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Here's How L Brands (LB) is Poised Ahead of Q4 Earnings

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L Brands, Inc. (LB - Free Report) is scheduled to release fourth-quarter fiscal 2019 results on Feb 26, after the closing bell. In the last reported quarter, the bottom line of this specialty retailer of women’s intimate and other apparel, beauty, and personal care products met the Zacks Consensus Estimate.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.81, suggesting a decline of 15.4% from the prior-year period. The consensus mark has been stable in the past 30 days. The same for revenues stands at $4,669 million, indicating a decline of 3.8% from the year-ago reported figure.

Key Factors to Note

L Brands’ Victoria’s Secret brand has been witnessing soft sales for quite some time now, on account of stiff competition and consumers’ changing preferences. Analysts have pointed out that incorrect merchandising actions and the company’s inability to keep up with its strong brand image have led to Victoria’s Secret’s failure. This has been weighing upon the company’s top-line performance.

This was quite visible from the company’s performance during the holiday season, which coincides with the fourth quarter. This Columbus, OH-based company posted net sales of $3.906 billion for the nine weeks ended Jan 4, 2020, reflecting year-over-year decline of 4.1%. Comparable sales fell 3% during the aforementioned time frame. We note that Victoria’s Secret segment’s comparable sales fell 12% during the November and December period.

Further, L Brands has been grappling with strained margins for the past few quarters. Management had earlier stated that occupancy costs on account of real estate initiative and direct fulfillment and sourcing costs will put pressure on gross margin in the final quarter.

The impact of aforementioned factors is likely to get reflected in the fourth-quarter results. Following a disappointing performance during the holiday season, L Brands slashed earnings per share view for the final quarter of fiscal 2019. The company now envisions earnings of $1.85 per share, down from the prior estimate of $2.00. This is in sharp contrast to earnings of $2.14 reported in the prior-year period.

Nevertheless, L Brands remains focused on cost containment, inventory management, and merchandise and speed-to-market initiatives. Further, its concerted efforts to tap international markets are likely to have offered some cushion. Apart from these, it has been benefitting from strength of its Bath & Body Works brand. The segment put up a stellar show with 9% jump in comparable sales during the holiday season.

L Brands, Inc. Price, Consensus and EPS Surprise
 

L Brands, Inc. Price, Consensus and EPS Surprise

L Brands, Inc. price-consensus-eps-surprise-chart | L Brands, Inc. Quote

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for L Brands this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

L Brands carries a Zacks Rank #4 (Sell) and Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Costco COST has an Earnings ESP of +0.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores (BURL - Free Report) has an Earnings ESP of +0.20% and a Zacks Rank #2.

Dollar Tree DLTR has an Earnings ESP of +1.00% and a Zacks Rank #3.

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