb 28. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 7.4%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

L Brands continues to revamp business by improving store experience, localizing assortments and enhancing direct business. These measures will facilitate it to generate incremental sales and increase store transactions through higher conversion rate. Additionally, the company’s foray into international markets is likely to provide long-term growth opportunities and generate increased sales volumes.

In fact, we believe that this specialty retailer of women’s intimate and other apparel, beauty and personal care products sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept it afloat in a competitive environment. This is evident from the company’s positive earnings surprise history. In the trailing four quarters, it has surpassed the Zacks Consensus Estimate by an average of 7.4%.

In the to-be-reported quarter, L Brands’ results are likely to be driven by stellar comparable sales (comps) performance in January, following a marginal increase witnessed in December. Comps for the five-week period (ended Feb 3, 2018) rose 7%, after registering an increase of 1% in the preceding month. Net sales in January surged 29.2% to $1,040 million as well.

Furthermore, in January monthly report, the company stated that it recorded net sales of $4,823.1 million in the fourth quarter of fiscal 2017, reflecting an increase of 7.4% from $4,489.5 million in the year-ago period.  Comparable sales also rose 2% in the same time period. L Brands now envisions fourth-quarter earnings to be approximately $2.05 per share, up from $2.00 projected earlier. The guidance includes the impact of tax reform legislation.

However, gross margin, which has declined sharply in the past few quarters, remains a major concern for investors. Management anticipates the metric to decrease year over year in the fourth quarter as well as fiscal 2017.

L Brands, Inc. Price, Consensus and EPS Surprise

What the Zacks Model Unveils

Our proven model shows that L Brands is likely to beat estimates this quarter as the stock has the right combination of two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen.

L Brands has an Earnings ESP of +0.41% and a Zacks Rank #3. This makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +0.06% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wolverine World Wide, Inc. (WWW - Free Report) has an Earnings ESP of +0.63% and a Zacks Rank of 2.

Macy's, Inc. (M - Free Report) has an Earnings ESP of +0.92% and a Zacks Rank #2.

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