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L Brands (LB) Q1 Earnings Top, Stock Down on Lowered Outlook

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L Brands, Inc. (LB - Free Report) came up with first-quarter fiscal 2018 results, wherein earnings of 17 cents per share outpaced the Zacks Consensus Estimate of 15 cents, though it slumped 48.5% year over year. Also, management lowered its guidance for fiscal 2018, which sent shares of this specialty retailer of women’s intimate and other apparel down 4.9% during yesterday’s after-market trading session.

L Brands, Inc. Price, Consensus and EPS Surprise
 

L Brands, Inc. Price, Consensus and EPS Surprise | L Brands, Inc. Quote

Further, we note that the company’s Victoria’s Secret chain has been bearing the brunt of consumers’ changing preferences, stiff competition and heavy discounts. These factors seem to have weighed on investors’ confidence, as this Zacks Rank #5 (Strong Sell) stock has tumbled close to 30% in the past three months, wider than the industry’s dip of 4.8%.



Moving back to L Brands’ first-quarter results, the company’s net sales advanced roughly 8% to $2,625.8 million. The figure was almost in line with the Zacks Consensus Estimate of $2,625.9 million. Furthermore, L Brands’ comparable sales (including direct sales) were up 3% in the quarter.  However, store-only comps decreased 2% year over year.

Sales at Victoria’s Secret Stores inched lower by 0.9% to $1,235.9 million, while Victoria's Secret direct sales were up 23.4% to $353.5 million. Total Victoria’s Secret sales rose 3.7% to $1,589.4 million, while comparable sales rose 1%.

Bath & Body Works’ total sales were up 12.2% to $760.4 million, with an 8% rise in comparable sales. Victoria’s Secret and Bath & Body Works International sales surged 30.8% to $135.1 million. Other revenues increased 15.3% to $140.9 million.

Gross profit grew 4.5% to $943.8 million, while gross margin reduced 120 basis points (bps) to 35.9%. Operating income plunged almost 26% to $154.8 million, with the operating margin contracting 270 bps to 5.9%.

Store Update

In the quarter under review, L Brands opened one Victoria’s Secret store and shuttered six outlets, taking the total count to 1,165 stores. In the same period, 13 Bath & Body Works stores were inaugurated and 11 were closed, which totaled to 1,696 stores. Further, the company had 60 Victoria’s Secret and Bath & Body Works International stores, 24 Henri Bendel stores and 124 La Senza stores (U.S. and Canada) at the end of the first quarter. As of May 5, 2018, L Brands operated 3,069 stores.

Management plans to open 125-153 total Victoria’s Secret and Bath & Body Works International stores (wholly owned and licensed) in fiscal 2018, with plans to shut down 32-44 stores. This will take the company’s total Victoria’s Secret and Bath & Body Works International store count to 760-800 stores. Also, L Brands intends to introduce and close 2 and 6 La Senza International stores, respectively, which will take its International count to 190 in fiscal 2018.

Total franchised stores as of May 5, 2018 were 830, comprising 237 Victoria’s Secret Beauty & Accessories, 37 Victoria’s Secret, six Pink, 188 Bath & Body Works and 192 La Senza stores. Also, the franchised stores include 163 and 7 Travel Retail stores of Victoria’s Secret Beauty & Accessories and Bath & Body Works, respectively.     

Other Financial Details

L Brands exited the quarter with cash and cash equivalents of $1,031.5 million, down from the prior-year quarter’s tally of $1,554.9 million. Long-term debt increased marginally to $5,718.6 million from $5,701.5 million a year ago. Shareholders’ deficit came in at $968.6 million.

For fiscal 2018, the company projects capital expenditures to range between $675 million and $700 million, down from $750 million projected earlier. Meanwhile, L Brands now anticipate free cash flow of $800 million in fiscal 2018, compared to the prior guidance of $900 million.

Guidance

Management issued guidance for second-quarter and lowered its view for fiscal 2018.

L Brands company anticipates second-quarter comps to rise in low-single digits. Further, gross margin is expected to decline year over year and SG&A costs are anticipated to escalate considerably as a percentage of sales. Earnings per share are envisioned in the range of 30-35 cents per share versus 48 cents recorded in the year-ago quarter.
    
For fiscal 2018, the company now envisions comps to be up low-single digits. Earlier, management projected the same to increase in the 2-4% range. Gross margin rate is now likely to decrease year over year, whereas it was anticipated to remain flat before. Also, SG&A costs are expected to increase year over year. All said, management lowered its fiscal 2018 earnings per share guidance from a range of $2.95-$3.25 to $2.70-$3.00. In the year-ago period the company posted earnings of $3.20 per share.

Analysts polled by Zacks anticipate earnings per share of 42 cents and $2.99 for second-quarter and fiscal 2018, respectively    .

Unsure About L Brands? Check These 3 Retail Stocks

Urban Outfitters (URBN - Free Report) delivered an average positive earnings surprise of 19.8% in the trailing four quarters. It has a long-term earnings growth rate of 12% and carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy (BBY - Free Report) delivered an average positive earnings surprise of 19.1% in the trailing four quarters. It has a long-term earnings growth rate of 14.6% and carries a Zacks Rank #2.

Fossil Group (FOSL - Free Report) delivered an average positive earnings surprise of 54.1% in the trailing four quarters and carries a Zacks Rank #2.

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