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Will Growth Catalysts Help L Brands Regain Momentum in 2019?

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L Brands, Inc.’s (LB - Free Report) sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiative bodes well for the company.  Also, operational efficiencies together with its new and innovative collections act as key catalysts. Furthermore, the company’s focus on tapping international markets is likely to provide long-term growth opportunities and generate increased sales volumes.

Moving on, the company continues to revamp its business by improving store experience, localizing assortments and enhancing its direct business by integrating the same into Victoria’s Secret Lingerie, PINK and Victoria’s Secret Beauty. We believe these measures will facilitate the company to generate incremental sales and increase store transactions through higher conversion rate.

These efforts have contributed meaningfully to the company’s consistent earnings record and robust outlook. L Brands’ third-quarter fiscal 2018 results marked its fourth straight quarter of positive earnings surprise. Moreover, the company’s solid top-line performance was driven by robust results at Bath & Body Works coupled with impressive comparable sales performance in November, October and September. This quarter also marked the sixth consecutive quarter of comps growth.

Management highlighted that merchandise assortments and remodeled stores, which include the White Barn store design, continue to be major drivers. L Brands now anticipates fourth-quarter comps to rise 1-4%. Sales are expected to be about 1-2 points higher than comps. Earnings per share are envisioned to be $1.90-$2.10 compared with $2.11 registered in the prior-year quarter.

However, L Brands has been reeling under consumers’ changing preferences that continue to impact its Victoria’s Secret lingerie brand. Further, weakness in the Pink brand has added to its woes. A dismal margins trend has also been a concern. Gross margin has shown constant deceleration in the past few quarters. Gross margin is expected to decline year over year during the fourth quarter, owing to a decrease in merchandise margin rate. Also, SG&A rate are anticipated to escalate in the final quarter, due to reclassification of Angel card income and the incremental wage investments.

We note that although shares of this Zacks Rank #2 (Buy) company have lost 8.8% in the past three months, it has outperformed the industry’s decline of 19.4%. That said, we are still hopeful of the above-mentioned strategies, which should help the company’s stock get back on growth trajectory while retaining the fundamental positives.


3 More Retail Stocks to Bank On

Boot Barn Holdings, Inc. (BOOT - Free Report) has long-term earnings growth rate of 23% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Company (ANF - Free Report) has long-term earnings growth rate of 12.5% and a Zacks Rank #1.

Burberry Group PLC (BURBY - Free Report) has long-term earnings growth rate of 23% and a Zacks Rank #2.

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