L Brands (LB) Beats on Q3 Earnings as Sales Rise, Ups View
L Brands, Inc. (LB) posted third-quarter fiscal 2014 earnings of 44 cents a share that surpassed the Zacks Consensus Estimate of 40 cents and surged 42% from the prior-year earnings of 31 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 $2,318.9 million, up 6.8% from $2,171.1 million reported in the prior-year quarter, and ahead of the Zacks Consensus Estimate of $2,315 million. L Brands posted comparable-store sales (comps) growth of 5% during the reported quarter, compared with 3% in the prior-year period.
Sales at Victoria’s Secret Stores increased 6.7% to $1,177.6 million, whereas Victoria's Secret Direct sales grew 2.2% to $274.7 million. Total Victoria’s Secret sales grew 5.8% to $1,452.3 million, while comps increased 3%. Bath & Body Works’ total sales jumped 8.7% to $659.4 million, with a 7% rise in comps. Victoria’s Secret and Bath & Body Works International’s sales soared 33.8% to $80 million. Other revenues decreased 3.3% to $127.2 million.
Gross profit climbed 10.5% to $946.4 million, whereas gross margin expanded 130 basis points to 40.8%. Operating income grew 34.6% to $284.1 million, while operating margin increased 260 basis points to 12.3%.
Store Update
In the first nine months of fiscal 2014, L Brands opened 47 Victoria’s Secret Stores in total and closed 5 outlets, thereby taking the count to 1,136 stores. During the period, 23 Bath & Body Works stores were opened, while 12 stores were closed, taking the count to 1,649 stores. Four Victoria’s Secret U.K. stores were opened, while 9 La Senza Canadian stores were closed, resulting in 9 and 148 stores, respectively. There were 29 Henri Bendel outlets at the end of the nine-month period. As of Nov 1, L Brands operated 2,971 stores.
Total franchised stores as of Nov 1, were 588, comprising 245 Victoria's Secret Beauty & Accessories, 8 Victoria’s Secret International (Full Assortment), 67 Bath & Body Works International and 268 La Senza International stores.
Guidance
Management now forecasts earnings in the range of $1.61–$1.71 per share for the fourth quarter and between $3.21 and $3.31 per share for fiscal 2014, up from $3.03 to $3.18 forecast earlier.
The current full-year projection includes the unfavorable impact of about 10–12 cents a share 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 fourth quarter and fiscal 2014 are $1.75 and $3.30 per share, respectively.
Zacks Rank
Currently, L Brands holds a Zacks Rank #2 (Buy). Other stocks worth considering in the retail sector include American Eagle Outfitters, Inc. (AEO), Bebe Stores, Inc. (BEBE) and Pacific Sunwear of California Inc. (PSUN), all carrying a similar Zacks Rank as L Brands.
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Read the Full Research Report on PSUN
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