Bath & Body Works Parent Company Soars On Strong Q3 Earnings

While L Brands Inc’s LB Bath & Body Works has benefited from the pandemic, the performance of Victoria's Secret is “not getting incrementally worse,” according to Jefferies.

L Brands reported quarterly earnings of $1.13 per share, which may not compare to the consensus estimate of 9 cents. The company reported quarterly sales of $3.06 billion, which beat the analyst consensus estimate of $2.67 billion.

The L Brands Analyst: Jefferies analyst Randal Konik upgrades L Brands from Underperform to Hold and announces $33 price target.

The L Brands Thesis: With heightened focus on personal hygiene during the pandemic, the penetration of the soap and sanitizer category, which typically accounts for around 20% of Bath & Body Works’ sales, has grown, Konik said. This is boosting revenue and increasing the potential for store visits as well as the potential for larger basket size, which can help drive comps higher.

Earnings of L Brands seems to have bottomed, going from $4 per share to $1 per share or less, with a sharp decline in the sales and margins of Victoria's Secret, Konik said. Earnings of L Brands are unlikely to decline further, as recent trends indicate that “VS sales remain difficult but appear to have reached (or near) a Covid bottom” and “BBW trends have stayed strong and profitability has risen.”

Thirdly, the company has taken initiatives to improve liquidity. As their fourth reason for the upgrade, analysts said that the management team is “100% committed to the separation event, which means the market is only focused on what happens to BBW now.”

Lastly, Konik wrote, “Over the past month (long for LB), investors have been adding long positions to value stocks and trimming exposure to growth-oriented retail. This rotation would only help LB shares.”

LB Price Action: Shares of L Brands spiked by 14.6% to $38.62 at publication time.