L Brands Beats in Q2 as Sales Rise, Raises Earnings Forecast - Analyst Blog

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L Brands, Inc. ( LB ) formerly known as Limited Brands, posted second-quarter fiscal 2014 earnings of 63 cents a share that came a penny ahead of the Zacks Consensus Estimate, and rose 3.3% from the prior-year quarter earnings of 61 cents on the back of higher sales. This prompted management to raise its full-year earnings projection.

This specialty retailer of women's intimate and other apparel, beauty and personal care products posted net sales of $2,675.3 million, up 6.3% from $2,516 million reported in the prior-year quarter, and beat the Zacks Consensus Estimate of $2,654 million. L Brands posted comparable-store sales growth of 3% during the quarter compared with 2% in the prior-year quarter.

Sales at Victoria's Secret Stores increased 6.4% to $1,363 million, whereas Victoria's Secret Direct sales fell 0.3% to $382.4 million. Total Victoria's Secret sales grew 4.8% to $1,745.4 million, while comps increased 3%. Bath & Body Works total sales jumped 5.5% to $704.7 million, with a 3% rise in comps. Victoria's Secret and Bath & Body Works International surged 71.3% to $79.3 million. Other revenues increased 6.9% to $145.9 million.

Gross profit for the quarter climbed 5.6% to $1,044.4 million, whereas gross margin contracted 30 basis points to 39%. Operating income increased 5.1% to $375.9 million, while operating margin shriveled 10 basis points to 14.1%.

Store Update

L Brands in the first-six months of fiscal 2014 has opened 22 Victoria's Secret Stores in total and closed 3 outlets, thereby taking the count to 1,113 stores. During the period, 11 Bath & Body Works stores were opened, while 9 stores were closed, taking the count to 1,640 stores. Two Victoria's Secret U.K. stores were opened, while 4 La Senza Canadian stores were closed, resulting in 7 and 153 stores, respectively. There were 29 Henri Bendel outlets at end of the first half. As of Aug 2, L Brands operated 2,942 stores.

Total franchised stores as of Aug 2 were 611, comprising 230 Victoria's Secret Beauty & Accessories, 8 Victoria's Secret International (Full Assortment), 66 Bath & Body Works International and 307 La Senza International.


Management now forecasts earnings in the range of 26 cents to 31 cents a share for the third quarter and between $3.03 and $3.18 per share for fiscal 2014, up from $3.00 to $3.15 forecast earlier.

The current projection includes the unfavorable impact of about 10 cents to 12 cents a share (3 cents to 4 cents for the third quarter) due to the exit from non-core categories in the Victoria's Secret direct and beauty operations. Management now intends to concentrate more on profitable zones.

The current Zacks Consensus Estimate for the third quarter and fiscal 2014 are 30 cents and $3.16 per share, respectively.

L Brands now anticipates low single-digit comp increase for the month of August.

Zacks Rank

Currently, L Brands holds a Zacks Rank #2 (Buy). Other stocks worth considering in the retail sector include Citi Trends, Inc. ( CTRN ) and The Men's Wearhouse, Inc. ( MW ) sporting a Zacks Rank #1 (Strong Buy) as well as Abercrombie & Fitch Co. ( ANF ) with a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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