We have maintained our Neutral recommendation on
L Brands, Inc.
), the specialty retailer of women's intimate and other apparel,
with a target price of $64.00. The stock currently carries a
Zacks Rank #3 (Hold).
We believe that Limited Brands' sustained focus on cost
containment, inventory management, merchandise, and
speed-to-market initiatives have kept it afloat in a sluggish
consumer environment. The company's foray into international
markets is likely to provide long-term growth opportunities.
Limited Brands commands a market leading position in the
lingerie, personal care and beauty segments. We believe that the
company's innovation in merchandise and exclusive assortments
remain popular among consumers and sets it apart from peers.
The company's strength was well evident from its third-quarter
fiscal 2013 results, wherein earnings of 31 cents a share came
ahead of the Zacks Consensus Estimate of 28 cents and rose 19%
from the prior-year period. The consumers, who cut back on their
discretionary spending during the recession, are now gradually
opening their wallets. Retailers are spending more on promotions
and coming up with lucrative discounts to drive traffic.
Limited Brands now forecasts earnings in the range of $1.67 to
$1.82 for the fourth quarter and between $3.07 and $3.22 per
share for fiscal 2013.
However, in the near-term, margins are likely to remain muted
on account of probable pressure on merchandise margins. Going
forward, management expects gross margins to shrivel year over
year both for the fourth quarter and fiscal 2013. Moreover, stiff
competition and erratic consumer behavior still remain major
causes of concern.
Given the pros and cons, risk and reward fairly balance each
Other Stocks to Consider
Other stocks worth considering in the retail sector includes
Deckers Outdoor Corp.
The Men's Wearhouse, Inc.
Finish Line Inc.
), all carrying a Zacks Rank #2 (Buy).
DECKERS OUTDOOR (DECK): Free Stock Analysis
FINISH LINE-CLA (FINL): Free Stock Analysis
L BRANDS INC (LB): Free Stock Analysis Report
MENS WEARHOUSE (MW): Free Stock Analysis
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