The L Brands Story Stays Uncertain

L Brands Inc LB's February sales and first-quarter 2017 guidance came in significantly below expectations. The tough start to the first quarter “adds additional uncertainty to LB story,” Wedbush’s Morry Brown said in a report. He maintained a Neutral rating on the company, while reducing the price target from $60 to $47.

Following the disappointing sales and guidance, there seem to be “more questions than answers” for L Brands in the near term, Brown commented. He wrote, “Both the VS [Victoria’s Secret] and BBW [Bath & Body Works] divisions have shown resilience to erratic mall traffic patterns in previous years, but current trends suggest less insulation.”

VS Weakness

L Brands cited several factors for the weak performance, including poor mall traffic, delayed tax refunds, unfavorable weather conditions and a calendar shift around Valentine's Day and Presidents Day. Brown noted, however, that the substantial sequential slowdown was “challenging to fully digest” and that this added medium-term uncertainty at Victoria’s Secret.

Related Link: L Brands Smoked On Lower Guidance

Guidance And Prospects

The company projected its Q1 EPS at $0.20–$0.25, significantly short of the consensus estimate of $0.49. The full-year guidance implies an improvement in performance in the back half of the year.

“The top-line headwind from the swim category exit at VS will clearly help optical SSS. But with trends in core go forward merchandise remaining choppy, we believe it will be challenging for investors to look through current challenges until they have evidence go forward performance is improving,” the analyst pointed out.

The EPS estimates for FY 2017 and 2018 have been reduced from $3.66 to $3.19 and from $3.92 to $3.12, respectively.

At last check, shares of L Brands were up 2.74 percent at $50.30.