L Brands, Inc. (LB - Free Report) recently revealed intentions to close all 23 Henri Bendel stores as well as Henri Bendel e-commerce website. Management hinted that the move is aimed at improving the company’s performance and creating shareholders’ value.
The company’s store closure plan includes Fifth Avenue and smaller-format stores in 11 states. The company also informed that Henri Bendel brand is likely to generate revenues worth approximately $85 million, while it is expected to incur operating loss of roughly $45 million in fiscal 2018.
These stores and website will remain operational through January 2019. Management also stated that associates remaining with the firm through January will be offered support in the form of bonuses, reallocation, separate pay and job search.
Will Efforts Aid Revival?
L Brands’ move to shut Henri Bendel operations indicates the company’s strategy to focus on other productive opportunities, especially the larger brands. This is likely to fuel efficiency and aid profitability. Apart from this the company has been engaged in cost containment, inventory management and speed-to-market initiatives.
However, this Zacks Rank #4 (Sell) company has been navigating through rough waters for a while now, thanks to weak Victoria’s Secret. The Victoria’s Secret lingerie brand has been losing its footing in the market due to stiff competition, heavy discounts as well as consumers’ changing preferences. Moreover, softness in lingerie and loungewear has been hurting the Pink brand.
To add to the troubles, L Brands’ gross margin has been declining lately. Gross margin is expected to decline year over year during third-quarter fiscal 2018, thanks to a fall in merchandise margin rate as well as buying and occupancy expense deleverage. Also, SG&A costs are anticipated to escalate considerably as a percentage of sales in the third quarter and likely to increase year over year in fiscal 2018.
Well, all of these compelled management to trim full-year view. These deterrents were more than enough to hurt investors’ sentiments. We note that this Zacks Rank #4 (Sell) company’s stock plunged 23%, against the industry’s rise of 2.3% in the past three months.
Wrapping it up, although we expect L Brands’ strategy to shut Henri Bendel operations will prove to be prudent in the long run, its near-term impacts are not encouraging. In fact, the company’s predictions of an operating loss, stemming from this closure for fiscal 2018, is likely to dent the company’s overall profitability.
That said, we suggest you to maintain a safe distance from the stock, until these efforts start yielding. Meanwhile investors may consider the following stocks from the same sector.
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Urban Outfitters (URBN - Free Report) , with a Zacks Rank #2 (Buy), has a long-term earnings per share (EPS) growth rate of 12%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..
Burlington Stores, Inc. (BURL - Free Report) , also carrying a Zacks Rank #2, has long-term EPS growth rate of 20.2%.
Target Corp. (TGT - Free Report) , with a long-term EPS growth rate of 6.7%, carries a Zacks Rank #2.
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