L Brands Could Be A Turnaround Story In 2019, Says Bullish Wells Fargo

L Brands Inc LB announced disappointing guidance Wednesday for the first quarter and full-year EPS.

Victoria's Secret delivered soft holiday performance and, given a lack of catalysts, could continue to face pressure through the first half of 2019, according to Wells Fargo.

L Brands reported fourth-quarter adjusted EPS of $2.14, beating a $2.07 estimate. Sales of $4.85 billion missed a $4.89-billion estimate. 

The Analyst

Wells Fargo’s Ike Boruchow maintains an Outperform rating on L Brands with an unchanged $42 price target.

The Thesis

Although L Brands continues to face fundamental challenges at the VS brand, there are “a few encouraging data points from this print,” Boruchow said in a Wednesday note. 

The apparel company is being proactive by planning accelerated VS store closures, with 53 planned for FY19 versus 30 closings in FY18, the analyst said. Capex will be directed toward technology improvements, he said. 

The international segment delivered a strong profitability improvement, with a 9.8-percent margin, Boruchow said. L Brands' commentary on China and Europe for 2019 was more optimistic, he said. 

L Brands has entered 2019 with lower inventory, which gives it a better starting point, the analyst said. While the latest release may not cause any near-term excitement among investors, it was unsurprising, he said. 

Although L Brands has been struggling with VS and has faced several internal and external headwinds, the company has initiated profit-preserving measures, Boruchow said. 

"There is reason to believe that LB has the makings of a turnaround story for 2019." 

Price Action

Shares of L Brands slipped slightly in pre-market trading to $26.35 on Thursday morning.

Related Links:

Goldman Sachs Out Bullish On L Brands, Takes Neutral Stance On Gap

What To Make Of L Brands' Q3, Leadership Change, Dividend Reduction

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