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L Brands (LB) Up 25% in 3 Months: What's Driving the Rally?

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L Brands, Inc.’s (LB - Free Report) sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept it afloat in a competitive environment. Also, the company’s Bath & Body Works segment continues to drive the top line. Such efforts aided L Brands’ performance in the third-quarter fiscal 2018 and prompted management to raise fiscal 2018 earnings guidance.

Notably, impressive October and September comparable sales performance, better-than-expected earnings in the third quarter and announcement that management is exploring all possible alternatives for its sluggish La Senza business buoyed optimism on the stock.

In the past three months, shares of this Zacks Rank #2 (Buy) company have gained roughly 25% against its industry’s and S&P 500 index’s decline of 11.1% and 3.5%, respectively.



Factors Influencing the Stock

L Brands’ operational efficiencies together with its new and innovative collections bode well. Furthermore, the company’s focus on tapping international markets is likely to provide long-term growth opportunities and generate increased sales volumes.

Meanwhile, the company continues to revamp its business by improving store experience, localizing assortments and enhancing its direct business, such as integration of the same into Victoria’s Secret Lingerie, PINK and Victoria’s Secret Beauty. L Brands believes these measures will facilitate it to generate incremental sales and increase store transactions through higher conversion rate. Moreover, to drive growth, it seeks to expand in the adjacent categories.

Also, the company’s top line continues to improve, thanks to its Bath & Body Works segment. While sales at the segment increased 17%, comps rose 13% in the third quarter. Moreover, the company continues to witness solid performance across Bath & Body Works Direct channel, which grew sales by 31%. Management highlighted that merchandise assortments and remodeled stores, which include the White Barn store design, continues to be major drivers. L Brands now anticipates fourth-quarter comps to rise in the range of 1-4%, while sales are expected to be about 1-2 points higher than comps.

Although, Bath & Body Works segment posted solid performance during the third quarter, it was overshadowed by the company’s dismal performance at Victoria’s Secret. In fact, the company has been reeling under consumers’ changing preferences that continue to impact its Victoria’s Secret lingerie brand. Further, weakness in the Pink brand and gross margin contraction raises concern for the company.

Nevertheless, management increased its fiscal 2018 earnings per share guidance to $2.60-$2.80 from $2.45-$2.70. Impressive estimate revisions for the current and next fiscal bear the testimony of the same. For fiscal 2018 and 2019, the Zacks Consensus Estimate moved north by 13 cents and 12 cents to $2.66 and $2.70, respectively, over the past 30 days.

Looking for High-Performing Stocks? Check These

Boot Barn Holdings, Inc. (BOOT - Free Report) delivered average positive earnings surprise of 15.1% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Co. (ANF - Free Report) delivered average positive earnings surprise of 12.5% in the trailing four quarters and carries a Zacks Rank #2 (Buy).

Canada Goose Holdings Inc. (GOOS - Free Report) delivered average positive earnings surprise of 83.2% in the trailing four quarters. The company has a long-term earnings growth rate of 31.3% and a Zacks Rank #2.

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