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L Brands Reports Flat Comps in July, Updates Earnings View

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L Brands, Inc. (LB - Free Report) reported flat comparable sales (comps) for the four weeks ended Aug 4, 2018. Comps for the month under review fared far better than the prior-year period, when the metric declined 7%. Moreover, net sales rose 10.7% to $849.7 million during the month under review.

While, comps fell 4% at Victoria’s Secret, the same at Bath & Body Works improved 10%. Moreover, Victoria’s Secret merchandise margin rate fell significantly in July, primarily due to higher promotional activities to boost traffic. In case of Bath & Body Works, merchandise margin rate increased owing to less promotional activities and calendar shift of semi-annual sales days to June.

Apart from July comps, this Zacks Rank #3 (Hold) company reported net sales for second-quarter fiscal 2018 (ending Aug 4, 2018) that jumped 8.3% year over year to $2,983.8 million. During the quarter, sales at Victoria’s Secret and Bath and Body Works rose 4.8% and 12% to $1,724.8 million and $963.6 million, respectively. On the other hand, sales at VS & BBW International increased 27.7% to $145.4 million in the said quarter. Comps for the quarter improved 3% reflecting an increase of 10% at Bath & Body Works, which was offset by a decrease of 1% at Victoria’s Secret.

The company now expects second-quarter earnings to come in at the higher end of its previously provided guided range of 30-35 cents a share, which is down from 48 cents reported in the prior-year period. The Zacks Consensus Estimate for the quarter is pegged at 31 cents.

Earlier, management had lowered fiscal 2018 earnings per share view to a range of $2.70-$3.00 from $2.95-$3.25. In the year-ago period, the company reported earnings per share of $3.20. These downsides led the stock to decline 2.5% in the past three months, underperforming the industry’s growth of 10.3%.

Additionally, L Brands anticipates second-quarter and fiscal 2018 comps growth in low-single digits each. Further, gross margin, an important metric that shows a company’s financial health, has been constantly decelerating in the past few quarters. In the first quarter, gross margin contracted 120 basis points to 35.9% year over year and is expected to decline again in the second quarter.

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