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L Brands April Comps Flat: 3 More Things You Should Know

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L Brands, Inc. (LB - Free Report) failed to continue with its comparable sales (comps) growth in the month of April. Comps for four-week ended May 5, were flat following an advancement of 4% in March, 3% in February and 7% in January. Sluggishness in Victoria's Secret brand hurt the company’s overall comps performance. An earlier Easter this year also dented comps by about 3 percentage points.

However, comps for the month under review fared far better than the prior-year period, when the metric declined 5%. Moreover, net sales rose 4% to $751.6 million during the month under review.  
While, comps fell 2% at Victoria’s Secret, the same at Bath & Body Works improved 6%. Moreover, Victoria’s Secret merchandise margin rate fell significantly in April, primarily due to higher promotional activities to boost traffic. However, in case of Bath & Body Works, merchandise margin rate was flat compared with last year.

Apart from April comps, L Brands reported first-quarter fiscal 2018 sales results. Net sales jumped 8% year over year to $2.626 billion, while comps improved 3% — reflecting an increase of 1% and 8% at Victoria’s Secret and Bath & Body Works brands, respectively.

Management now envisions first-quarter earnings to come in at the lower end of its previously provided guidance range of 15-20 cents a share. The Zacks Consensus Estimate for the quarter is pegged at 17 cents.

3 Things You Ought to Know

Stock Has Plummeted 34% in Six Months

Shares of L Brands came under pressure after the company provided soft first-quarter and fiscal 2018 view following fourth-quarter fiscal 2017 results.

Notably, shares of this Zacks Rank #4 (Sell) company have declined 34.4% in the past six months compared with the industry’s growth of 13.2%. The stock has also underperformed the Retail-Wholesale and the S&P 500 index that advanced 13.2% and 6.3%, respectively. Further, the stock is hovering close to its 52-week low of $30.70.

Lower Earnings Beat Probability

L Brands is slated to come out with first-quarter results on May 23. Our proven model does not conclusively show that L Brands is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

L Brands has an unfavorable combination of Zacks Rank #4 and an Earnings ESP of -7.57%, consequently making the surprise prediction difficult.

Margins Likely to Remain Under Pressure

Gross margin, an important financial metric, which gives an indication about the company’s health has shown constant deceleration in the past few quarters. In the first, second, third and fourth quarters of fiscal 2017, adjusted gross margin contracted 320, 120, 190 and 100 basis points to 37.1%, 37.3%, 37.8% and 42.3%, respectively, primarily on buying and occupancy expenditure deleverage in the quarter. Management had earlier forecast first-quarter fiscal 2018 gross margin rate to decline year over year due to fall in merchandise margin rate.

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